Co-operative bank classification under section 80P depends on statutory conditions, and tax authorities cannot finally override RBI determination.

Section 80P(4) withdraws deduction only where a co-operative society answers the statutory definition of a co-operative bank under the Banking Regulation Act, 1949. A society that fails any essential condition for a primary co-operative bank, including the bye-law restriction on admitting other co-operative societies as members, cannot be treated as a co-operative bank, so the deduction under section 80P(2)(a)(i) remains available. The text also notes that where the banking character of a society is disputed, the Banking Regulation Act assigns final determination to the Reserve Bank, and income-tax authorities cannot conclusively override that mechanism. On that basis, the assessee's deduction was treated as allowable.

---

---

Issues: (i) Whether the assessee society was to be treated as a co-operative bank so as to be denied deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; (ii) Whether the income-tax authorities were competent to determine whether the assessee was a co-operative society or a co-operative bank for the purposes of the Banking Regulation Act, 1949.

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

Analysis: The relevant scheme of section 80P allows deduction to a co-operative society carrying on banking business or providing credit facilities to its members, while section 80P(4) withdraws that benefit only from a co-operative bank other than specified exceptions. The expression "co-operative bank" is adopted from Part V of the Banking Regulation Act, 1949, and a primary co-operative bank must satisfy all the statutory conditions in section 5(ccv). The assessee did not satisfy the third condition, namely that its bye-laws must not permit admission of any other co-operative society as a member. A society which fails any one of the statutory conditions cannot be treated as a primary co-operative bank.

Conclusion: The assessee was not a co-operative bank for the purpose of section 80P(4), and the deduction under section 80P(2)(a)(i) remained available in its favour.

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

Analysis: The Banking Regulation Act, 1949 contains an express provision that where a dispute arises as to the primary object or principal business of a co-operative society falling within the relevant clauses, the determination by the Reserve Bank is final. The classification of the assessee as a co-operative bank therefore involved a disputed question that could not be conclusively resolved by the income-tax authorities in the face of that statutory mandate. Any finding by the tax authorities on that question was at best tentative until the Reserve Bank's determination.

Conclusion: The income-tax authorities were not competent to finally determine the dispute on classification as a co-operative bank for this purpose.

Final Conclusion: The assessee remained entitled to the deduction claimed, and the revenue's appeal failed.

Ratio Decidendi: Denial of deduction under section 80P(4) applies only when the assessee answers the statutory definition of a co-operative bank under the Banking Regulation Act, 1949, and where the Act assigns final determination of the disputed banking character to the Reserve Bank, the tax authorities cannot conclusively displace that statutory mechanism.

---