Primary agricultural credit society deduction upheld where State-law classification and membership structure supported eligibility.

A primary agricultural credit society registered and classified under the Kerala Co-operative Societies Act was treated as eligible for deduction under section 80P(2)(a)(i), because income-tax authorities could not re-examine its statutory status in a manner inconsistent with the State-law classification. The Tribunal distinguished Citizen Co-operative Society Ltd. on the facts, noting that that case involved nominal members and banking-like activities, whereas the present society's membership structure and statutory recognition supported eligibility. The exclusion of primary agricultural credit societies from the Banking Regulation Act framework also supported the deduction.

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Issues: Whether a primary agricultural credit society registered under the Kerala Co-operative Societies Act, 1969 is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 despite section 80P(4), and whether the decision in Citizen Co-operative Society Ltd. applies to deny such deduction.

Analysis: The assessee was registered and classified as a primary agricultural credit society under the State enactment, and the definition of member under that law includes a nominal or associate member. The Tribunal followed the jurisdictional High Court's view that, once such classification exists, the income-tax authorities cannot re-probe the society's status in a manner inconsistent with the State-law classification. The judgment in Citizen Co-operative Society Ltd. was distinguished on facts because that case involved deposits from nominal members treated as non-members and activities found to be in the nature of banking, whereas the present assessee's statutory status and the legal meaning of membership under the Kerala Act supported eligibility. The Tribunal also noted the statutory exclusion of primary agricultural credit societies from the Banking Regulation Act framework.

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

Ratio Decidendi: A primary agricultural credit society whose status is recognised under the applicable State co-operative law is entitled to deduction under section 80P(2)(a)(i), and the revenue authorities cannot deny that benefit by recharacterising its statutory membership structure or by applying a distinguishable precedent on materially different facts.

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