Co-operative society interest income linked to business funds remains deductible, and nominal member transactions do not defeat the claim.

Interest earned by a credit co-operative society on bank deposits placed from business-linked surplus funds was treated as attributable to its credit-facility business and not as income from other sources, preserving eligibility for deduction. Income from transactions involving nominal members did not, by itself, defeat the claim where there was no dealing with non-members. Applying the settled principle on Section 80P, the Tribunal allowed the deduction and set aside the disallowance of the impugned income.

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Issues: Whether interest earned on deposits made out of surplus funds and income earned from transactions involving nominal members were eligible for deduction under Section 80P of the Income-tax Act, 1961.

Analysis: The assessee was a credit co-operative society carrying on the business of providing credit facilities to its members. The interest earned on deposits placed in banks from funds connected with its business was treated as attributable to that business and not as income from other sources. The Tribunal also noted that income derived from transactions with nominal members did not, by itself, disqualify the assessee from deduction where there was no transaction with non-members. The decision followed the settled principle that such interest income remains connected with the business of providing credit facilities to members and is eligible for deduction under Section 80P.

Conclusion: The deduction under Section 80P was allowed to the assessee, and the disallowance of the impugned interest income and related claim was set aside.

Final Conclusion: The assessee succeeded in appeal and was held entitled to the claimed deduction on the qualifying income.

Ratio Decidendi: Interest earned by a co-operative society engaged in providing credit facilities to members, when derived from deposits linked to its business funds, is attributable to that business and remains eligible for deduction under Section 80P; transactions involving nominal members do not, by themselves, defeat the claim where there is no dealing with non-members.

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