We are a state-level co-operative agricultural and rural development bank. Does 80P(4) block our deduction?
No. The appellant is an apex co-operative society providing credit to its member societies, not a 'co-operative bank' within s.80P(4) read with the Banking Regulation Act, 1949, so the deduction under s.80P(2)(a)(i) is available.
Decided by the Supreme Court (Supreme Court of India — B.V. Nagarathna and Ujjal Bhuyan, JJ. (judgment delivered by Nagarathna, J.)) on 2023-09-14, reported as (2023) 458 ITR 384 (SC); (2023) 295 Taxman 675 (SC); [2023] 154 taxmann.com 305 (SC); 2023 SCC OnLine SC 1164; Civil Appeal No(s). 10069 of 2016 and others. 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.
It supplies the test for the commonest post-2007 disallowance. Whether an entity is a co-operative bank turns on s.56(c)(i) of the Banking Regulation Act, 1949 and on whether it carries on 'banking' as defined in s.5(b), which is not the same as providing credit facilities to members. The Supreme Court set aside the contrary Kerala High Court view. Section 80P(4) runs from 1 April 2007, so the decision governs AY 2007-08 onwards.
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The appellant is a State-level agricultural and rural development bank, first registered in 1951 under the Travancore-Cochin Co-operative Societies Act and now a co-operative society under the Kerala Co-operative Societies Act, 1969, which provides credit only to its members, all of whom are themselves co-operative societies. On 27 October 2007 it returned income of Rs 27,18,052 for assessment year 2007-08 and claimed deduction under s.80P(2)(a)(i). By assessment order of 22 December 2009 under s.143(3) the Assessing Officer disallowed deduction of Rs 36,39,87,058, holding it was neither a primary agricultural credit society nor a primary co-operative agricultural and rural development bank and so was hit by s.80P(4). The Commissioner (Appeals) confirmed the disallowance on the footing that it was no longer a land mortgage bank but a development bank. The Tribunal agreed that it was a co-operative bank caught by s.80P(4), but allowed the claim to the extent of income relatable to its lending as a State Land Development Bank within the NABARD Act, 1981. The Kerala High Court upheld the Tribunal by judgment of 26 November 2015, and the society appealed.
The appeals were allowed and the orders of the Kerala High Court and the authorities below set aside; the society is entitled to deduction under s.80P, with parties bearing their own costs. Although it is an apex co-operative society under the Kerala State Co-operative Agricultural Development Banks Act, 1984, it is not a co-operative bank within s.5(b) read with s.56 of the Banking Regulation Act, 1949, so s.80P(4) does not exclude it. It is a co-operative credit society within s.80P(2)(a)(i) whose primary object is to provide financial accommodation to its members, all of whom are other co-operative societies and not members of the public.
Section 80P(2)(a)(i) itself distinguishes between carrying on the business of banking and providing credit facilities to members, so the definition of banking in s.5(b) of the Banking Regulation Act, 1949 must be kept in mind. Section 80P(4), reinserted with effect from 1 April 2007, excludes a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, and the Explanation takes those expressions from Part V of the Banking Regulation Act. Section 56 of that Act applies the Act to co-operative societies by a deeming fiction, reading references to a banking company as references to a co-operative bank, and defines a co-operative bank as a state, central or primary co-operative bank, the first two drawing their meaning from the NABARD Act, 1981. Banking under s.5(b) means accepting deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque or order — so a banking company must transact banking business with the public, and a co-operative society that does not do so is not a co-operative bank and needs no licence under s.22. On the facts, the Kerala State Co-operative Bank had been declared a state co-operative bank by the State Government under the NABARD Act and the appellant had not, so the appellant is not a state co-operative bank. Citizen Co-operative Society Ltd. v. CIT [2017] 397 ITR 1 (SC) was distinguished on the ground that the society there dealt with nominal members as well as members and so functioned as a co-operative bank.
In other words, if a co-operative society is not conducting the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co-operative bank in terms of section 56(c)(i)(cci).
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Handle my notice → Ask a CA on WhatsAppNo. The appellant is an apex co-operative society providing credit to its member societies, not a 'co-operative bank' within s.80P(4) read with the Banking Regulation Act, 1949, so the deduction under s.80P(2)(a)(i) is available. This was decided by the Supreme Court (Supreme Court of India — B.V. Nagarathna and Ujjal Bhuyan, JJ. (judgment delivered by Nagarathna, J.)) and bears on section 80P, section 80P(2)(a)(i), section 80P(4) of the Income Tax Act 1961. It is reported as (2023) 458 ITR 384 (SC); (2023) 295 Taxman 675 (SC); [2023] 154 taxmann.com 305 (SC); 2023 SCC OnLine SC 1164; Civil Appeal No(s). 10069 of 2016 and others. It supplies the test for the commonest post-2007 disallowance. Whether an entity is a co-operative bank turns on s.56(c)(i) of the Banking Regulation Act, 1949 and on whether it carries on 'banking' as defined in s.5(b), which is not the same as providing credit facilities to members. The Supreme Court set aside the contrary Kerala High Court view. Section 80P(4) runs from 1 April 2007, so the decision governs AY 2007-08 onwards. If it applies to you, the first step is this: Check whether the State Government has declared the society a state co-operative bank — the absence of that declaration mattered here.
The appellant is a State-level agricultural and rural development bank, first registered in 1951 under the Travancore-Cochin Co-operative Societies Act and now a co-operative society under the Kerala Co-operative Societies Act, 1969, which provides credit only to its members, all of whom are themselves co-operative societies. On 27 October 2007 it returned income of Rs 27,18,052 for assessment year 2007-08 and claimed deduction under s.80P(2)(a)(i). By assessment order of 22 December 2009 under s.143(3) the Assessing Officer disallowed deduction of Rs 36,39,87,058, holding it was neither a primary agricultural credit society nor a primary co-operative agricultural and rural development bank and so was hit by s.80P(4). The Commissioner (Appeals) confirmed the disallowance on the footing that it was no longer a land mortgage bank but a development bank. The Tribunal agreed that it was a co-operative bank caught by s.80P(4), but allowed the claim to the extent of income relatable to its lending as a State Land Development Bank within the NABARD Act, 1981. The Kerala High Court upheld the Tribunal by judgment of 26 November 2015, and the society appealed. The matter was decided on 2023-09-14 by the Supreme Court (Supreme Court of India — B.V. Nagarathna and Ujjal Bhuyan, JJ. (judgment delivered by Nagarathna, J.)). On those facts the Supreme Court held as follows. The appeals were allowed and the orders of the Kerala High Court and the authorities below set aside; the society is entitled to deduction under s.80P, with parties bearing their own costs. Although it is an apex co-operative society under the Kerala State Co-operative Agricultural Development Banks Act, 1984, it is not a co-operative bank within s.5(b) read with s.56 of the Banking Regulation Act, 1949, so s.80P(4) does not exclude it. It is a co-operative credit society within s.80P(2)(a)(i) whose primary object is to provide financial accommodation to its members, all of whom are other co-operative societies and not members of the public.
Section 80P(2)(a)(i) itself distinguishes between carrying on the business of banking and providing credit facilities to members, so the definition of banking in s.5(b) of the Banking Regulation Act, 1949 must be kept in mind. Section 80P(4), reinserted with effect from 1 April 2007, excludes a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, and the Explanation takes those expressions from Part V of the Banking Regulation Act. Section 56 of that Act applies the Act to co-operative societies by a deeming fiction, reading references to a banking company as references to a co-operative bank, and defines a co-operative bank as a state, central or primary co-operative bank, the first two drawing their meaning from the NABARD Act, 1981. Banking under s.5(b) means accepting deposits of money from the public for lending or investment, repayable on demand or otherwise and withdrawable by cheque or order — so a banking company must transact banking business with the public, and a co-operative society that does not do so is not a co-operative bank and needs no licence under s.22. On the facts, the Kerala State Co-operative Bank had been declared a state co-operative bank by the State Government under the NABARD Act and the appellant had not, so the appellant is not a state co-operative bank. Citizen Co-operative Society Ltd. v. CIT [2017] 397 ITR 1 (SC) was distinguished on the ground that the society there dealt with nominal members as well as members and so functioned as a co-operative bank. In the words reproduced by the source cited on this page: "In other words, if a co-operative society is not conducting the business of banking as defined in clause (b) of section 5 of the BR Act, 1949, it would not be a co-operative bank and not so within the meanings of a state co-operative bank, a central co-operative bank or a primary co-operative bank in terms of section 56(c)(i)(cci)." The decision followed or applied Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161/279 Taxman 75 (SC); Citizen Co-operative Society Ltd. v. CIT [2017] 84 taxmann.com 114/397 ITR 1 (SC); A.P. Varghese v. Kerala State Co-operative Bank Ltd. AIR 2008 Ker 91.
It was decided by the Supreme Court on 2023-09-14 and is reported as (2023) 458 ITR 384 (SC); (2023) 295 Taxman 675 (SC); [2023] 154 taxmann.com 305 (SC); 2023 SCC OnLine SC 1164; Civil Appeal No(s). 10069 of 2016 and others. 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 taxpayer. The appeals were allowed and the orders of the Kerala High Court and the authorities below set aside; the society is entitled to deduction under s.80P, with parties bearing their own costs. Although it is an apex co-operative society under the Kerala State Co-operative Agricultural Development Banks Act, 1984, it is not a co-operative bank within s.5(b) read with s.56 of the Banking Regulation Act, 1949, so s.80P(4) does not exclude it. It is a co-operative credit society within s.80P(2)(a)(i) whose primary object is to provide financial accommodation to its members, all of whom are other co-operative societies and not members of the public. 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 — B.V. Nagarathna and Ujjal Bhuyan, JJ. (judgment delivered by Nagarathna, J.). 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 on the facts that the activity is providing credit to members, not 'banking' as defined in s.5(b) of the Banking Regulation Act. Answer a s.80P(4) disallowance by working through s.56(c)(i) of that Act instead of arguing about the word 'bank' in the society's name.
Still good law. Sets aside Kerala State Co-operative Agricultural & Rural Development Bank Ltd. v. CIT [2016] 67 taxmann.com 111/238 Taxman 638/383 ITR 610 (Ker.). It follows Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 123 taxmann.com 161 (SC) and Citizen Co-operative Society Ltd. v. CIT [2017] 397 ITR 1 (SC), and distinguishes the latter on its facts. Section 80P(4) itself was reinserted with effect from 1 April 2007, so the decision governs assessment year 2007-08 onwards. No later decision applying this judgment was located on the searches run. 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.
The test the case lays down is not about labels. What decides it is whether the society accepts deposits from the public within s.5(b) of the Banking Regulation Act, 1949, and whether it has been declared a state co-operative bank under the NABARD Act, 1981; here neither was so, and lending only to member societies is not banking. Citizen Co-operative Society Ltd. v. CIT [2017] 397 ITR 1 (SC), where a society dealing with nominal members was held to be functioning as a co-operative bank, is distinguished and not displaced, so a society that takes deposits from nominal members or the public should expect to be met with it. 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 appeals were allowed and the orders of the Kerala High Court and the authorities below set aside; the society is entitled to deduction under s.80P, with parties bearing their own costs. Although it is an apex co-operative society under the Kerala State Co-operative Agricultural Development Banks Act, 1984, it is not a co-operative bank within s.5(b) read with s.56 of the Banking Regulation Act, 1949, so s.80P(4) does not exclude it. It is a co-operative credit society within s.80P(2)(a)(i) whose primary object is to provide financial accommodation to its members, all of whom are other co-operative societies and not members of the public.
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