Primary agricultural credit society status preserves deduction under section 80P(2)(a)(i) despite the co-operative bank exclusion.

A multi-purpose co-operative credit society satisfying the statutory definition of a primary agricultural credit co-operative society is not treated as a co-operative bank for section 80P(4) purposes. Reading section 2(h-2) of the Karnataka Co-operative Societies Act, 1959 with section 5(cciv) of the Banking Regulation Act, 1949, the Court noted that the society's bye-laws did not permit admission of another co-operative society as a member and held that it met the statutory requirements. The society was therefore entitled to deduction under section 80P(2)(a)(i), and denial of the benefit was unsustainable.

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Issues: Whether a multi-purpose co-operative credit society registered under the Karnataka Co-operative Societies Act, 1959, and falling within the definition of a primary agricultural credit co-operative society, is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, despite section 80P(4).

Analysis: Section 80P(4) excludes co-operative banks from the benefit of section 80P, except primary agricultural credit societies and primary co-operative agricultural and rural development banks. The relevant enquiry was whether the assessee answered the statutory description of a primary agricultural credit society. The Court read section 2(h-2) of the Karnataka Co-operative Societies Act, 1959 with section 5(cciv) of the Banking Regulation Act, 1949 and noted that the assessee was a multi-purpose co-operative society whose bye-laws did not permit admission of another co-operative society as a member. On that basis, the assessee satisfied the statutory requirements of a primary agricultural credit co-operative society and was not to be treated as a co-operative bank for the purpose of the exclusion.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 and the denial of the benefit was unsustainable.

Ratio Decidendi: A multi-purpose co-operative society that satisfies the statutory definition of a primary agricultural credit society is within the exception to section 80P(4) and remains eligible for deduction under section 80P(2)(a)(i).

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