Co-operative Societies

Co-operative Societies — the law in short

Every authority in this library on co-operative societies, with what each one decided.

• 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.
• Secunderabad Club v CIT Supreme CourtHelps department
  Our club's surplus sits in fixed deposits with a bank that is itself a corporate member. Is the interest covered by mutuality?
  No. The Supreme Court held that the principle of mutuality does not apply to interest earned on fixed deposits made by a club with a bank, whether or not the bank is a corporate member of the club. The interest is ordinary income under s.2(24) and is taxed like any other income. The Court dealt in the same batch with income the clubs earned through their assets and resources from persons who are not members, and held that too is taxable.
• 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.
• ITO v Venkatesh Premises Co-operative Society Ltd Supreme CourtHelps taxpayer
  The AO has taxed our society's transfer fees and non-occupancy charges. Is that right?
  No. The Supreme Court held that transfer charges, non-occupancy charges, common amenity fund charges and similar receipts collected by a co-operative society from its own members are covered by the principle of mutuality and are not income. On transfer charges the Court held that the amount is appropriated only after the transferee has been admitted to membership and is returned if admission is refused, so by the time it is retained the payer is a member.
• 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.
• Raitha Seva Sahakara Sangha Niyamita v Union of India High CourtHelps taxpayerValidity unconfirmed
  My society's bank has marked a lien on its current account for s.194N tax on cash withdrawals which the bank itself never deducted. Can a bank do that, and is the society liable?
  No, on both counts. The Karnataka High Court held that the bank had no statutory authority to create a lien over the amount lying in its customer's current account. The obligation under s.194N is cast on the paying bank and is to be discharged at the time of payment; the consequence the Court identified is a penalty on the bank under s.271C, imposed by a Joint Commissioner, and the section does not contemplate either a deduction liability or a penalty on the customer.
• Bharat Electronics Employees Co-op Credit Society v CCIT High CourtHelps taxpayer
  Our co-operative credit society filed its return late and lost the section 80P deduction under section 80AC. The Chief Commissioner has rejected our section 119(2)(b) condonation application for want of sufficient cause. Is that rejection sustainable?
  No, not on these facts. The Andhra Pradesh High Court set aside the Chief Commissioner's order refusing to condone the delay and directed that the return be treated as filed within time. The Court held that co-operative societies became liable to file returns only on the Finance Act, 2018 amendment, that a society run with minimal staff and unaware of the provisions is itself in genuine difficulty, and that the authorities must take a liberal approach towards co-operative societies in the teeth of CBDT Circular No. 13/2023. It did not decide the section 80P claim; that was left to be dealt with in assessment.
• PCIT v Rajkot Lodhika Sahakari Kharid Vechan Sangh High CourtHelps taxpayerValidity unconfirmed
  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.
• Kanyakaparameshwari Co-operative Society Ltd v CCIT High CourtHelps taxpayerValidity unconfirmed
  My co-operative society filed its return late and lost section 80P because of section 80AC. If the delay is condoned under section 119(2)(b), does the deduction come back?
  On this Karnataka view, yes. The Court held that section 80AC does not say in express terms that the deduction becomes inadmissible if the delay in filing the return is condoned, so an order under section 119(2)(b) condoning the delay clears the way for the claim. It adopted its earlier decision in Sullia Taluk Womens Multi Purpose Co-operative Society and read the Central Board's circular of 26 July 2023, which directs the authorities to admit and decide condonation applications from audited co-operative societies for assessment years 2018-19 to 2022-23 on the merits. The rejection of the society's application was quashed and the delay condoned, and the Court went on to quash the completed assessment as well and remit the claim for fresh consideration.
• Molasi Primary Agricultural Cooperative Credit Society Ltd v ITO High CourtHelps department
  We are a primary agricultural credit society drawing cash to lend to farmers. Must the bank still deduct under s.194N?
  Yes. The Madras High Court held that a primary agricultural credit co-operative society is not within the exceptions to s.194N, so the deduction on cash withdrawals above the threshold stands, and the requirement is non-negotiable except in line with the specific exceptions in the proviso. Relief, if any, has to come from the competent government authority; s.194N is not one of the sections for which a nil or lower deduction certificate can be sought under s.197.
• Pr. Commissioner of Income Tax v Shree Madhi Surali Vibhag Nagarik Sahakari Dhiran Mandli Ltd High CourtHelps taxpayer
  Our credit society takes and repays members' money in cash across the counter like a bank. The officer has levied penalty under sections 271D and 271E on the whole turnover. Can it stand?
  No, on these facts. The Gujarat High Court upheld the deletion of penalties of Rs 28,66,93,898 under section 271D and Rs 27,12,01,825 under section 271E. Section 273B says no penalty is imposable if the person proves reasonable cause, and that gives the authority a discretion to be exercised justly on the record. The Commissioner (Appeals) and the Tribunal found on the facts that the society, whose members' accounts work like savings accounts repayable on demand, acted on a bona fide belief that sections 269SS and 269T did not apply, that the deposits were accepted as genuine with no addition made, and that its auditor had never reported a contravention. The Court found no legal infirmity and dismissed the Revenue's appeal, holding that no substantial question of law arose.
• 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).
• Kottayam Co-operative Land Mortgage Bank v CIT High CourtHelps department
  Our co-operative society has receipts that fall outside the activities named in section 80P(2)(a). Can we fall back on the residual deduction in clause (c), and what do we have to show?
  It depends, and the test is narrower than the words look. The Kerala High Court held that clause (c) does reach receipts from sources other than the actual conduct of the business, because 'attributable to' is much wider than 'derived from'. But the receipt must be attributable to an activity that the society itself carries on. 'Activity' is wider than 'business' and connotes a specified form of supervised action or field of action. On that test the society failed: rent from letting surplus space in the building it owned and used for its own banking work was held not to arise from such an activity, and the deduction was refused.
• Kassia Credit Co-operative Society v ITO ITATHelps departmentValidity unconfirmed
  My society filed its return only in response to a 148 notice. Can it still claim 80P?
  No. Section 80AC(ii) makes filing by the s.139(1) due date a condition precedent for deductions under Part C of Chapter VI-A, which includes s.80P, and a return filed pursuant to a s.148 notice does not cure the default.
• Bicholim Electricity Employees Cooperative Credit Society Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  My co-operative credit society filed Form 10-IF opting into s.115BAD and then claimed deduction under s.80P in the same return. CPC has disallowed the whole s.80P deduction under s.143(1). Is there anything to be said?
  There is an argument, and the Tribunal let it be run — but it did not decide it. On these facts the Tribunal restored the matter for fresh adjudication on the merits, recording the case that the society did not satisfy the conditions in s.115BAD(2) and had filed Form 10-IF erroneously, and that the adjustment made under s.143(1) was not within the permissible adjustments. The underlying rule is unforgiving and should be understood before any co-operative society files Form 10-IF: s.115BAD(2)(i) requires total income to be computed 'without any deduction ... under any of the provisions of Chapter VI-A other than the provisions of section 80JJAA', and s.80P is in Chapter VI-A.
• DCIT v Umiya Co-operative Credit Society Ltd ITATHelps taxpayerValidity unconfirmed
  Our credit society takes deposits and repays loans in cash to members. Can the department levy 271D and 271E on the whole amount?
  Not where the transactions are genuine dealings with members in the ordinary course. The Tribunal upheld the deletion of penalties under s.271D and s.271E on cash deposits and repayments of roughly Rs 28 crore and Rs 27 crore, treating a co-operative credit society's dealings with its own limited membership as attracting the reasonable cause protection in s.273B, particularly where no addition was made in the assessment and the genuineness of the transactions was not in dispute.
• 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.
• Shree Dhamel Seva Sahkari v ADIT (CPC) ITATHelps taxpayerValidity unconfirmed
  CPC denied my society's 80P in a 143(1) intimation because the return was late. Can it?
  Not by a blanket adjustment. Adjustments under s.143(1) are confined to patent mistakes and arithmetical errors, so the CPC could not summarily disallow the s.80P claim; a return filed under s.139(4) is not automatically outside Chapter VI-A, and a bona fide, properly documented claim should be decided on merits.
• Venus Parkland Co-Op Housing Service Society Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  The Assessing Officer has taxed our society's bank FD interest as income from other sources and refused to allow the maintenance expenditure against it. Is there an answer?
  On these facts, yes - but read what the Tribunal actually did before relying on it. The Ahmedabad Bench held that a co-operative housing service society's fixed deposit interest was directly linked to the activity of maintaining the society, so the receipts had to be set against the maintenance expenditure they funded rather than taxed gross. The addition of Rs 24,31,919 on the fixed deposit interest was deleted, and the rent and other small receipts were treated the same way, leaving the net surplus of Rs 4,64,486 that the society had itself shown. The Tribunal then directed the Assessing Officer to allow the deduction of Rs 50,000 claimed under section 80P(2)(c)(ii). The reasoning ran through the principle of mutuality as stated by the Supreme Court in Venkatesh Premises Co-operative Society, and it did not deal with the Secunderabad Club decision on which the Commissioner (Appeals) had relied.
• Bangiya Gramin Vikash Bank v ACIT ITATHelps taxpayerValidity unconfirmed
  Five regional rural banks were merged into our bank by a Central Government notification. The officer says s.72AA is only for banking companies and that s.72AB for cooperative societies only came in from assessment year 2008-09, so the merged banks' accumulated losses die. Is there any authority the other way?
  Yes, at Tribunal level. The Kolkata Bench held that the case fell under s.72AA because the assessee is a banking company doing the business of banking and the amalgamation of the five rural banks was brought into force under the directions of the Central Government by gazette notification, and allowed the set-off of the accumulated losses of the merged banks. The set-offs allowed were Rs. 352,68,36,000 for assessment year 2007-08 and Rs. 205,51,01,000 for assessment year 2008-09.
• 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.