Section 80P deduction for primary agricultural credit societies depends on State classification, not a fresh tax inquiry.

Primary agricultural credit societies classified by the competent authority under the Kerala Co-operative Societies Act, 1969 are entitled to deduction under Section 80P(2) of the Income-tax Act, 1961, and income-tax authorities cannot reopen that classification for tax purposes. The note distinguishes Citizens Co-operative Society Ltd. on the basis that it concerned lending and deposits with nominal members in a manner inconsistent with the applicable cooperative law, whereas nominal members are recognised under the Kerala Act. It also states that the Banking Regulation Act does not displace the statutory status of such societies for Section 80P relief.

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Issues: Whether primary agricultural credit societies registered and classified under the Kerala Co-operative Societies Act, 1969 were entitled to deduction under Section 80P(2) of the Income-tax Act, 1961, and whether the decision in Citizens Co-operative Society Ltd. applied to deny such relief.

Analysis: The assessee societies were undisputedly registered as primary agricultural credit societies under the Kerala Co-operative Societies Act, 1969. The jurisdictional High Court in Chirakkal Service Co-operative Bank Ltd. had held that once a society is so classified by the competent authority under the State Act, the income-tax authorities cannot go behind that classification and the society is entitled to deduction under Section 80P(2). The order further noted that the decision in Citizens Co-operative Society Ltd. was distinguishable because that case involved deposits and lending to nominal members and activities found to be inconsistent with the relevant cooperative law, whereas under the Kerala Act nominal members are recognised as members. The order also accepted that the Banking Regulation Act did not displace the statutory status of such societies as primary agricultural credit societies for the purpose of Section 80P.

Conclusion: The assessee societies were entitled to deduction under Section 80P(2), and the Revenue's challenge failed.

Ratio Decidendi: A society classified as a primary agricultural credit society by the competent State authority is entitled to deduction under Section 80P(2), and the income-tax authorities cannot re-examine that classification unless the statutory facts establishing eligibility are shown to be different.

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