SECTION 80P
INCOME OF CO-OPERATIVE SOCIETIES
610. Whether regional rural banks can be treated as co-operative societies engaged in carrying on business of banking or providing credit facilities to its members
1. A question has arisen whether regional rural banks (to which the provisions of the Regional Rural Banks Act, 1976, apply) can be treated as co-operative societies for the purpose of section 80P.
2. There is a specific provision, namely, section 22 in that Act, which is to the following effect :
“For the purpose of the Income-tax Act, 1961, or any other enactment for the time being in force relating to only tax on income, profits or gains, a regional rural bank shall be deemed to be a co-operative society.”
3. Therefore, the provisions of section 80P will also be applicable in respect of regional rural banks. In this view deductions admissible under section 80P (2)(a)(i) have to be allowed, in making income-tax assessments of these banks.
Circular : No. 319 [F. No. 178/47/81-IT(A-I)], dated 11-1-1982.
611. Exemption to co-operative societies under Part B States (Taxation Concession) Order, 19501
In exercise of the powers conferred by section 60A of the Indian Income-tax Act, 1922 (11 of 1922), the Central Government hereby directs that the following amendment shall be made in the Part ‘B’ States (Taxation Concession) Order, 1950, namely :—
After clause (iii) of paragraph 15 of the said order, the following clause shall be added, namely :—
“(iv) the profits of any co-operative society registered under any Act in force in a Part ‘B’ State, or dividends or other payments received by members of any such society out of such profits.
For this purpose, the profits of a co-operative society shall not be deemed to include any income, profits or gains from :
(1) investments in (a) securities of the nature referred to in section 8 of the Indian Income-tax Act, or (b) property of the nature referred to in section 9 of that Act,
(2) dividends, or
(3) the other sources referred to in section 12 of the Indian Income-tax Act.”
Notification : No. SRO 1800, dated 14-11-1951.
Judicial analysis
Explained in - The above notification was explained in ITO v. Shri Gopal Gram Seva Sahakari Mandli Ltd. [1991] 37 ITD 476 (Ahd. - Trib.), with the following observations :
“20. The Act had made specific provisions in section 80P with regard to the deductions allowable in the computation of the incomes of the co-operative societies. Notification issued under sections 60 or 60A of 1922 Act and in force immediately before the commencement of the Act, to the extent of provisions made in section 80P of the Act, therefore, stood repealed and ceased to have any force. However, in respect of such notification as were issued under section 60 or 60A of 1922 Act and were in force immediately before the commencement of the Act in respect of which no provisions were made in the Act continued in force subject to the power of rescission or amendment of such notifications to the Central Government.
It is true that the Concession Order as amended by Notification No. SRO 1800 dated 14-11-1951 does not appear to have been rescinded by the Central Government in exercise of its powers under proviso to section 297(2)(l) but the extent of the applicability thereof shall have necessarily to be judged in the light of the mandate contained in the main clause (l) of sub-section (2) of section 297. In doing that neither the facts that the Part ‘B’ State of United State of Saurashtra stood merged with State of Gujarat with effect from 1-5-1960, the Bombay Co-operative Societies Act was repealed by Gujarat Societies Act with effect from 1-5-1962 and the assessee-society lost its character of a society deemed to be registered under the provisions of the Gujarat Societies Act on its division, cancellation of registration and dissolution on 27-9-1968 can be lost sight of, nor the fact that the Act has made specific provisions in section 80P for deductions allowable to co-operative societies - a subject covered by the Concession Order as amended by Notification No. SRO 1800, dated 14-11-1951. Keeping all these facts in mind we are clearly of the opinion that co-operative societies registered under the Gujarat Co-operative Societies Act after coming into force of the Income-tax Act, 1961 would not be entitled to the exemption of their incomes from tax under the Concession Order, as amended by Notification No. SRO 1800 dated 14-11-1951 in view of the provisions of section 80P read with section 297(2)(i) of the Act.
We express no opinion over the cases of those societies which were deemed to be registered under the Gujarat Societies Act and continued to be so at the commencement of Income-tax Act, 1961 and up to the time of advancing their claim for exemption under the said Concession Order, as amended. The assessee-society having been registered on 27-9-1968 under the Gujarat Societies Act after coming into force of the Income-tax Act, 1961 is entitled to the benefit of deduction under section 80P of the Act but not of the exemption under paragraph 15 of the Concession Order as amended by Notification No. SRO 1800 dated 14-11-1951.” (p. 484)
612. Clarification regarding criteria required to be satisfied by any co-operative society engaged in cottage industry for availing benefits under section 80P(2)(a)(ii)
1. Under section 80P(a)(ii), a co-operative society engaged in a cottage industry is eligible for deduction of the whole of the amount of profits and gains of business attributable to cottage industry.
2. The Board has received representations from a large number of weavers’ co-operative societies that deduction under section 80P(2)(a)(ii) has been denied to them merely because some payments have been made by them to outside agencies for dyeing, bleaching and transport arrangements.
3. What constitutes a ‘Cottage Industry’ has been the subject-matter of discussion in a number of cases decided by various courts. Based on the ratio of these decisions, a co-operative society engaged in cottage industry is required to satisfy the following criteria for availing of the benefits under section 80P(2)(a)(ii) of the Income-tax Act, 1961 :—
(a) a cottage industry is one which is carried on on a small scale with a small amount of capital and a small number of workers and has a turnover which is correspondingly limited;
(b) it should not be required to be registered under the Factories Act;
(c) it should be owned and managed by the co-operative society;
(d) the activities should be carried on by the membership of the society and their families. For this purpose, a family would include self, spouse, parents, children, spouses of the children and any other relative who customarily lives with such a member. Outsiders (i.e., persons other than members and their families) should not work for the society. In other words, the co-operative society should not engage outside hired labour;
(e) a member of co-operative society means a shareholder of the society;
(f) the place of work could be an artisan shareholder’s residence or it could be a common place provided by the co-operative society;
(g) the cottage industry must carry on activity of manufacture, production or processing; it should not be engaged merely in trade, i.e., purchase and sale of the same commodity.
4. It is further clarified that in the case of a weaver’s society, so long as weaving is done by the members of the society at their residences or at a common place provided by the society, without any outside labour, such a society will be eligible for deduction under section 80P(2)(a)(ii) even if certain payments have been made to outside agency for dyeing, bleaching, transport arrangements, etc., provided it satisfied all other conditions necessary for availing deduction under section 80P(2)(a)(ii) of the Income-tax Act, 1961.
Circular : No. 722, dated 19-9-1995.
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