Section 80P deduction applies to PDS sales income from authorised ancillary co-operative activity under binding directives.

Income from sales under the Public Distribution System was treated as eligible for deduction under Section 80P because the fair price shop activity was an authorised ancillary function of the co-operative society under its bye-laws and was carried on under binding Government and Registrar directions. The Madras HC noted that the wider definition of a credit society under the Tamil Nadu Co-operative Societies Act, 1983 allowed the allied activity, and that the sales income could not be separated from the society's banking and member-oriented operations. The Revenue's contention that the sales were unrelated to banking was rejected, and the assessee's own earlier decision on the same issue was followed.

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Issues: Whether income from sales made under the Public Distribution System, carried on pursuant to Government directives and the society's bye-laws, was eligible for deduction under Section 80P of the Income-tax Act, 1961.

Analysis: The activity of running fair price shops was found to be an authorised ancillary activity of the co-operative bank under its bye-laws and was undertaken pursuant to binding directions issued by the Government and the Registrar. The Court held that the wider definition of a credit society under the Tamil Nadu Co-operative Societies Act, 1983 permitted such allied activity, and that the income generated from the sales could not be severed from the society's banking and member-oriented operations. The Revenue's attempt to treat the sales as unrelated to banking was rejected, and the earlier decision in the assessee's own case for an identical issue was followed.

Conclusion: The income from PDS sales was held eligible for deduction under Section 80P, and the issue was answered in favour of the assessee.

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