By Radhakrishnan K.V
A lot of confusion is prevailing among the ITATs and Income tax authorities as well as the legal practitioners and Chartered accountants on the applicability of the provisions of Section 80P of Income Tax act 1961. The Section deals with deduction in respect of income of Co-operative Societies which is as follows:-
“80P. Deduction in respect of income of co- operative societies
(1) Where, in the case of an assessee being a co- operative society, the gross total income includes any income referred to in sub- section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub- section (2), in computing the total income of the assesses.
(2) The sums referred to in sub- section (1) shall be the following, namely:-
(a) in the case of a co- operative society engaged in-
(i) carrying on the business of banking or providing credit facilities to its members, or
………………………………….
………………………………….
the whole of the amount of profits and gains of such business”.
There was no ambiguity in the meaning of the Section till the new Sub section namely Section 80P (4) was added in the Act by the Finance Bill of 2006 effective from the AY-2007-08. Sub section 4 of Section 80P is as follows:-
“(4) The provisions of this section shall not apply in relation to any co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank. Explanation: For the purposes of this sub-section: (a) ?co-operative bank? and ?Primary agricultural credit society? shall have the meanings respectively assigned to them in Part V of the banking Regulation Act, 1949 (10 of 1949); (b) ?primary co-operative agricultural and rural development bank? means a society having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities.”
CO-OPERATIVE SOCIETIES CARRYING ON BANKING BUSINESS WILL NOT BE HIT BY SECTION 80P (4)
Assessing officers were of the view that primary Agricultural credit co-operative Societies only are eligible for deduction u/s 80P (2) from the AY-2007-08 onwards by virtue of Section 80P (4). A lot of litigation are still going on in this issue even after almost all High courts have held that all co-operative Societies other than those are licensed by Reserve Bank of India only would be hit by Section 80P(4) and thus would be deprived of the deduction u/s 80P(2). Various High Courts after detailed analysis of Section 80P and its sub sections along with the provisions of Banking Regulation Act 1949, had arrived into the following conclusions:-
1.All Co-operative Societies other than those coming under the control of Reserve bank of India are eligible for deduction under Section 80(P) (2) (a) of the Income Tax Act 1961.
2.A Co-operative society carrying on banking activities is not a Co-operative Bank licensed by Reserve Bank of India and therefore is eligible for deduction u/s 80P of Income Tax Act 1961in the light of the clarification No.133/06/2006-07 dated 19-05-2007 issued by CBDT.
The above said viewpoints were expressed by various appellate authorities all over the country. Some of these decisions are mentioned below:-
(a) High Court of Karnataka in Bangalore Commercial Transport Credit Society Ltd [ITA NO: 598/2013 dated 27-06-2014]
(b High Court of Gujarat – Jafari Momin Vikas Co-op. Credit Society Ltd. in Tax Appeals no. 442 of 2013, 443 of 2013 and 863 of 2013 on 15-01-2014
(c) ITAT, Panaji- Athani Taluka primary teachers’ Co-operative credit society Ltd. ITA NO. 06/PNJ/2014 on 04-07-2014
(d) ITAT, Poona – Jankalyan Nagri Sahakari Pat Sanstha Ltd. reported in 24 Taxmann.com (Pune Tribunal) 127
(e) ITAT, Ahamadabad – Jafari Momin Vikas Co-Op. Credit society on 31 October, 2012
(f) ITAT, Indore – Bhee Thrift & Credit Co- operative society on 6 August, 2012
(g) ITAT, Bangalore – Yeshwantpur Credit co-operative Society on 11 April, 2012
(h) ITAT, Ahmedabad-Sarvoday Credit cum Consumers Co-operative Society on 3 May, 2013
(i) ITAT, Pune – Jain Nagri Sahkari Pat Sanstha Department Of Income Tax on 14 September, 2012
(j) ITAT, Pune – Dharasur Mardini Nagar Sahakari on 20 November, 2012
(k) ITAT, Pune – Vardhman Nagari Sahakari Path Sansta on 22 November, 2012
(l) High court of Karnataka – Income Tax Officer Vs Sri Biluru Gurubasava Pattina Sahakari Sangha Niyamitha Bagalkot on 5th Feb 2014
(m) High Court of Bombay at Goa – Quepem Urban Co-operative Credit Society Ltd.vs Assistant Commissioner of jncome-tax on 17-04-2015
(n) Madras High Court – The Commissioner Of Income Tax vs Nlc Employees Co-Operative Society on 10 August, 2016
OLD CONTROVERSIES TAKE NEW FORMS
Assessing officers came forward to interfere into the privileges allowed to the co-operative societies in the statute through new avenues. Some of their experiments with legal provisions were:-
(a) Disallowance of reserves and provisions;
(b) Disallowance of interest expenses invoking Section 40a (ia) for non-compliance of TDS.
(c) Treating interest earned from investments as “income from other sources”;
(d) Treating deposits as “unexplained cash credit” u/s 68; etc.
In fact, all these efforts had been proved futile in the past. Hon’ble Supreme Court in COMMISSIONER OF INCOME TAX vs. NAWANSHAHAR CENTRAL COOPERATIVE BANK on 08-04-2005 had held that the income arising from investments would be attributable to the business of Banking falling under the head “profits and gains of business and thus deductible under Section 80P(2)(a)(i) of the Income tax Act 1961. None other than CBDT them self by CIRCULAR NO – 18/2015, Dated: November 2, 2015 also bring this fact into the attention of officers of the department. Regarding the disallowance of expenses and additions the CBDT has accepted the settled position of law that the disallowances related to the business activity against which the Chapter VI-A deduction has been claimed, result in enhancement of the profits of the eligible business, and that deduction under Chapter VI-A is admissible so enhanced by the disallowance. Vide Circular No.37/2016 dated 02-11-2016.
REVENUE HAS APPROCHED THE APEX COURT
Co-operative Societies which use the word “Bank” with its name and those carrying on banking business are considered as “Co-operative banks” and these Co-operative societies are disallowed deduction u/s 80(P) in several States. This approach is wrong for 2 reasons. Firstly, High courts and ITATs have made it clear that no co-operative Society carrying on banking business shall be treated as “Co-operative Bank” unless it holds a licence of RBI. Secondly, High courts and ITATs have examined this issue at length and opined that the revenue shall not dissect the co-operative Societies carrying on Banking business as “Co-operative banks” even if it is legal or illegal to carry on banking business without the licence of R.B.I. Kerala High court in Moolamattam Electricity Employees co-operative Bank v/s ITO and ITAT, Bangalore in Adarsh credit co-operative society v/s ITO had examined this issue at length and decided against the revenue.
Hon. High court of Kerala in the judgment dated 15-02-2016 in ITA 188 of 2014 and a batch of similar cases has held that the Assessing officer shall not treat the Primary Agricultural credit society as “Co-operative Bank” so as to deny the claim for deduction u/s 80(P) and the Court has held that a Primary Agricultural credit society classified as such by the Department of Co-operation is eligible for deduction u/s 80P (2). The Court also opined that the Income Tax authorities shall not probe into such issue and matter related to the classification of Co-operative Society which is to be done by the authority under the Co-operative Societies Act. Now, the Revenue has filed Special Leave Petition before the Hon’ble Supreme Court challenging the order of the Kerala High Court. Meanwhile assessments are being made by several assessing officers disallowing deduction u/s 80P as done earlier, as if there is no direction from the High court.
The main contention of Revenue in the case before the Apex court is that the jurisdictional High Court had held earlier in PERINTHALMANNA SERVICE CO?OPERATIVE BANK LTD vs. INCOME TAX OFFICER [ITA 4 of 2014] that the assessing officer may conduct enquiry instead of merely looking into the registration certificate, so as to find out the nature of transaction of the Co-operative Society in order to extent the benefit under Income Tax Act. Hon’ble Supreme Court has connected the case with a similar case filed by the revenue in which Gangolli Town Souhardha Co-operative Society is the respondent. Thus the issue of Section 80P has got a national dimension. The decision of the Apex Court in this case will have a far reaching effect on the whole Co-operative Credit Sector in India.
(The author is Joint Registrar of Co-op Societies (Retired) and based in Thrissur, Kerala)