Primary co-operative bank test failed where bye-laws allowed other co-operative societies as members, preserving deduction eligibility.

A co-operative society is excluded from section 80P benefits under section 80P(4) only if it satisfies all conditions of a primary co-operative bank under the Banking Regulation Act, including that its bye-laws do not permit admission of another co-operative society as a member. Although the assessee accepted deposits and advanced loans, its bye-laws and the governing State law allowed other co-operative societies to become members, so the third statutory condition was not met. It was therefore not a primary co-operative bank, section 80P(4) did not apply, and income attributable to banking or credit facilities provided to its members remained eligible for deduction under section 80P(2)(a)(i).

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Issues: Whether the assessee was a primary co-operative bank so as to be excluded from deduction under section 80P(4), and whether it was entitled to deduction under section 80P(2)(a)(i) in respect of income from providing banking or credit facilities to its members.

Analysis: The statutory scheme distinguishes a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members from a co-operative bank to which the embargo in section 80P(4) applies. A society becomes a primary co-operative bank only if it satisfies all the statutory conditions under the Banking Regulation Act, including that its principal business is banking, its paid-up capital and reserves are at least the prescribed minimum, and its bye-laws do not permit admission of another co-operative society as a member. On the facts, the assessee accepted deposits and advanced loans, but its bye-laws and the governing State law permitted admission of other co-operative societies as members, so the third condition was not fulfilled. Since all the conditions were not cumulatively satisfied, the assessee could not be treated as a primary co-operative bank. The provisions of section 80P(4) therefore did not apply, and the assessee remained within the scope of section 80P(2)(a)(i) for income attributable to banking or credit facilities provided to its members.

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

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