Primary co-operative bank test excludes a deposit-taking society from deduction under section 80P

A co-operative society accepting deposits and advancing loans was treated as a primary co-operative bank because its principal business was banking, its paid-up share capital and reserves met the statutory threshold, and its bye-laws did not permit another co-operative society to become a member. On that basis, the exclusion in section 80P(4) applied, and the society could not claim deduction under section 80P(2)(a)(i). The decision turns on the statutory test for a primary co-operative bank and confirms that societies meeting those conditions are outside the deduction available to co-operative societies providing credit facilities to members.

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Issues: Whether the assessee, a co-operative society accepting deposits and advancing loans, was a primary co-operative bank so as to be hit by section 80P(4) of the Income-tax Act, 1961 and thereby denied deduction under section 80P(2)(a)(i).

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society engaged in carrying on banking business or in providing credit facilities to its members, whereas section 80P(4) excludes only a co-operative bank, other than the specified agricultural credit institutions. The relevant test for a primary co-operative bank is whether the society's principal business is banking, its paid-up share capital and reserves are at least one lakh rupees, and its bye-laws do not permit admission of another co-operative society as a member. On the facts found, the society accepted deposits from non-members, its capital and reserves exceeded the prescribed threshold, and its bye-laws did not permit another co-operative society to become a member. The Tribunal therefore held that the society satisfied all the statutory conditions of a primary co-operative bank and could not claim the protection of section 80P(2)(a)(i).

Conclusion: The assessee was held to be a primary co-operative bank and was not entitled to deduction under section 80P(2)(a)(i) because section 80P(4) applied against it.

Ratio Decidendi: A co-operative society that satisfies the statutory conditions of a primary co-operative bank falls within the exclusion in section 80P(4) and cannot claim deduction under section 80P(2)(a)(i).

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