Primary co-operative bank test: assessee stayed eligible for section 80P deduction despite revenue challenge.

Section 80P deduction remained available because the assessee did not satisfy the statutory test of a primary co-operative bank under section 5(ccv) of the Banking Regulation Act, 1949. Although its paid-up share capital and reserves met the threshold, the assessee accepted deposits only from members, so its principal business was not shown to be banking in the required sense, and its bye-laws did not establish the third condition that would exclude admission of other co-operative societies as members. It therefore was not covered by section 80P(4) and continued to qualify as a co-operative society entitled to deduction under section 80P(2)(a)(i).

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Issues: Whether the assessee was a primary co-operative bank and therefore outside the scope of deduction under section 80P(2)(a)(i), or whether it remained a co-operative society entitled to the deduction.

Analysis: Section 80P(2)(a)(i) allows deduction to a co-operative society engaged in carrying on banking business or providing credit facilities to its members, while section 80P(4) excludes only a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. A primary co-operative bank must satisfy all three conditions under section 5(ccv) of the Banking Regulation Act, 1949, namely that its 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 any other co-operative society as a member. On the facts, the assessee accepted deposits only from members, so the first condition was not satisfied. Although the second condition was met, the bye-laws and the governing provisions of the Karnataka Souharda Sahakari Act, 1997 did not establish that the third condition was met in the manner required to make the assessee a co-operative bank. The assessee therefore did not answer the statutory description of a primary co-operative bank.

Conclusion: The assessee was not hit by section 80P(4) and remained entitled to deduction under section 80P(2)(a)(i); the revenue's appeals were dismissed.

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