Assessment of co operative societies

Objectives & Agenda :

To understand the assessment of co-operative societies. To understand the deductions available to a co-operative society while calculating its total income. To gain knowledge on how to calculate the total income where there are multiple deductions for the co-operative society.

1. Assessment of Co-operative
Societies
CA. Jugal Gala

2. Credits and Acknowledgments
Anand N Krishna

3. Legends used in the Presentation
GTI Gross TotalIncome
IFHP Income From House Property
TDS Tax Deductedat Source

4. Presentation Schema
Co-operative
Society –Sec 2(19)
Exemption under
section 10(27)
Deduction in
respect of income –
Sec 80P
Conditions to
Section 80P(2)(a)
Manner of
Deductions –Sec
80P(3)
Non Applicability Exemption from TDS
Applicability of Sec
14A
Concept of
Mutuality
Tax Rates Illustration Judicial Precedents

5. Co-operative Society –Sec 2(19)
AspertheIncomeTaxAct,1961"co-operativesociety"meansaco-operativesocietyregistered
undertheCo-operativeSocietiesAct,1912orunderanyotherlawforthetimebeinginforceinany
Statefortheregistrationofco-operativesocieties
Co-operative
SocietiesAct,
1912
“registeredsociety”meansasocietyregisteredordeemedtoberegistered
underthisAct

6. Exemption under section 10(27)
Any income of a co-operative society formed for promoting the interests of the
members of either the Scheduled Castes or Scheduled Tribes or both is exempted
provided that the membership of the co-operative society consists of only other
co-operative societies formed for similar purposes
and the finances of the society are provided by the Government and such other
societies
"ScheduledCastes"–castes,racesortribesorpartsoforgroupswithinsuchcastes,racesortribesasare
deemedunderIndianConstitution
"ScheduledTribes“-suchtribesortribalcommunitiesorpartsoforgroupswithinsuchtribesortribal
communitiesasaredeemedunderIndianConstitution

7. Deduction in respect of Income –Sec 80P
Deduction
Where 100%
deduction is
allowed
Profits attributable to
Specified activities
Profits of certain
primary co-operative
societies
Income from investment
with other co-operative
societies
Income from letting of
godowns or warehouse
Where deduction
is allowed to a
limited extent
Co-operative societies
engaged in other activities
Income by way of interest on
securities and IFHP

8. Profits attributable to Specified activities –Sec
80P(2)(a)
100%oftheprofitsattributabletoanyoneormoreofthefollowingactivitiesaredeductible
Carrying on the business of bankingor providing credit facilities to its members
Cottage industry
Marketing of the agricultural produce grown by its members
Purchase of agricultural implements, seeds, livestock or other articles intended for agriculture for the purpose of supplying
them to its members
Processing, without the aid of power, of the agricultural produce of its members
Collective disposal of the labour of its members
Fishing or allied activities including 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

9. Cottage Industry
Operated on a small scale
with a small amount of capital
and a small number of work-
ers and has a turnover which
is correspondingly limited
Not required to be registered
under the Factories Act
Owned and managed by the
co-operative society
Activities are be carried on
only by the membership of
the society and their families
(spouse, parents, children and
any relative who customarily
lives with such a member) –
should not engage outside
hired labour
Place of work is an artisan
shareholder’s residence or a
common place provided by
the co-operative society
Carries on the activity of
manufacture, production or
processing and not engaged
merely in trade(purchase and
sale)
Circular722dated19.09.1995statesthatacottageindustryisrequiredtosatisfythefollowing
conditionstoavaildeductionu/s80P(2)(a)(ii):

10. Conditions to Sec 80P(2)(a)
Incaseofco-operativesocietiescarryingoncollectivelabourdisposalorfishingactivities,thedeductionis
availablesubjecttotheconditionthattherulesandbye-lawsofthesocietyrestrictthevotingrightstothe
followingclassesofitsmembers
Individuals who
contribute their labour
or, as the case may be,
carry on the fishing or
allied activities
Co-operative credit
societies which provide
financial assistance to
the society
State Government

11. Profits of certain primary co-operative societies –
Sec 80P(2)(b)
Inthecaseofaco-operativesociety,beingaprimarysocietyengagedinsupplyingmilk,oilseeds,fruits
orvegetablesraisedorgrownbyitsmembersto
Federal co-operative society, being a society engaged in the business of
supplying milk, oilseeds, fruits, or vegetables, as the case may be
Government or a local authority
Government companyor a statutory corporation engaged in the business
of supplying milk, oilseeds, fruits or vegetables, as the case may be, to the
public)
100%oftheprofitsincludedinGrossTotalIncomearedeductible

12. Deduction for Co-operative societies engaged in
other activities –Sec 80P(2)(c)
Co-operativesocietyengagedinactivities,otherthanthosespecifiedinSection80P(2)(a)and(b),the
profitsandgainsattributabletosuchotheractivitiesuptothemaximumlimitsindicatedbeloware
deductible
Wheresuchco-operative
societyisaconsumers'
co-operativesociety
Inanyothercases
Rs.1,00,000
Rs.50,000
Explanation:Consumerco-operativemeansasocietyforthebenefitofconsumers

13. Income from investment with other co-operative
societies –Sec 80P(2)(d)
the whole of such income shall be deductible
derived by the co-operative society from its investments with any other co-operative society,
In respect of any income by way of interest or dividends
Suchdeductionwouldbeallowedafterexcludingexpenditureattributabletoearningsucheligibleincome

14. Income from letting of godowns or warehouse –
Sec 80P(2)(e)
the whole of
such income
shall be
deductible
storage,
processing or
facilitating the
marketing of
commodities,
from the letting
of godowns or
warehousesfor
In respect of any
income derived
by the co-
operative
society

15. Deduction of interest on securities and IFHP –Sec
80P(2)(f)
Anyincomebywayofinterestonsecuritiesoranyincomefromhousepropertyshallbefullyallowedasa
deductionprovidedthegrosstotalincomeoftheco-operativesocietydoesnotexceedRs.20,000.However
theco-operativesocietymustnotbea:
Housing
Society
Urban
Consumer
Society
Society
carrying on
transport
business
Society
engaged in the
manufacturing
operation with
the aid of
power
UrbanConsumerCo-operativeSocietymeansasocietyforthebenefitoftheconsumerswithinthelimitsof
municipalcorporation,municipality,municipalcommittee,notifiedareacommittee,townareaorcantonment

16. Manner of Deductions –Sec 80P(3)
Deduction under section 80P in respect of business income of a co-
operative
shall be available with reference to income after claiming deduction
under Chapter VI-A, setting off current and last year’s unabsorbed
losses and unabsorbed depreciation

17. Non Applicability –Sec 80P(4)
Provisions of Sec 80P
shall not apply in relation to
any co-operative bank
other than a primary
agricultural credit society or a
primary co-operative
agricultural and rural
development bank
-“co-operativebank”meansastateco-operativebank,acentralco-operativebankandaprimaryco-operativebank
-“primaryagriculturalcreditsociety”–co-operativesocietyofwhoseprimaryobjectistoprovidefinancial
accommodationtoitsmembersforagriculturalorrelatedpurposesandbye-lawsofwhichdonotpermitadmissionof
anyotherco-operativesocietyasmember
-“Primaryco-operativeagriculturalandruraldevelopmentbank"meansasocietyhavingitsareaofoperationconfined
toatalukandtheprincipalobjectofwhichistoprovideforlong-termcreditforagriculturalandruraldevelopment
activities

18. Exemption from TDS
by a co-operative society (other than a co-operative bank) to a member thereof or to any other co-
operative society
in respect of deposits with a primary agricultural credit society or a primary credit society or a co-
operative land mortgage bank or a co-operative land development bank
in respect of deposits (other than time deposits) with a co-operative society, other than a co-operative
society or bank engaged in carrying on the business of banking
Theprovisionsofsection194Awhichrequiredeductionofincometaxatsourcefrominterestotherthan
interestonsecurities,creditedorpaid,donotapplytosuchincomecreditedorpaid–

19. Applicability of Sec 14A
While exempt income is
not at all includible in
computing the total
Income,
income subjected to Sec
80P deductions are
required to be added
while arriving at Gross
Total Income
as per provisions of
section 80AB (such
incomes are included
while calculating GTI)
TheprovisionsprovidedinSection14AappliestoexemptincomewhileSection80Pconfersarightfor
deductionfromthetotalgrossincome
Sec14Astatesthatnodeductionshallbeallowedinrespectofexpenditureincurredtoearnexemptincome

20. Concept of Mutuality
•Co-operativesocietyisamutualassociationwherepersonscometogetherforacommongood,withintent
tocontributetomakingandrunningoftheassociation
•Thecommondesireisforenjoymentoffacilitiesorbenefitsthroughamediumofassociationorsociety
•Thecontributionsreceivedbyco-operativesocietyfromthemembersareutilisedforthebenefitsof
members
•Noincomeaccrueswhenacommongroupofpersons,includingco-operativesociety,contributetoand
participateinacommonfundwithanexpectationthatcontributionwouldbespentforcommongoodoron
objectivesthatwillbenefitallthecontributorsviz.themembers
•Theaboveprincipleiscalled“ConceptofMutuality”
•Thus, amount received from members of co-operative society and utilised for the betterment and benefit of
members falls outside the purview of taxation

21. Tax Rates
Income Tax Rates
Upto Rs. 10,000 10%
From Rs. 10,001 to Rs. 20,000 20%
Above Rs. 20,000 30%
Surcharge–IncomeexceedingRs.1crore–12%
EducationCess–4%ontax+surcharge

22. Illustration
•M/sPQRisaco-operativesocietyengagedincottageindustry(eligibleassessee).
•Theprofitsandgainsfromcottageindustryfortheyearended31.03.2019isRs.7,00,000.
•ItearnedinterestonbankdepositsamountingtoRs.4,00,000.
•Unabsorbeddepreciationandunabsorbedlossesfromyearended31.03.2018amountstoRs.1,00,000
andRs.20,000respectively.
•ItmadeadonationofRs.1,20,000whichiseligiblefor100%deduction.
Computetotalincomeoftheco-operativesociety.
Note:Deductionundersection80Pinrespectofbusinessincomeofaco-operativeshallbeavailablewith
referencetoincomeafterclaimingdeductionunderChapterVI-A,settingoffcurrentandlastyear’s
unabsorbedlossesandunabsorbeddepreciation

23. Computation of Total Income
Particulars Amount (Rs)
Profits and gains from cottage industry 7,00,000
Setoff of last year’s unabsorbed losses (1,00,000)
Setoff of last year’s unabsorbed depreciation (20,000)
Balanceprofits and gains from cottage industry 5,80,000
Interest on bank deposits 4,00,000
Gross Total Income 9,80,000
Deduction undersection 80G (1,20,000)
Deduction undersection 80P(2)(a)(ii) –for business income (5,80,000)
Deduction undersection 80P(2)(c) –for interest income (50,000)
Net Taxable Income 2,30,000

24. Judicial Precedents
Nilagiri Engg. Co-operative Society Ltd. Vs Commissioner of Income-tax [1995] 80
TAXMAN 562 (ORI.) HIGH COURT OF ORISSA
Aco-operativesocietyhadundertakensomecontractworksinwhichactualsupervisionworkatfieldwas
executedbydeploymentofoutsidelabourthroughsub-contractors.Nolabourwasexercisedbymembers
andtheyonlyexercisedoverallsupervisionlikeanyotherprudentbusinessman.Itwasheldthatthe
petitionerwasnotentitledtoclaimdeductionundersection80P(2)(a)(vi)sincethereisnocollectivedisposal
oflabourasthereisnodirectrelationbetweentheworkexecutedandthespecialityofthemembersto
executethatwork
Commissioner of Income-tax vs. District Co-operative Federation [2005] 144
TAXMAN 333 (ALL.) HIGH COURT OF ALLAHABAD
Coldstoragecanbesaidtobeawarehouseorgodownwheregoodsarestored,andhenceincomefromcold
storagewouldbeallowedasdeductionundersection80P(2)(e)

25. Contd.
Commissioner of Income-tax vs. Karnataka State Co-operative Apex Bank [2001]
118 Taxman 321 (SC) SUPREME COURT OF INDIA
TheAssessee,co-operativebankwasrequiredtoplacepartofitsfundswithStateBankorReserveBankof
Indiatoenableittocarryonitsbankingbusiness.Placementofsuchfundsbeingimperativeforpurposeof
carryingonbankingbusiness,incomederivedtherefromwasincomefromassessee'sbusinessfallingunder
section80P(2)(a)(i).Hencedeductionundersection80Pinrespectofsuchincomewasallowable
Madras Auto Rickshaw Drivers’ Co-operative Society vs. Commissioner of Income-
tax [2001] 117 Taxman 370 (SC) SUPREME COURT OF INDIA
Theassessee,aco-operativesociety,wasengagedinbusinessofpurchasingautorickshawsandre-selling
themtoitsmembersonhire-purchaseterms.Theassesseewasadditionallyengagedincarryingonbusiness
ofprovidingcreditfacilitiestoitsmembers.Theterm“creditfacility”istobeinterpretedtocomprehendthe
businessoflendingservices,thatisthebusinessofgrantingloans.Soitwasheldthatincomefromsuchhire-
purchaseofautorickshawsisnotentitledtoexemptionundersection80P(2)(a)(i)sincethereisonlysaleof
autorickshawsoncredit

26. Contd.
Citizen Co-operative Society Ltd. vs. Assistant Commissioner of Income-tax, Circle-
9(1), Hydrabad [2017] 84 taxmann.com 114 (SC) SUPREME COURT OF INDIA
Whereassesseesocietywasengagedinactivityoffinancebusinessandwasalsoengagedinactivityof
grantingloanstogeneralpublicaswell,itcouldnotbetermedasco-operativesocietymeantonlyforits
membersandprovidingcreditfacilitiestoitsmembers,hencenotentitledtodeductionundersection80P
State Bank of India (SBI) vs. Commissioner of Income-tax [2016] 72 taxmann.com
64 (Gujarat) HIGH COURT OF GUJARAT
Asocietyisengagedinprovidingcreditfacilitiestoitsmembers.Itisonlyinterestderivedfromcredit
providedtoitsmemberswhichisdeductibleundersection80P(2)(a)(i)andinterestderivedbydepositing
surplusfundswithbanknotbeingattributabletobusinesscarriedonbysociety,cannotbedeductedunder
section80P(2)(a)(i)

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