Member-only co-operative credit society not treated as a co-operative bank; deduction under section 80P remained available.

A primary co-operative credit society that confined its activities to members was not treated as a co-operative bank for the exclusion in section 80P(4) of the Income-tax Act, 1961. The decisive test was whether it satisfied the cumulative statutory conditions of a co-operative bank under the Banking Regulation Act, 1949, including principal banking business and bye-laws restricting membership as required by law; on the accepted facts, those conditions were not met. The society was therefore entitled to deduction under section 80P(2)(a)(i), and the mere acceptance of deposits and granting of loans to members did not disentitle it to relief.

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Issues: Whether the assessee, being a primary co-operative credit society providing credit facilities and accepting deposits only from its members, was a co-operative bank hit by section 80P(4) of the Income-tax Act, 1961, or was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The assessee's activities were confined to its members and there was no material to show that it was carrying on banking with the public at large. For a society to fall within the exclusion in section 80P(4), it must answer the description of a co-operative bank under the Banking Regulation Act, 1949. That requires the conditions of a primary co-operative bank to be satisfied cumulatively, including that its principal business is banking and that its bye-laws prohibit admission of other co-operative societies as members. On the facts accepted by the Tribunal, those conditions were not met. The assessee was therefore not a co-operative bank, and the deduction could not be denied merely because it accepted deposits and advanced loans to members.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and section 80P(4) did not apply.

Final Conclusion: The Revenue's appeal failed and the disallowance made by the Assessing Officer was not sustained.

Ratio Decidendi: A co-operative credit society dealing only with its members is not excluded by section 80P(4) unless it satisfies, cumulatively, the statutory test of a co-operative bank under the Banking Regulation Act, 1949.

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