Primary agricultural credit society status supports section 80P deduction where State-law classification governs eligibility.

Primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969 were treated as entitled to deduction under section 80P(2) because competent authority classification and the bye-laws showed that their principal object was to provide agricultural credit to members. Following the jurisdictional High Court precedent, the income-tax authorities could not independently re-examine that State-law status to deny the deduction merely by invoking section 80P(4). The disallowance was therefore unsustainable, and the deduction under section 80P(2) was allowed.

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Issues: Whether primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969 were entitled to deduction under section 80P(2) of the Income-tax Act, 1961 despite the bar in section 80P(4).

Analysis: The assessee societies were found to be classified by the competent authority as primary agricultural credit societies and their bye-laws and registration materials showed that their principal object was to provide agricultural credit to members. The jurisdictional High Court precedent held that, once such classification under the State law was established, the income-tax authorities could not re-examine that status independently for the purpose of denying the deduction. On that basis, the denial of deduction under section 80P(2) was unsustainable.

Conclusion: The assessees were entitled to deduction under section 80P(2), and the disallowance confirmed by the CIT(A) was set aside.

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