Deduction for credit to nominal members upheld where state law treats nominal members as members

Section 80P(2)(a)(i) allows deduction for income attributable to banking or credit facilities provided to members, and under the Maharashtra Co-operative Societies Act, 1960 a nominal member is included within the statutory definition of member. On that basis, income from loans advanced to nominal members falls within the deduction where the governing state law treats them as members. An earlier Supreme Court decision was distinguished because it arose under a different statutory framework that did not recognise nominal members as members, while later Supreme Court and jurisdictional High Court interpretations supported the broader reading. The deduction was therefore held allowable for such income.

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Issues: Whether a co-operative society governed by the Maharashtra Co-operative Societies Act, 1960 was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of income earned from loans advanced to nominal members.

Analysis: Section 80P(2)(a)(i) allows deduction in respect of profits and gains attributable to the business of banking or providing credit facilities to members of a co-operative society. The statutory definition of "member" under section 2(19) of the Maharashtra Co-operative Societies Act, 1960 expressly includes a nominal member. The Supreme Court's earlier decision denying relief in a different statutory setting was distinguished because the relevant state law there did not treat nominal members as members. The later Supreme Court authority and the jurisdictional High Court's interpretation supported the view that where the governing state statute includes nominal members within the definition of member, loans to such persons fall within the scope of the deduction.

Conclusion: The deduction under section 80P(2)(a)(i) was held allowable in respect of income from loans advanced to nominal members, and the assessee succeeded.

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