TaxTMI 
TaxTMI 
2008 (3) TMI 45
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....njab Co-operative Societies Act, 1961 (hereinafter referred to as 'the Societies Act'). The assessee is a co-operative society carrying on the business of banking and extending the credit facilities to its members and nominal members. The assessee being carrying on the business of banking, claimed exemption under Section 80P(2)(a)(i) of the Act and filed its return of income declaring its income at nil for the Assessment Year 1999-2000. The Assessing Officer vide its order dated 16.10.2002 framed the assessment for the present assessment year under Section 143(2) of the Act whereby the assessee's income was determined at Rs.1,64,79,254/- by also adding interest income to the tune of Rs.68,56,901/- which was derived from the loans advanced to nominal members as income from other sources and disallowed the claim of the assessee that this should be treated as income derived from banking business which is eligible for exemption under Section 80P(2)(a)(i) of the Act. The Assessing Officer held that that this interest income could not be claimed as deduction as the same did not pertain to the banking business being conducted by the assessee with members of the Co-operative Bank, but was....
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....only to satisfy the provisions of statute which is against the spirit of Section 80P which gives special treatment to banking activity with members of cooperative societies. The learned counsel submits that that the nominal members are not the share holders and have no share in the profit of the co-operative society. They are having no voting rights. Therefore, they do not strictly fall under the definition of "member" of the co-operative society as defined under the Societies Act, and any interest income derived from the loans advanced to them will not be exempted under Section 80P of the Act. Learned counsel submits that the purpose of exemption under Section 80P is obviously to engage employment of as much capital as possible for financing and extending the scope of cooperation and not for enabling Co-operative banks to earn tax free income by making investments or extending loans to various commercial entities who are non-share holders. He submits that the interpretation canvassed by the assessee would be contrary to the legislative intent and will be counter-productive. The true test for applying the deduction under Section 80P is whether the income earned is attributable to t....
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....ive disposal of the labour of its members, or (vii) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish or the purchase of materials and equipment in connection therewith for the purpose of supplying them to its members, the whole of the amount of profits and gains of business attributable to any one or more of such activities : Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; (3) the State Government; (b) xx xx xx xx (c) xx xx xx xx (d) xx xx xx xx (e) xx xx xx xx (f) in the case of a co-operative society, not being a housing society or an urban consumers' society or a society carrying on transport business or a society engaged in the performance of any ....
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....under this sub-clause because the word "or" used in the section cannot be read as "and". Therefore, a co-operative society engaged in carrying on the business of banking is earning some income from the business activities of banking whether from its members or non-members, is entitled for exemption under this clause. Learned counsel argued that the word "or" in this sub-clause should be read as "and". If the said word is read as "and", then it will provide that a cooperative society engaged in carrying on the business of banking and providing credit facilities to its members, will be entitled for exemption under this clause. If this interpretation is accepted, then there are number of co-operative societies, though who are not engaged in carrying on the business of banking but providing credit facilities to its members and earning interest income, will not be entitled for benefit under this subclause, which is not the intention of the legislation. By this sub-clause, the benefit has been provided to the co-operative societies which are engaged in carrying on the business of banking or providing credit facilities to its members. It is not necessary for getting exemption under this c....
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.... Income Tax vs. Bangalore Distt. Co-operative Central Bank Ltd. (1998) 233 ITR 282 (SC) has held that the interest on Govt. securities and dividends earned by co-operative society engaged in banking business is eligible for deduction under Section 80P(2)(a)(i) of the Act, though the said income was not earned by the co-operative society from the credit facilities provided to its members. It was held that if the assessee is a co-operative society carrying on the business of banking and if the income in question is attributable to the said activity, there is no doubt that the same is to be deducted from the gross total income. Again, in Commissioner of Income Tax vs. Kartataka State Co-operative Apex Bank, (2001) 251 ITR 194 (SC), it was held that the interest income derived by co-operative bank from investment of funds with Reserve Bank of India or State Bank of India is exempt under Section 80P(2)(a)(i) of the Act, irrespective of the fact that investment is made out of reserve fund or working capital. Again in that case the said income was not derived from the credit facilities provided to its members.Further, in Mehsana District Central Co-operative Bank Ltd. vs. Income Tax....
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....the Banking Regulation Act, 1949 shows that in addition to the business of banking set out in clause (b) of Section of that Act, acquisition, construction, maintenance and alteration of any building or works necessary or convenient for the purpose of the banking company and also selling/improving or leasing or otherwise dealing with all or any part of the property and rights of the company, also should be treated as a banking business. A contention raised in that case that in view of clause(f) of sub-section (2) of Section 80P, the deduction on account of the rental income should not be given to a co-operative society even though the same is engaged in the business of banking. In this regard, it was held that the society referred to in clause (f) of sub-section (2) of Section 80P must e understood as the society which is not carrying on the banking business or providing credit facilities which is included under clause(a)(i) of sub-section (2) of Section 80P of the Act. Since the assessee in that case was carrying on business of banking, therefore, it was held that the provisions of clause(f) of sub-section (2) of Section 80P cannot control the benefit of exemption extended to the a....
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....member does not subscribe to the share-capital of a society, he can not become a member of the society. This contention of the learned counsel for the appellant is not acceptable because the words 'when it subscribes to the share-capital of a society' are relating to the Government and not to the nominal and associate members. The associate members have been clearly defined as members who jointly hold a share of a co-operative society with others but whose name does not stand first in the share certificate, whereas nominal members means the persons admitted to membership as such after registration in accordance with the bye-laws. A person can become the nominal member of a co-operative society even according to the bye-laws of the society by paying the membership fees. It is not necessary for becoming the nominal member that he has to subscribe for the share-capital. On the other hand, the Government cannot become a nominal member. It can become a member of the society when it subscribes to the share-capital of the society. Thus, it is not necessary for a nominal member to subscribe to the share-capital. The whole thresh of the revenue is that the loan advanced to the nominal memb....