Co-operative credit society deduction upheld where lending was confined to members and section 80P(4) did not apply.

A co-operative credit society that provides credit facilities only to its members is not treated as a co-operative bank for purposes of the section 80P(4) exclusion. The deduction under section 80P(2)(a)(i) remains available where the society does not carry on banking with the public at large, is not recognised as a bank, and has no RBI authorisation for banking activity. On that basis, the disallowance of the deduction was held unsustainable and was set aside.

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

Analysis: The deduction under section 80P(2)(a)(i) applies to profits and gains attributable to the business of the co-operative society. The exclusion in section 80P(4) operates only in relation to a co-operative bank, other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. A co-operative credit society which accepts deposits and lends only to its members, and does not carry on banking with the public at large, does not satisfy the essential character of a co-operative bank. The absence of recognition as a bank and the absence of RBI authorisation for banking activity support the conclusion that the assessee was not hit by the statutory exclusion.

Conclusion: The assessee was not a co-operative bank and was entitled to deduction under section 80P(2)(a)(i); the disallowance was unsustainable and was set aside.

Ratio Decidendi: A co-operative credit society that provides credit facilities only to its members, and is not a co-operative bank, is not barred from deduction under section 80P(2)(a)(i) by section 80P(4) of the Income-tax Act, 1961.

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