Co-operative credit society deduction upheld where statutory test for exclusion as a co-operative bank was not satisfied.

A co-operative credit society was held entitled to deduction under section 80P(2)(a)(i) because it did not satisfy the cumulative statutory conditions for exclusion as a co-operative bank under section 80P(4). The analysis applied the Banking Regulation Act, 1949 test for a primary co-operative bank and found that the society's principal business was not banking, its dealings with non-members were insignificant, and its bye-laws did not prohibit admission of other co-operative societies as members. On those facts, the society was not treated as carrying on banking business and remained eligible for the deduction.

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Issues: Whether a co-operative credit society was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, or whether it was excluded as a co-operative bank by section 80P(4) of the Act.

Analysis: The dispute turned on whether the assessee satisfied the definition of a primary co-operative bank under the Banking Regulation Act, 1949. For exclusion under section 80P(4), the society had to cumulatively satisfy the statutory conditions, including that its principal business was banking and that its bye-laws prohibited admission of any other co-operative society as a member. The record showed that the assessee was a co-operative credit society, its dealings with non-members were insignificant, and its bye-laws did not contain the requisite prohibition. On the facts, it was not shown to be carrying on banking business as understood in the Banking Regulation Act, 1949, and it did not meet the statutory test of a primary co-operative bank.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i) and was not hit by section 80P(4).

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