Nominal membership and interest from co-operative bank deposits did not bar section 80P deductions for the assessee.

Nominal membership did not, by itself, defeat eligibility for deduction under section 80P(2)(a)(i) where the co-operative society otherwise satisfied the statutory conditions, so the disallowance was unsustainable. Interest income from deposits placed with co-operative banks was also held deductible under section 80P(2)(d), as such banks were treated as co-operative societies for that provision and the income was linked to temporarily parked surplus funds. On both issues, the assessee's claims were allowed and the full claim for section 80P benefits was upheld.

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Issues: Whether the presence of nominal members disentitled the assessee to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; and whether interest income earned from deposits with co-operative banks was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Issue (i): Whether the presence of nominal members disentitled the assessee to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The presence of nominal members, by itself, does not take away the benefit of deduction where the assessee otherwise satisfies the statutory conditions for a co-operative society. The governing principle applied was that nominal membership does not automatically negate eligibility under section 80P(2)(a)(i).

Conclusion: The disallowance under section 80P(2)(a)(i) was not sustainable and the claim was allowed in favour of the assessee.

Issue (ii): Whether interest income earned from deposits with co-operative banks was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: Co-operative banks were treated as co-operative societies for the purpose of section 80P(2)(d), and interest earned from deposits placed with such entities was held to qualify for deduction. The interest was also regarded as income attributable to the assessee's business activity in the context of surplus funds temporarily parked with the co-operative bank.

Conclusion: The disallowance under section 80P(2)(d) was not sustainable and the claim was allowed in favour of the assessee.

Final Conclusion: The assessee was held entitled to both deductions claimed under section 80P, and the appeal succeeded in full.

Ratio Decidendi: Nominal membership does not by itself defeat eligibility under section 80P(2)(a)(i), and interest earned from deposits with co-operative banks qualifies for deduction under section 80P(2)(d) when such banks are treated as co-operative societies for the purpose of the provision.

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