Broad definition of co-operative society under income tax law protects Souharda society from withholding-tax notice.

A society registered under the Karnataka Souharda Sahakari Act, 1997 was treated as a co-operative society for income-tax purposes because Section 2(19) of the Income-tax Act uses broad language covering societies registered under any State law for registration of co-operative societies. The Court relied on the earlier Division Bench view, the statutory text, and the constitutional policy favouring a purposive construction of the co-operative movement. On that basis, the society was held entitled to the benefit of Section 194A(3)(v), and the show-cause notice under Sections 201(1) and 201(1A) was unsustainable and liable to be quashed.

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Issues: Whether a society registered under the Karnataka Souharda Sahakari Act, 1997 is a co-operative society within the meaning of Section 2(19) of the Income-tax Act, 1961 and consequently entitled to the benefit of Section 194A(3)(v) of that Act, so that the show-cause notice issued under Sections 201(1) and 201(1A) could not be sustained.

Analysis: The Court relied on the earlier Division Bench decision which held that entities registered under the Karnataka Souharda Sahakari Act, 1997 fall within the expression "co-operative society" in Section 2(19) of the Income-tax Act, 1961. That view was supported by the statutory text, the constitutional policy under Articles 243-ZH(c), 243-ZI and 43-B, and the principle that the co-operative movement should receive a broad and purposive construction. The Court also noted that Section 2(19) uses expansive language covering societies registered under any law in force in a State for the registration of co-operative societies. On that basis, the petitioner was held to be covered by the relevant exemption and the respondent's contrary premise in the notice was unsustainable.

Conclusion: The show-cause notice was without jurisdiction and liable to be quashed; the issue was decided in favour of the assessee.

Ratio Decidendi: A society registered under a State Souharda enactment is a co-operative society for income-tax purposes where the statutory definition in Section 2(19) of the Income-tax Act, 1961 is broad enough to include societies registered under any State law for registration of co-operative societies.

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