Bank interest from surplus cooperative credit funds can qualify for deduction when income is attributable to member lending activity.

Interest earned by a co-operative credit society on deposits placed with SBI and other nationalised banks was treated as attributable to its credit business where the surplus funds arose from that business activity, so the Tribunal held the income could qualify for deduction under section 80P(2)(a)(i). The Tribunal followed cited precedents and rejected the Revenue's contention that such bank interest must fall outside the deduction provision. Relief was confined to the deduction claim originally made in the return, and the disallowance was set aside.

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Issues: Whether interest income earned by a co-operative credit society from deposits with SBI and other nationalised banks is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The Tribunal followed the cited judicial precedents holding that, where the surplus funds invested in banks originate from the society's business activity of providing credit facilities to its members, the interest income retains the character of income attributable to that activity. The Tribunal rejected the Revenue's view that such interest necessarily falls outside the scope of section 80P(2)(a)(i), and also limited the allowance to the original deduction claim made in the return.

Conclusion: The assessee is entitled to deduction under section 80P(2)(a)(i) on interest earned from deposits with SBI and nationalised banks, and the disallowance was set aside.

Final Conclusion: The appeals were allowed and the assessee obtained relief on the disputed deduction claim.

Ratio Decidendi: Interest earned on deposits made from surplus funds arising out of a co-operative society's credit business can remain attributable to that business and qualify for deduction where the statutory expression used is "attributable to".

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