July 2008
S. 80P(2)(a)(i) : Co-operative Society carrying on banking business : Interest on loans to nominal members is entitled to deduction.
By K. B. Bhujle, Advocate
Reading Time 3 mins
New Page 1
32 Co-operative Society : Deduction u/s. 80P(2)(a)(i)
of Income-tax Act, 1961 : A.Y. 1999-00 : Co-operative Society carrying on
banking business : Interest on loans to nominal members is entitled to
deduction.
[CIT v. Punjab State Co-operative Bank Ltd., 300 ITR
24 (P&H)]
The assessee was a co-operative society carrying on the
business of banking and extending credit facilities to its members and nominal
members. For the A.Y. 1999-00, the Assessing Officer disallowed the claim for
deduction u/s.80(2)(a)(i) of the Income-tax Act, 1961 in respect of interest
derived from the loans advanced to the nominal members. The Tribunal allowed
the claim.
On appeal by the Revenue, the Punjab and Haryana High Court
upheld the decision of the Tribunal and held as under :
“(i) The provisions of S. 80P of the Income-tax Act,
1961, were introduced with a view to encouraging and promoting the growth of
the co-operative sector in the economic life of the country and in pursuance
of the declared policy of the Government. The different heads of exemption
enumerated in the Section are separate and distinct heads and are to be
treated as such. Clause (a)(i) of Ss.(2) of S. 80P talks of a co-operative
society engaged in carrying on the business of banking or providing credit
facilities to its members. The carrying on of the business of banking by a
co-operative society or providing credit facilities to its members are two
different types of activities which are covered under this sub-clause. The
word ‘or’ used in this sub-clause cannot be read as ‘and’. If the literal
reading of the whole of a Section or sub-section or a clause is quite clear
and there is no ambiguity, then the plain meaning to the Section should be
given effect and the word ‘or’ should not be read as ‘and’. Any interest
income received by the co-operative society engaged in carrying on the
business of banking activities from its members or non-members is liable for
exemption under this sub-clause.
(ii) A nominal member who had become a member of the
society after its registration on payment of the prescribed fees as per
bye-laws of the society, would also be considered as a member of the society
as per the definition given under the Co-operative Societies Act. In any
case, it made no difference whether the income was derived from the loan
advanced to the nominal members or members or otherwise to a third party,
because every income of interest derived by a co-operative banking society
from the banking activity was entitled to special deduction u/s.80P.”
