Income-tax laws in India have provisions for various profit linked deductions to encourage investments in certain industries under Chapter VI-A under the heading ‘C. – Deductions in respect of certain incomes’. These deductions are available under Sections 80H to 80RRB with respect to profits and gains of specific industries such as hotel business, small-scale industrial undertaking, housing projects, export business, and infrastructure development. One of the deductions available under this chapter is deductions with respect to the income of co-operative societies; the provisions of which have been dealt with under Section 80P.
1. Deductions under Section 80P
Under this section, a certain specified income of a co-operative society engaged in specific activities is considered as a deduction if such income is included in the gross total income of the society.
2. Meaning of a Co-operative society for the purpose of Section 80P
A co-operative society is not defined specifically for the purpose of Section 80P. However, Section 2(19) of the Income Tax Act, 1961, defines a co-operative society to be an entity registered under the Co-operative Societies Act, 1912 or under any other law governing the registration of co-operative societies in any state.
3. Activities and amount eligible for deduction under Section 80P
|Activities covered||Quantum of deduction|
|Co-operative society engaged in:||100% of profits and gains attributable to these activities|
|The business of banking or providing credit facilities to its members|
|Marketing of 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 of agricultural produce of its members without the aid of power|
|Collective disposal of the labor of its members, or fishing, or any allied activities (catching, curing, processing, preserving, storing, marketing of fish etc.)
However, rules and by-laws of these co-operative societies must restrict voting rights to:
|A co-operative society which is primarily engaged in supplying milk, oilseeds, fruits or vegetables raised or grown by its members to:
||100% of profits and gains of such business|
|A co-operative society engaged in any other activities||
|A co-operative society earning:
||100% of such income|
|Interest on securities or income from the house property of a co-operative society other than a Housing society or
whose gross total income is not more than Rs 25,000
|100% of such income|
* ‘Consumers’ co-operative society’ means a society for the benefit of its members
** ‘Urban consumers’ co-operative society’ means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.
4. Specific exclusions
The Finance Act, 2006 introduced specific exclusions to the applicability of the benefit of deduction under Section 80P. Section 80P is made not applicable to any co-operative bank (including Regional Rural Banks) other than a primary agricultural credit society (as defined in the Banking Regulation Act) or a primary co-operative agricultural and rural development bank (a society having its area of operation confined to a taluk and the principal object of which is to provide long-term credit for agricultural and rural development activities). Benefit of deduction is withdrawn with an intention to treat co-operative banks on par with commercial banks who do not enjoy any such tax benefit.
5. What if a co-operative society is also eligible for profit-linked deductions under other Sections?
If a co-operative society is also eligible for profit-linked deduction under Section 80HH, 80HHA, 80HHB, 80HHC, 80HHD, 80-I, 80-IA, 80J, the deduction allowed under Section 80P is from the gross total income after reducing the deductions under these sections.
6. Key points to be noted
- Section 80P, for different scenarios, uses different terms for the purpose of deduction such as ‘profits and gains of business attributable to such activities’, ‘profits and gains of such business’, ‘profits and gains attributable to such activities’, ‘income derived’ etc. These terms need to be analyzed in depth considering the various commentaries on income tax and case laws.
- Various high courts have held that all co-operative societies other than those coming under the control of RBI are eligible for a deduction. A co-operative society conducting banking activities is not a co-operative bank licensed by the Reserve Bank of India. It can, therefore, claim deductions under Section 80P.
- Meaning of various other terms such as ‘cottage industry’, ‘marketing’, ‘members’ ‘industry’, ‘investment’ etc., are also analyzed in various decisions.
- Section 80P profit is not considered to increase the adjusted total income for Alternate Minimum Tax levy