Primary co-operative bank test applied to deny deduction under section 80P for a co-operative society.

A co-operative society is excluded from deduction under section 80P(2)(a)(i) if it falls within section 80P(4) as a co-operative bank. A primary co-operative bank is identified by its principal banking business, paid-up share capital and reserves of at least one lakh rupees, and bye-laws that do not permit admission of another co-operative society as a member. On the stated facts, the assessee accepted deposits from non-members and satisfied those statutory conditions, so it was treated as a co-operative bank and the deduction claim was denied.

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Issues: Whether the assessee was a primary co-operative bank so as to be hit by section 80P(4) of the Income-tax Act, 1961 and thus denied deduction under section 80P(2)(a)(i).

Analysis: The deduction under section 80P(2)(a)(i) remains available to a co-operative society engaged in carrying on banking business or providing credit facilities to its members, but section 80P(4) excludes 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 under the Banking Regulation Act, 1949 is a co-operative society whose principal business is banking, whose paid-up share capital and reserves are not less than one lakh rupees, and whose bye-laws do not permit admission of any other co-operative society as a member. On the facts, the assessee accepted deposits from non-members, its capital and reserves exceeded the statutory threshold, and its bye-laws did not permit admission of another co-operative society as a member. The statutory conditions for a primary co-operative bank were therefore satisfied.

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

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