Co-operative society deduction under section 80P depends on primary co-operative bank status and member-based credit activity.

A co-operative society is excluded from section 80P only if it satisfies all statutory conditions of a primary co-operative bank under the Banking Regulation Act, including the requirement that its bye-laws do not permit admission of another co-operative society as a member. Where that condition is not met, section 80P(4) does not apply. The material also explains that income from accepting deposits and advancing loans to members may qualify for deduction under section 80P(2)(a)(i) when the society is engaged in providing banking or credit facilities to its members.

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Issues: (i) Whether the assessee society was a primary co-operative bank so as to be excluded from deduction under section 80P(4); (ii) Whether the assessee was entitled to deduction under section 80P(2)(a)(i) on income from providing banking or credit facilities to its members.

Issue (i): Whether the assessee society was a primary co-operative bank so as to be excluded from deduction under section 80P(4).

Analysis: The relevant test was whether the society satisfied all the statutory ingredients of a primary co-operative bank under the Banking Regulation Act, namely that its principal business was banking, its paid-up share capital and reserves were not below the prescribed threshold, and its bye-laws did not permit admission of any other co-operative society as a member. The society had accepted deposits and advanced loans, but its bye-laws permitted membership of another co-operative society, so the third statutory condition was not met.

Conclusion: The assessee was not a primary co-operative bank and section 80P(4) did not apply against it.

Issue (ii): Whether the assessee was entitled to deduction under section 80P(2)(a)(i) on income from providing banking or credit facilities to its members.

Analysis: Section 80P(2)(a)(i) allows deduction to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. Since the assessee was not hit by section 80P(4), and its activity of accepting deposits and lending to members fell within the statutory language, the income attributable to such activity remained eligible for deduction.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i).

Final Conclusion: The disallowance made by the revenue authorities was set aside and the assessee's claim for deduction on income attributable to banking or credit facilities for members was accepted.

Ratio Decidendi: A co-operative society is excluded from section 80P only if it is shown to be a co-operative bank satisfying all statutory conditions for that status; where the society does not satisfy those conditions, its income from providing banking or credit facilities to members remains deductible under section 80P(2)(a)(i).

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