Deduction under section 80P for primary agricultural credit societies upheld where state classification and membership rules control eligibility.

A primary agricultural credit society registered under the Kerala State Co-operative Societies Act, 1969 was treated as entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act because the Registrar's certificate supported that classification, and the Income-tax authorities could not go behind it. The jurisdictional High Court ruling in Chirakkal was applied to confirm eligibility under section 80P(2), while the Supreme Court decision in Citizens Co-operative Society Ltd. was distinguished on facts because it concerned deposits from nominal members treated as non-members under a different State law. The Tribunal also noted that the Banking Regulation Act, 1949 did not justify denial of the claim. The Revenue's challenge failed.

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Issues: Whether a primary agricultural credit society registered under the Kerala State Co-operative Societies Act, 1969 was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and whether the denial of deduction on the basis of section 80P(4) and the decision of the Supreme Court in Citizens Co-operative Society Ltd. applied to the assessee.

Analysis: The assessee was found to be a primary agricultural credit society registered under the Kerala State Co-operative Societies Act, 1969, and the certificate issued by the Registrar supported that classification. The jurisdictional High Court decision in Chirakkal held that a society so classified is entitled to deduction under section 80P(2) of the Income-tax Act, 1961, and the authorities under the Income-tax Act cannot go behind that classification. The Supreme Court decision in Citizens Co-operative Society Ltd. was distinguished because it dealt with a different factual situation involving deposits from nominal members treated as non-members under the relevant State law, whereas under the Kerala statute nominal members are included within the definition of member. The Tribunal also noted that the Banking Regulation Act, 1949 does not apply to primary agricultural credit societies in the manner contended by the Revenue for denying the claim.

Conclusion: The assessee was held entitled to deduction under section 80P(2)(a)(i), and the Revenue's challenge to the allowance of the claim failed.

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