Section 80P deduction remains available to a credit co-operative society lending only to its members.

The Karnataka High Court reiterated that Section 80P(4) of the Income-tax Act withdraws deduction only from co-operative banks carrying on banking business under the Banking Regulation Act, 1949, and not from a credit co-operative society governed by its bye-laws. It accepted that the legislative purpose of the provision was to exclude co-operative banks exclusively engaged in banking, while preserving the deduction for societies that provide credit facilities to their members. On that basis, lending activity to members continued to fall within Section 80P(2)(a)(i), and the society remained entitled to the deduction.

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Issues: Whether Section 80P(4) of the Income-tax Act, 1961 applies only to co-operative banks and not to credit co-operative societies, and whether the exemption under Section 80P(2)(a)(i) remains available to a society carrying on lending activity for its members.

Analysis: The distinction between a co-operative bank and a co-operative society was treated as material. A co-operative bank carries on banking business as understood under the Banking Regulation Act, 1949 and is subject to the regulatory regime applicable to banks, whereas a credit co-operative society is governed by its own bye-laws and does not hold itself out as a bank. The Court followed its earlier decision and accepted that the legislative purpose of inserting Section 80P(4) was to withdraw the deduction from co-operative banks exclusively carrying on banking business, not to deny the benefit to a co-operative society engaged in providing credit facilities to its members. On that basis, the activity of lending to members fell within Section 80P(2)(a)(i).

Conclusion: Section 80P(4) does not apply to a credit co-operative society of the present kind, and the assessee remained entitled to the deduction under Section 80P(2)(a)(i).

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