Primary co-operative bank test failed where lending was confined to members and no RBI banking licence existed.

A co-operative society is not a primary co-operative bank unless the statutory conditions under the Banking Regulation Act are cumulatively satisfied, including carrying on banking in the statutory sense. Where the bye-laws restrict deposits and lending to members, there is no material of dealings with the public, and no RBI banking licence exists, the society is not treated as a primary co-operative bank. On these facts, section 80P(4) did not bar deduction under section 80P(2)(a)(i), and the Revenue's objection failed.

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Issues: Whether the assessee-society was a primary co-operative bank so as to fall within section 80P(4) of the Income-tax Act, 1961 and be denied deduction under section 80P(2)(a)(i).

Analysis: The assessee's bye-laws restricted acceptance of deposits and lending to members, and there was no material to show banking activities with the public at large. For a co-operative society to be treated as a primary co-operative bank, the conditions in the Banking Regulation Act, 1949 had to be cumulatively satisfied. The absence of a banking licence from the RBI was also significant. On these facts, the society was not engaged in banking in the statutory sense and could not be treated as a primary co-operative bank.

Conclusion: The assessee was not covered by section 80P(4) and remained eligible for deduction under section 80P(2)(a)(i); the Revenue's objection failed.

Final Conclusion: The Revenue's appeal was rejected and the deduction allowed by the first appellate authority was sustained.

Ratio Decidendi: A co-operative society is not a primary co-operative bank unless the statutory conditions for such classification are cumulatively satisfied, including engagement in banking in the statutory sense; where activities are confined to members and no RBI banking licence exists, section 80P(4) does not bar deduction under section 80P(2)(a)(i).

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