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Issues: Whether a co-operative society engaged in lending to its members was a "co-operative bank" hit by section 80P(4) of the Income-tax Act, 1961, so as to lose deduction under section 80P(2)(a)(i).
Analysis: The relevant inquiry was whether the assessee satisfied the statutory definition of a co-operative bank under Part V of the Banking Regulation Act, 1949. A co-operative society becomes a primary co-operative bank only if its primary object or principal business is banking, its paid-up share capital and reserves meet the prescribed threshold, and its bye-laws do not permit admission of another co-operative society as a member. On the facts, the assessee's bye-laws showed that it advanced loans only to members and did not accept deposits from the public for lending or investment, which is an essential element of banking business under section 5(b) of the Banking Regulation Act, 1949. As the principal business was not banking, the assessee did not satisfy the definition of primary co-operative bank and therefore was not a co-operative bank for section 80P(4).
Conclusion: Section 80P(4) did not apply, and the assessee remained entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Ratio Decidendi: A co-operative society that provides credit only to its members, and does not carry on banking business by accepting public deposits, is not a co-operative bank within section 80P(4) and cannot be denied deduction under section 80P(2)(a)(i) on that basis.
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