Co-operative society deduction under Section 80P remains available where primary co-operative bank conditions are not fully satisfied.

Section 80P(4) excludes only a co-operative bank that satisfies all the statutory conditions of a primary co-operative bank under the Banking Regulation Act, 1949. The relevant test is whether the entity's principal business is banking, its paid-up share capital and reserves meet the prescribed level, and its bye-laws do not permit admission of any other co-operative society as a member. Although the society accepted deposits and lent funds, its bye-laws and membership provisions allowed other co-operative societies to become members, so it did not meet the third condition. It therefore remained a co-operative society and continued to qualify for deduction under section 80P(2)(a)(i) on income from member-oriented banking or credit activities.

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Issues: Whether the assessee was a primary co-operative bank so as to fall within the exclusion in section 80P(4) of the Income-tax Act, 1961, and whether it was nevertheless entitled to deduction under section 80P(2)(a)(i).

Analysis: The relevant test was whether the assessee satisfied all the ingredients of a primary co-operative bank under the Banking Regulation Act, 1949, namely that its principal business was banking, its paid-up share capital and reserves were not below the prescribed limit, and its bye-laws did not permit admission of any other co-operative society as a member. The assessee accepted deposits, including from non-members, and used them for lending, which satisfied the first condition. The second condition was also met. However, the bye-laws read with the membership provisions of the Karnataka Souharda Sahakari Act, 1997 permitted admission of other co-operative societies as members, so the third condition was not satisfied. A co-operative society which does not answer the definition of a primary co-operative bank is not hit by section 80P(4), and section 80P(2)(a)(i) continues to apply to income from banking or credit facilities provided to members.

Conclusion: The assessee was not a primary co-operative bank, section 80P(4) did not apply, and deduction under section 80P(2)(a)(i) was rightly available in its favour.

Final Conclusion: The revenue's challenge to the grant of deduction failed because the assessee remained a co-operative society eligible for the statutory deduction on income attributable to its member-oriented banking or credit activities.

Ratio Decidendi: Section 80P(4) excludes only a co-operative bank as defined under the Banking Regulation Act, 1949, and a co-operative society is entitled to deduction under section 80P(2)(a)(i) unless it satisfies all the statutory conditions of a primary co-operative bank.

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