Co-operative society deduction upheld where statutory conditions for a co-operative bank were not cumulatively satisfied.

Deduction under Section 80P(2)(a)(i) remains available to a co-operative society providing credit facilities to its members unless it satisfies all cumulative conditions of a co-operative bank under Section 80P(4) read with the Banking Regulation Act, 1949. The exclusion applies only where banking is the principal business and the bye-laws prohibit admission of another co-operative society as a member. On the stated facts, banking was not shown to be the principal business and the bye-laws lacked the required prohibition, so the entity was treated as a co-operative credit society. Limited dealings with non-members did not change that character, though income from non-member transactions was not covered.

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Issues: Whether the assessee was a co-operative bank, and therefore excluded from deduction under Section 80P(2)(a)(i) by virtue of Section 80P(4) of the Income-tax Act, 1961, or whether it remained a co-operative credit society entitled to the deduction.

Analysis: Deduction under Section 80P(2)(a)(i) is available to a co-operative society engaged in carrying on banking business or in providing credit facilities to its members. The exclusion in Section 80P(4) applies only to a co-operative bank, which takes its meaning from the Banking Regulation Act, 1949. A primary co-operative bank must satisfy all the statutory conditions cumulatively, including that its principal business is banking and that its bye-laws do not permit admission of any other co-operative society as a member. On the facts, the record did not support a finding that banking was the assessee's principal business. The bye-laws also did not contain the requisite prohibition against admission of another co-operative society. Mere limited dealings with non-members did not alter the character of the assessee as a co-operative credit society for the relevant statutory test, though deduction would not extend to income attributable to non-member transactions.

Conclusion: The assessee was not a co-operative bank for the purposes of Section 80P(4) and was entitled to deduction under Section 80P(2)(a)(i) to the extent of income derived from providing credit facilities to its members.

Ratio Decidendi: The exclusion under Section 80P(4) applies only when the assessee satisfies all statutory conditions of a co-operative bank under the Banking Regulation Act, 1949; absent such cumulative satisfaction, a co-operative society providing credit to members remains eligible for deduction under Section 80P(2)(a)(i).

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