Section 80P(4)

Section 80P(4) — the law in short

What the courts have decided on section 80P(4), 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.
• PCIT v Rajkot Lodhika Sahakari Kharid Vechan Sangh High CourtHelps taxpayerNo later treatment found
  The PCIT revised my assessment saying a co-operative bank is not a co-operative society. Is that right?
  Not on the Gujarat view. A co-operative bank is itself a co-operative society registered under the State Co-operative Societies Act, so it falls within 'any other co-operative society' in s.80P(2)(d); the interest was deductible and the s.263 revision was set aside.
• K.2058 Saravanampatti Primary Agricultural Co-operative Credit Society Ltd v ITO High CourtHelps taxpayer
  The Assessing Officer taxed our interest on deposits under s.56 by simply citing Totgars, without answering our case that the deposits are a statutory reserve we are obliged to maintain and that the interest we paid on borrowings should be netted against it. Is that order sustainable?
  No. The Madras High Court set aside the assessments as non-speaking and passed without application of mind, holding it a fatal flaw that the Assessing Officer had brushed aside, in a single line, the society's arguments that the deposits were a statutory reserve and not surplus funds, that Nawanshahar Central Cooperative Bank applied, and that at worst the interest received should be netted against the interest paid. The Court expressed no opinion on the merits and remanded for a speaking order.
• 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).
• Thane Zilla Madhyamik Shikshak Sangh Sahakari Parpedhi Maryadit v ACIT ITATHelps taxpayerNo later treatment found
  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.
• Technopolis Premises Co-operative Society Ltd v Pr. CIT — s.80P is expressly carved out of the AMT add-back ITATHelps taxpayerNo later treatment found
  The Commissioner has revised my co-operative society's assessment under s.263 because AMT on adjusted total income came out higher than the normal tax. The department's working grossed up my total income by the s.80P deduction. Is that right?
  It is not. Clause (i) of s.115JC(2) requires total income to be increased by deductions claimed under any section "other than section 80P" included in Chapter VI-A under heading C. The Assessing Officer's internal working had added back the s.80P deduction of Rs.56,16,242, producing an adjusted total income of Rs.1,13,55,916 instead of the correct Rs.57,39,674; on the correct figure the AMT was lower than the normal tax, so there was no prejudice to the Revenue and no ground for revision.
• Statutory position — s.80P(4): which bodies are shut out, and what the Banking Regulation Act 1949 actually defines CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer says my society is a co-operative bank and so s.80P(4) denies the whole deduction. What does he have to establish before he can say that?
  Section 80P(4) provides that the provisions of s.80P 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, and its Explanation borrows the meanings of 'co-operative bank' and 'primary agricultural credit society' from Part V of the Banking Regulation Act, 1949. Under Part V a co-operative bank is only one of three things — a State co-operative bank, a central co-operative bank or a primary co-operative bank — so unless the society answers one of those three descriptions it is not hit by sub-section (4), whatever its name or its bye-laws call it.
• Statutory position — s.36(1)(viia): the provision for bad and doubtful debts, the percentage for each class of assessee, the separate rural-branch limb, and Rule 6ABA CBDT Circulars & InstructionsCuts both ways
  My client is a bank and the Assessing Officer has cut down its claim for provision for bad and doubtful debts. What exactly does section 36(1)(viia) allow, at what percentage, to which class of assessee, and how is the rural-branch figure worked out?
  Section 36(1)(viia) allows a deduction for a PROVISION for bad and doubtful debts — not a write-off — and the percentage depends entirely on which of its four lettered sub-clauses the assessee falls in. Sub-clause (a) (a scheduled bank not incorporated outside India, a non-scheduled bank, or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank) carries TWO separate and cumulative limbs on TWO different bases: an amount not exceeding eight and one-half per cent of total income computed before any deduction under this clause and under Chapter VIA, PLUS an amount not exceeding ten per cent of the aggregate average advances made by the rural branches of that bank computed in the prescribed manner. Sub-clause (b) (a bank incorporated under the laws of a country outside India) is five per cent of total income; sub-clause (c) (a public financial institution, a State financial corporation or a State industrial investment corporation) is five per cent of total income; sub-clause (d) (a non-banking financial company) is five per cent of total income. Rule 6ABA prescribes the three-step arithmetic for the aggregate average advances of the rural branches.
• Statutory position — s.36(1)(viii): the special reserve, the twenty per cent limit, the twice-the-paid-up-capital ceiling, and the s.41(4A) charge when the reserve is drawn down CBDT Circulars & InstructionsCuts both ways
  My client is a housing finance company and has created a special reserve. How much is deductible under s.36(1)(viii), what caps it, and what happens if the reserve is later withdrawn?
  Section 36(1)(viii) allows a "specified entity" a deduction for a special reserve created and maintained by it, of an amount not exceeding twenty per cent of the profits derived from an "eligible business" computed under the head "Profits and gains of business or profession" (before any deduction under this clause) and actually carried to that reserve account. A proviso caps the cumulative benefit: where the aggregate of the amounts carried to the reserve account from time to time exceeds twice the amount of the paid up share capital and of the general reserves of the specified entity, no allowance is made in respect of the excess. And section 41(4A) supplies the sting — where the deduction has been allowed, any amount subsequently withdrawn from the special reserve is deemed to be profits and gains of business or profession and is charged to tax in the year of withdrawal, and by the Explanation to that sub-section it is charged even if the business is no longer in existence.
• Statutory position — s.43D: interest on a bad or doubtful debt of a bank, financial institution or NBFC is taxed on credit or receipt, not on accrual, and what Rules 6EA and 6EB prescribe CBDT Circulars & InstructionsCuts both ways
  My client is a bank and has stopped accruing interest on non-performing accounts under RBI norms, but the Assessing Officer has added the interest on the mercantile basis. Is there a provision that displaces accrual?
  Yes. Section 43D opens "Notwithstanding anything to the contrary contained in any other provision of this Act" and provides that, for the institutions it names, income by way of interest in relation to such categories of bad or doubtful debts as may be PRESCRIBED — having regard to the guidelines issued by the Reserve Bank of India — is chargeable to tax in the previous year in which it is credited to the profit and loss account, or in which it is actually received, whichever is earlier. It therefore displaces the accrual basis for that interest and nothing else. The institutions named on the current departmental edition are a public financial institution, a scheduled bank, a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, a State financial corporation, a State industrial investment corporation, and "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf". The prescribed categories are in Rule 6EA of the Income-tax Rules, 1962.

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.