Member-only credit societies remain eligible for section 80P deduction where they are not co-operative banks with banking licence.

A co-operative society that provides credit facilities only to its members, and does not hold an RBI banking licence, is not treated as a co-operative bank for the purpose of section 80P(4) of the Income-tax Act, 1961. The provision withdraws the deduction only from co-operative banks, while section 80P(2)(a)(i) continues to allow deduction to a co-operative society engaged in providing credit facilities to members. Applying this distinction, the Tribunal noted that the societies were registered as co-operative societies and were not carrying on banking business in the statutory sense, so section 80P(4) did not apply and deduction under section 80P(2)(a)(i) remained available.

---

---

Issues: Whether a co-operative credit society providing credit facilities only to its members, and not holding a banking licence, is hit by section 80P(4) of the Income-tax Act, 1961 and thus disentitled to deduction under section 80P(2)(a)(i).

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. Section 80P(4), inserted with effect from 01.04.2007, withdraws this benefit only from a co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. The relevant question, therefore, was whether the assessees were co-operative banks within the meaning of the Banking Regulation Act, 1949. The record showed that the assessees were co-operative societies registered under the Karnataka Co-operative Societies Act, 1959, providing credit facilities to members and not holding any RBI banking licence. The Tribunal followed the jurisdictional High Court decisions holding that such societies, not being co-operative banks and not carrying on banking business in the statutory sense, do not fall within section 80P(4).

Conclusion: The assessees were held entitled to deduction under section 80P(2)(a)(i), and section 80P(4) was held inapplicable.

Ratio Decidendi: A co-operative society that provides credit facilities only to its members and is not a co-operative bank with RBI banking authorization is outside the mischief of section 80P(4) and remains eligible for deduction under section 80P(2)(a)(i).

---