Member-based credit society qualifies for deduction; section 80P(4) does not exclude it as a co-operative bank.

A co-operative society confined to providing credit facilities to its members and associate members was entitled to deduction under section 80P(2)(a)(i) because it was not carrying on banking business under the Banking Regulation Act, had no RBI banking licence, and did not deal with the public at large. Section 80P(4) was held inapplicable because it excludes only co-operative banks functioning like commercial banks, not member-based credit societies. The presence of associate members did not by itself deny the deduction where the income arose from activities covered by the provision.

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Issues: Whether the assessee co-operative society was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on income derived from its regular members and associate members, and whether section 80P(4) excluded it from the benefit on the footing that it was a co-operative bank.

Analysis: The assessee's activity was confined to providing credit facilities to members and associate members and it did not carry on banking business as defined in the Banking Regulation Act, 1949. It had no RBI banking licence, did not deal with the public at large, and its transactions were restricted to its membership structure governed by the State co-operative law. Section 80P(4) operates to exclude only co-operative banks functioning at par with commercial banks and lending to the public, not every co-operative society engaged in member-based credit activity. The Tribunal followed the settled position that deduction under section 80P(2)(a)(i) cannot be denied merely because the society also had associate members, so long as the income arose from activities covered by the provision.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i), and section 80P(4) did not apply to deny the claim.

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