The Supreme Court held that co-operative societies provide credit facilities to other member co-operative societies which cannot be construed as ‘co-operative banks’.

Division bench of Justice B.V. Nagarathna And Justice Ujjal Bhuyan has observed Section 80P(4) carved out an exception to Section 80P(1) and (2) which excludes co- operative banks which must possess licence from RBI to do banking business, however, if the Assessee does not requires any licence from RBI, it would not be hit by Section 80P(4).

The assessee, for AY 2007-08 claimed deduction under Section 80P(2)(a)(i) which was disallowed on the premise that Assessee is neither a primary agricultural society nor a primary co-operative agricultural and rural development bank but a ‘co-operative bank’, thus, hit by the exclusion of Section 80P(4). Both CIT(A) and ITAT upheld the applicability of Section 80P(4) which was also upheld by Kerala High Court.

The SC held that the conjoint reading of all the relevant statutory provisions under BR Act, NABARD Act and Kerala State Acts clearly stipulates that the Assessee is not a co-operative bank within the meaning of Section 80P(4) and is a co-operative society whose primary object is to provide financial accommodation to its members who are co-operative societies and not members of the public.

The Apex court relied on coordinate bench ruling in Citizen Co-operative Society wherein it was held that once the Assessee is entitled to avail the deduction, the entire amount of profit and gains of business that are attributable to any one or more activities mentioned in Section 80P(2) since Section 80P(4) is in the nature of a proviso to the main provision contained and excludes co-operative banks alone.