Primary agricultural credit society deduction under section 80P upheld despite Revenue's co-operative bank argument.

Primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969 were held entitled to deduction under section 80P(2)(a)(i), because their statutory classification as such could not be ignored by the income-tax authorities. The Tribunal followed the jurisdictional High Court ruling in Chirakkal and distinguished Citizen Co-operative Society on the basis that, under the Kerala Act, nominal or associate members are included within the definition of member. It also noted that primary agricultural credit societies are excluded from the Banking Regulation Act, so the Revenue could not treat them as co-operative banks on the facts found. The Revenue's appeals therefore failed.

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Issues: Whether the assessees, being primary agricultural credit societies registered under the Kerala Co-operative Societies Act, 1969, were entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, notwithstanding section 80P(4) and the Revenue's reliance on the Supreme Court decision in Citizen Co-operative Society.

Analysis: The assessees were classified as primary agricultural credit societies by the competent authority under the Kerala Co-operative Societies Act, 1969. The earlier jurisdictional High Court decision in Chirakkal held that such societies were entitled to the benefit of section 80P(2), and that the Income-tax authorities could not probe beyond that statutory classification. The Tribunal distinguished Citizen Co-operative Society on the basis that that case involved deposits and lending to persons treated as non-members under the governing State law, whereas under the Kerala Act a nominal or associate member is included within the definition of member. The Tribunal also noted the statutory exclusion of primary agricultural credit societies from the operation of the Banking Regulation Act and held that the Revenue could not treat the assessees as co-operative banks on the facts found.

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

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