Section 80P deduction for primary agricultural credit societies upheld where nominal members were treated as members in law.

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 the jurisdictional High Court in Chirakkal applied to their status as such societies. The Tribunal distinguished Citizen Co-operative Society Ltd. on facts, noting that it involved deposits from nominal members treated as non-members and activities found contrary to co-operative law, whereas nominal members are members in law under the Kerala Act. It also held that the Banking Regulation Act, 1949 did not displace the availability of section 80P relief on these facts, so the Revenue's challenge failed.

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Issues: Whether 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, and whether the decision of the Supreme Court in Citizen Co-operative Society Ltd. applied so as to deny the deduction.

Analysis: The assessees were registered and classified as primary agricultural credit societies under the Kerala Co-operative Societies Act, 1969. The jurisdictional High Court in Chirakkal had held that such societies are entitled to deduction under section 80P, and the Tribunal treated that ruling as applicable on the facts. The Revenue relied on Citizen Co-operative Society Ltd., but the Tribunal distinguished that decision on the basis that it concerned a different factual setting involving deposits from nominal members treated as non-members and activities found to be in violation of the governing co-operative law. The Tribunal also noted that under the Kerala Co-operative Societies Act, 1969, nominal members are members in law, and therefore deposits from such members could not be equated with deposits from the public. It further held that the Banking Regulation Act, 1949 did not alter the position so as to deny the assessees the benefit of section 80P.

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

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