Members-only credit societies retain section 80P deduction unless they satisfy the statutory definition of a co-operative bank.

A co-operative society providing credit facilities only to its members does not lose deduction under section 80P(2)(a)(i) unless it falls within the statutory definition of a co-operative bank under the Banking Regulation Act, 1949. The analysis notes that "banking" under section 5(b) contemplates acceptance of deposits from the public, and that the definition of "primary co-operative bank" must be read in that context. Because the society dealt only with members and not the general public, and the material did not conclusively establish that its principal business was that of a co-operative bank, section 80P(4) was held inapplicable and the deduction was sustained.

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Issues: Whether the assessee, a co-operative society providing credit facilities only to its members, was hit by section 80P(4) of the Income-tax Act, 1961 as a co-operative bank, so as to be denied deduction under section 80P(2)(a)(i).

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society carrying on banking business or providing credit facilities to its members, while section 80P(4) excludes only a co-operative bank other than the specified exceptions. The expression "banking" in section 5(b) of the Banking Regulation Act, 1949 contemplates acceptance of deposits from the public, and the definition of "primary co-operative bank" in section 56(ccv) has to be read in that statutory setting. On the facts, the assessee dealt only with its members and not with the general public, and the record did not justify treating it as a co-operative bank merely because it accepted deposits and advanced loans within its membership. The dispute as to the primary object or principal business was not one that could be finally concluded against the assessee on the material before the income-tax authorities.

Conclusion: The assessee was not a co-operative bank for the purposes of section 80P(4), and the deduction under section 80P(2)(a)(i) was allowable.

Final Conclusion: The disallowance was set aside and the assessee's claim for deduction was sustained.

Ratio Decidendi: A co-operative society providing credit facilities only to its members does not cease to be eligible for deduction under section 80P(2)(a)(i) unless it answers the statutory description of a co-operative bank under the Banking Regulation Act, 1949.

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