Members-only credit co-operative society not treated as a co-operative bank; deduction under section 80P(2)(a)(i) allowed.

A members-only credit co-operative society that does not provide banking facilities to the public and whose bye-laws do not permit banking activity is not treated as a co-operative bank for section 80P(4) of the Income-tax Act, 1961. On those facts, the Tribunal held that the society remained outside the banking activities contemplated by the Banking Regulation Act, 1949, and therefore continued to qualify for deduction under section 80P(2)(a)(i). The Revenue's objection to the deduction failed because the society's restricted operations were distinguishable from a co-operative bank carrying on banking with the general public.

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Issues: Whether a credit co-operative society confined to its members and not carrying on banking activities with the general public is a co-operative bank so as to be denied deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in view of section 80P(4).

Analysis: The assessee's activities were restricted to its members, it did not provide banking facilities to the public at large, and its bye-laws did not permit banking activities. On these facts, the Tribunal found that the case was distinguishable from the authorities relied upon by the Assessing Officer and was in line with decisions holding that societies with a limited members-only operation and credit facilities restricted to members do not fall within the banking activities contemplated by the Banking Regulation Act, 1949. The Tribunal agreed with the first appellate authority that the assessee could not be treated as a co-operative bank for the purposes of section 80P(4).

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

Ratio Decidendi: A members-only credit co-operative society that does not carry on banking with the public and is not engaged in banking activities as contemplated by the Banking Regulation Act, 1949 is not a co-operative bank hit by section 80P(4) of the Income-tax Act, 1961.

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