Co-operative credit society status upheld where activities were limited to members, preserving deduction and excluding co-operative bank treatment.

A co-operative entity confined by its bye-laws to accepting deposits from members and providing credit facilities to members only was treated as a co-operative credit society, not a co-operative bank. The statutory definition of a co-operative bank under the Banking Regulation Act requires banking business involving dealings with the public, and the entity's lack of transactions with non-members or the general public meant it did not satisfy that character. A prior statement made in penalty proceedings could not alter the legal status derived from the governing documents and statutory framework. It was therefore entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and section 80P(4) did not apply.

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Issues: Whether the assessee was a co-operative credit society entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, or a co-operative bank hit by section 80P(4) of the Act.

Analysis: The assessee's bye-laws confined its activities to accepting deposits from members and granting credit facilities to members only, with no dealings with non-members or the general public. Under the Banking Regulation Act, a co-operative bank includes a state co-operative bank, a central co-operative bank, or a primary co-operative bank, and a primary co-operative bank must satisfy the statutory conditions including carrying on banking business. Banking business contemplates accepting deposits from the public and using them for lending or investment. On the facts found, the assessee did not transact with the public at large and did not satisfy the statutory character of a co-operative bank. A prior admission by the assessee's representative in penalty proceedings could not override the true legal status determined from the governing documents and statutory framework.

Conclusion: The assessee was held to be a co-operative credit society and not a co-operative bank, and was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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