Co-operative bank deduction under tax law depends on legal status, not alleged operational irregularities.

A registered co-operative society carrying on banking business retained its status for tax purposes because its registration and banking licence had not been cancelled by the competent authorities. Alleged irregularities in loan sanctions, security requirements, membership formalities and internal banking compliance were matters for the Registrar and other regulatory authorities under the Gujarat Co-operative Societies Act, 1961, and did not by themselves permit the revenue to ignore the society's continuing legal character. On that basis, the society remained entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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Issues: Whether a co-operative bank retains entitlement to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, despite alleged irregularities in sanctioning loans and other banking operations.

Analysis: The assessee was a registered co-operative society carrying on banking business, and its registration and banking licence had not been cancelled by the competent authorities. The alleged irregularities in sanction of loans, security, membership formalities, and internal compliance were matters falling within the powers of the Registrar and other competent regulatory authorities under the Gujarat Co-operative Societies Act, 1961. The revenue authorities could not disregard the continuing legal status of the society merely on the basis of such alleged misconduct or treat the assessee as having lost its character as a co-operative society for tax purposes.

Conclusion: The assessee remained entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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