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National Executive Committee Resolution: Request to solve the Income Tax Problems related to Credit Co-operative Sector – Reg.

Resolution No 3 of the Executive Committee Meeting dated 27th and 28th February 2021 held at NCUI, Delhi.

Resolution No 3

Sub: Request to solve the Income Tax Problems related to Credit Co-operative Sector – Reg.

National Executive Committee of Sahakar Bharati resolves to extend heartfelt gratitude and appreciates Hon PM Shri Narendra Modiji & Union Finance Minister, Smt Nirmala Sitharamanji for their supportive steps to boost and encourage the CoOp Sector.

“It is resolved that,

Co-operative Institutions are working on the concept of mutuality having the membership of farmer community, middle and lower-class people of the Society. More than 8 Lakhs of Co-operative Institutions are working in India and More than 30 Crores people are engaged in the Co-operative movement of the Nation. Co-operative  Societies are working with service motive & social commitment, based entirely on the Co-operative principles with Mutuality concept.

Below are the problems & our appeal, related to the Co-operative Sector:

a) Issue: Not Considering the Co-operatives registered under the liberal Co-operative statutes of the States, especially, the Co-operatives registered under the Karnataka Souhrada Sahakari Act 1997, as a “Co-operative Society”, for the purpose of Section 2(19) of IT Act 1961.

Appeal: Our request is that, since the words “Souharda Co-operative” and “Co-operative Society” are only nouns and not adjectives and irrespective of their nomenclature both have been working under Co-operative principles, registered under the Co-operative Laws and hence, it is requested to consider that all the Co-operative entities irrespective of its nomenclature, shall be deemed as “Co-operative Societies” for all purposes, including for the purpose of Sec. 2(19) and Sec. 80P(2)(a) of IT Act 1961. If necessary, an amendment may be incorporated.

Karnataka High court given judgment by considering Souharda as a cooperative society, Presently Income Tax authorities filed appeal to Karnataka High Court double bench, and further issuing notices not considering single bench verdict, yet the double bench not given any judgment.

b) Issue: Applying Sec.80P (4) for Co-operative Societies, which provision is inserted w.e.f. 01-04-2007, to be applicable to Co-operative Banks only. But IT Authorities are applying this section to all the Co-operative Societies also.

Appeal: CBDT may be instructed to give appropriate clarification/direction

a) Issue: Disallowing of the interest income earned by the Co-operative Societies, out of the investments of their reserve funds, both statutory or otherwise, as required to be invested under the statutes of the States.

Appeal: Please refer to CBDT Circular No.18/2015 dated Nov 2, 2015, about interest from non-SLR Securities of Banks – Reg. Once again, a similar circular may be issued by the CBDT allowing the deduction of the interest income earned on the investments of the Co-operative Societies, as the Co-operative Societies shall invest their reserves in the Banks as per the state enactments, though not for earning profits [CIT V/s Nawanshahar Central Co-operative Bank Ltd. (2007) 160 Taxman 48 (SC)].

b) Issue: Not Considering the Membership Pattern as per the State Enactments;

Appeal: After the Supreme Court verdict in the case of Citizen Co-operative Society, Hyderabad, the income Tax Authorities have started differentiating between, “Member” “Associate Member” “Nominal Member”, holding that the Associate and Nominal Members are not members and the income earned from the business with them is to be treated as the income from non-members, though the facts of the Citizens Co-operative Society case, are entirely different to the facts of the other Co-operative Societies, since the law under which, the Citizens Co-operative Society is constituted do not provide for any other kind of members.

Appeal: The Co-operation is a State Subject (Entry 32, list II of Schedule VIII of the Constitution) and many State Enactments provide for the “Associate & Nominal Members” for specific purposes. In spite of the clear provision under the State Enactment, IT Authorities are not considering the same and disallowing the deduction under 80(P) of IT Act on the ground that the business income earned out of the business with Associate and Nominal Members is not eligible for deduction. Hence, either an Amendment for Sec.80P(2)(a)(i) of IT Act, by incorporating the meaning of the word “Member as “Regular/Associate/Nominal members”, or by issuing necessary clarification by the CBDT. [Ref: Madras High Court Verdict on PCIT, Selam Vs Ammapet Primary Agriculture Cooperative Bank Itd on 06.12.2018, Case No.882 & 891 of 2018]

c) Issue: Section 269ST Of The Income Tax Act, 1961: The provision imposes restrictions of the quantum of cash a person can receive, (Rs.2 Lakhs or more) in the modes other than specified in the Section. But the said Section exempts Co-operative Banks, not the Co-operative Societies. Differential treatment – Violation of equality before the law. – Article 14 of the Constitution.

Appeal: Most of all the Co-operative Institutions especially Credit Co-operative Societies with large working capital are catering the services to the needy people

Appeal: The Co-operation is a State Subject (Entry 32, List II of Schedule VIII of the Constitution) and many State Enactments provide for the “Associate & Nominal Members” for specific purposes. In spite of the clear provision under the State Enactment, IT Authorities are not considering the same and disallowing the deduction under 80(P) of IT Act on the ground that the business income earned out of the business with Associate and Nominal Members is not eligible for deduction. Hence, either an Amendment for Sec.80P(2)(a)(i) of IT Act, by incorporating the meaning of the word “Member as “Regular/Associate/Nominal members”, or by issuing necessary clarification by the CBDT. [Ref: Madras High Court Verdict on PCIT, Selam Vs Ammapet Primary Agriculture Cooperative Bank Ltd on 06.12.2018, Case No.882 & 891 of 2018]

d) Issue: Section 269ST Of The Income Tax Act, 1961: The provision imposes restrictions of the quantum of cash a person can receive, (Rs.2 Lakhs or more) in the modes other than specified in the Section. But the said Section exempts Co-operative Banks, not the Co-operative Societies. Differential treatment – Violation of equality before the law. – Article 14 of the Constitution.

Appeal: Most of all the Co-operative Institutions especially Credit Co-operative Societies with large working capital are catering the services to them which are also doing similar business as that of Co-operative Banking, but only with members. Hence, our request is to extend this exemption to the Co-operative Societies also.

e) Issue: TDS on Cash withdrawal – The new section 194N is applicable in case of cash withdrawals of more than one Crore rupees in one Bank.

Appeal: Under this Section, Banks are deducting 2% TDS on cash withdrawals. Co-operative Societies are dealing with members. For their day to day business, the Co-operative Societies have been withdrawing the cash from the Banks on regular basis. Considering the Co-operatives also as individual persons for the purpose of Section 194N is harming to the interests of the Co-operative Societies. Hence our request is to exempt the Co-operative Societies for the purpose of this Section.”

 

Proposed by: Shri Krishna Reddy

Seconded by: Shri Pradeep Choubisa

The resolution passed unanimously.

 

 

 

 

 

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