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

A credit co-operative society remained eligible for deduction under section 80P(2)(a)(i) because section 80P(4) applies only where the entity is shown to be a co-operative bank, and lending to members by itself did not disqualify the society. Where the character of the society as a primary co-operative bank was disputed, the Banking Regulation Act made the Reserve Bank's determination final, so income-tax authorities could not conclusively decide that status on their own for section 80P purposes. The assessment view denying the deduction was therefore not sustainable, and the assessee's claim was restored.

---

---

Issues: (i) Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 despite the Revenue's contention that it was a co-operative bank hit by section 80P(4); (ii) Whether the income-tax authorities could themselves decide whether the assessee was a co-operative society or a primary co-operative bank when the Banking Regulation Act, 1949 provides for final determination by the Reserve Bank of India.

Issue (i): Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 despite the Revenue's contention that it was a co-operative bank hit by section 80P(4).

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, while section 80P(4) excludes only a co-operative bank other than the specified exceptions. The Court followed its earlier binding decisions holding that a credit co-operative society, which is not shown to be a co-operative bank carrying on exclusive banking business, remains eligible for the deduction. The assessee's activity of lending to members was treated as falling within the deduction provision and not as sufficient to deny relief merely because the society received deposits or advanced loans to members.

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

Issue (ii): Whether the income-tax authorities could themselves decide whether the assessee was a co-operative society or a primary co-operative bank when the Banking Regulation Act, 1949 provides for final determination by the Reserve Bank of India.

Analysis: Under section 56 of the Banking Regulation Act, 1949, read with the relevant definitions in section 5, if a dispute arises as to the primary object or principal business of a co-operative society, the determination by the Reserve Bank is stated to be final. On that basis, the Court held that the income-tax authorities could not conclusively assume jurisdiction to decide the disputed character of the assessee as a primary co-operative bank for the purpose of section 80P(4) until such determination was made by the Reserve Bank of India. The Court therefore treated the contrary conclusion of the tax authorities as beyond their competence on the facts of the case.

Conclusion: The income-tax authorities were not competent to finally determine the disputed status of the assessee as a co-operative bank for the purpose of section 80P(4).

Final Conclusion: The appeal succeeded, the assessee's claim for deduction was restored, and the contrary view taken by the tax authorities did not survive.

Ratio Decidendi: A co-operative credit society is not denied deduction under section 80P(2)(a)(i) unless it is shown to be a co-operative bank within section 80P(4), and where the Banking Regulation Act makes the Reserve Bank's determination final on the disputed character of the society, the income-tax authorities cannot conclusively decide that issue on their own.

---