Section 80P(2)(a)(i)

Section 80P(2)(a)(i) — the law in short

What the courts have decided on section 80P(2)(a)(i), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• KSCARDB v Assessing Officer Supreme CourtHelps taxpayer
  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.
• Mavilayi Service Co-operative Bank Ltd v CIT Supreme CourtHelps taxpayer
  My society lends to non-members too. Does that wipe out its 80P(2)(a)(i) deduction?
  No. The deduction stands: the society need not lend only for agricultural purposes, and lending to non-members does not disentitle it — only the profits from non-member loans fall outside the deduction. Section 80P(4) shuts out only co-operative banks licensed to carry on banking business.
• Citizen Co-operative Society Ltd v ACIT Supreme CourtHelps departmentPartly overruled — read this first
  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.
• Totgars Co-operative Sale Society Ltd v ITO Supreme CourtHelps department
  My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?
  No. Interest on surplus funds not required for immediate business use is not attributable to providing credit to members or to marketing their produce. It is income from other sources under s.56 and outside s.80P(2)(a)(i).
• CIT v Ponni Sugars & Chemicals Ltd Supreme CourtCuts both ways
  I got a government incentive that came to me as a higher free sale quota and an excise rebate, and I had to use it to repay my term loans. Is that taxable income?
  No, on those terms it is a capital receipt. The Supreme Court applied the purpose test: what decides the character of a subsidy is the object for which it is given, not when it is paid, where it comes from, or the mechanism through which it reaches you. Because the incentive was available only to new or substantially expanded units and had to be used to repay term loans taken to set up or expand the plant, it was capital, not a trade receipt. On the separate section 80P(2)(a)(i) claim the matters went back to the Tribunal.
• PCIT v Totagars Co-operative Sale Society High CourtHelps department
  My society earns interest on deposits with a co-operative bank. Is it deductible under 80P(2)(d)?
  On the Karnataka view, no. Interest on idle or surplus funds keeps its character as income from other sources whether the depositee is a scheduled bank or a co-operative bank, and clause (d) speaks only of 'any other co-operative society' — the words 'co-operative banks' are absent from it.
• Tumkur Merchants Souharda Credit Co-op Ltd v ITO High CourtHelps taxpayer
  The AO cites Totgars against my credit society's deposit interest. Can I still claim 80P?
  Yes, if the deposits arose in the course of the credit business. 'Attributable to' is wider than 'derived from', so interest on short-term deposits of funds not immediately needed for lending remains within s.80P(2)(a)(i).
• ITO v Sahakara Nagar Credit Co-operative Society ITATCuts both waysValidity unconfirmed
  My society has nominal and associate members. Does that alone destroy the 80P deduction?
  No. Where the State Co-operative Societies Act permits those classes of membership, their presence is not by itself a ground to disallow s.80P. The outcome was mixed, though: rental, commission and miscellaneous receipts were held ineligible.
• Thane Zilla Madhyamik Shikshak Sangh Sahakari Parpedhi Maryadit v ACIT ITATHelps taxpayerValidity unconfirmed
  My society's chartered accountant told the penalty officer it was a co-operative bank. Can the department use that admission to deny section 80P?
  No. The Mumbai Bench held that no addition and no denial of a deduction can be made merely on the admission of a person, still less the assessee's authorised representative, without going into the actual charter documents, and that there is no estoppel against the statute. The society's chartered accountant had argued before the Commissioner (Appeals) in a section 271D penalty matter that it was a co-operative bank, and the penalty was deleted on that basis; he later filed an affidavit saying it had been a genuine misinterpretation. On the bye-laws and objects the society took deposits only from members and lent only to members, and it held no licence from the Reserve Bank of India, so it was a co-operative credit society and not a co-operative bank. Section 80P(4) did not shut it out and the deduction under section 80P(2)(a)(i) was allowed for each of the years in appeal.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.