Section 80P of Income Tax Act 1961 – Deduction – Cooperative Society for profits arising out of credit given to its members

Judgment dated 14.9.2023 of the Supreme Court of India

Civil Appeal No.10069 of 2016 – Kerala State Cooperative Agricultural and Rural Development Bank Ltd  Vs. The Assessing Officer, Trivandrum and others with connected matters.

The appellant – assessee is the Agricultural and Rural Development Bank    ( State level) governed by the Kerala Cooperative Societies Act, 1969.

The appellant provides credit facilities to its members – cooperative societies only.

The issue is whether a cooperative society is entitled to deduction for its profits and gains of banking business of credit facilities to its members – cooperative societies under Section 80P of the IT Act.

Section 80P of the Income Tax Act, 1961, provides for deduction for income of cooperative societies.   However, sub-section (4) of Section 80P provides that the said deduction is not available to any cooperative bank other than a primary agricultural credit society or a primary cooperative agricultural and rural development bank.

In other words, the question, therefore, was whether the appellant is a “cooperative bank” within the meaning of sub-section (4) of Section 80P of the IT Act and is entitled to claim deduction under Section 80P for the entire profits and gains of business of banking or credit facilities to the members of all its cooperative societies.

A cooperative society which is not a state cooperative bank within the meaning of NABARD Act 1981 is not a cooperative bank under Section 56 of the Banking Regulations Act, 1949.

HELD that although the appellant is an apex cooperative society under the State Act of 1984, it is not a cooperative Bank within the meaning of Section 5(b) of Section 56 of the Banking Regulations Act, 1949.