Co-operative credit society deduction under section 80P(2)(a)(i) upheld where the entity was not a co-operative bank

A co-operative credit society that provides credit facilities only to its members, and does not carry on banking business as a co-operative bank, remains eligible for deduction under section 80P(2)(a)(i). Section 80P(4) withdraws that benefit only from a co-operative bank other than the specified exceptions, and a society without an RBI banking licence is not treated as such for this purpose. Applying the binding jurisdictional High Court view, the Tribunal held that the exclusion in section 80P(4) did not apply and the deduction was allowable.

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Issues: Whether a co-operative credit society engaged in providing credit facilities to its members, and not carrying on banking business as a co-operative bank, was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, notwithstanding section 80P(4).

Analysis: The appeals turned on the distinction between a co-operative society providing credit facilities to members and a co-operative bank. The allowance of deduction depends on whether the assessee is covered by section 80P(2)(a)(i), while section 80P(4) withdraws the benefit only from a co-operative bank other than the specified exceptions. The Tribunal followed the binding view of the jurisdictional High Court that a society registered as a co-operative society, carrying on lending or credit activity only with its members and not holding a banking licence from the Reserve Bank of India, is not a co-operative bank for this purpose. On those facts, the exclusion in section 80P(4) does not apply.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i), and the Revenue's challenge failed.

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