Deeming fiction for Regional Rural Banks preserved Section 80P exemption for interest income despite later cooperative bank restrictions.

Interest earned from deposits with a Regional Rural Bank qualified for exemption under Section 80P(2) because Section 22 of the Regional Rural Banks Act, 1976 deems such a bank to be a cooperative society for Income-tax Act purposes. That deeming fiction continues unless displaced by a clear non-obstante provision or express contrary mandate, and Section 80P(4), which restricts cooperative banks, did not alter the statutory character assigned to Regional Rural Banks. The assessee was therefore entitled to the exemption, and the revenue's challenge failed.

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Issues: Whether interest earned by the assessee from deposits with a Regional Rural Bank was eligible for exemption under Section 80P(2) of the Income-tax Act, 1961 in view of Section 22 of the Regional Rural Banks Act, 1976 and Section 80P(4) of the Income-tax Act, 1961.

Analysis: Section 22 of the Regional Rural Banks Act, 1976 deems a Regional Rural Bank to be a cooperative society for the purposes of the Income-tax Act, 1961. That statutory deeming fiction continues to operate unless displaced by a clear non-obstante provision or an express contrary legislative mandate. The later restriction introduced in Section 80P(4) concerns cooperative banks, but it does not alter the legal character assigned to Regional Rural Banks by Section 22. The statutory consequence of the deeming provision therefore remains available for the assessee.

Conclusion: The assessee was entitled to the benefit of exemption under Section 80P(2), and the revenue's challenge failed.

Ratio Decidendi: A Regional Rural Bank, being deemed a cooperative society by Section 22 of the Regional Rural Banks Act, 1976, cannot be denied the benefit of Section 80P(2) of the Income-tax Act, 1961 unless there is a clear statutory override.

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