Section 80P deduction upheld for a cooperative society dealing with nominal members under State law.

A primary agricultural credit society registered under the Gujarat Cooperative Societies Act, 1961 could not be denied deduction under section 80P of the Income-tax Act, 1961 merely because it extended credit facilities to nominal members. The Income-tax Act does not distinguish between regular and nominal members for this purpose, and dealings with persons treated as members under the applicable State law did not justify a denial on mutuality grounds. The precedent involving a society acting in violation of its governing statute was distinguishable on facts, so the claimed deduction was held allowable.

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Issues: Whether a primary agricultural credit society was entitled to deduction under section 80P of the Income-tax Act, 1961 despite the presence of nominal members and the grant of credit facilities to such nominal members.

Analysis: The society was registered as a primary agricultural credit society under the Gujarat Cooperative Societies Act, 1961 and its members, as defined under the State Act, included nominal members. The Income-tax Act, 1961 does not draw a distinction between regular members and nominal members for the purpose of section 80P. The denial based on the supposed breach of mutuality was held to be unsustainable because the dealings were with persons who were members under the applicable State law. The precedent concerning a co-operative society functioning in violation of its governing statute was held to be distinguishable on facts.

Conclusion: Deduction under section 80P could not be denied merely because credit facilities were extended to nominal members, and the assessee was entitled to the claimed deduction.

Ratio Decidendi: Where a State cooperative statute treats nominal members as members, a primary agricultural credit society cannot be denied deduction under section 80P of the Income-tax Act, 1961 solely on the ground that it transacts with nominal members.

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