Co-operative society not treated as a primary co-operative bank where bye-laws allowed other co-operative societies as members.

A co-operative society is excluded from deduction under section 80P(2)(a)(i) only if it falls within the section 80P(4) exclusion for a co-operative bank. To qualify as a primary co-operative bank under section 5(ccv) of the Banking Regulation Act, 1949, all three statutory conditions must be met: banking as the principal business, minimum paid-up share capital and reserves, and bye-laws that do not permit admission of other co-operative societies as members. Because the society's bye-laws allowed admission of other co-operative societies, it did not satisfy the full definition of a primary co-operative bank. It therefore remained outside section 80P(4) and continued to be eligible for deduction under section 80P(2)(a)(i).

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Issues: Whether the assessee co-operative society was a primary co-operative bank and therefore hit by section 80P(4) of the Income-tax Act, 1961, or whether it was entitled to deduction under section 80P(2)(a)(i).

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, 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. For a society to be treated as a primary co-operative bank under section 5(ccv) of the Banking Regulation Act, 1949, all three conditions must be satisfied: the principal business must be banking, the paid-up share capital and reserves must be at least one lakh rupees, and the bye-laws must not permit admission of any other co-operative society as a member. The society accepted deposits from members and non-members, had sufficient share capital and reserves, but its bye-laws permitted admission of other co-operative societies as members. Therefore, it did not satisfy all the statutory conditions for a primary co-operative bank.

Conclusion: The assessee was not a co-operative bank within the meaning of section 80P(4) and remained entitled to deduction under section 80P(2)(a)(i).

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