Primary agricultural credit society deduction under section 80P upheld where Kerala Act classification and member status were accepted.

Primary agricultural credit societies registered and classified under the Kerala Co-operative Societies Act, 1969 were treated as entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act. The Tribunal followed the jurisdictional High Court in Chirakkal and held that the State statutory classification could not be displaced on the facts. It distinguished Citizens Co-operative Society Ltd. because that case involved nominal members treated as non-members and activities beyond the permissible co-operative framework, whereas the Kerala Act includes nominal members within the definition of member. The Revenue's challenge 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, and whether the decision of the Supreme Court in Citizens Co-operative Society Ltd. denied such deduction on the facts of these cases.

Analysis: The assessees were found to be primary agricultural credit societies registered and classified under the Kerala Co-operative Societies Act, 1969. The jurisdictional High Court in Chirakkal was followed, holding that such societies are entitled to deduction under section 80P. The Tribunal distinguished Citizens Co-operative Society Ltd. on the ground that that case involved deposits from nominal members treated as non-members and activities outside the permissible co-operative framework, whereas under the Kerala Act nominal members are included within the statutory definition of member. The Tribunal also noted that primary agricultural credit societies fall outside the Banking Regulation Act in the manner recognised by the statutory scheme and that the Revenue could not displace the classification granted under the State enactment on the facts of these cases.

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

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