A two-judge bench of the supreme Court recently ruled that co-operative societies engaged in banking business for the public not eligible for deduction under section 80P of the Income Tax Act, 1961.
The appellants, The Citizen Co-Operative Society Limited, carrying on banking business for the public at large, had claimed the benefit of section 80-P of the IT Act. However, the Assessing Officer denied the benefit and has held that the provision is applicable to those co-operative societies which carry on business of banking or providing credit facilities to its members.
Section 80P of the Act provides for certain deduction in respect of incomes of the co-operative societies.
Before the bench, it was contended on behalf of the appellant that the principal object of the society is to promote interest of all its members to attain their social and economic betterment through self-help and mutual aid in accordance with the assessee society can engage in certain specified forms of business stipulated in the objective clause of the society and therefore, the provision is applicable to the assesse also.
Section 80P of the Act is a benevolent provision which is enacted by the Parliament in order to encourage and promote growth of co-operative sector in the economic life of the country. It was done pursuant to declared policy of the Government.
“With the insertion of sub-section (4) by the Finance Act, 2006, which is in the nature of a proviso to the aforesaid provision, it is made clear that such a deduction shall not be admissible to a co-operative bank. However, if it is a primary agriculture credit society or a primary co-operative agriculture and rural development bank, the deduction would still be provided. Thus, co-operative banks are now specifically excluded from the ambit of Section 80P of the Act.”
Diving deeply into the facts of the case, Justice A.K Sikri and Justice Ashok Bhushan observed that most of the business of the appellant was with this second category of persons who have been giving deposits which are kept in Fixed Deposits with a motive to earn maximum returns. A portion of these deposits is utilized to advance gold loans, etc. to the members of the first category.
It noted that “In reality, such activity of the appellant is that of finance business and cannot be termed as co-operative society. It is also found that the appellant is engaged in the activity of granting loans to general public as well. All this is done without any approval from the Registrar of the Societies. With indulgence in such kind of activity by the appellant, it is remarked by the Assessing Officer that the activity of the appellant is in violation of the Co-operative Societies Act. Moreover, it is a co-operative credit society which is not entitled to deduction under Section 80P(2)(a)(i) of the Income Tax Act.”
It further pointed out that a specific finding rendered by the Assessing Officer that the principle of mutuality is missing in the instant case.
It was therefore, held that “the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members. We are afraid such a society cannot claim the benefit of Section 80P of the Act.”
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