Section 80P deduction for primary agricultural credit societies upheld where State Act classification binds tax authorities.

Primary agricultural credit societies classified under the Kerala Co-operative Societies Act were held entitled to deduction under section 80P(2)(a)(i) because, once the State Act classification is in place, the Income-tax authorities cannot go behind it for section 80P purposes. The Tribunal followed the binding jurisdictional High Court ruling in Chirakkal Service Co-operative Bank Ltd. and distinguished Citizens Co-operative Society Ltd. on the basis that the latter involved nominal members treated as non-members and banking-like activities, whereas under the Kerala Act nominal members are members in law. The Revenue's challenge therefore failed.

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Issues: Whether primary agricultural credit societies registered and classified under the Kerala Co-operative Societies Act, 1969 were entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 despite section 80P(4) and the decision in Citizens Co-operative Society Ltd.

Analysis: The Tribunal followed its earlier consolidated decision on identical facts and the binding jurisdictional High Court ruling in Chirakkal Service Co-operative Bank Ltd., which held that once a society is classified as a primary agricultural credit society under the State Act, the Income-tax authorities cannot probe behind that classification for the purpose of section 80P. It distinguished Citizens Co-operative Society Ltd. on the ground that that case involved a credit co-operative society dealing with nominal members treated as non-members under the relevant law and carrying on activities found to be in the nature of banking, whereas under the Kerala Act nominal members are members in law. The Tribunal also noted the statutory framework under the Banking Regulation Act, 1949, including the exclusion of primary agricultural credit societies from banking regulation, and held that the Assessing Officer could not take a contrary view to the competent authorities and the RBI classification.

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

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