Section 80P deduction for co-operative credit society upheld despite deposits from nominal members and surplus fund investments.

A co-operative credit society providing credit facilities to its members remained eligible for deduction under section 80P because the bar in section 80P(4) applies to co-operative banks, not to every co-operative credit society. Acceptance of deposits from nominal members and investment of surplus funds with co-operative banks or other banks did not convert the society into a co-operative bank. Interest earned on surplus funds placed with co-operative banks was also treated as deductible. The disallowance made by the Assessing Officer was therefore not sustainable.

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Issues: Whether a co-operative credit society engaged in providing credit facilities to its members was entitled to deduction under section 80P, and whether section 80P(4) barred the claim merely because the society had accepted deposits from nominal members and invested surplus funds with co-operative banks or other banks.

Analysis: The society was registered as a co-operative society and carried on the activity of providing credit facilities to members. The exclusion in section 80P(4) applies to co-operative banks, not to every co-operative credit society. Applying the distinction between a co-operative bank and a co-operative credit society, and following the view that the definition of member under the Maharashtra Co-operative Societies Act includes nominal and associate members, the society could not be treated as a co-operative bank merely because it accepted deposits or advanced loans in the manner noted by the lower authorities. The interest earned on surplus funds placed with co-operative banks was also considered eligible for deduction under section 80P.

Conclusion: The assessee was entitled to deduction under section 80P, and the disallowance made by the Assessing Officer was not sustainable.

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