Co-operative society deduction under section 80P cannot be denied merely because loans were given to associate members.

A primary agricultural co-operative credit society was treated as entitled to deduction under section 80P(2)(a)(i) for credit facilities extended to associate or B class members. The Tribunal noted that section 2(16) of the Tamilnadu Co-operative Societies Act, 1983 recognises such persons as members for the relevant purpose, and that the beneficial nature of section 80P(2)(a)(i) did not permit a further classification between members to deny relief. The Revenue failed to show any distinguishing factual basis, so the deduction could not be refused merely because the loans were advanced to associate or B class members.

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Issues: Whether the assessee, a primary agricultural co-operative credit society, was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of credit facilities extended to associate or B class members.

Analysis: The assessment had been framed under section 143(3) read with section 147 of the Income-tax Act, 1961 and the Revenue had invoked section 80P(2)(a)(i) along with section 80P(4) on the ground that loans were advanced to nominal or associate members. The Tribunal noted that section 2(16) of the Tamilnadu Co-operative Societies Act, 1983 treated associate or B class members as members for the relevant purpose. As the deduction provision under section 80P(2)(a)(i) is a beneficial provision, the Tribunal held that no further classification could be introduced between members for denying the deduction. The Revenue was unable to show any distinguishing factual basis.

Conclusion: Deduction under section 80P(2)(a)(i) could not be denied merely because credit facilities were extended to associate or B class members, and the assessee succeeded on the substantive issue.

Ratio Decidendi: For the purpose of section 80P(2)(a)(i), members recognised as such under the governing co-operative societies law cannot be further subdivided to deny deduction on the basis of member classification.

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