The AO cites Citizen Co-operative Society to deny my 80P claim. How far does it go?
Only as far as mutuality. The society there lost because its 'nominal members' were not members in law, the contributors to the surplus and the participants in it were not the same body, and it was in substance running a finance business outside the statute under which it was registered.
Decided by the Supreme Court (Supreme Court of India — A.K. Sikri and Ashok Bhushan JJ (judgment by Sikri J), Civil Appeal No. 10245 of 2017) on 2017-08-08, reported as (2017) 397 ITR 1 (SC) / (2017) 9 SCC 364. It bears on section 80P, section 80P(2)(a)(i), section 80P(4) of the Income Tax Act 1961, in Co-operative Societies and Deductions & Disallowances matters.
This one favours the revenue and is what the department leads with whenever a credit society has nominal-member or non-member business. Keep it to hand for its limits rather than its holding: it is partly overruled, and the fact-based paragraphs officers usually quote no longer carry authority.
Binding on every court and authority in India.
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The society was registered in 1997 under the Andhra Pradesh Mutually Aided Co-operative Societies Act 1995, and re-registered in 2005 under the Multi State Co-operative Societies Act 2002 as its operations spread across three States. For assessment year 2009-10 it returned nil income after claiming about Rs 4.26 crore as a deduction under s.80P. It had two classes of members: ordinary resident members, and 'nominal members' who made deposits in order to obtain loans and who, on the Assessing Officer's finding, were not members in any real sense. Most of the society's business was with the second class, whose deposits were held as fixed deposits to earn maximum returns, part of which financed gold loans to ordinary members; depositors and borrowers were distinct groups. It also lent to the general public, without approval from the Registrar. The Assessing Officer disallowed the s.80P deduction on the footing that the society was in substance carrying on banking for the public at large. The Commissioner (Appeals) and the Tribunal upheld him, following the society's own earlier years, and the High Court dismissed its appeal.
The society's appeal was dismissed with costs, and s.80P was denied. Two things the Court decided are often run together and should not be. First, on the law, s.80P is a benevolent provision to be read liberally, reasonably and in favour of the assessee, and s.80P(2)(a)(i) recognises two distinct kinds of society - one carrying on banking, one providing credit facilities to members. Second, the Court held expressly that this society was not a co-operative bank, held no Reserve Bank licence, and did not come within the mischief of s.80P(4) at all - so the case is not authority on that sub-section. What defeated the claim was the concurrent findings of fact: that the society had admitted 'nominal members' who were not members in any real sense, that most of its business was with them, that depositors and borrowers were distinct classes, that it lent to the general public without the Registrar's approval, and that mutuality was therefore absent. On those findings it could not be treated as a co-operative society meant only for its members and providing credit facilities to them.
The Court accepted that s.80P was enacted to encourage the co-operative sector and must be read liberally and in favour of the assessee, and that each head of exemption in sub-section (2) is separate, so income falling under one head is exempt even if the conditions of another are not met. Sub-section (4), inserted by the Finance Act 2006, excludes co-operative banks, but on the definition in Part V of the Banking Regulation Act the society was not a co-operative bank: it held no Reserve Bank licence, and the Reserve Bank had itself clarified that its business was not that of a co-operative bank. The reason the deduction failed lay elsewhere. The Assessing Officer had found, on the society's bye-laws and the Mutually Aided Co-operative Societies Act 1995 under which it was registered, that it could not admit nominal members and deal with them; that it did so, taking deposits from that second category and placing them in fixed deposits to earn returns while lending gold loans to ordinary members; that depositors and borrowers were quite distinct as classes; and that it lent to the general public without any approval from the Registrar. On mutuality, both parties to the transaction contributed to the surplus but there were no identifiable participators in it, so the test failed. The Court treated all of this as findings of fact that had remained unshaken up to the High Court, and decided the appeal on that footing.
the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members.
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Handle my notice → Ask a CA on WhatsAppOnly as far as mutuality. The society there lost because its 'nominal members' were not members in law, the contributors to the surplus and the participants in it were not the same body, and it was in substance running a finance business outside the statute under which it was registered. This was decided by the Supreme Court (Supreme Court of India — A.K. Sikri and Ashok Bhushan JJ (judgment by Sikri J), Civil Appeal No. 10245 of 2017) and bears on section 80P, section 80P(2)(a)(i), section 80P(4) of the Income Tax Act 1961. It is reported as (2017) 397 ITR 1 (SC) / (2017) 9 SCC 364. This one favours the revenue and is what the department leads with whenever a credit society has nominal-member or non-member business. Keep it to hand for its limits rather than its holding: it is partly overruled, and the fact-based paragraphs officers usually quote no longer carry authority. If it applies to you, the first step is this: Check whether the contributors to your society's surplus and the participants in it are the same body of members — that is the test that decided the case.
The society was registered in 1997 under the Andhra Pradesh Mutually Aided Co-operative Societies Act 1995, and re-registered in 2005 under the Multi State Co-operative Societies Act 2002 as its operations spread across three States. For assessment year 2009-10 it returned nil income after claiming about Rs 4.26 crore as a deduction under s.80P. It had two classes of members: ordinary resident members, and 'nominal members' who made deposits in order to obtain loans and who, on the Assessing Officer's finding, were not members in any real sense. Most of the society's business was with the second class, whose deposits were held as fixed deposits to earn maximum returns, part of which financed gold loans to ordinary members; depositors and borrowers were distinct groups. It also lent to the general public, without approval from the Registrar. The Assessing Officer disallowed the s.80P deduction on the footing that the society was in substance carrying on banking for the public at large. The Commissioner (Appeals) and the Tribunal upheld him, following the society's own earlier years, and the High Court dismissed its appeal. The matter was decided on 2017-08-08 by the Supreme Court (Supreme Court of India — A.K. Sikri and Ashok Bhushan JJ (judgment by Sikri J), Civil Appeal No. 10245 of 2017). On those facts the Supreme Court held as follows. The society's appeal was dismissed with costs, and s.80P was denied. Two things the Court decided are often run together and should not be. First, on the law, s.80P is a benevolent provision to be read liberally, reasonably and in favour of the assessee, and s.80P(2)(a)(i) recognises two distinct kinds of society - one carrying on banking, one providing credit facilities to members. Second, the Court held expressly that this society was not a co-operative bank, held no Reserve Bank licence, and did not come within the mischief of s.80P(4) at all - so the case is not authority on that sub-section. What defeated the claim was the concurrent findings of fact: that the society had admitted 'nominal members' who were not members in any real sense, that most of its business was with them, that depositors and borrowers were distinct classes, that it lent to the general public without the Registrar's approval, and that mutuality was therefore absent. On those findings it could not be treated as a co-operative society meant only for its members and providing credit facilities to them.
The Court accepted that s.80P was enacted to encourage the co-operative sector and must be read liberally and in favour of the assessee, and that each head of exemption in sub-section (2) is separate, so income falling under one head is exempt even if the conditions of another are not met. Sub-section (4), inserted by the Finance Act 2006, excludes co-operative banks, but on the definition in Part V of the Banking Regulation Act the society was not a co-operative bank: it held no Reserve Bank licence, and the Reserve Bank had itself clarified that its business was not that of a co-operative bank. The reason the deduction failed lay elsewhere. The Assessing Officer had found, on the society's bye-laws and the Mutually Aided Co-operative Societies Act 1995 under which it was registered, that it could not admit nominal members and deal with them; that it did so, taking deposits from that second category and placing them in fixed deposits to earn returns while lending gold loans to ordinary members; that depositors and borrowers were quite distinct as classes; and that it lent to the general public without any approval from the Registrar. On mutuality, both parties to the transaction contributed to the surplus but there were no identifiable participators in it, so the test failed. The Court treated all of this as findings of fact that had remained unshaken up to the High Court, and decided the appeal on that footing. In the words reproduced by the source cited on this page: "the appellant cannot be treated as a co-operative society meant only for its members and providing credit facilities to its members."
It was decided by the Supreme Court on 2017-08-08 and is reported as (2017) 397 ITR 1 (SC) / (2017) 9 SCC 364. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 80P, section 80P(2)(a)(i), section 80P(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The society's appeal was dismissed with costs, and s.80P was denied. Two things the Court decided are often run together and should not be. First, on the law, s.80P is a benevolent provision to be read liberally, reasonably and in favour of the assessee, and s.80P(2)(a)(i) recognises two distinct kinds of society - one carrying on banking, one providing credit facilities to members. Second, the Court held expressly that this society was not a co-operative bank, held no Reserve Bank licence, and did not come within the mischief of s.80P(4) at all - so the case is not authority on that sub-section. What defeated the claim was the concurrent findings of fact: that the society had admitted 'nominal members' who were not members in any real sense, that most of its business was with them, that depositors and borrowers were distinct classes, that it lent to the general public without the Registrar's approval, and that mutuality was therefore absent. On those findings it could not be treated as a co-operative society meant only for its members and providing credit facilities to them. It arises in Co-operative Societies and Deductions & Disallowances matters, on section 80P, section 80P(2)(a)(i), section 80P(4) of the Income Tax Act 1961, and was decided by Supreme Court of India — A.K. Sikri and Ashok Bhushan JJ (judgment by Sikri J), Civil Appeal No. 10245 of 2017. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Show that the class of membership you deal with is one the registering statute permits, and that deposit schemes had the Registrar's approval where that was required. Do not let the officer extend the case beyond mutuality into a general licence to look behind the society's registration.
Partly overruled — read this first. Mavilayi Service Co-operative Bank Ltd v CIT [2021] 123 taxmann.com 161 (SC), 12 January 2021, held that only paragraphs 18 to 23 carry the ratio; paragraphs 24 to 26 - the fact-based conclusion that the society carried on illegal activities - 'cannot be described as the ratio decidendi of the judgment' and cannot be used to say assessing officers may go behind registration to discover illegal activities. The judgment survives on its own facts: a review petition against it was dismissed on 21 November 2017, [2017] 88 taxmann.com 279 (SC). No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Partly overruled. Mavilayi Service Co-operative Bank Ltd v CIT [2021] 123 taxmann.com 161 (SC), 12 January 2021, held that only paragraphs 18 to 23 carry the ratio; paragraphs 24 to 26 - the fact-based conclusion that the society carried on activities in violation of the statute it was registered under - cannot be described as the ratio decidendi, and cannot be used to argue that assessing officers may go behind registration to find illegal activities. Reading the judgment bears that out: paragraphs 25 and 26 are largely a reproduction of the Assessing Officer's findings, which paragraph 27 treats as findings of fact unshaken up to the High Court. Note also that the Court expressly held at paragraph 24 that this society was not a co-operative bank and did not fall within s.80P(4), so the case should not be cited as authority on that sub-section. A review petition was dismissed on 21 November 2017, reported at [2017] 88 taxmann.com 279 (SC). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The society's appeal was dismissed with costs, and s.80P was denied. Two things the Court decided are often run together and should not be. First, on the law, s.80P is a benevolent provision to be read liberally, reasonably and in favour of the assessee, and s.80P(2)(a)(i) recognises two distinct kinds of society - one carrying on banking, one providing credit facilities to members. Second, the Court held expressly that this society was not a co-operative bank, held no Reserve Bank licence, and did not come within the mischief of s.80P(4) at all - so the case is not authority on that sub-section. What defeated the claim was the concurrent findings of fact: that the society had admitted 'nominal members' who were not members in any real sense, that most of its business was with them, that depositors and borrowers were distinct classes, that it lent to the general public without the Registrar's approval, and that mutuality was therefore absent. On those findings it could not be treated as a co-operative society meant only for its members and providing credit facilities to them.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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