Primary agricultural credit society deduction upheld where State-law classification controls eligibility under the income-tax exemption regime.

A primary agricultural credit society classified as such under the Kerala Co-operative Societies Act, 1969 was treated as eligible for deduction under section 80P(2) of the Income-tax Act despite the section 80P(4) bar. The Tribunal followed binding jurisdictional High Court precedent that, once the competent State authority has classified the society as a primary agricultural credit society and it provides credit facilities to members, income-tax authorities cannot re-examine that status contrary to the State-law classification. On that basis, the deduction was upheld as allowable.

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Issues: Whether 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 despite the bar in section 80P(4).

Analysis: The assessee was classified as a primary agricultural credit society by the competent authority under the Kerala Co-operative Societies Act, 1969 and was providing credit facilities to its members. The Tribunal followed the jurisdictional High Court's ruling that such societies, when so classified under the State law, are entitled to the benefit of deduction under section 80P(2) and that the income-tax authorities cannot re-examine the matter contrary to that classification. Applying that binding precedent, the Tribunal found no error in the Commissioner of Income-tax (Appeals)'s direction to allow the deduction.

Conclusion: The issue was decided against the Revenue and in favour of the assessee; the deduction under section 80P(2) was held allowable.

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