27 September Wednesday

Setback for Centre : Credit Societies Are Outside Purview of Income Tax, Clarifies Supreme Court

G. Rajesh KumarUpdated: Friday May 12, 2023

Thiruvananthapuram : The Supreme Court ruled that co-operative credit societies will stay exempted from the Income Tax purview.  The ruling came as the apex court dismissed Appeal  from the Principal Commissioner of Income Tax, Mumbai seeking to apply I-T on co-op credit societies.

 The verdict works in favour of all credit societies including that of employees’ co-operatives  and other co-op societies of Kerala. The petitioner argued that Co-operative societies must be treated on par with banks as they engage in lending loans and hence become ineligible for tax relief under Sec 80P(4) of the Income Tax Act. To this, the Supreme Court said a group cannot be treated as bank merely because it gives loans to its members..

Earlier, the Supreme Court had overturned the Tax department’s decision to impose tax on primary agriculture credit societies. The Income Tax Commissioner in Kozhikode had locked horns with Mavilai Service Co-operative Bank in that case.

Traditionally, Co-operative  Societies are eligible for tax exemption under Sec 80(P) of the Income Tax Act. The Tax dept argued that Sec 80(P)(4) stipulates that such exemption cannot be allowed to c-operative banks and because  credit societies are in fact doing banking business,  they must be Income-taxed. The Supreme Court refused to accept that version.

Sec 22(1)(b) of BR Act explains how co-operative banks are co-operative societies operate  under license from the Reserve Bank.  And, the Central Board of Direct Taxes in its circular mandates tax only from Co-operative Banks licensed by RBI, meaning, Co-operative Societies are exempted.

The verdict is a resounding blow to Centre given its deep resentment for co-operatives.