Primary agricultural credit society qualifies for section 80P relief, including interest from business-linked investments.

A primary agricultural credit society classified under the Kerala Co-operative Societies Act remained entitled to deduction under section 80P, because the Income-tax authorities could not disregard its State-law classification and section 80P(4) did not disqualify it on these facts. Interest earned on investments with co-operative banks also qualified for deduction under section 80P(2)(a)(i), as the investments were made in the course of the society's banking and credit business and the income was attributable to that business rather than assessable as income from other sources. The Revenue's challenge failed and the appellate relief was sustained.

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Issues: (i) Whether a primary agricultural credit society registered under the Kerala Co-operative Societies Act was entitled to deduction under section 80P(2) of the Income-tax Act, 1961. (ii) Whether interest income earned on investments made with co-operative banks was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Issue (i): Whether a primary agricultural credit society registered under the Kerala Co-operative Societies Act was entitled to deduction under section 80P(2) of the Income-tax Act, 1961.

Analysis: The assessee was registered as a primary agricultural credit society. The jurisdictional High Court had held that once a society is so classified under the State Co-operative Societies Act, the Income-tax authorities cannot go behind that classification to deny section 80P relief. Following the binding jurisdictional precedent and the coordinate bench view, the Tribunal held that section 80P(4) did not defeat the assessee's claim on these facts.

Conclusion: The assessee was entitled to deduction under section 80P(2) of the Income-tax Act, 1961.

Issue (ii): Whether interest income earned on investments made with co-operative banks was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The Tribunal distinguished cases where interest on surplus funds or member liabilities was taxed as income from other sources. It held that, on the facts here, the investments were made in the course of the assessee's banking activity and providing credit facilities to its members. Interest arising from such investments was therefore attributable to the business of the assessee and fell within section 80P(2)(a)(i), rather than being assessable as income from other sources.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i) in respect of the interest income.

Final Conclusion: The Revenue's challenge failed on both issues, and the relief granted by the first appellate authority was sustained.

Ratio Decidendi: A primary agricultural credit society duly classified under the relevant State co-operative law remains eligible for section 80P relief, and interest earned from investments made as part of its banking or credit business is deductible under section 80P(2)(a)(i) when it is attributable to that business.

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