The document provides an overview of tax assessment for co-operative societies under the Income Tax Act of 1961. It discusses key sections such as the definition of a co-operative society (Section 2(19)), exemptions for certain co-operative societies (Section 10(27)), deductions allowed for income of co-operative societies (Section 80P), and conditions for deductions. It also provides illustrations of computing total income and summarizes some relevant judicial precedents.

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

2. Credits and Acknowledgments
Anand N Krishna

3. Legends used in the Presentation
GTI Gross Total Income
IFHP Income From House Property
TDS Tax Deducted at 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)
As per the Income Tax Act,1961 "co-operative society" means a co-operative society registered
under the Co-operative Societies Act, 1912 or under any other law for the time being in force in any
State for the registration of co-operative societies
Co-operative
Societies Act,
1912
“registered society” means a society registered or deemed to be registered
under this Act

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
"Scheduled Castes" – castes, races or tribes or parts of or groups within such castes, races or tribes as are
deemed under Indian Constitution
"Scheduled Tribes“ - such tribes or tribal communities or parts of or groups within such tribes or tribal
communities as are deemed under Indian Constitution

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% of the profits attributable to any one or more of the following activities are deductible
Carrying on the business of banking or 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)
Circular 722 dated 19.09.1995 states that a cottage industry is required to satisfy the following
conditions to avail deduction u/s 80P(2)(a)(ii):

10. Conditions to Sec 80P(2)(a)
In case of co-operative societies carrying on collective labour disposal or fishing activities, the deduction is
available subject to the condition that the rules and bye-laws of the society restrict the voting rights to the
following classes of its members
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)
In the case of a co-operative society, being a primary society engaged in supplying milk, oilseeds, fruits
or vegetables raised or grown by its members to
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 company or a statutory corporation engaged in the business
of supplying milk, oilseeds, fruits or vegetables, as the case may be, to the
public)
100% of the profits included in Gross Total Income are deductible

12. Deduction for Co-operative societies engaged in
other activities – Sec 80P(2)(c)
Co-operative society engaged in activities, other than those specified in Section 80P(2)(a) and (b), the
profits and gains attributable to such other activities upto the maximum limits indicated below are
deductible
Where such co-operative
society is a consumers'
co-operative society
In any other cases
Rs.1,00,000
Rs.50,000
Explanation: Consumer co-operative means a society for the benefit of consumers

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
Such deduction would be allowed after excluding expenditure attributable to earning such eligible income

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
warehouses for
In respect of any
income derived
by the co-
operative
society

15. Deduction of interest on securities and IFHP – Sec
80P(2)(f)
Any income by way of interest on securities or any income from house property shall be fully allowed as a
deduction provided the gross total income of the co-operative society does not exceed Rs.20,000. However
the co-operative society must not be a:
Housing
Society
Urban
Consumer
Society
Society
carrying on
transport
business
Society
engaged in the
manufacturing
operation with
the aid of
power
Urban Consumer Co-operative Society means a society for the benefit of the consumers within the limits of
municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment

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-operative bank” means a state co-operative bank, a central co-operative bank and a primary co-operative bank
- “primary agricultural credit society” – co-operative society of whose primary object is to provide financial
accommodation to its members for agricultural or related purposes and bye-laws of which do not permit admission of
any other co-operative society as member
- “Primary co-operative agricultural and rural development bank" means a society having its area of operation confined
to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development
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
The provisions of section 194A which require deduction of income tax at source from interest other than
interest on securities, credited or paid, do not apply to such income credited or paid–

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)
The provisions provided in Section 14A applies to exempt income while Section 80P confers a right for
deduction from the total gross income
Sec 14A states that no deduction shall be allowed in respect of expenditure incurred to earn exempt income

20. Concept of Mutuality
• Co-operative society is a mutual association where persons come together for a common good, with intent
to contribute to making and running of the association
• The common desire is for enjoyment of facilities or benefits through a medium of association or society
• The contributions received by co-operative society from the members are utilised for the benefits of
members
• No income accrues when a common group of persons, including co-operative society, contribute to and
participate in a common fund with an expectation that contribution would be spent for common good or on
objectives that will benefit all the contributors viz. the members
• The above principle is called “Concept of Mutuality”
• 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 – Income exceeding Rs. 1 crore – 12%
Education Cess – 4% on tax + surcharge

22. Illustration
• M/s PQR is a co-operative society engaged in cottage industry (eligible assessee).
• The profits and gains from cottage industry for the year ended 31.03.2019 is Rs.7,00,000.
• It earned interest on bank deposits amounting to Rs.4,00,000.
• Unabsorbed depreciation and unabsorbed losses from year ended 31.03.2018 amounts to Rs.1,00,000
and Rs.20,000 respectively.
• It made a donation of Rs.1,20,000 which is eligible for 100% deduction.
Compute total income of the co-operative society.
Note: 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

23. Computation of Total Income
Particulars Amount (Rs)
Profits and gains from cottage industry 7,00,000
Set off of last year’s unabsorbed losses (1,00,000)
Set off of last year’s unabsorbed depreciation (20,000)
Balance profits and gains from cottage industry 5,80,000
Interest on bank deposits 4,00,000
Gross Total Income 9,80,000
Deduction under section 80G (1,20,000)
Deduction under section 80P(2)(a)(ii) – for business income (5,80,000)
Deduction under section 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
A co-operative society had undertaken some contract works in which actual supervision work at field was
executed by deployment of outside labour through sub-contractors. No labour was exercised by members
and they only exercised overall supervision like any other prudent businessman. It was held that the
petitioner was not entitled to claim deduction under section 80P(2)(a)(vi) since there is no collective disposal
of labour as there is no direct relation between the work executed and the speciality of the members to
execute that work
Commissioner of Income-tax vs. District Co-operative Federation [2005] 144
TAXMAN 333 (ALL.) HIGH COURT OF ALLAHABAD
Cold storage can be said to be a warehouse or godown where goods are stored, and hence income from cold
storage would be allowed as deduction under section 80P(2)(e)

25. Contd.
Commissioner of Income-tax vs. Karnataka State Co-operative Apex Bank [2001]
118 Taxman 321 (SC) SUPREME COURT OF INDIA
The Assessee, co-operative bank was required to place part of its funds with State Bank or Reserve Bank of
India to enable it to carry on its banking business. Placement of such funds being imperative for purpose of
carrying on banking business, income derived therefrom was income from assessee's business falling under
section 80P(2)(a)(i). Hence deduction under section 80P in respect of such income was allowable
Madras Auto Rickshaw Drivers’ Co-operative Society vs. Commissioner of Income-
tax [2001] 117 Taxman 370 (SC) SUPREME COURT OF INDIA
The assessee, a co-operative society, was engaged in business of purchasing autorickshaws and re-selling
them to its members on hire-purchase terms. The assessee was additionally engaged in carrying on business
of providing credit facilities to its members. The term “credit facility” is to be interpreted to comprehend the
business of lending services, that is the business of granting loans. So it was held that income from such hire-
purchase of autorickshaws is not entitled to exemption under section 80P(2)(a)(i) since there is only sale of
autorickshaws on credit

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
Where assessee society was engaged in activity of finance business and was also engaged in activity of
granting loans to general public as well, it could not be termed as co-operative society meant only for its
members and providing credit facilities to its members, hence not entitled to deduction under section 80P
State Bank of India (SBI) vs. Commissioner of Income-tax [2016] 72 taxmann.com
64 (Gujarat) HIGH COURT OF GUJARAT
A society is engaged in providing credit facilities to its members. It is only interest derived from credit
provided to its members which is deductible under section 80P(2)(a)(i) and interest derived by depositing
surplus funds with bank not being attributable to business carried on by society, cannot be deducted under
section 80P(2)(a)(i)

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