Interest on temporary bank deposits may qualify as business income attributable to a co-operative credit society's lending activity.

Interest income earned on temporary bank deposits of surplus business funds by a co-operative credit society may retain its character as income attributable to the business of providing credit facilities to members, supporting deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961. Section 80P is treated as a beneficial provision for co-operative societies, and the expression "attributable to" is applied more broadly than "derived from". Depositing surplus funds with a bank, where done for safe custody and not as an activity alien to the credit business, does not by itself destroy the business character of the receipts.

---

---

Issues: Whether interest income earned on bank deposits by a co-operative credit society is eligible for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The dispute turned on whether the interest earned from temporary deposits of surplus business funds retained for safe custody retained the character of income attributable to the business of providing credit facilities to members. The reasoning accepted that Section 80P is a beneficial provision intended to promote co-operative societies and that the expression "attributable to" is wider than "derived from". It also distinguished interest earned from surplus funds parked temporarily from income arising from an activity wholly alien to the assessee's credit business, and declined to treat the deposit of such funds with a bank as destroying the business character of the receipts. The contrary view based on investment with a non-co-operative bank was rejected on the facts of the case.

Conclusion: The interest income from the bank deposits was held eligible for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961, in favour of the assessee.

---