No denial of Sec. 80P deduction to ‘primary agricultural credit societies’ even if it gives loan to non-members: SC

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No denial of Sec. 80P deduction to ‘primary agricultural credit societies’ even if it gives loan to non-members: SC

[2021] 123 taxmann.com 161 (SC)

Mavilayi  Service Co-operative Bank Ltd.

Short Overview:

Limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public; once section 80P(4) is out of harm’s way, the Primary agricultural credit societies are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture

  • In case, it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.
  • ‘Nominal members’ are ‘members’ as defined under the Kerala Co-operative Societies Act, 1969. Considering the definition of ‘member’ under the Kerala Act, loans given to such ‘nominal members’ would qualify for the purpose of deduction under section 80P(2)(a)(i).
  • Kerala Act expressly permits loans to non-members under section 59(2) and (3); Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal.
  • [Principal CIT v Poonjar Service Co-operative Bank Ltd. [2019] 110 taxmann.com87 (Ker.) (FB) reversed]
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