Co-operative credit society outside the co-operative bank exclusion retains section 80P deduction for member-only lending.

A co-operative credit society that provided credit only to its members was held not to fall within the expression "co-operative bank" for section 80P(4) of the Income-tax Act, 1961. Section 80P continues to allow deduction to eligible co-operative societies, while the exclusion in section 80P(4) applies only to co-operative banks, as understood by reference to banking business under section 5(b) of the Banking Regulation Act, 1949. Because the society accepted deposits and advanced credit only to members, and not to the public at large, it was not carrying on banking business and remained entitled to the deduction.

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Issues: Whether the assessee, being a co-operative credit society providing credit facilities only to its members, falls within the expression "co-operative bank" so as to be excluded by section 80P(4), or whether it remains entitled to deduction under section 80P of the Income-tax Act, 1961.

Analysis: Section 80P grants deduction to co-operative societies in respect of specified income, while section 80P(4) withdraws that benefit only from co-operative banks other than the specified agricultural institutions. A co-operative credit society registered under the State Co-operative Societies Act and confining its operations to its members does not answer the statutory description of a co-operative bank. The defining feature of banking under section 5(b) of the Banking Regulation Act, 1949 is acceptance of deposits from the public for lending or investment, repayable on demand or otherwise and withdrawable in the prescribed manner. Since the assessee accepted deposits and extended credit only to its members and not to the public at large, it was not carrying on banking business.

Conclusion: The assessee was not a co-operative bank and was entitled to deduction under section 80P of the Income-tax Act, 1961. The appeal by the Revenue was rejected.

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