Primary agricultural credit society status protected the section 80P deduction, despite the Revenue's attempt to reclassify the entity.

A primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969 was held entitled to deduction under section 80P(2) of the Income-tax Act, 1961 because its statutory classification as a primary agricultural credit society was treated as binding for tax purposes. The Revenue could not deny the deduction by re-characterising it as a co-operative bank or by disputing its agricultural credit character, and the authority relied on by the Revenue was distinguished on facts. The Tribunal also held that section 80P(4) did not withdraw the benefit on these facts, and the assessee's claim succeeded.

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Issues: Whether the assessee, a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969, was entitled to deduction under section 80P(2) of the Income-tax Act, 1961, and whether the Revenue could deny the deduction on the ground that the assessee was functioning as a co-operative bank or was not sufficiently engaged in agricultural credit activities.

Analysis: The assessee was registered and classified by the competent co-operative authority as a primary agricultural credit society. The jurisdictional High Court authority on the subject was followed, which treated such classification as binding for the purpose of section 80P, and held that the income-tax authorities could not probe behind the status so certified. The decision relied upon by the Revenue on the Supreme Court ruling concerning a credit co-operative society was distinguished on facts, because that case involved deposits from nominal members treated as non-members and activity inconsistent with the statutory regime there considered. Under the Kerala Co-operative Societies Act, 1969, nominal members are included within the statutory definition of member, and the Revenue did not establish that credit facilities were extended to outsiders. The Tribunal also held that section 80P(4) did not take away the benefit available to a primary agricultural credit society on these facts.

Conclusion: The assessee was entitled to deduction under section 80P(2) of the Income-tax Act, 1961, and the Revenue's challenge failed.

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