Income Tax Act, 1961 – s.80P – Appellant, if a co-operative bank within the scope and meaning of sub-section (4) of s.80P and thus, not eligible to the benefit of deduction as provided therein: Held: No – Appellant is not a co-operative bank within the meaning of sub-section (4) of s.80P of the 1961 Act – Appellant is a co-operative credit society u/s.80P(2)(a)(i) of the 1961 Act whose primary object is to provide financial accommodation to its members who are all other co-operative societies and not members of the public – If a cooperative society does not transact the business of banking as defined in clause (b) of s.5 of the BR Act, 1949, it would not be a cooperative bank – Then the definitions under the NABARD Act, 1981 would not apply – If a co-operative society is not a co-operative bank, then such an entity would be entitled to deduction but on the other hand, if it is a co-operative bank within the meaning of s.56 of BR Act, 1949 r/w the provisions of NABARD Act, 1981 then it would not be entitled to the benefit of deduction under sub-section (4) of s.80P of the 1961 Act – In the present case, although the appellant society is an apex cooperative society within the meaning of the State Act, 1984, it is AND ORS.
not a co-operative bank within the meaning of s.5(b) r/w s.56 of the BR Act, 1949 – Order(s) of the Kerala High Court and other authorities to the contrary set aside – Appellant is not a co-operative bank and neither has it been so declared under the provisions of NABARD Act, 1981 or the State Act – Appellant entitled to the benefit of deduction u/s.80P of the 1961 Act – Banking Regulation Act, 1949 – ss.2(c), 5, 56 – National Bank for Agriculture and Rural Development Act, 1981 – ss.2(d), (u), (v)-(x) – Kerala Co-operative Societies Act, 1969 – s.110 – Kerala State Co-Operative Agricultural Development Banks Act, 1984 – s.2(a), (d), (iA) – TravancoreCochin Co-operative Societies Act, 1951 – s.10 – Reserve Bank of India Act, 1934. [Paras 15.8, 15.12 and 15.13]
Income Tax Act, 1961 – s.80P(2)(a)(i) – Distinction between business of banking and providing credit facilities to its members by co-operative society:
Held: s.80P speaks about deduction in respect of income of cooperative societies from the gross total income referred to in sub-section (2) of the said Section – From the said income, there shall be deducted, in accordance with the provisions of s.80P, sums specified in subsection (2), in computing the total income of the assessee for the purpose of payment of income tax – Subsection (2) of s.80P enumerates various kinds of co-operative societies – Subsection (2)(a)(i) states that if a co-operative society is engaged in carrying on the business of banking or providing credit facilities to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities shall be deducted – The sub-section makes a clear distinction between business of banking on the one hand and providing credit facilities to its members by co-operative society on the other – Thus, the definition of banking u/s.5(b) of the BR Act must be borne in mind as opposed to providing credit facilities to its members – Banking Regulation Act, 1949 – s.5(b). [Para 15.1]
Income Tax Act, 1961 – s.80P(4):
Held: Sub-section (4) of s.80P in the present form is in the nature of an exception which states that the provisions of s.80P shall 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 – The expressions co-operative bank and primary agricultural credit society as well as primary co-operative agricultural and rural development bank are defined in the Explanation as co-operative bank and primary agricultural credit society having the meanings respectively assigned to them in Part V of the BR Act, 1949 – Banking Regulation Act, 1949. [Para 15.2] Banking Regulation Act, 1949 – ss.5(b), (c), 22, 56(o) – ‘banking company’ – ‘banking’:
Held: Banking company in s.5(c) means any company which transacts the business of banking in India – “Banking” is defined in s.5(b) to mean the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise – Therefore, a banking company must transact banking business vis-à-vis the public – Thus, in the first place a co-operative society must be engaged in banking business as defined in s.5(b) – For that, s.22 speaks about licence to be obtained by a bank to do banking business which is modified as per clause (o) of s.56 which states that no cooperative society shall carry on banking business in India unless it is a co-operative bank and holds a licence issued in that behalf by the Reserve Bank, subject to such conditions, if any, as the Reserve Bank may deem fit to impose – Secondly, a co-operative society must obtain a licence u/s.22, only if it functions as a co-operative bank and not otherwise – Thus, a co-operative society including a co-operative credit society which is not a co-operative bank does not require a licence to function as such. [Para 15.4] Banking Regulation Act, 1949 – ss.5(b), 56(c)(i)(cci): Held: If a co-operative society is not conducting the business of banking as defined in clause (b) of s.5, BR Act, 1949, it would not be a cooperative 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 s.56(c) (i)(cci) – Whereas a co-operative bank is in the nature of a banking company which transacts the business of banking as defined in clause (b) of s.5 of the BR Act, 1949 – National Bank for Agriculture and Rural Development Act, 1981 – ss.2(d), (u), (v)-(x). [Para 15.8]
Income Tax Act, 1961 – s.80P(4) – Object and purpose – Discussed. Banking Regulation Act, 1949 – s.56 – Object:
AND ORS.
Held: Having regard to the Explanation to sub-section (4) of s.80P, it is necessary to consider Chapter V of the BR Act, 1949 which states that the said Act shall apply to co-operative societies subject to modifications made thereunder – s.56 begins with a non-obstante clause which states that notwithstanding anything contained in any other law for the time being in force, the provisions of the said Act, shall apply to, or in relation to, cooperative societies as they apply to, or in relation to, banking companies subject to certain modifications – The object of s.56 is to provide a deeming fiction by equating a co-operative society to a banking company if it is a co-operative bank within the meaning of the said provision – This is because Chapter V of the BR Act, 1949, deals with application of the Chapter to co-operative societies which are co-operative banks within the meaning of the said chapter – For the purpose of these cases, what is relevant is that throughout the BR Act, 1949, unless the context otherwise requires, references to a “banking company” or “the company” or “such company” shall be construed as references to a co-operative bank – Therefore, while considering the meaning of a co-operative bank inherently, such a cooperative society must be a banking company then only it would be construed as a co-operative bank requiring a licence u/s.22 of BR Act, 1949 in order to function as such a bank – Income Tax Act, 1961 – s.80P(4). [Paras 15.4 and 15.9]
Banking Regulation Act, 1949 – s.56 – ‘co-operative bank’ – National Bank for Agriculture and Rural Development Act, 1981 – s.2(u) – Banking Regulation Act, 1949 – ss.2(c), and 22:
Held: When the definition of “co-operative bank” in s.56 of BR Act, 1949 is viewed in terms of s.2(u) of the NABARD Act, 1981, it is clear that only a state co-operative bank would be within the scope and meaning of a banking company u/s.2(c) of the BR Act, 1949 on obtaining licence u/s.22 of the said Act. [Para 15.14]
LIST OF CITATIONS AND OTHER REFERENCES
Mavilayi Service Co-operative Bank Limited vs. Commissioner of Income Tax, Calicut, (2021) 7 SCC 90; Apex Co-operative Bank of Urban Bank of Maharashtra and Goa Ltd. vs. Maharashtra State Co- operative Bank Ltd., (2003) 11 SCC 66:[2003] 4 Suppl. SCR 1071; Thalappalam Service Coop. Bank Ltd. vs. State of Kerala, (2013) 16 SCC 82:[2013] 14 SCR 475; Union of India vs. Rajendra N. Shah, 2021 SCC OnLine SC 474; Citizen Co-operative Society Ltd. vs. Commissioner of Income Tax, (2017)
9 SCC 364:[2017] 9 SCR 361; Kerala State Coop. Mktg. Federation Ltd. vs. CIT, (1998) 5 SCC 48:[1998] 3 SCR 443 – referred to. A.P. Varghese vs. The Kerala State Co-operative Bank Ltd. AIR 2008 Ker 91 – referred to.
CIT vs. Punjab State Coop. Bank Ltd., (2008) 300 ITR 24 – referred to. OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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