Primary co-operative bank test determines whether a co-operative society is excluded from section 80P deduction.

A co-operative society is excluded from deduction under section 80P(2)(a)(i) only if it qualifies as a co-operative bank under the Banking Regulation Act, 1949. That classification requires all conditions of a primary co-operative bank to be met: the primary object must be banking business, the paid-up share capital and reserves must reach the statutory minimum, and the bye-laws must not permit admission of any other co-operative society as a member. On the stated facts, the society accepted deposits from non-members and its bye-laws, read with the Karnataka Souharda Sahakari Act, 1997, allowed other co-operative societies to become members, so it did not satisfy the statutory test. Section 80P(4) therefore did not apply and the deduction remained available.

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Issues: Whether the assessee society was a primary co-operative bank so as to be excluded from deduction under section 80P(2)(a)(i), and whether section 80P(4) of the Income-tax Act, 1961 applied.

Analysis: Section 80P(2)(a)(i) allows deduction to a co-operative society engaged in banking or in providing credit facilities to its members, while section 80P(4) withdraws the benefit only from a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. A co-operative bank under the Banking Regulation Act, 1949 includes a primary co-operative bank, which in turn requires satisfaction of three conditions: primary object of banking business, paid-up share capital and reserves of at least one lakh rupees, and bye-laws not permitting admission of any other co-operative society as a member. On the facts, the assessee accepted deposits not only from members but also from non-members, so the first condition was not met. The share capital condition was satisfied, but the bye-laws and the governing provisions under the Karnataka Souharda Sahakari Act, 1997 permitted admission of other co-operative societies, so the third condition was also not met.

Conclusion: The assessee was not a primary co-operative bank, section 80P(4) did not apply, and the deduction under section 80P(2)(a)(i) was allowable.

Ratio Decidendi: A co-operative society is excluded from section 80P(2)(a)(i) only if it is shown to be a co-operative bank within the meaning of the Banking Regulation Act, 1949 by satisfying all the statutory conditions of a primary co-operative bank.

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