Deduction for interest on surplus co-operative society funds upheld where deposits were business-linked and consistency applied.

Interest earned by a credit co-operative society on surplus funds placed with co-operative and scheduled banks was treated as attributable to its business activity, not as income from other sources, so it qualified for deduction under section 80P(2)(a)(i). The analysis notes that the deposits were from surplus funds, not amounts due to members or liabilities owed to them, and relies on prior authorities supporting deduction in such circumstances. It also applies consistency, observing that the Revenue had accepted the same position in earlier years and should not depart from that view absent a change in facts. The disallowance was therefore set aside in favour of the assessee.

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Issues: Whether interest earned by a credit co-operative society on surplus funds deposited with banks was taxable as income from other sources or qualified for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The assessee was engaged in providing credit facilities to its members, and the surplus funds were placed in co-operative banks and scheduled banks. The impugned interest arose from such deposits and, on the facts recorded, was treated by the Court as income attributable to the assessee's business activity rather than income from other sources. The Court relied on earlier binding and persuasive authorities holding that, where surplus funds of a co-operative society are invested and the interest is not on amounts due to members or on liabilities owed to members, the receipt can qualify for deduction under section 80P(2)(a)(i). The Court also noticed that the Revenue had accepted the same position in earlier assessment years, applying the principle of consistency and finality of an accepted factual-legal position.

Conclusion: The interest income was held eligible for deduction under section 80P(2)(a)(i), and the disallowance was set aside in favour of the assessee.

Ratio Decidendi: Interest earned by a credit co-operative society on surplus funds, where the deposits are not amounts due to members or liabilities owed to members, is attributable to the society's business and qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; a consistently accepted position on identical facts should not be departed from without a change in circumstances.

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