Co-operative society deduction under section 80P remains available unless it satisfies all conditions of a primary co-operative bank.

Section 80P(4) excludes only a co-operative bank, not every co-operative society providing credit to its members. A primary co-operative bank must satisfy all statutory conditions under the Banking Regulation Act, including that its primary object is banking business; here, that condition was not met because activities were confined to members. The society therefore was not treated as a co-operative bank and remained eligible for deduction under section 80P(2)(a)(i). The commentary concludes that the broader exclusion in section 80P(4) cannot be used to deny the deduction where the society does not satisfy the full statutory test for a primary co-operative bank.

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Issues: (i) Whether the assessee co-operative society was a co-operative bank, so as to be excluded from deduction under section 80P(4) of the Income-tax Act, 1961; (ii) Whether, on the facts and bye-laws, the assessee satisfied the conditions of a primary co-operative bank under the Banking Regulation Act, 1949; (iii) Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Issue (i): Whether the assessee co-operative society was a co-operative bank, so as to be excluded from deduction under section 80P(4) of the Income-tax Act, 1961.

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. Section 80P(4) withdraws the benefit only in relation to a co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The exclusion does not extend to every co-operative society merely because it provides credit to members.

Conclusion: The assessee was not treated as a co-operative bank for the purpose of section 80P(4).

Issue (ii): Whether, on the facts and bye-laws, the assessee satisfied the conditions of a primary co-operative bank under the Banking Regulation Act, 1949.

Analysis: A primary co-operative bank must satisfy all three statutory conditions: its primary object must be banking business, its paid-up share capital and reserves must be at least one lakh rupees, and its bye-laws must not permit admission of any other co-operative society as a member. The assessee accepted deposits only from members and its activities were confined to members, so the primary object requirement of banking business was not satisfied. Although the capital condition was met, the first condition failed, and the bye-laws permitted only individual members, not other co-operative societies, which was relevant to the third condition.

Conclusion: The assessee did not satisfy all the conditions of a primary co-operative bank.

Issue (iii): Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: Since the assessee was not a co-operative bank within section 80P(4), and its receipts were from providing banking or credit facilities to its members, the statutory deduction under section 80P(2)(a)(i) remained available. The restriction in section 80P(4) could not be applied so broadly as to make section 80P(2)(a)(i) redundant.

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

Final Conclusion: The denial of deduction was set aside and the assessee's claim under section 80P(2)(a)(i) was allowed.

Ratio Decidendi: Section 80P(4) excludes only a co-operative bank, and a co-operative society providing credit facilities to its members remains eligible for deduction under section 80P(2)(a)(i) unless it satisfies all statutory conditions of a primary co-operative bank.

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