Co-operative society deduction under section 80P survives unless it is statutorily shown to be a co-operative bank.

A co-operative society providing credit facilities to its members remains eligible for deduction under section 80P(2)(a)(i) unless it is shown to be a co-operative bank within section 80P(4) read with Part V of the Banking Regulation Act, 1949; on that reasoning, the deduction was held allowable. Where the Banking Regulation Act assigns final determination of whether the society is a co-operative bank to the Reserve Bank, income-tax authorities cannot conclusively decide that question for themselves and may only treat their view as tentative until the competent banking authority decides. The assessee therefore retained the section 80P deduction.

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Issues: (i) Whether a co-operative society engaged in providing credit facilities to its members is denied deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on the ground that it is a co-operative bank within the meaning of section 80P(4) read with Part V of the Banking Regulation Act, 1949; (ii) Whether the income-tax authorities can finally determine whether the assessee is a co-operative society or a co-operative bank for the purposes of the Banking Regulation Act, 1949.

Issue (i): Whether a co-operative society engaged in providing credit facilities to its members is denied deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on the ground that it is a co-operative bank within the meaning of section 80P(4) read with Part V of the Banking Regulation Act, 1949.

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society carrying on the business of banking or providing credit facilities to its members, while section 80P(4) withdraws that benefit only from a co-operative bank other than the specified exceptions. The definition in Part V of the Banking Regulation Act, 1949 makes a primary co-operative bank one that satisfies the statutory conditions, including the primary object of banking business and restrictions on membership. The decision follows the consistent view already taken that a credit society does not lose the deduction merely because it provides credit to members, unless it is in truth a co-operative bank within the statutory meaning.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i); the denial of deduction was not justified.

Issue (ii): Whether the income-tax authorities can finally determine whether the assessee is a co-operative society or a co-operative bank for the purposes of the Banking Regulation Act, 1949.

Analysis: The Banking Regulation Act, 1949 provides that where a dispute arises as to the primary object or principal business of the relevant kind of co-operative society, the determination by the Reserve Bank is final. On that footing, the income-tax authorities cannot conclusively treat the assessee as a co-operative bank on their own when the statutory controversy falls within that final determination clause. Their view can only operate tentatively until the competent banking authority decides the matter.

Conclusion: The income-tax authorities lacked final jurisdiction to conclusively determine the assessee as a co-operative bank for this purpose.

Final Conclusion: The assessee remained entitled to the section 80P deduction, and the appeal succeeded.

Ratio Decidendi: A co-operative society engaged in providing credit to its members retains deduction under section 80P(2)(a)(i) unless it is shown to be a co-operative bank within the statutory definition, and where the Banking Regulation Act assigns final determination of the relevant dispute to the Reserve Bank, the income-tax authorities cannot finally decide that question themselves.

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