The judgment established that co-operative societies must adhere to the provisions of the relevant co-operative society acts and maintain the principle of mutuality to claim the benefit under Section 80P of the Income Tax Act, 1961.

JUDGMENT :

A.K. Sikri, J.

Leave granted.

2. The appellant herein, after losing in all the fora below, has knocked the doors of this Court by means of the present appeal seeking the benefit of Section 80P of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). The Assessing Officer held that deduction in respect of income of co-operative societies under Section 80P of the Act is not admissible to the appellant as the benefit of deduction, as contemplated under the said provision is, inter alia, admissible to those co-operative societies which carry on business of banking or providing credit facilities to its members. On the contrary, the appellant society was carrying on the banking business for public at large and for all practical purposes it was acting like a co-operative bank governed by the Banking Regulation Act, 1949, and its operation was not confined to its members but outsiders as well.

3. It may be noted at this stage itself that Section 80P of the Act provides for certain deduction in respect of incomes of the co-operative societies. A co-operative society is defined by Section 2(19) of the Act. Where the gross total income of such co-operative societies includes any income referred to in sub-section (2) of Section 80P, the sums specified in sub-section (2) are allowed as deduction in accordance with and subject to the provisions of the said Section, while computing the total income of the assessee. The profit exempted is the net profit included in the total income and not the gross profit of the business. Sub-section (2) enlists those sums which are allowed as deductions. Clause (a) of sub-section (2) includes seven kinds of co-operative societies which are entitled to this benefit, and in respect of the co-operative societies engaged in the activities mentioned in those seven classes, the whole of the amount of profits and gains of business attributable to anyone or more of such activities is exempted from income by allowing the said income as deduction. We are concerned with sub-clause (i) of clause (a) of sub-section (2) of Section 80P which enlists a co-operative society engaged in carrying on the business of banking or providing credit facilities to its members. For the sake of better understanding, we reproduce below the aforesaid portion of Section 80P:

“80P. Deduction in respect of income of co-operative societies.–

(1) Where, in the case of an assesee 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 assessee.

(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

xx xx xx

the whole of the amount of profits and gains of business attributable to any one or more of such activities:

xx xx xx”

4. Section 80P was amended by the Finance Act, 2006 with effect from April 01, 2007 and sub-section (4) was inserted thereto. This sub-section (4) reads as under:

“(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.