Primary co-operative bank test: banking business, capital threshold, and bye-laws exclusion triggered denial of deduction.

A co-operative society carrying on banking activity is excluded from deduction under section 80P(2)(a)(i) if it falls within the definition of a primary co-operative bank under section 5(ccv) of the Banking Regulation Act, 1949 and is therefore hit by section 80P(4). The applicable test requires that the principal business be banking, the paid-up share capital and reserves meet the statutory minimum, and the bye-laws do not permit admission of another co-operative society as a member. On the stated facts, acceptance of deposits from non-members and the governing bye-laws satisfied these conditions, so the assessee was treated as a primary co-operative bank and denied the deduction.

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Issues: Whether the assessee 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 relevant statutory scheme distinguishes between a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members under section 80P(2)(a)(i) and a co-operative bank excluded by section 80P(4), other than the specified exceptions. A primary co-operative bank, as defined in section 5(ccv) of the Banking Regulation Act, 1949, must satisfy all three conditions: its principal business must be banking, 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. On the facts, the assessee accepted deposits from non-members, its share capital and reserves exceeded the statutory minimum, and its bye-laws and governing provisions permitted membership in a manner that satisfied the third statutory condition. The Court therefore treated the assessee as a primary co-operative bank within the meaning of the Banking Regulation Act, 1949, and held that the exclusion in section 80P(4) applied.

Conclusion: The assessee was held to be a primary co-operative bank and was denied deduction under section 80P(2)(a)(i).

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