Co-operative society deduction under Section 80P depends on statutory bank status, and disputed character cannot be finally decided by tax authorities.

Section 80P(2)(a)(i) allows deduction to a co-operative society engaged in banking or credit facilities to members, but Section 80P(4) withdraws that benefit only where the entity is a co-operative bank within the Banking Regulation Act definition. The note states that a society does not lose the deduction merely because it advances credit to members, unless it is shown to fall within that statutory category. It also states that where the Banking Regulation Act reserves final determination of a disputed character to the Reserve Bank of India, the Income-tax authorities cannot conclusively decide for themselves whether the entity is a co-operative society or a co-operative bank.

---

---

Issues: (i) Whether the assessee, a co-operative society, was entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961, or was excluded by Section 80P(4) on the footing that it was a co-operative bank within the meaning of Part V of the Banking Regulation Act, 1949. (ii) Whether the authorities under the Income-tax Act, 1961 could themselves finally determine whether the assessee was a co-operative society or a co-operative bank when the Banking Regulation Act, 1949 provides that such dispute is to be determined by the Reserve Bank of India.

Issue (i): Whether the assessee, a co-operative society, was entitled to deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961, or was excluded by Section 80P(4) on the footing that it was a co-operative bank within the meaning of Part V of the Banking Regulation Act, 1949.

Analysis: The relevant scheme of Section 80P grants deduction to a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members, but Section 80P(4) withdraws that benefit from a co-operative bank other than the specified exceptions. The expression "co-operative bank" takes its meaning from Part V of the Banking Regulation Act, 1949. The judgment follows earlier decisions holding that a co-operative society does not lose the benefit merely because it provides credit facilities to members, unless it is shown to be a co-operative bank falling within the statutory definition.

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

Issue (ii): Whether the authorities under the Income-tax Act, 1961 could themselves finally determine whether the assessee was a co-operative society or a co-operative bank when the Banking Regulation Act, 1949 provides that such dispute is to be determined by the Reserve Bank of India.

Analysis: Section 56 of the Banking Regulation Act, 1949 applies the banking law to co-operative societies with modifications and contains an Explanation stating that, if any dispute arises as to the primary object or principal business of a society covered by the relevant clauses, the determination by the Reserve Bank shall be final. On that basis, the judgment held that the Income-tax authorities could not conclusively assume the disputed character of the assessee as a co-operative bank for the purpose of denying deduction, and that any such determination must rest with the Reserve Bank of India.

Conclusion: The Income-tax authorities were not competent to finally decide the disputed character of the assessee as a co-operative bank for the purpose of Section 80P.

Final Conclusion: The assessee remained entitled to the deduction claimed, and the exclusion under Section 80P(4) could not be applied on the present findings.

Ratio Decidendi: A co-operative society is not denied deduction under Section 80P(2)(a)(i) unless it is established as a co-operative bank within the statutory definition, and where the Banking Regulation Act reserves final determination of the disputed character to the Reserve Bank of India, the Income-tax authorities cannot conclusively disqualify the society on their own.

---