Co-operative society deduction turns on statutory membership, not Class-A/Class-B labels or voting status.

A primary agricultural co-operative credit society was held entitled to the deduction for income from credit facilities extended to Class-B or associate members, because the governing Tamil Nadu Co-operative Societies Act treated associate members as members. The denial based solely on the distinction between Class-A and Class-B, or voting and non-voting status, was rejected as inconsistent with the deduction provision. The exclusion for co-operative banks did not apply on the facts, and the restriction could not be read to deny deduction where borrowers fell within the statutory concept of members. The disallowance was therefore unsustainable.

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Issues: Whether a primary agricultural co-operative credit society is entitled to deduction for income from credit facilities extended to Class-B or associate members, and whether such members can be treated as members for the purpose of the deduction provision.

Analysis: The society was governed by the Tamil Nadu Co-operative Societies Act, 1983, under which the definition of member includes an associate member. The denial of deduction rested only on the distinction between Class-A and Class-B members, but the deduction provision was held to apply once the borrowers fall within the statutory concept of members under the governing State law. The exclusion for co-operative banks was not attracted on the facts, and a restrictive classification between voting and non-voting members was found impermissible in the context of the deduction.

Conclusion: The society was entitled to the deduction and the disallowance was unsustainable.

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