Co-operative credit society treated as a credit institution and made liable to interest tax under banking activity test.

A co-operative thrift and credit society that borrows funds and advances loans to its members was treated as carrying on the business of banking for the purpose of the Interest-tax Act, 1974. The definition of "credit institution" in section 2(5A)(i) was applied to a co-operative society engaged in such banking activity during the relevant period, and the fact that it dealt only with members did not exclude it from the charging provision. The Banking Regulation Act, 1949, did not require the society to be a banking company before interest tax could apply.

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Issues: Whether a co-operative thrift and credit society, which borrows funds and advances loans to its members, falls within the definition of a credit institution and is liable to interest tax under the Interest-tax Act, 1974.

Analysis: The relevant definition of "credit institution" under section 2(5A)(i) of the Interest-tax Act, 1974, covered a co-operative society engaged in carrying on the business of banking during the relevant period. The nature of the society's bye-laws and activities showed that it borrowed funds and granted loans to members, which constituted carrying on the business of banking for the purposes of the charging provision. The fact that the society dealt only with members did not take it outside the statutory definition. The provisions of the Banking Regulation Act, 1949, did not require the society to be a banking company for the interest-tax provision to apply.

Conclusion: The society was liable to interest tax as a credit institution, and the questions of law were answered against the assessee and in favour of the Revenue.

Ratio Decidendi: For the purposes of the Interest-tax Act, 1974, a co-operative society that carries on the business of banking by accepting funds and advancing loans to members is a credit institution liable to interest tax, even if it is not a banking company.

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