Regional Rural Bank deduction under section 80P denied where exclusion for co-operative banks applies after amendment.

A Regional Rural Bank was examined for eligibility to deduction under section 80P of the Income-tax Act in light of section 22 of the Regional Rural Banks Act, 1976 and the exclusion in section 80P(4). The analysis noted that section 22 deems a Regional Rural Bank to be a co-operative society for tax purposes, but the later amendment and CBDT circular restricted the benefit of section 80P from assessment year 2007-08 onwards. The legislative intent was treated as excluding co-operative banks engaged in banking activity, while preserving relief only for primary agricultural credit societies and primary co-operative agricultural and rural development banks. The bank was not within either category, so deduction under section 80P was unavailable.

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Issues: Whether a Regional Rural Bank is entitled to deduction under section 80P of the Income-tax Act, 1961 in view of section 22 of the Regional Rural Banks Act, 1976 and the exclusion under section 80P(4).

Analysis: The assessee was a Regional Rural Bank claiming deduction under section 80P on the footing that section 22 of the Regional Rural Banks Act, 1976 deems such a bank to be a co-operative society for income-tax purposes. The provisions of section 80P were examined along with the CBDT circular clarifying that Regional Rural Banks were not to receive the benefit of section 80P from assessment year 2007-08 onwards after insertion of sub-section (4). The Tribunal also considered the legislative intent behind the amendment, namely exclusion of co-operative banks engaged in banking activity, while limiting the benefit to primary agricultural credit societies and primary co-operative agricultural and rural development banks. On the facts, the assessee was neither a primary agricultural credit society nor a primary co-operative agricultural and rural development bank.

Conclusion: The assessee was not entitled to deduction under section 80P and the disallowance was upheld.

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