Primary co-operative bank status defeats section 80P deduction, while audit fee was outside section 43B disallowance

A co-operative society falls outside section 80P(2)(a)(i) once it satisfies the statutory definition of a primary co-operative bank under the Banking Regulation Act, 1949; where the society's principal business is banking, its share capital and reserves meet the threshold, and its bye-laws exclude admission of another co-operative society as a member, section 80P(4) applies and the deduction is not available. A disallowance under section 43B cannot be sustained for audit fee, as that liability is not tax, duty, cess, or a fee covered by the provision, and the addition was deleted.

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Issues: (i) whether the assessee-society was a primary co-operative bank hit by section 80P(4) of the Income-tax Act, 1961, and therefore not entitled to deduction under section 80P(2)(a)(i); (ii) whether the disallowance under section 43B in respect of audit fee was sustainable.

Issue (i): whether the assessee-society was a primary co-operative bank hit by section 80P(4) of the Income-tax Act, 1961, and therefore not entitled to deduction under section 80P(2)(a)(i).

Analysis: The deduction under section 80P(2)(a)(i) is available to a co-operative society engaged in carrying on banking business or providing credit facilities to its members, whereas 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. A co-operative society becomes a primary co-operative bank only if it satisfies the statutory conditions in section 5(ccv) of the Banking Regulation Act, 1949, namely that its principal business is banking, its paid-up share capital and reserves are at least one lakh rupees, and its bye-laws do not permit admission of another co-operative society as a member. On the facts found, the society accepted deposits and advanced loans beyond members, had share capital and reserves above the threshold, and its bye-laws did not permit admission of another co-operative society as member.

Conclusion: The assessee was a primary co-operative bank and section 80P(4) applied, so deduction under section 80P(2)(a)(i) was not allowable.

Issue (ii): whether the disallowance under section 43B in respect of audit fee was sustainable.

Analysis: The disputed amount was audit fee payable. Such liability was not treated as tax, duty, cess, or fee of the kind covered by the disallowance provision invoked by the assessing authority. No basis was found to sustain the addition under section 43B.

Conclusion: The disallowance under section 43B was rightly deleted.

Final Conclusion: The appeals succeeded only on the deduction issue and failed on the disallowance issue, leaving the revenue's appeals partly allowed.

Ratio Decidendi: A co-operative society is outside section 80P(2)(a)(i) once it satisfies the statutory definition of a primary co-operative bank under the Banking Regulation Act, 1949, but a disallowance under section 43B cannot be sustained for an item not covered by that provision.

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