Bank interest from operational funds can qualify as business income for cooperative society deduction under income tax law.

Interest earned by a credit co-operative society from deposits with nationalised banks was treated as business income where the funds were operational surplus kept for liquidity and business requirements. Applying earlier Tribunal decisions, the income retained its business character and qualified for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. No contrary binding precedent was shown to disturb that settled position, so the society was held entitled to the deduction on the bank interest.

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Issues: Whether a credit co-operative society is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on interest earned from deposits with nationalised banks.

Analysis: The assessee was engaged in providing credit facilities to its members and had placed funds in bank deposits to maintain liquidity and meet business requirements. The issue was examined in light of earlier Tribunal decisions consistently holding that, where such deposits arise from operational funds and are maintained in the course of the society's business, the resulting interest retains the character of business income eligible for deduction under section 80P(2)(a)(i). No contrary binding precedent was brought to displace that settled view.

Conclusion: The assessee is entitled to deduction under section 80P(2)(a)(i) on the interest earned from deposits with nationalised banks.

Ratio Decidendi: Interest earned by a credit co-operative society from bank deposits kept out of operational funds for business liquidity purposes qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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