My society lends to non-members too. Does that wipe out its 80P(2)(a)(i) deduction?
No. The deduction stands: the society need not lend only for agricultural purposes, and lending to non-members does not disentitle it — only the profits from non-member loans fall outside the deduction. Section 80P(4) shuts out only co-operative banks licensed to carry on banking business.
Decided by the Supreme Court (R.F. Nariman J, Navin Sinha J and K.M. Joseph J) on 2021-01-12, reported as (2021) 431 ITR 1 (SC); 318 CTR 609; 197 DTR 361; 279 Taxman 75 (SC); 123 taxmann.com 161 (SC); (2021) 7 SCC 90; Civil Appeal Nos. 7343-7350 & 8315 of 2019. It bears on section 80P, section 80P(2)(a)(i), section 80P(4), section 2(19) of the Income Tax Act 1961, in Co-operative Societies and Deductions & Disallowances matters.
This is the Supreme Court's answer to the standard post-2006 disallowance, where the officer says s.80P(4) or a low volume of agricultural lending ends the claim. The Court read s.80P as a benevolent provision to be construed liberally and in favour of the assessee, and held that a deduction given without express restriction cannot be cut down by implication. It also removed the plank most officers relied on from Citizen Co-operative Society, holding that paragraphs 24 to 26 of that decision are not its ratio.
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Societies classified as primary agricultural credit societies by the Registrar of Co-operative Societies under the Kerala Co-operative Societies Act, 1969, together with one multi-State co-operative society, had been claiming and receiving deduction under s.80P(2)(a)(i) up to assessment year 2007-08. After s.80P(4) was inserted by the Finance Act 2006 with effect from 1 April 2007, the Assessing Officers denied the deduction on the footing that, on the audited receipt and disbursal statements, the agricultural credit given to members was negligible and the credit was for purposes other than agriculture. A Full Bench of the Kerala High Court decided against the societies, reading Citizen Co-operative Society Ltd. as permitting the authorities to look behind the registration.
The Full Bench judgment of the Kerala High Court was set aside, and the appeals were directed to be placed before appropriate benches of that High Court for disposal on merits in the light of this judgment (para 48). The Court did not itself grant the deductions. On the law: s.80P is a benevolent provision to be read liberally, reasonably and, if ambiguous, in favour of the assessee, and a deduction given without any restriction cannot be cut down by implication - the revenue could not read the word 'agriculture' into s.80P(2)(a)(i) where Parliament had not put it. Section 80P(4) operates as a proviso excluding only co-operative banks that engage in banking business by lending to members of the public and hold an RBI licence. Once s.80P(4) is out of the way, a primary agricultural credit society is entitled to the deduction even though it also lends to members for non-agricultural purposes; but profits attributable to loans given to non-members cannot be deducted (para 45). Nominal members are members under the Kerala Act, so loans to them qualify (para 46), and lending to non-members is not illegal under s.59(2) and (3) of that Act (para 47).
The Court first dealt with precedent. The binding ratio of Citizen Co-operative Society Ltd. lies in the statements of legal principle in its paragraphs 18 to 23; its paragraphs 24 to 26 are the application of those principles to the material facts and cannot be described as its ratio decidendi, and it does not follow from the findings of fact there that an Assessing Officer may go behind the registration of a society and conclude it is carrying on illegal activities. On that score alone the Full Bench's reading of Citizen Co-operative Society was faulted and set aside (para 26). Turning to construction, the marginal note indicates the general drift of s.80P (para 27); eligibility under s.2(19) turns only on the fact of registration under the 1912 Act or a State law, and for eligibility it is unnecessary to probe further (para 28). The burden is nevertheless on the assessee to show entitlement, and the Court held expressly that an Assessing Officer conducting a fact-finding enquiry into whether the society is in fact providing credit facilities to its members - including by using s.133(6) - is not going behind the registration certificate (para 32). 'Providing credit facilities to its members' does not mean agricultural credit alone (para 33). The limited object of s.80P(4) was drawn from the Finance Minister's Budget speech of 28 February 2006, the explanatory circular of 28 December 2006 and the CBDT clarification of 9 May 2008, all of which show the intention was to exclude co-operative banks functioning at par with commercial banks (paras 36-38).
Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee.
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Handle my notice → Ask a CA on WhatsAppNo. The deduction stands: the society need not lend only for agricultural purposes, and lending to non-members does not disentitle it — only the profits from non-member loans fall outside the deduction. Section 80P(4) shuts out only co-operative banks licensed to carry on banking business. This was decided by the Supreme Court (R.F. Nariman J, Navin Sinha J and K.M. Joseph J) and bears on section 80P, section 80P(2)(a)(i), section 80P(4), section 2(19) of the Income Tax Act 1961. It is reported as (2021) 431 ITR 1 (SC); 318 CTR 609; 197 DTR 361; 279 Taxman 75 (SC); 123 taxmann.com 161 (SC); (2021) 7 SCC 90; Civil Appeal Nos. 7343-7350 & 8315 of 2019. This is the Supreme Court's answer to the standard post-2006 disallowance, where the officer says s.80P(4) or a low volume of agricultural lending ends the claim. The Court read s.80P as a benevolent provision to be construed liberally and in favour of the assessee, and held that a deduction given without express restriction cannot be cut down by implication. It also removed the plank most officers relied on from Citizen Co-operative Society, holding that paragraphs 24 to 26 of that decision are not its ratio. If it applies to you, the first step is this: Put the society's registration under the State Co-operative Societies Act on record, along with the class of society it is registered as.
Societies classified as primary agricultural credit societies by the Registrar of Co-operative Societies under the Kerala Co-operative Societies Act, 1969, together with one multi-State co-operative society, had been claiming and receiving deduction under s.80P(2)(a)(i) up to assessment year 2007-08. After s.80P(4) was inserted by the Finance Act 2006 with effect from 1 April 2007, the Assessing Officers denied the deduction on the footing that, on the audited receipt and disbursal statements, the agricultural credit given to members was negligible and the credit was for purposes other than agriculture. A Full Bench of the Kerala High Court decided against the societies, reading Citizen Co-operative Society Ltd. as permitting the authorities to look behind the registration. The matter was decided on 2021-01-12 by the Supreme Court (R.F. Nariman J, Navin Sinha J and K.M. Joseph J). On those facts the Supreme Court held as follows. The Full Bench judgment of the Kerala High Court was set aside, and the appeals were directed to be placed before appropriate benches of that High Court for disposal on merits in the light of this judgment (para 48). The Court did not itself grant the deductions. On the law: s.80P is a benevolent provision to be read liberally, reasonably and, if ambiguous, in favour of the assessee, and a deduction given without any restriction cannot be cut down by implication - the revenue could not read the word 'agriculture' into s.80P(2)(a)(i) where Parliament had not put it. Section 80P(4) operates as a proviso excluding only co-operative banks that engage in banking business by lending to members of the public and hold an RBI licence. Once s.80P(4) is out of the way, a primary agricultural credit society is entitled to the deduction even though it also lends to members for non-agricultural purposes; but profits attributable to loans given to non-members cannot be deducted (para 45). Nominal members are members under the Kerala Act, so loans to them qualify (para 46), and lending to non-members is not illegal under s.59(2) and (3) of that Act (para 47).
The Court first dealt with precedent. The binding ratio of Citizen Co-operative Society Ltd. lies in the statements of legal principle in its paragraphs 18 to 23; its paragraphs 24 to 26 are the application of those principles to the material facts and cannot be described as its ratio decidendi, and it does not follow from the findings of fact there that an Assessing Officer may go behind the registration of a society and conclude it is carrying on illegal activities. On that score alone the Full Bench's reading of Citizen Co-operative Society was faulted and set aside (para 26). Turning to construction, the marginal note indicates the general drift of s.80P (para 27); eligibility under s.2(19) turns only on the fact of registration under the 1912 Act or a State law, and for eligibility it is unnecessary to probe further (para 28). The burden is nevertheless on the assessee to show entitlement, and the Court held expressly that an Assessing Officer conducting a fact-finding enquiry into whether the society is in fact providing credit facilities to its members - including by using s.133(6) - is not going behind the registration certificate (para 32). 'Providing credit facilities to its members' does not mean agricultural credit alone (para 33). The limited object of s.80P(4) was drawn from the Finance Minister's Budget speech of 28 February 2006, the explanatory circular of 28 December 2006 and the CBDT clarification of 9 May 2008, all of which show the intention was to exclude co-operative banks functioning at par with commercial banks (paras 36-38). In the words reproduced by the source cited on this page: "Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee." The decision followed or applied Citizen Co-operative Society Ltd. v. ACIT [2017] 84 taxmann.com 114 / 250 Taxman 78 / 397 ITR 1 (SC) - explained; ratio confined to paras 18-23, paras 24-26 held not to be ratio decidendi; Pr. CIT v. Mavilayi Service Cooperative Bank Ltd. / Poonjar Service Co-operative Bank Ltd. [2019] 110 taxmann.com 87 / 414 ITR 67 (Ker) (FB) - set aside; Kerala State Co-operative Marketing Federation Ltd. v. CIT [1998] 98 Taxman 313 / 231 ITR 814 (SC) - followed; Udaipur Sahkari Upbhokta Thok Bhandar Ltd. v. CIT [2009] 8 SCC 393 - followed on burden of proof; U.P. Co-operative Cane Unions' Federation Ltd. v. CIT [1997] 11 SCC 287 - followed on the meaning of 'members'; K.P. Varghese v. ITO [1981] 7 Taxman 13 / 131 ITR 597 (SC) - followed on marginal notes.
It was decided by the Supreme Court on 2021-01-12 and is reported as (2021) 431 ITR 1 (SC); 318 CTR 609; 197 DTR 361; 279 Taxman 75 (SC); 123 taxmann.com 161 (SC); (2021) 7 SCC 90; Civil Appeal Nos. 7343-7350 & 8315 of 2019. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 80P, section 80P(2)(a)(i), section 80P(4), section 2(19), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Full Bench judgment of the Kerala High Court was set aside, and the appeals were directed to be placed before appropriate benches of that High Court for disposal on merits in the light of this judgment (para 48). The Court did not itself grant the deductions. On the law: s.80P is a benevolent provision to be read liberally, reasonably and, if ambiguous, in favour of the assessee, and a deduction given without any restriction cannot be cut down by implication - the revenue could not read the word 'agriculture' into s.80P(2)(a)(i) where Parliament had not put it. Section 80P(4) operates as a proviso excluding only co-operative banks that engage in banking business by lending to members of the public and hold an RBI licence. Once s.80P(4) is out of the way, a primary agricultural credit society is entitled to the deduction even though it also lends to members for non-agricultural purposes; but profits attributable to loans given to non-members cannot be deducted (para 45). Nominal members are members under the Kerala Act, so loans to them qualify (para 46), and lending to non-members is not illegal under s.59(2) and (3) of that Act (para 47). It arises in Co-operative Societies and Deductions & Disallowances matters, on section 80P, section 80P(2)(a)(i), section 80P(4), section 2(19) of the Income Tax Act 1961, and was decided by R.F. Nariman J, Navin Sinha J and K.M. Joseph J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Segregate the profits attributable to loans given to non-members and concede that piece rather than claiming the whole. If the officer relies on paragraphs 24 to 26 of Citizen Co-operative Society, reply that Mavilayi held those paragraphs are not the ratio of that judgment. Meet an assertion that s.80P(4) applies by showing the society holds no licence to carry on banking business.
Still good law. Followed by the Supreme Court in Kerala State Co-operative Agricultural and Rural Development Bank Ltd. v. Assessing Officer [2023] 154 taxmann.com 305 / 295 Taxman 675 / 458 ITR 384 (SC), decided 14 September 2023 by B.V. Nagarathna and Ujjal Bhuyan, JJ., whose case review records this decision as followed. That judgment set aside the Kerala High Court and held the appellant entitled to deduction under s.80P. This decision itself set aside the Kerala High Court Full Bench in Pr. CIT v. Mavilayi Service Cooperative Bank Ltd. / Poonjar Service Co-operative Bank Ltd. [2019] 110 taxmann.com 87 / 414 ITR 67 (Ker) (FB) and remitted the appeals to that Court for disposal on merits. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two things this case is regularly cited for do not survive a reading of it. First, the disposal: the Court set aside the Kerala Full Bench judgment and sent the appeals back to the High Court for decision on merits in the light of its judgment (para 48) - it did not itself hold the deductions allowable on the facts. Second, the proposition that an Assessing Officer may not go behind the registration certificate is narrower than usually stated. Para 26 holds only that it does not follow that the officer may go behind registration to find the society is carrying on illegal activities; para 32 holds expressly that the burden is on the assessee and that an officer conducting a fact-finding enquiry, including under s.133(6), into whether credit facilities are in fact being provided to members is not going behind the certificate at all. The judgment does not state the assessment years in issue beyond recording that the deduction had been allowed up to 2007-08 and that s.80P(4) applies from 1 April 2007. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Full Bench judgment of the Kerala High Court was set aside, and the appeals were directed to be placed before appropriate benches of that High Court for disposal on merits in the light of this judgment (para 48). The Court did not itself grant the deductions. On the law: s.80P is a benevolent provision to be read liberally, reasonably and, if ambiguous, in favour of the assessee, and a deduction given without any restriction cannot be cut down by implication - the revenue could not read the word 'agriculture' into s.80P(2)(a)(i) where Parliament had not put it. Section 80P(4) operates as a proviso excluding only co-operative banks that engage in banking business by lending to members of the public and hold an RBI licence. Once s.80P(4) is out of the way, a primary agricultural credit society is entitled to the deduction even though it also lends to members for non-agricultural purposes; but profits attributable to loans given to non-members cannot be deducted (para 45). Nominal members are members under the Kerala Act, so loans to them qualify (para 46), and lending to non-members is not illegal under s.59(2) and (3) of that Act (para 47).
TaxSphere, “Mavilayi Service Co-operative Bank Ltd v CIT”, https://taxnotice.vittsphere.com/caselaw/case/mavilayi-service-co-operative-bank-v-cit/ (validity last checked 2026-08-19)
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The Assessing Officer says my society is a co-operative bank and so s.80P(4) denies the whole deduction. What does he have to establish before he can say that?
The Commissioner has revised my co-operative society's assessment under s.263 because AMT on adjusted total income came out higher than the normal tax. The department's working grossed up my total income by the s.80P deduction. Is that right?
The AO cites Citizen Co-operative Society to deny my 80P claim. How far does it go?
We are a state-level co-operative agricultural and rural development bank. Does 80P(4) block our deduction?
