Section 80P deduction depends on whether a co-operative society functions as a co-operative bank under banking law

Eligibility for deduction under section 80P depended on whether the society functioned as a co-operative bank and therefore fell within the exclusion in section 80P(4). The Tribunal noted that bye-laws permitting deposits from and loans to non-members may amount to banking under section 5(b) of the Banking Regulation Act, 1949, and that a predominantly non-agricultural lending pattern may affect the society's character for deduction purposes. As the bye-laws on record were incomplete, the matter was restored for fresh determination of whether the assessee was, or was not, a co-operative bank and the extent of deduction admissible.

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Issues: Whether the assessee's claim for deduction under section 80P of the Income-tax Act, 1961 required a fresh determination on the basis of whether it was a co-operative bank or otherwise, in the light of its bye-laws, the Kerala Co-operative Societies Act, 1969 and the Banking Regulation Act, 1949.

Analysis: The assessee was registered as a primary agricultural credit society, but the relevant enquiry for deduction under section 80P turned on whether it answered the description of a co-operative bank so as to attract the exclusion under section 80P(4). It was noticed that the Kerala Act permits a society, through its bye-laws, to accept deposits from and lend to non-members, and that such activity may still amount to banking within section 5(b) of the Banking Regulation Act, 1949. The Tribunal also noted that the lending pattern was predominantly for non-agricultural purposes, which affected the character of the society for the purpose of section 80P, while the bye-laws on record were incomplete for a conclusive finding.

Conclusion: The matter had to be restored to the Assessing Officer to determine the assessee's eligibility for deduction under section 80P on the basis of whether it was, or was not, a co-operative bank, and the extent of deduction admissible accordingly.

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