Co-operative society deduction under Section 80P upheld despite associate members and non-agricultural loans.

The Madras HC held that co-operative societies carrying on lending and deposit activities within a limited area remained eligible for deduction under Section 80P(2)(a)(i), even though they had associate or class B members who were not voting members and who availed loans for non-agricultural purposes. The Court rejected the Revenue's attempt to restrict "members" to voting members alone, treating that reading as an impermissible classification within classification. It also held that the existence of associate members did not by itself convert the societies into co-operative banks, and Section 80P(4) did not operate to deny the deduction on the facts presented.

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Issues: Whether the assessees, being co-operative societies with associate or class B members who were not voting members and who availed loans for non-agricultural purposes, were entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961 in view of Section 80P(4).

Analysis: The societies' lending and deposit activities were confined to their members within a limited geographical area, and the existence of class B or associate members did not by itself convert them into co-operative banks. The definition of member under the State Co-operative Societies Act included associate members, and the Revenue's attempt to confine the expression "members" in Section 80P(2)(a)(i) only to voting members was treated as an impermissible classification within classification. The Court also relied on its earlier decision holding that such credit co-operative societies remained eligible for the statutory deduction and that the restriction in Section 80P(4) did not apply to deny the benefit on the facts presented.

Conclusion: The assessees were held entitled to deduction under Section 80P(2)(a)(i), and the Revenue's challenge failed.

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