Member-only credit societies remain outside co-operative bank exclusion and can claim section 80P deduction.

A credit co-operative society that provides credit facilities only to its members is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act and is not excluded by section 80P(4) merely because it lends to members. The governing principle is that lending confined to members does not amount to banking activity under section 5(b) of the Banking Regulation Act, 1949, so such a society is not treated as a co-operative bank. Prior Tribunal, jurisdictional High Court, and Supreme Court authority were noted as supporting this distinction, leaving the deduction available to member-only credit societies.

---

---

Issues: Whether a co-operative credit society providing credit facilities only to its members is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, or is hit by the exclusion in section 80P(4) as a co-operative bank.

Analysis: The assessee was found to be a credit co-operative society confined to its employee-members and not engaged in banking with the public at large. The issue was covered by earlier Tribunal and jurisdictional High Court decisions holding that lending to members does not, by itself, amount to banking activity under section 5(b) of the Banking Regulation Act, 1949. The earlier view was also reinforced by the Supreme Court's affirmation of the principle that such credit societies are not co-operative banks and therefore remain eligible for deduction under section 80P(2).

Conclusion: The assessee was entitled to deduction under section 80P, and the disallowance made by the Assessing Officer was not sustainable.

---