Supreme Court of India
KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD. KSCARDBversusTHE ASSESSING OFFICER, TRIVANDRUM AND ORS.
- Citation
- 2023 INSC 830
- Decided
- 14 September 2023
- Disposal
- Appeal(s) allowed
- Bench
- B V NAGARATHNA
Holding
KSCARDB is not a co‑operative bank within the meaning of s.80P(4) and is therefore entitled to the deduction under s.80P(2)(a)(i) of the Income Tax Act.
Summary
The Kerala State Co‑operative Agricultural and Rural Development Bank Ltd. (KSCARDB) claimed a deduction under s.80P(2)(a)(i) of the Income Tax Act for profits earned by providing credit facilities to its member co‑operative societies. The Assessing Officer held that KSCARDB was a "co‑operative bank" within the meaning of s.80P(4) and therefore ineligible for the deduction. The High Court and the ITAT affirmed the disallowance, but KSCARDB appealed, arguing that it does not transact banking business as defined in the Banking Regulation Act and is not a co‑operative bank under the NABARD Act. The Supreme Court examined the definitions of "banking", "co‑operative bank", and the licensing requirements under the Banking Regulation Act, concluding that KSCARDB does not meet the criteria of a co‑operative bank and thus is entitled to the deduction. Consequently, the Court set aside the lower courts' orders and allowed the appeal, granting KSCARDB the benefit of deduction under s.80P.
Issues considered
- Whether KSCARDB qualifies as a "co‑operative bank" within the meaning of s.80P(4) of the Income Tax Act, 1961.
- Whether the definition of "banking" under s.5(b) of the Banking Regulation Act, 1949 excludes KSCARDB from being a co‑operative bank.
- Whether KSCARDB is required to obtain a licence under s.22 of the Banking Regulation Act, 1949 to carry on banking business.
- Whether the exemption under s.80P(4) applies to KSCARDB, thereby denying the deduction claimed under s.80P(2)(a)(i).
Legislation cited
- Banking Regulation Act, 1949s. 22, s. 2(c), s. 56, s. 5(b), s. 5(c)
- Income Tax Act, 1961s. 80P(2)(a)(i), s. 80P(4)
- Kerala Co-operative Societies Act, 1969s. 110, s. 2(g)
- Kerala State Co‑operative Agricultural Development Banks Act, 1984s. 2(a), s. 2(d), s. 2(iA)
- National Bank for Agriculture and Rural Development Act, 1981s. 2(d), s. 2(u), s. 2(v), s. 2(w), s. 2(x)
- Reserve Bank of India Act, 1934s. 2(e)
- Travancore‑Cochin Co-operative Societies Act, 1951s. 10
Subjects
Section 80Pco‑operative societyco‑operative bankbanking regulationNABARD Actlicensingtax deductionKerala co‑operative law
Judgment
[2023] 12 S.C.R. 318 : 2023 INSC 830
CASE DETAILS
KERALA STATE CO-OPERATIVE AGRICULTURAL AND
RURAL DEVELOPMENT BANK LTD. KSCARDB
v.
THE ASSESSING OFFICER, TRIVANDRUM AND ORS.
(Civil Appeal No(s).10069 of 2016)
SEPTEMBER 14, 2023
[B.V. NAGARATHNA AND UJJAL BHUYAN, JJ.]
HEADNOTES
Issue for consideration: Whether the appellant-assessee, a co-
operative society, is entitled to claim deduction of the whole of its profits
and gains of business attributable to the business of banking or providing
credit facilities to its members who are all co-operative societies u/s.80P,
Income Tax Act, 1961.
Income Tax Act, 1961 – s.80P – Appellant, if a co-operative bank
within the scope and meaning of sub-section (4) of s.80P and thus, not
eligible to the benefit of deduction as provided therein:
Held: No – Appellant is not a co-operative bank within the meaning of
sub-section (4) of s.80P of the 1961 Act – Appellant is a co-operative credit
society u/s.80P(2)(a)(i) of the 1961 Act whose primary object is to provide
financial accommodation to its members who are all other co-operative
societies and not members of the public – If a cooperative society does not
transact the business of banking as defined in clause (b) of s.5 of the BR
Act, 1949, it would not be a cooperative bank – Then the definitions under
the NABARD Act, 1981 would not apply – If a co-operative society is not
a co-operative bank, then such an entity would be entitled to deduction but
on the other hand, if it is a co-operative bank within the meaning of s.56
of BR Act, 1949 r/w the provisions of NABARD Act, 1981 then it would
not be entitled to the benefit of deduction under sub-section (4) of s.80P
of the 1961 Act – In the present case, although the appellant society is an
apex cooperative society within the meaning of the State Act, 1984, it is
318
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 319
AND ORS.
not a co-operative bank within the meaning of s.5(b) r/w s.56 of the BR
Act, 1949 – Order(s) of the Kerala High Court and other authorities to the
contrary set aside – Appellant is not a co-operative bank and neither has it
been so declared under the provisions of NABARD Act, 1981 or the State
Act – Appellant entitled to the benefit of deduction u/s.80P of the 1961
Act – Banking Regulation Act, 1949 – ss.2(c), 5, 56 – National Bank for
Agriculture and Rural Development Act, 1981 – ss.2(d), (u), (v)-(x) – Kerala
Co-operative Societies Act, 1969 – s.110 – Kerala State Co-Operative
Agricultural Development Banks Act, 1984 – s.2(a), (d), (iA) – Travancore-
Cochin Co-operative Societies Act, 1951 – s.10 – Reserve Bank of India
Act, 1934. [Paras 15.8, 15.12 and 15.13]
Income Tax Act, 1961 – s.80P(2)(a)(i) – Distinction between
business of banking and providing credit facilities to its members by
co-operative society:
Held: s.80P speaks about deduction in respect of income of cooperative
societies from the gross total income referred to in sub-section (2) of the said
Section – From the said income, there shall be deducted, in accordance with
the provisions of s.80P, sums specified in subsection (2), in computing the
total income of the assessee for the purpose of payment of income tax – Sub-
section (2) of s.80P enumerates various kinds of co-operative societies – Sub-
section (2)(a)(i) states that if a co-operative society is engaged in carrying
on the business of banking or providing credit facilities to its members,
the whole of the amount of profits and gains of business attributable to any
one or more of such activities shall be deducted – The sub-section makes a
clear distinction between business of banking on the one hand and providing
credit facilities to its members by co-operative society on the other – Thus,
the definition of banking u/s.5(b) of the BR Act must be borne in mind as
opposed to providing credit facilities to its members – Banking Regulation
Act, 1949 – s.5(b). [Para 15.1]
Income Tax Act, 1961 – s.80P(4):
Held: Sub-section (4) of s.80P in the present form is in the nature of
an exception which states that the provisions of s.80P shall 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 – The
expressions co-operative bank and primary agricultural credit society as
320 SUPREME COURT REPORTS [2023] 12 S.C.R.
well as primary co-operative agricultural and rural development bank are
defined in the Explanation as co-operative bank and primary agricultural
credit society having the meanings respectively assigned to them in Part V
of the BR Act, 1949 – Banking Regulation Act, 1949. [Para 15.2]
Banking Regulation Act, 1949 – ss.5(b), (c), 22, 56(o) – ‘banking
company’ – ‘banking’:
Held: Banking company in s.5(c) means any company which transacts
the business of banking in India – “Banking” is defined in s.5(b) to mean the
accepting, for the purpose of lending or investment, of deposits of money
from the public, repayable on demand or otherwise, and withdrawal by
cheque, draft, order or otherwise – Therefore, a banking company must
transact banking business vis-à-vis the public – Thus, in the first place a
co-operative society must be engaged in banking business as defined in
s.5(b) – For that, s.22 speaks about licence to be obtained by a bank to do
banking business which is modified as per clause (o) of s.56 which states
that no cooperative society shall carry on banking business in India unless
it is a co-operative bank and holds a licence issued in that behalf by the
Reserve Bank, subject to such conditions, if any, as the Reserve Bank may
deem fit to impose – Secondly, a co-operative society must obtain a licence
u/s.22, only if it functions as a co-operative bank and not otherwise – Thus,
a co-operative society including a co-operative credit society which is not a
co-operative bank does not require a licence to function as such. [Para 15.4]
Banking Regulation Act, 1949 – ss.5(b), 56(c)(i)(cci):
Held: If a co-operative society is not conducting the business of
banking as defined in clause (b) of s.5, BR Act, 1949, it would not be a co-
operative bank and not so within the meanings of a state co-operative bank, a
central co-operative bank or a primary co-operative bank in terms of s.56(c)
(i)(cci) – Whereas a co-operative bank is in the nature of a banking company
which transacts the business of banking as defined in clause (b) of s.5 of
the BR Act, 1949 – National Bank for Agriculture and Rural Development
Act, 1981 – ss.2(d), (u), (v)-(x). [Para 15.8]
Income Tax Act, 1961 – s.80P(4) – Object and purpose – Discussed.
Banking Regulation Act, 1949 – s.56 – Object:
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 321
AND ORS.
Held: Having regard to the Explanation to sub-section (4) of s.80P,
it is necessary to consider Chapter V of the BR Act, 1949 which states that
the said Act shall apply to co-operative societies subject to modifications
made thereunder – s.56 begins with a non-obstante clause which states that
notwithstanding anything contained in any other law for the time being in
force, the provisions of the said Act, shall apply to, or in relation to, co-
operative societies as they apply to, or in relation to, banking companies
subject to certain modifications – The object of s.56 is to provide a deeming
fiction by equating a co-operative society to a banking company if it is a
co-operative bank within the meaning of the said provision – This is because
Chapter V of the BR Act, 1949, deals with application of the Chapter to
co-operative societies which are co-operative banks within the meaning
of the said chapter – For the purpose of these cases, what is relevant is
that throughout the BR Act, 1949, unless the context otherwise requires,
references to a “banking company” or “the company” or “such company”
shall be construed as references to a co-operative bank – Therefore,
while considering the meaning of a co-operative bank inherently, such
a cooperative society must be a banking company then only it would be
construed as a co-operative bank requiring a licence u/s.22 of BR Act, 1949
in order to function as such a bank – Income Tax Act, 1961 – s.80P(4).
[Paras 15.4 and 15.9]
Banking Regulation Act, 1949 – s.56 – ‘co-operative bank’ –
National Bank for Agriculture and Rural Development Act, 1981 – s.2(u)
– Banking Regulation Act, 1949 – ss.2(c), and 22:
Held: When the definition of “co-operative bank” in s.56 of BR Act,
1949 is viewed in terms of s.2(u) of the NABARD Act, 1981, it is clear that
only a state co-operative bank would be within the scope and meaning of a
banking company u/s.2(c) of the BR Act, 1949 on obtaining licence u/s.22
of the said Act. [Para 15.14]
LIST OF CITATIONS AND OTHER REFERENCES
Mavilayi Service Co-operative Bank Limited vs. Commissioner of
Income Tax, Calicut, (2021) 7 SCC 90; Apex Co-operative Bank of Urban
Bank of Maharashtra and Goa Ltd. vs. Maharashtra State Co- operative
Bank Ltd., (2003) 11 SCC 66:[2003] 4 Suppl. SCR 1071; Thalappalam
322 SUPREME COURT REPORTS [2023] 12 S.C.R.
Service Coop. Bank Ltd. vs. State of Kerala, (2013) 16 SCC 82:[2013] 14
SCR 475; Union of India vs. Rajendra N. Shah, 2021 SCC OnLine SC 474;
Citizen Co-operative Society Ltd. vs. Commissioner of Income Tax, (2017)
9 SCC 364:[2017] 9 SCR 361; Kerala State Coop. Mktg. Federation Ltd.
vs. CIT, (1998) 5 SCC 48:[1998] 3 SCR 443 – referred to.
A.P. Varghese vs. The Kerala State Co-operative Bank Ltd. AIR 2008
Ker 91 – referred to.
CIT vs. Punjab State Coop. Bank Ltd., (2008) 300 ITR 24 – referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.10069 of
2016
[From the Judgment and Order dated 08.08.2016 of the Commissioner
of Income Tax (Appeals), Trivandrum in I.T.A. No.08 of 2016 (Assessment
Year 2013-2014)]
With
Civil Appeal Nos.5005-5007 of 2019, 5889, 5890, 5891 of 2023 and
3881-3882 of 2019
Appearances:
N Venkataraman, A.S.G., Krishnan Venugopal, Mrs. Sonia Mathur,
Sr. Advs., Deepak Prakash, Krishnan Agarwal, Raneev Dahiya, Pawan Kr.
Dabas, Rahul Lakhera, Nachiketa Vajpayee, Ms. Divyangna Malik, Ms.
Vishnu Priya, Shyam Nair, Biju P Raman, Ms. Divyagana, Raj Bahadur
Yadav, S A Haseeb, Mrs. Praveena Gautam, H R Rao, Mrs. Nisha Bagchi, V.
Chandrashekhara Bharathi, Ms. Shruti Shiv Kumar, Ms. Amritha C. Mouli,
Rahul Vijaya Kumar, Siddharth Sinha, Advs. for the appearing parties.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
NAGARATHNA, J.
Leave granted in those Special Leave Petitions where it has not yet
been granted.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 323
AND ORS. [B.V. NAGARATHNA, J.]
2. These appeals arise out of analogous proceedings against the
appellant/assessee, and, inter alia, impugn the judgement dated 26.11.2015
passed by the Kerala High Court; the order dated 08.08.2016 passed by the
Commissioner of Income Tax (Appeals), Trivandrum and the order dated
07.02.2019 passed by the Income Tax Appellate Tribunal (‘ITAT’).
3. The issue involved in these cases is, whether, the appellant/assessee,
a co-operative society, is entitled to claim deduction of the whole of its
profits and gains of business attributable to the business of banking or
providing credit facilities to its members who are all co-operative societies
under Section 80P of the Income Tax Act, 1961 (hereinafter referred to as
“the Act”, for the sake of brevity).
Since the question of law involved in these proceedings are common,
the facts only in SLP(C) No(s). 2737 of 2016 impugning the judgement of
the High Court of Kerala dated 26.11.2015 are narrated.
4. The facts, in a nutshell, are that the appellant/assessee is a State-level
Agricultural and Rural Development Bank governed by as a co-operative
society under the Kerala Co-operative Societies Act, 1969 (hereinafter
referred to as the “State Act, 1969” for the sake of brevity) and is engaged in
providing credit facilities to its members who are co-operative societies only.
Initially in the year 1951, the appellant/assessee got registered under Section
10 of the Travancore-Cochin Co-operative Societies Act, 1951 (for short,
“State Act, 1951”). On 04.10.1956, the appellant received a Registration
Certificate bearing No. 4017 from the Registrar of Co-operative Societies,
Trivandrum, recognizing it as a co-operative Central Land Mortgage Bank
incorporated on the basis of limited liability under Section 10 of the State
Act, 1951 (X of 1952). The office of the Registrar of Co-operative Societies,
Trivandrum further addressed a communication dated 17.11.1961 bearing
No. 36444/61.PR2 including the rules relating to Retirement Benefit Fund
and Staff Benefit Fund for Kerala Co-operative Central Mortgage Bank Ltd.
5. The Kerala Co-operative Societies Act, 1969 was enacted in order
to, inter alia, provide for the orderly development of the co-operative sector
in the State and to unify the law relating to co-operative societies in the
State. Vide Section 110 of the State Act, 1969, the State Act, 1951 (X of
1952) was repealed. Therefore, the appellant/assessee came to be registered
and regulated under the State Act, 1969. The appellant/assessee being the
324 SUPREME COURT REPORTS [2023] 12 S.C.R.
Kerala State Co-operative Agricultural and Rural Development Bank Ltd.,
Thiruvananthapuram, is also included in Schedule I of the State Act, 1969
as regards the application of the Section 80(3A) thereof that postulates that
when direct recruitments ‘is resorted to’ the same ‘shall be made from a
select list of candidates furnished by the Kerala Public Service Commission.’
6. The State Act, 1969 defines “co-operative society with limited
liability” in Section 2(g) as a society in which the liability of its members
for the debts of the society in the event of its being wound up is limited
by its bye-laws (i) to the amount, if any, unpaid on the shares respectively
held by them; or (ii) to such amount as they may, respectively, undertake
to contribute to the assets of the society.
7. It would also be apposite to take note of the Kerala State Co-
Operative Agricultural Development Banks Act, 1984 (for short, “State
Act, 1984”). This Act was passed ‘to facilitate the more efficient working
of Co-operative “Agricultural and Rural Development Banks” in the State
of Kerala.’
8. Section 2(a) of the State Act, 1984 defines “Agricultural and Rural
Development Bank” to mean “the Kerala Co-operative Central Land
Mortgage Bank Limited, registered under Section 10 of the State Act, 1951
(X of 1952), and provides that the same shall be known as the “Kerala State
Co-operative Agricultural and Rural Development Bank Limited” which is
the name of the appellant herein. Section 2(d) thereof defines “co-operative
society” to mean a co-operative society registered or deemed to be registered
under the State Act, 1969 (21 of 1969). It is apposite to note that Section
2(iA) of the said Act defines “Rural Development” to mean any activity
intended to promote the development in rural area and includes the following
developmental activities: i) Development of handicrafts and other crafts; ii)
Small Industries; iii) Cottage and Village Industries; iv) Industries in tiny and
decentralized section; and v) Rural housing needs of the rural-population.
9. Having considered the evolution of the statutory framework that
governs the appellant/assessee, it would be appropriate to briefly state
relevant facts giving rise to these appeals.
9.1. On 27.10.2007 the appellant/assessee filed its Return of Income
for the Assessment Year 2007-08 of Rs. 27,18,052 claiming deduction under
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 325
AND ORS. [B.V. NAGARATHNA, J.]
Section 80P (2)(a)(i) of the Act. Upon scrutiny, on 22.12.2009 an Assessment
Order under Section 143(3) of the Act, was passed by the Assessing
Officer for the Assessment Year 2007-08, disallowing the deduction of
Rs. 36,39,87,058 under Section 80P(2)(a)(i) holding that the appellant/
assessee is neither a primary agricultural credit society nor a primary co-
operative agricultural and rural development bank. The Assessing Officer
held the appellant/assessee is a “co-operative bank” and thus, was hit by
the provisions of Section 80(P)(4) and was not entitled to the benefit of
Section 80(P)(2) of the Act. The Assessing Officer observed that with effect
from 01.04.2007, Section 80P was amended by the insertion of sub-section
(4) as per which the provisions of Section 80P shall not apply to any co-
operative bank other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank. The Assessing Officer
declared the appellant/assessee to be neither a primary agricultural credit
society nor a primary co-operative agricultural and rural development bank,
thus, the appellant/assessee’s claim was hit by Section 80P (4) of the Act.
The total income was assessed at Rs. 36,69,47,233.
9.2. Aggrieved by the Assessment Order dated 27.12.2009, the
appellant/assessee filed an appeal before the Commissioner of Income Tax
(Appeals) (“CIT(A)”). The CIT(A) vide Order dated 30.07.2010 confirmed
the disallowance made by the Assessing Officer. The CIT (A) was of the view
that the appellant/assessee is actively playing the role of a development bank
in the State and is no longer a land mortgage bank but is a development bank.
The appellant/assessee may have earlier been a land mortgage bank but by
virtue of a shift in its activities has become a development bank and is now
governed by the State Act, 1984 and thus, it is in the business of banking
as it satisfies all the tests that are required to qualify as a “co-operative
bank”. CIT (A) further observed that with the insertion of Section 80P (4),
co-operative banks are placed at par with other commercial banks and the
appellant/assessee who is in the business of banking through its primary
co-operative banks is definitely a co-operative bank within the meaning of
Section 80P (4). Consequently, the appeal was dismissed.
9.3. Being aggrieved by the Order passed by CIT(A), the appellant/
assessee filed further appeal before the Income Tax Appellate Tribunal
(“ITAT”). The ITAT vide Order dated 23.02.2011 partly allowed the appeal
326 SUPREME COURT REPORTS [2023] 12 S.C.R.
and held that the appellant/assessee is a co-operative bank and is not a
primary agricultural credit society or a primary co-operative agricultural and
rural development bank and is consequently hit by the provision of Section
80P (4), thus, the deduction claimed was rightly denied. However, the ITAT
also clarified to the extent that the appellant/assessee is acting as a State
Land Development Bank which falls within the purview of the National
Bank for Agriculture and Rural Development Act, 1981 (“NABARD Act,
1981”, for short) and is exigible for financial assistance from NABARD.
Therefore, the appellant/assessee’s claim merits acceptance and it would
be entitled to deduction under Section 80P(2)(a)(i) on the income relatable
to its lending activities as such a bank.
9.4. Aggrieved by the Order passed by the ITAT in only partly allowing
its appeal, the appellant/assessee preferred an appeal being ITA No. 103 of
2011 against the ITAT’s Order dated 23.02.2011. The issue raised by the
appellant/assessee was with respect to the ITAT’s finding that the appellant/
assessee was neither a primary agricultural credit society nor a primary co-
operative agricultural and rural development bank, hence, not entitled for
exemption of its income under Section 80P(2)(a)(i) of the Act.
9.5. On 26.11.2015, the Kerala High Court dismissed the Assessee’s
Appeal, ITA No. 103 of 2011, holding that the ITAT’s findings do not warrant
any interference as the case did not involve any substantial question of law.
Against the Judgment dated 26.11.2015, the appellant/assessee preferred a
Special Leave Petition (C) bearing No. 2737 of 2016. This Court vide Order
dated 01.02.2016, issued notice and granted stay of recovery of demand
made by the Income Tax Authorities from the appellant/assessee for the
AY 2007-08.
Submissions:
10. The submissions of learned senior counsel for the appellant and
learned ASG for the respondent are as under:
10.1. Learned senior advocate, Sri Krishnan Venugopal, at the outset,
submitted that the appellant is aggrieved by the impugned orders declining to
extend the benefit of deduction under Section 80P of the Act. He submitted
that sub-section (4) of Section 80P is in the nature of an exception which
was added subsequently to Section 80P and the said sub-section excludes a
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 327
AND ORS. [B.V. NAGARATHNA, J.]
‘co-operative bank’ from the benevolent provision. However, the appellant
is not a co-operative bank within the meaning of the said sub-section. On
the other hand, the appellant is a ‘co-operative society’ engaged in providing
credit facilities to its members who are not individuals but are other co-
operative societies and the appellant is an apex co-operative society.
10.2. Highlighting the genesis of the appellant, it was submitted that
the appellant was first registered as a co-operative society under the State
Act, 1951 and was recognised as a co-operative central land mortgage
bank and when the State Act, 1969 was enacted, it was recognised as a co-
operative society under the said enactment. The State Act, 1951 was repealed
by Section 110 of the State Act, 1969. Section 2(g) of the State Act, 1969
defines a co-operative society with limited liability. That on the enactment
of the State Act, 1984, Section 2(a) thereof defines “agricultural and rural
development bank” to mean the Kerala Co-operative Central Land Mortgage
Bank Limited, registered under Section 10 of the State Act, 1951 which is
known as “Kerala State Co-operative Agricultural and Rural Development
Bank Limited”. Therefore, the appellant is not a co-operative bank within
the meaning of Section 80P of the Act.
10.3. Referring to Explanation (a) to sub-section (4) of Section 80P of
the Act which states that a co-operative bank shall have the same meaning
assigned to it in Part V of the Banking Regulation Act, 1949 (hereinafter
referred to as “BR Act, 1949”, for the sake of convenience), Part V of the
BR Act, 1949 which applies to co-operative banks was adverted to. That
Section 56 in Part V of the said Act begins with a non-obstante clause and
it states that notwithstanding anything contained in any other law for the
time being in force, the provisions of the BR Act, 1949 shall apply to, or in
relation to, co-operative societies as they apply to, or in relation to banking
companies subject to the following modifications, namely, (a) throughout
the said Act, unless the context otherwise requires references to a ‘banking
company’ shall be construed as reference to a ‘co-operative bank’. Further,
a co-operative bank is defined to mean a state co-operative bank, a central
co-operative bank and a primary co-operative bank; that these expressions
have the meaning respectively assigned to them in the NABARD Act, 1981.
10.4. It was contended that the appellant bank is not a banking company
within the meaning of Section 5(c) of the BR Act, 1949 which defines a
328 SUPREME COURT REPORTS [2023] 12 S.C.R.
“banking company” to be any company which transacts the business of
banking in India and Section 5(b) defines “banking” to mean the accepting,
for the purpose of lending or investment, of deposits of money from the
public, repayable on demand or otherwise, and withdrawal by cheque,
draft, order or otherwise. That the appellant is a co-operative society and
not a co-operative bank. That initially the appellant was registered as land
mortgage bank under the provision of the State Act, 1951. That if an entity
is engaged in banking business then it would be construed as referring to
a co-operative bank in which case, under Section 22 of the BR Act, 1949,
it is necessary for a company to hold a licence issued by the Reserve Bank
if it has to carry on banking business in India and such licence is issued
subject to such conditions as the Reserve Bank may think fit to impose.
That in the instant case, the appellant is not a licenced company under the
provisions of the Reserve Bank of India Act, 1934 (“RBI Act”, for short) as
the appellant does not transact ‘banking business’ and therefore, does not
require any licence under the RBI Act. Reliance was placed on Section 3
of the BR Act, 1949 as it stood earlier which stated that the said Act would
not apply, inter alia, to (a) a primary agricultural credit society; (b) a co-
operative land mortgage bank; and (c) any other co-operative society, except
in the manner and to the extent specified in Part V. It was submitted that
the appellant is a co-operative credit society engaged in providing credit
facilities to its members and its members are other co-operative societies
which are in the nature of primary societies. The appellant is not carrying
on the business of banking within the meaning of Section 80P(2)(a)(i) of the
Act. That only a co-operative society which is engaged in the business of
banking and is a co-operative bank within the meaning of Part V of the BR
Act, 1949 would come within the scope of the exclusion under sub-section
(4) of Section 80P of the Act.
10.5. In this context, our attention was drawn to Section 56(o) of the
BR Act, 1949 which states that under Section 22, no co-operative society
shall carry out banking business in India unless it is a co-operative bank
and holds a licence issued in that behalf by the Reserve Bank. That in the
instant case, the appellant does not hold any licence as per Section 22 of
the BR Act, 1949 and in fact such a licence is not required for the appellant
to conduct its business as the appellant is not conducting banking business
within the meaning of BR Act, 1949. Therefore, the appellant bank does
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 329
AND ORS. [B.V. NAGARATHNA, J.]
not come under the provisions of Chapter V of the BR Act, 1949. It was
submitted that the Reserve Bank of India reports and the RTI replies
categorically indicate that the appellant is not included under the scope of
the provisions of the RBI Act.
10.6. In this regard, learned senior counsel, Sri Krishnan Venugopal,
took us through various documents appended to the paper book in order to
buttress his submission that appellant is not a co-operative bank within the
meaning of Chapter V of the BR Act, 1949.
10.7. It was next contended that the judgment of this Court in Mavilayi
Service Co-operative Bank Limited vs. Commissioner of Income Tax,
Calicut, (2021) 7 SCC 90 (“Mavilayi Service Co-operative Bank”) squarely
applies to the case of the appellant inasmuch as, in the said judgment, the
touchstone, on the basis of which an entity could be considered to be a co-
operative bank or not within the meaning of provision of BR Act, 1949, has
been elucidated. Learned senior counsel urged that impugned orders may
be set aside by applying the ratio of the judgment in Mavilayi Service Co-
operative Bank. That such an approach has been adopted by the Assessing
Officer as per the remand report.
10.8. Per contra, learned ASG, N. Venkataraman, appearing for the
respondents, at the outset, vehemently contended that the appellant is “a co-
operative bank” and not simply a land mortgage bank. That Section 80P(2)
(a)(i) of the Act applies to a co-operative society engaged in carrying on
business of banking or providing credit facilities to its members. That the
appellant herein is engaged in the business of banking and is a co-operative
bank within the meaning of Part V of the BR Act, 1949 and the argument
of the appellant that it is not a co-operative bank, is incorrect. According
to learned ASG, the status of the appellant is in dispute, as, according to
the respondent, the appellant is a co-operative bank while the appellant
has contended that it is not doing banking business and therefore is not a
co-operative bank but is a co-operative credit society. Distinguishing the
judgment of this Court in Mavilayi Service Co-operative Bank, it was
submitted that the status of the appellant therein was not in dispute as it was
registered as a primary agriculture society together with one multi-state co-
operative society and therefore such a society did not require Reserve Bank
of India licence but the appellant is not a primary agriculture credit society
330 SUPREME COURT REPORTS [2023] 12 S.C.R.
but a co-operative bank which is excluded from the benefit of deduction
in respect of its income under the provisions of the Act. It was therefore
submitted that the judgment of this Court in Mavilayi Service Co-operative
Bank does not apply to the appellant herein. In this regard, learned ASG
submitted that any central or state co-operative bank is a co-operative
bank within the meaning of Section 56 of BR Act, 1949 as it is engaged in
banking business. That the appellant is a state co-operative bank. Therefore,
sub-section (4) of Section 80P excludes the benefit of deduction in respect
of income to such an entity. It was submitted that impugned orders are just
and proper and do not call for any interference in these appeals which lack
merit and therefore the same may be dismissed.
10.9. By way of reply, learned senior counsel for the appellants
reiterated that the appellant is not engaged in banking business at all and it
receives funds from National Bank for Agriculture and Rural Development
and in turn lends money to its member societies and in that sense is an
apex bank. Reliance was placed on Section 2(d) of NABARD Act, 1981 to
contend that a central co-operative bank is a principal co-operative society
in a district in a state, the primary object of which is the financing of other
co-operative societies in that district. The appellant is definitely not a central
co-operative bank. That the appellant is also not a state co-operative bank
whose primary object is the financing of other co-operative societies within
the state as per Section 2(u) of the NABARD Act, 1981. That the Kerala
State Co-operative Bank is an apex bank coming within the meaning of
clause (u) of Section 2 of NABARD Act, 1981 but not the appellant herein.
It was submitted that the appellant is a scheduled bank functioning within
the State of Kerala as per the Second Schedule of the RBI Act read with
Section 2(e) and Section 42 of the said Act. Section 2(e) defines a scheduled
bank in the Second Schedule of RBI Act. The appellant is bound by the
mandate of Section 42 in terms of cash reserves to be kept with the bank.
10.10. That on a reading of Section 42(1)(d) it becomes clear that a
scheduled bank is distinct from a state co-operative bank as well as a co-
operative bank inasmuch as the aggregate of the liabilities of a scheduled
bank which is not a state co-operative bank shall be reduced by the aggregate
of the liabilities of such co-operative bank and other bank or institutions to
a scheduled bank. Thus, a bank can be a scheduled bank which is not a state
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 331
AND ORS. [B.V. NAGARATHNA, J.]
co-operative bank or a co-operative bank within the meaning of sub-section
(4) of the Section 80P of the Act. The appellant herein is a scheduled bank
which is not a state co-operative bank or a co-operative bank within the
meaning of the BR Act, 1949.
10.11. Reliance was placed on Apex Co-operative Bank of Urban
Bank of Maharashtra and Goa Ltd. vs. Maharashtra State Co-operative
Bank Ltd., (2003) 11 SCC 66 (“Apex Co-operative Bank of Urban Bank of
Maharashtra and Goa Ltd.”) with particular reference to paragraphs 11 to
13 and 18 and the case of A.P. Varghese vs. The Kerala State Co-operative
Bank Ltd. reported in AIR 2008 Ker 91 (“A.P. Varghese”) wherein the
definition of co-operative bank as per section 56(cci) of the BR Act, 1949
was considered with particular reference to paragraphs 7 and 8, to contend
that the Kerala State Co-operative Bank is a state co-operative bank as
defined under the provisions of the NABARD Act, 1981 and the district co-
operative banks are central co-operative banks as defined in that Act. Hence,
they are co-operative banks falling within the notification dated 28.01.2003
issued under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (for short, “SARFAESI
Act, 2002”). It was contended that the Kerala State Co-operative Bank is
a state co-operative bank which is an apex bank. That a state co-operative
bank, central co-operative bank in the co-operative sector is engaged in the
business of banking but the appellant herein is not engaged in the business
of banking within the meaning of BR Act, 1949 and is thus entitled to the
benefit of deduction even as per sub-section (4) of Section 80P of the Act
as it is not a co-operative bank.
10.12. In this regard, our attention was drawn to the provisions of
State Act, 1969, namely, Section 2(rb) which defines a “state co-operative
bank”; Section 2(ia) which defines a “district co-operative bank”; Section
2(ra) which defines a state co-operative agricultural and rural development
bank and Section 2(oc) which defines a primary co-operative agricultural
and rural development bank.
10.13. It was further submitted that the appellant herein is Kerala
State Co-operative Agricultural and Rural Development Bank which is as
defined in Section 2(ra) of the State Act, 1969 and which is an apex bank
having only primary co-operative agricultural and rural development banks
332 SUPREME COURT REPORTS [2023] 12 S.C.R.
as its members as defined under Section 2(oc) of the State Act, 1969 and
functioning in accordance with the State Act, 1984. That Section 2(a) of the
State Act, 1984, defines agricultural and rural development bank to mean
the Kerala Co-operative Central Land Mortgage Bank Limited, registered
under Section 10 of the State Act, 1951 which is known as “Kerala State
Co-operative Agricultural and Rural Development Bank Limited”. This
bank is different from “Kerala State Co-operative Bank” which is a state
co-operative bank defined under the NABARD Act, 1981. Therefore, the
benefit of Section 80P of the Act was sought by the appellant.
Points for Consideration:
11. Having heard learned senior counsel for the petitioner and
learned ASG for the respondent, the following points would arise for our
consideration:
i) Whether the appellant is a “co-operative bank” within the
meaning of sub-section (4) of Section 80P of the Act?
ii) Whether the ratio of the judgment in Mavilayi Service Co-
operative Bank and the tests laid down therein apply to the case
of the appellant herein?
iii) What order?
The aforesaid points are inter-connected and shall be considered
together.
Legal Framework:
12. At the outset, it would be necessary to garner together the several
relevant provisions applicable in the present case.
i) The Income Tax Act, 1961 (‘the Act’, for short):
Section 80P of the Act reads as under:
“80P. Deduction in respect of income of co-operative
societies.-
(1) Where, in the case of an assessee being a co-operative
society, the gross total income includes any income referred
to in sub-section (2), there shall be deducted, in accordance
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 333
AND ORS. [B.V. NAGARATHNA, J.]
with and subject to the provisions of this section, the sums
specified in sub-section (2), in computing the total income
of the assessee.
(2) The sums referred to in sub-section (1) shall be the
following, namely :—
(a) in the case of a co-operative society engaged in—
(i) carrying on the business of banking or providing credit
facilities to its members, or
(ii) a cottage industry, or
(iii) the marketing of the agricultural produce of its
members, or
(iv) the purchase of agricultural implements, seeds,
livestock or other articles intended for agriculture for
the purpose of supplying them to its members, or
(v) the processing, without the aid of power, of the
agricultural produce of its members, or
(vi) the collective disposal of the labour of its members, or
(vii) fishing or allied activities, that is to say, 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,
the whole of the amount of profits and gains of business
attributable to any one or more of such activities ;
Provided that in the case of a co-operative society falling under
sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the
society restrict the voting rights to the following classes of its
members, namely:-
(1) the individuals who contribute their labour or, as the case
may be, carry on the fishing or allied activities;
334 SUPREME COURT REPORTS [2023] 12 S.C.R.
(2) the co-operative credit societies which provide financial
assistance to the society;
(3) the State Government’
(b) in the case of co-operative society, being a primary society
engaged in supplying milk, oilseeds, fruits or vegetables
raised or grown by its members to –
(i) a federal co-operative society, being a society engaged
in the business of supplying of milk, oilseeds, fruits
or vegetables, as the case may be; or
(ii) the Government or a local authority; or
(iii) a Government company as defined in section 617 of
the Companies Act, 1956 (1 of 1956), or a corporation
established by or under a Central, State or Provincial
Act (being a company or corporation engaged in
supplying milk, oilseeds, fruits or vegetables, as the
case may be, to the public),
the whole of the amount of profits and gains of such business;
(c) in the case of a co-operative society engaged in activities
other than those specified in clause (a) or clause(b) (either
independently of, or in addition to, all or any of the activities
so specified), so much of its profits and gains attributable
to such activities as does not exceed,-
(i) where such co-operative society is a consumers’ co-
operative society, one hundred thousand rupees.
(ii) in any other case, fifty thousand rupees.
Explanation. – In this clause, “consumers’ co-operative society” means
a society for the benefit of the consumers;
(d) in respect of any income by way of interest or dividends derived
by the co-operative society from its investments with any other
co-operative society, the whole of such income;
(e) in respect of any income derived by the co-operative society from
the letting of go downs or warehouses for storage, processing
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 335
AND ORS. [B.V. NAGARATHNA, J.]
or facilitating the marketing of commodities, the whole of such
income;
(f) in the case of a co-operative society, not being a housing
society or an urban consumers’ society, or a society carrying on
transport business or a society engaged in the performance of
any manufacturing operations with the aid of power, where the
gross total income does not exceed twenty thousand rupees, the
amount of any income by way of interest on securities or any
income from house property chargeable under section 22.
Explanation.— For the purposes of this section, an “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.
(3) In a case where the assessee is entitled also to the deduction
under section 80HH or section 80HHA or section 80HHB or section
80HHC, or section 80HHD or section 80- 1 or section 80-IA or
section 80J, or section 80JJ, the deduction under sub-section (1) of
this section, in relation to the sums specified in clause (a) or clause
(b) or clause (c) of sub- section (2), shall be allowed with reference to
the income, if any, as referred to in those clauses included in the gross
total income as reduced by the deductions under section 80HH, section
80HHA, section 80HHB, section 80HHC, section 80HHD, section
80- 1, section 80-IA, section 80J and 80JJ.
[(4) The provisions of this section 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.
Explanation.- For the purposes of this sub-section,-
(a) “co-operative bank” and “primary agricultural credit society”
shall have the meanings respectively assigned to them in Part V
of the Banking Regulation Act, 1949 (10 of 1949);
(b) “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.
336 SUPREME COURT REPORTS [2023] 12 S.C.R.
ii) The Banking Regulation Act, 1949 (BR ACT, 1949):
The relevant provisions of the BR Act, 1949 are extracted as under.
Section 3 of the said Act as it stood at the relevant point of time reads
as follows:
3. Act to apply to certain co-operative societies in certain cases.—
Nothing in this Act shall apply to—
(a) a primary agricultural credit society; or
(b) a co-operative land mortgage bank; and
(c) any other co-operative society, except in the manner and
to the extent specified in Part V.
X X X
5. Interpretation.— In this Act, unless there is anything repugnant
in the subject or context,
X X X
(b) “banking” means the accepting, for the purpose of lending or
investment, of deposits of money from the public, repayable on demand
or otherwise, and withdrawal by cheque, draft, order or otherwise;
(c) “banking company” means any company which transacts the
business of banking in India.
Explanation.—Any company which is engaged in the manufacture
of goods or carries on any trade and which accepts deposits of money
from the public merely for the purpose of financing its business as such
manufacturer or trader shall not be deemed to transact the business of
banking within the meaning of this clause;
X X X
22. Licensing of banking companies.—(1) Save as hereinafter
provided, no company shall carry on banking business in India unless
it holds a licence issued in that behalf by the Reserve Bank and any
such licence may be issued subject to such conditions as the Reserve
Bank may think fit to impose.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 337
AND ORS. [B.V. NAGARATHNA, J.]
(2) Every banking company in existence on the commencement of
this Act, before the expiry of six months from such commencement,
and every other company before commencing banking business in
India, shall apply in writing to the Reserve Bank for a licence under
this section:
Provided that in the case of a banking company in existence on the
commencement of this Act, nothing in sub-section (1) shall be deemed
to prohibit the company from carrying on banking business until it is
granted a licence in pursuance of this section or is by notice in writing
informed by the Reserve Bank that a licence cannot be granted to it:
Provided further that the Reserve Bank shall not give a notice as
aforesaid to a banking company in existence on the commencement of
this Act before the expiry of the three years referred to in sub-section
(1) of section 11 or of such further period as the Reserve Bank may
under that sub-section think fit to allow.
(3) Before granting any licence under this section, the Reserve Bank
may require to be satisfied by an inspection of the books of the company
or otherwise that the following conditions are fulfilled, namely:—
(a) that the company is or will be in a position to pay its present or
future depositors in full as their claims accrue;
(b) that the affairs of the company are not being, or are not likely to
be, conducted in a manner deterimental to the interests of its present
or future depositors;
(c) that the general character of the proposed management of the
company will not be prejudicial to the public interest or the interest
of its depositors;
(d) that the company has adequate capital structure and earning
prospects;
(e) that the public interest will be served by the grant of a licence to
the company to carry on banking business in India;
(f) that having regard to the banking facilities available in the proposed
principal area of operations of the company, the potential scope for
338 SUPREME COURT REPORTS [2023] 12 S.C.R.
expansion of banks already in existence in the area and other relevant
factors the grant of the licence would not be prejudicial to the operation
and consolidation of the banking system consistent with monetary
stability and economic growth;
(g) any other condition, the fulfilment of which would, in the opinion
of the Reserve Bank, be necessary to ensure that the carrying on of
banking business in India by the company will not be prejudicial to
the public interest or the interests of the depositors.
(3A) Before granting any licence under this section to a company
incorporated outside India, the Reserve Bank may require to be
satisfied by an inspection of the books of the company or otherwise
that the conditions specified in sub-section (3) are fulfilled and that
the carrying on of banking business by such company in India will be
in the public interest and that the Government or law of the country
in which it is incorporated does not discriminate in any way against
banking companies registered in India and that the company complies
with all the provisions of this Act applicable to banking companies
incorporated outside India.
(4) The Reserve Bank may cancel a licence granted to a banking
company under this section —
(i) if the company ceases to carry on banking business in India; or
(ii) if the company at any time fails to comply with any of the conditions
imposed upon it under sub-section (1); or
(iii) if at any time, any of the conditions referred to in sub-section (3)
and sub-section (3A) is not fulfilled:
Provided that before cancelling a licence under clause (ii) or clause (iii)
of this sub-section on the ground that the banking company has failed
to comply with or has failed to fulfil any of the conditions referred
to therein, the Reserve Bank, unless it is of opinion that the delay
will be prejudicial to the interests of the company’s depositors or the
public, shall grant to the company on such terms as it may specify,
an opportunity of taking the necessary steps for complying with or
fulfilling such condition.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 339
AND ORS. [B.V. NAGARATHNA, J.]
(5) Any banking company aggrieved by the decision of the Reserve
Bank cancelling a licence under this section may, within thirty days
from the date on which such decision is communicated to it, appeal
to the Central Government.
(6) The decision of the Central Government where an appeal has been
preferred to it under sub-section (5) or of the Reserve Bank where no
such appeal has been preferred shall be final.
X X X
56. Act to apply to co-operative societies subject to modifications.—
The provisions of this Act, as in force for the time being, shall apply to,
or in relation to, co-operative societies as they apply to, or in relation to,
banking companies subject to the following modifications, namely:—
(a) throughout this Act, unless the context otherwise requires,—
(i) references to a “banking company” or “the company” or
“such company” shall be construed as references to a co-
operative bank,
(ii) references to “commencement of this Act” shall be
construed as references to commencement of the Banking
Laws (Application to Co-operative Societies) Act, 1965
(23 of 1965);
(b) in section 2, the words and figures “the Companies Act, 1956 (1
of 1956), and” shall be omitted;
(c) in section 5—
(i) after clause (cc), the following clauses shall be inserted
namely:—
(cci) “co-operative bank” means a state co-operative bank, a
central co-operative bank and a primary co-operative bank;
(ccii) “co-operative credit society” means a co-operative society,
the primary object of which is to provide financial accommodation
to its members and includes a co-operative land mortgage bank;
340 SUPREME COURT REPORTS [2023] 12 S.C.R.
(cciia) “co-operative society” means a society registered or
deemed to have been registered under any Central Act for the time
being in force relating to the multi-State co-operative societies, or
any other Central or State law relating to co-operative societies
for the time being in force;
(cciii) “director”, in relation to a co-operative society, includes
a member of any committee or body for the time being vested
with the management of the affairs of that society;
(cciiia) “multi-State co-operative bank” means a multi-State co-
operative society which is a primary co-operative bank;
(cciiib) “multi-State co-operative society” means a multi-State
co-operative society registered as such under any Central Act for
the time being in force relating to the multi-State co-operative
societies but does not include a national co-operative society and
a federal co-operative;
(cciv) “primary agricultural credit society” means a co-operative
society,—
(1) the primary object or principal business of which is to
provide financial accommodation to its members for
agricultural purposes or for purposes connected with
agricultural activities (including the marketing of crops);
and
(2) the bye-laws of which do not permit admission of any other
co-operative society as a member:
Provided that this sub-clause shall not apply to the admission of a
co-operative bank as a member by reason of such co-operative bank
subscribing to the share capital of such co-operative society out of
funds provided by the State Government for the purpose;
(ccv) “primary co-operative bank” means a co-operative society,
other than a primary agricultural credit society,—
(1) the primary object or principal business of which is the
transaction of banking business;
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 341
AND ORS. [B.V. NAGARATHNA, J.]
(2) the paid-up share capital and reserves of which are not
less than one lakh of rupees; and
(3) the bye-laws of which do not permit admission of any other
co-operative society as a member:
Provided that this sub-clause shall not apply to the admission of a
co-operative bank as a member by reason of such co-operative bank
subscribing to the share capital of such co-operative society out of
funds provided by the State Government for the purpose;
(ccvi)“primary credit society” means a co-operative society, other than
a primary agricultural credit society,—
(1) the primary object or principal business of which is the
transaction of banking business;
(2) the paid-up share capital and reserves of which are less
than one lakh of rupees; and
(3) the bye-laws of which do not permit admission of any
other co-operative society as a member:
Provided that this sub-clause shall not apply to the admission of a
co-operative bank as a member by reason of such co-operative bank
subscribing to the share capital of such co-operative society out of
funds provided by the State Government for the purpose.
Explanation.—If any dispute arises as to the primary object or principal
business ofany co-operative society referred to in clauses (cciv), (ccv)
and (ccvi), a determination thereof by the Reserve Bank shall be final;
(ccvii) “central co-operative bank”, “primary rural credit society”
and “state co-operative bank” shall have the meanings respectively
assigned to them in the National Bank for Agriculture and Rural
Development Act, 1981 (61 of 1981);”
X X X
(o) in section 22,—
(i) for sub-sections (1) and (2) the following sub-sections shall be
substituted, namely:—
342 SUPREME COURT REPORTS [2023] 12 S.C.R.
“(1) Save as hereinafter provided, no co-operative society shall carry
on banking business in India unless—
(a) [***]
(b) it is a co-operative bank and holds a licence issued in that behalf
by the Reserve Bank, subject to such conditions, if any, as the
Reserve Bank may deem fit to impose:
Provided that nothing in this sub-section shall apply to a
co-operative society, not being a primary credit society or
a co-operative bank carrying on banking business at the
commencement of the Banking Laws (Application to Co-
operative Societies) Act, 1965 (23 of 1965), for a period of one
year from such commencement.
Provided further that nothing in this sub-section shall apply
to a primary credit society carrying on banking business on or
before the commencement of the Banking Laws (Amendment)
Act, 2012, for a period of one year or for such further period not
exceeding three years, as the Reserve Bank may, after recording
the reasons in writing for so doing, extend.
(2) Every co-operative society carrying on business as a co-operative
bank at the commencement of the Banking Laws (Application
to Co-operative Societies) Act, 1965 (23 of 1965) shall before
the expiry of three months from the commencement, every co-
operative bank which comes into existence as a result of the
division of any other co-operative society carrying on business
as a co-operative bank, or the amalgamation of two or more co-
operative societies carrying on banking business shall, before
the expiry of three months from its so coming into existence,
every primary credit society which had become a primary co-
operative bank on or before the commencement of the Banking
Laws (Amendment) Act, 2012, shall before the expiry of three
months from the date on which it had become a primary co-
operative bank and every co-operative shall before commencing
banking business in India, apply in writing to the Reserve Bank
for a licence under this section:
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 343
AND ORS. [B.V. NAGARATHNA, J.]
Provided that nothing in clause (b) of sub-section (1) shall be deemed
to prohibit—
(i) a co-operative society carrying on business as a co-operative
bank at the commencement of the Banking Law (Application to
Co-operative Societies) Act, 1965 (23 of 1965); or
(ii) a co-operative bank which has come into existence as a result
of the division of any other co-operative society carrying on
business as a co-operative bank, or the amalgamation of two
or more co-operative societies carrying on banking business
at the commencement of the Banking Laws (Application to
Co-operative Societies) Act, 1965 (23 of 1965) or at any time
thereafter; or
(iii) [***]
from carrying on banking business until it is granted a licence in
pursuance of this section or is, by a notice in writing notified by the
Reserve Bank that the licence cannot be granted to it.];
(ii) sub-section (3A) shall be omitted;
(iii) in sub-section (4) in clause (iii) the words, brackets, figures and
letter “and sub-section (3A)” shall be omitted;
iii) National Bank for Agriculture and Rural Development Act, 1981
(‘NABARD Act, 1981’, for short):
The relevant provisions of NABARD Act, 1981 are extracted as under
for immediate reference:
2. Definitions.- In this Act, unless the context otherwise requires, -
X X X
(d) “central co-operative bank” means the principal co-operative
society in a district in a State, the primary object of which is the
financing of other co-operative societies in that district:
Provided that in addition to such principal society in a district,
or where there is no such principal society in a district, the State
Government may declare any one or more cooperative societies
344 SUPREME COURT REPORTS [2023] 12 S.C.R.
carrying on the business of financing other co-operative societies
in that district to be also or to be a central co-operative bank or
central co-operative banks within the meaning of this definition;
X X X
(u) “State co-operative bank” means the principal co-operative
society in a State, the primary object of which is the financing
of other co-operative societies in the State:
Provided that in addition to such principal society in a State,
or where there is no such principal society in a State, the State
Government may declare any one or more cooperative societies
carrying on business in that State to be also or to be a State
cooperative bank or State co-operative banks within the meaning
of this definition;
(v) “State land development bank” means the co-operative society
which is the principal land development bank (by whatever
name called) in a State and which has as its primary object the
providing of long-term finance for agricultural development:
Provided that, in addition to such principal land development
bank in a State, or where there is no such bank in a State, the
State Government may declare any cooperative society carrying
on business in that State and authorised by the bye-laws of such
cooperative society to provide long-term finance for agricultural
development to be also or to be a State land development bank
within the meaning of this definition;
(w) words and expressions used herein and not defined but defined
in the Reserve Bank of India Act, 1934, (2 of 1934), shall have
the meanings respectively assigned to them in that Act;
(x) words and expressions used herein and not defined either in this
Act or in the Reserve Bank of India Act, 1934 (2 of 1934), but
defined in the Banking Regulation Act, 1949 (10 of 1949), shall
have the meanings respectively assigned to them in the Banking
Regulation Act, 1949.”
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 345
AND ORS. [B.V. NAGARATHNA, J.]
iv) The Reserve Bank of India Act, 1934 (RBI Act):
The relevant provisions of the RBI Act are extracted as under for
immediate reference:
“2.Definitions.- In this Act, unless there is anything repugnant in the
subject or context,-
X X X
(e) “scheduled bank” means a bank included in the Second Schedule;”
v) The Kerala Co-Operative Societies Act, 1969 (State Act, 1969):
The relevant provisions of the State Act, 1969 are extracted as under
for immediate reference:
“2. Definitions.- In this Act, unless the context otherwise requires—
X X X
(g) “co-operative society with limited liability” means a society in
which the liability of its members for the debts of the society in the
event of its being wound up is limited by its bye-laws-
(i) to the amount, if any, unpaid on the shares respectively held by
them; or
(ii) to such amount as they may, respectively, undertake to contribute
to the assets of the society;
X X X
(ia) District Co-operative Bank” means a Central Society having
jurisdiction over one revenue district and having as its members
Primary Agricultural Credit Societies, Urban Co-operative Banks and
the principal object of which is to raise funds to be lent to its members,
including nominal or associate members, which existed under this Act,
immediately before the commencement of the Kerala Co-operative
Societies (Amendment) Act, 2019 and which has ceased to exist after
the commencement of the said Amendment Act.”
X X X
346 SUPREME COURT REPORTS [2023] 12 S.C.R.
(oc) “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:
Provided that no Primary Co-operative Agricultural and Rural
Development Bank shall be registered without the bifurcation of assets
and liabilities of the existing societies having the area of operation in
more than one taluk and the societies shall restrict their operation in
the area of the respective society on such bifurcation;
X X X
(ra) “State Co-operative Agricultural and Rural Development Bank”
means an apex society having only Primary Co- operative Agricultural
and Rural Development Banks as its members and functioning in
accordance with the provisions contained in the Kerala State Co-
operative Agricultural and Rural Development Banks Act, 1984 (20
of 1984)”
(rb) a State Co-operative Bank means an apex society having only
district co-operative banks as its members.
X X X
“110. Repeal and savings.- The Madras Co-operative Societies Act,
1932 (VI of 1932), as in force in the Malabar district referred to in
sub-section (2) of section 5 of the States Re- organisation Act, 1956
(Central Act 37 of 1956) and the Travancore-Cochin Co-operative
Societies Act, 1951 (X of 1952), are hereby repealed.
(2) Notwithstanding the repeal of the Madras Co-operative Societies
Act, 1932 and the Travancore-Cochin Co-operative Societies Act,
1951 and without prejudice to the provisions of sections 4 and 23 of
the Interpretation and General Clauses Act, 1125 (VII of 1125),—
(i) all appointments, rules and orders made, notifications and notices
issued, and suits and other proceedings instituted ,under any of the
Acts hereby repealed shall, so far as may be, be deemed to have been
respectively made, issued and instituted under this Act;
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 347
AND ORS. [B.V. NAGARATHNA, J.]
(ii) any society existing in the State on the date of the commencement
of this Act which has been registered or deemed to be registered under
any of the aforesaid repealed Acts shall be deemed to be registered
under this Act, and the bye-laws of such society shall, so far as they
are not inconsistent with the provisions of this Act, continue in force
until altered or rescinded.”
vi) The Kerala State Co-Operative Agricultural Development Banks
Act, 1984 (State Act, 1984):
The relevant provisions of the State Act, 1984 are extracted as under
for immediate reference:
“(2) Definitions.- In this Act, unless the context otherwise requires,-
(a) “Agricultural and Rural Development Bank” means the Kerala
Co-operative Central Land Mortgage Bank Limited, registered
under section 10 of the Travancore-Cochin Co-operative Societies
Act, 1951 (X of 1952), which shall hereafter be known as the
“Kerala State Co-operative Agricultural and Rural Development
Bank Limited”;
X X X
(ka) “Kerala State Co-operative Bank” means an apex society having
Primary Agricultural Credit Societies and Urban Co-operative
Banks as its members including nominal or associate members
of the District Co-operative Banks who shall continue as nominal
or associate members of the Kerala State Co-operative Bank;
X X X
(iA) “Rural Development” means any activity intended to promote
the development in rural area and intends the following
developmental activities-
(1) Development of handicrafts and other crafts;
(2) Small Industries;
(3) Cottage and Village industries;
348 SUPREME COURT REPORTS [2023] 12 S.C.R.
(4) Industries in tiny and decentralized section;
(5) Rural housing needs of the rural-population.
Judicial Precedent:
13. The relevant judgments of this Court as well as the Kerala High
Court, having a bearing on the issues raised in these appeals could be
adverted to at this stage:
a) In Thalappalam Service Coop. Bank Ltd. vs. State of Kerala,
(2013) 16 SCC 82, this Court has referred to Entry 32 of List II of Seventh
schedule of the Constitution in paragraph 26 which reads as under:
26. The cooperative society is a State subject under Schedule VII List
II Entry 32 to the Constitution of India. Most of the States in India
enacted their own Cooperative Societies Act with a view to provide
for the orderly development of the cooperative sector in the State to
achieve the objects of equity, social justice and economic development,
as envisaged in the directive principles of State policy, enunciated in
the Constitution of India. For cooperative societies working in more
than one State, the Multi-State Cooperative Societies Act, 1984 was
enacted by Parliament under Schedule VII List I Entry 44 of the
Constitution. The cooperative society is essentially an association of
persons who have come together for a common purpose of economic
development or for mutual help.
(Emphasis by us)
Entry 32 of List II of Seventh Schedule of the Constitution reads as
under:
“32. Incorporation, regulation and winding up of corporations, other
than those specified in List I, and universities; unincorporated trading,
literary, scientific, religious and other societies and associations; co-
operative societies.”
b) This Court in Union of India vs. Rajendra N. Shah, 2021 SCC
OnLine SC 474 while considering the vires of the constitution (Ninety
Seventh Amendment) Act, 2011 has reiterated the aforesaid position of law.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 349
AND ORS. [B.V. NAGARATHNA, J.]
c) In Apex Co-operative Bank of Urban Bank of Maharashtra and
Goa Ltd., this Court on considering Section 56 of the BR Act, 1949 along
with Section 22 thereof, observed that the Reserve Bank of India has the
right to issue licences to companies to carry out banking business and no
company can carry on a banking business unless it holds a licence issued
by the Reserve Bank of India. After the amendment to Section 22 of the
said Act, certain types of co-operative societies, as were brought within
the purview of the BR Act, 1949, could be issued a licence by the Reserve
Bank of India. Under Section 22, the term “co-operative society” would
include all types of co-operative societies. This Court observed that in
other words, no co-operative society can carry on banking business unless
it falls within the permitted categories set out in Section 22. The term “co-
operative bank” has been defined under Section 5(cci) as a state co-operative
bank, a central co-operative bank and a primary co-operative bank. Thus,
the term “co-operative bank” does not include all co-operative societies. It
only includes the abovementioned three types of societies which function
as banks. By virtue of Section 5(ccvii), the term state co-operative bank
is to be understood as defined in NABARD Act, 1981. Thus, unless a co-
operative society is a state co-operative bank or a central co-operative bank
or a primary co-operative bank as defined under NABARD Act, 1981, no
licence can be issued by Reserve Bank of India.
It was further explained by this Court that under Section 22(1), a
primary credit society can carry on banking business. However, if a co-
operative society is not a primary credit society, then, to carry on banking
business, it must be a co-operative bank and hold a licence issued by Reserve
Bank of India. Therefore, a co-operative society other than a primary credit
society, has to apply to Reserve Bank of India for licence before it can
commence banking business. However, this does not mean that Reserve
Bank of India can give to any or all co-operative societies, a banking licence.
Reserve Bank of India can give a licence as provided in Section 22(1) only
to a co-operative bank, which is defined under Section 56 of the said Act.
It was further observed by this Court that when a term is specifically
defined in a statute, then, for purposes of that statute, that term cannot bear
a meaning assigned to it in another statute. One cannot ignore the specific
definition given in the BR Act, 1949 and apply some other definition set
350 SUPREME COURT REPORTS [2023] 12 S.C.R.
out in some other statute. Therefore, a co-operative bank must have the
meaning assigned to it in Section 5(cci) of BR Act, 1949. Reserve Bank
of India cannot go by any other meaning given to the term “co-operative
bank” for purposes of licensing under BR Act, 1949. Reserve Bank of India
has to go by the meaning given to this term in the said Act only. Therefore,
it was concluded that the Reserve Bank of India, by virtue of its power
under Section 22 cannot grant a licence to any co-operative society unless
it is a state co-operative bank or a central co-operative bank or a primary
co-operative bank. For that it would be necessary that a declaration under
the NABARD Act, 1981 be first obtained.
While considering the definition of co-operative society and state
co-operative bank under Section 2(f) and Section 2(u) respectively of
the NABARD Act, 1981, it was observed that under the NABARD Act,
1981, co-operative society is a society which is registered or deemed to
be registered under the Co-operative Societies Act, 1912 or any other law
relating to co-operative societies for the time being in force in any State.
In the context of the appellant therein, it was observed that the said entity
had not registered under the Co-operative Societies Act, 1912. The question
thus was, whether, the appellant therein was a society registered under any
other law relating to co-operative societies for the time being in force in any
State which would include all laws relating to co-operative societies which
are in force in any State. While interpreting Section 2(f) of the NABARD
Act, 1981 which defines co-operative society, this Court held that it is only
co-operative societies registered under local or State laws relating to co-
operative societies which would be covered under the said definition. If it
is a state co-operative bank, then there would be a declaration only by the
State Government. If a declaration is by the State Government, it must be
in respect of a society which is registered in that State and which can be
regulated by the Registrar of Co-operative Societies of that State. It was
concluded that the words “in any State” in Section 2(f) of NABARD Act,
1981 would mean that the co-operative society must be registered under the
law in force in any State in which it wants to operate. It was also observed
that use of words “Co-operative Societies Act, 1912” in the NABARD Act,
1981 also indicates that the definition is restricted to societies registered
under the law relating to co-operative societies in the State in which they
want to operate. Thus, the term “any other law relating to co-operative
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 351
AND ORS. [B.V. NAGARATHNA, J.]
societies for the time being in force in any State” necessarily means only a
State law. Further, under the NABARD Act, 1981, a state co-operative bank
has to be the principal co-operative society in the State, the primary object
of which must be financing other co-operative societies in that State. The
proviso to Section 2(u) of NABARD Act, 1981 enables the State to declare,
in addition to an existing principal society in the State or where there is no
principal society in the State, any one or more co-operative banks as State
co-operative banks. However, this does not mean that the State Governments
can, at their whims and fancies, declare any co-operative society to be a
“State co-operative bank”. Before such a declaration can be made, the
State Government must necessarily be satisfied- (a) that it is a principal
co-operative society in the State; (b) that it is carrying on business in the
State; and (c) that the business is of financing other co-operative societies
in that State.
Further, elucidating on the expression “carrying on business in the
State” it was held that the same means carrying on banking business only.
Further, reading of the provisions would make it clear that what is necessary
is that the co-operative society must be carrying on the business of financing
other co-operative societies. The proviso has to be read in light of the main
provision. If read in light of the main provision, it is clear that even though
banking business, as understood in the strict sense, may not be carried on,
yet the business of financing other co-operative societies in the State must
be carried on.
It was ultimately observed that the Reserve Bank of India could not
have granted the licence to the appellants in the said case unless they were
first declared to be a state co-operative bank under the NABARD Act, 1981.
Since, such a declaration was struck down, the Reserve Bank of India could
not have issued licence to carry on banking business. Therefore, Reserve
Bank of India would have to cancel the licence granted by it to the appellant
therein. Hence, a direction was issued to the Reserve Bank of India to
forthwith revoke the banking licence granted to the appellants therein.
d) In A.P. Varghese, while considering Section 56 of the BR Act, 1949
in the context of co-operative bank which has been defined to mean a state
co-operative bank, a central co-operative bank and a primary co-operative
bank which have been assigned the definitions under NABARD Act, 1981
352 SUPREME COURT REPORTS [2023] 12 S.C.R.
and while considering the definitions of clause (u) and (d) in Section 2 of
NABARD Act, 1981, it was observed, inter alia, that a state co-operative
bank is one defined in Section 2(rb) of the State Act, 1969 to mean an apex
society having only district co-operative banks as its members. District
co-operative bank as defined in clause (ia) of Section 2 of the said Act, is
a central society, the principal object of which is to raise funds to be lent
to its members, with jurisdiction over one revenue district and having as
its members any type of primary societies and federal and central societies
having headquarters in such district.
Therefore, Kerala State Co-operative Bank is a “state co-operative
bank” as defined in the NABARD Act, 1981 and the district co-operative
banks are central co-operative banks as defined in that Act. Hence, they are
“co-operative banks” as defined in Section 5 (cci) of BR Act, 1949, falling
within the BR Act, 1949.
It was further observed that co-operative banks are further divided
into apex banks and other banks. The Kerala State Co-operative Bank is an
apex bank and the district co-operative banks are other banks. The primary
object or business of the state co-operative bank, the district co-operative
banks and the urban banks in the co-operative sector is the transaction of
banking business.
Further, it was observed that the provisions of the SARFAESI Act
and particularly Section 13 thereof are also applicable to the institutions,
namely, the Kerala State Co-operative Bank Ltd., the district co-operative
banks and the urban co-operative banks.
e) In Citizen Co-operative Society Ltd. vs. Commissioner of Income
Tax, (2017) 9 SCC 364 (“Citizen Co-operative Society Ltd.”), appellant
therein was a co-operative society which was denied benefit of Section
80P on the ground that it is a co-operative society of the nature covered by
sub-section (4) of Section 80P of the Act and, therefore, disentitled to get
the benefit. The question, therefore, was whether the appellant therein was
barred from getting deduction in view of sub-section (4) of Section 80P
of the Act. The assessee therein was established in the year 1997, initially,
as a mutually aided co-operative credit society registered under Section 5
of the Andhra Pradesh Mutually Aided Co-operative Societies Act, 1995.
As operations of the assessee over the years increased manifold and as the
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 353
AND ORS. [B.V. NAGARATHNA, J.]
society spread its activities over the States of the erstwhile Andhra Pradesh,
Maharashtra and Karnataka, the assessee was registered under the Multi-
State Co-operative Societies Act, 2002. Assessing officer held that the
deduction in respect of income of co-operative societies under Section 80P
of the Act was not admissible to the appellant therein as the said appellant
was carrying on banking business for the public at large and for all practical
purposes, it was acting like a co-operative bank governed by the BR Act,
1949 and its operation was not only confined to its members but outsiders
as well. The appellant therein being aggrieved by the dismissal of its appeal
by the High Court which had affirmed the order of the Income Tax Appellate
Tribunal, had approached this Court.
On considering the rival submissions, this Court observed that sub-
clause (1) of clause (a) of sub-section (2) of Section 80P recognises two
kinds of co-operative societies, namely, (i) those carrying on the business
of banking and; (ii) those providing credit facilities to its members. In this
regard, reliance was placed on Kerala State Coop. Mktg. Federation Ltd.
vs. CIT, (1998) 5 SCC 48. Also, reference was made to CIT vs. Punjab
State Coop. Bank Ltd., (2008) 300 ITR 24 which is a judgment of the
Punjab and Haryana High Court and it was observed that Section 80P of
the Act is a benevolent provision which is enacted by Parliament in order
to encourage and promote growth of co-operative sector in the economic
life of the country. Therefore, such a provision has to be read liberally,
reasonably and in favour of the assessee with a view to effectuate the object
of the Legislature and not to defeat it. Therefore, all those co-operative
societies which fall within the purview of the Section 80P of the Act are
entitled to deduction in respect of any income referred to in sub-section
(2) thereof. Clause (a) of sub-section (2) gives exemption of whole of the
amount of profits and gains of business attributable to any one or more of
such activities which are mentioned in sub-section (2). Sub-section (4) of
Section 80P inserted by the Finance Act, 2006 is in the nature of a proviso
and such a deduction under the said Section shall not be admissible to a
co-operative bank. Thus, co-operative banks are now specifically excluded
from the ambit of Section 80P of the Act.
The appellant therein was not a co-operative bank and it did not require
a licence of the Reserve Bank of India to conduct its business. Therefore, it
354 SUPREME COURT REPORTS [2023] 12 S.C.R.
would not come within the mischief of sub-section (4) of Section 80P of the
Act. However, the appellant therein was held to be not entitled to the benefit
under Section 80P of the Act as it was a co-operative society meant only for
its members and providing credit facilities to its member only. There were
resident members or ordinary members but there were also another category
of members called nominal members who were making deposits with the
appellant therein for the purpose of obtaining loans, etc. and, they were not
members in real sense. Most of the business of the appellant therein was
with this second category of persons i.e. members of the general public who
had been giving deposits which were kept in fixed deposits with a motive
to earn maximum returns. Therefore, this Court held that the depositors
and borrowers being distinct, doctrine of mutuality also did not apply to
the activities of the appellant therein.
f) In Mavilayi Service Co-operative Bank, the appeals before this
Court were filed by the co-operative societies which had been registered as
“primary agricultural credit societies”, together with one “multi-state co-
operative society” raising the question as to, whether, deductions could be
claimed under Section 80P(2)(a)(i) of the Act and in particular, whether the
assessees are entitled to such deductions after the introduction of Section
80P(4) of the Act by Section 19 of the Finance Act, 2006 with effect from
01.04.2007. It was noted that the appellants therein were providing credit
facilities to their members for agricultural and allied purposes and had been
classified as primary agricultural credit societies by the Registrar of Co-
operative Societies under State Act, 1969, had claimed a deduction under
Section 80P(2)(a)(i) of the Act which had been granted up to assessment
year 2007-2008. However, with the introduction of Section 80P(4) of the
Act, the Assessing Officer denied their claims for deduction, relying upon
the said provision.
The Full Bench of the Kerala High Court ultimately held that if the
assessee-societies ceased to be specific class of society for which deduction is
provided, by reason of sub-section (4) of Section 80P of the Act the deduction
could not be allowed. The Full Bench of the Kerala High Court accordingly
answered the question. Being aggrieved, the assessees approached this Court.
It was argued before this Court by the assessees that co-operative societies
which are registered under the said Act are entitled to deductions under
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 355
AND ORS. [B.V. NAGARATHNA, J.]
Section 80P. That the insertion of sub-section (4) to Section 80P of the Act
had not led to any change insofar as the assessees therein were concerned.
That the moment a co-operative society is registered under the said Act,
whatever be its classification, so long as it provides credit facilities to its
members, it is entitled to a deduction contained in Section 80P(2)(a)(i) of the
Act. A distinction was said to be drawn between eligibility for deduction, and
whether the whole of the amounts of profits and gains of business attributable
to any one or more such activities under the sub-section could be given.
On the other hand, in the said case, it was argued on behalf of the
revenue that a society undeserving of any deduction cannot get a deduction
contrary to what has been sought to be achieved by Section 80P(4) of the
Act. That the judgment of this Court in Citizen Co-operative Society Ltd.
was correctly read by the Full Bench of the Kerala High Court which is to
the effect that the Assessing Officer must assess the real facts of a case in
order to conclude as to whether activities of a primary agricultural credit
society were, in fact, being carried out in the assessment year in question
for which such an entity must adduce facts to show that it is in fact carrying
on its business as a primary agricultural credit society in the assessment
year in question. If it was unable to discharge such burden then such a
society cannot avail of any deduction under Section 80P of the Act. This
Court considered the definition of co-operative society under clause (19)
of Section 2 of the Act in the context of Section 80P of the Act, specially in
light of sub-section (4) thereof as well as Sections 3 and 56 of the BR Act,
1949 and the provisions of State Act, 1969 as well as the bye-laws of some
of the societies and observed in paragraph 18 as under:
“18. It is important to note that though the main object of the primary
agricultural society in question is to provide financial assistance in the
form of loans to its members for agricultural and related purposes, yet,
some of the objects go well beyond, and include performing of banking
operations “as per rules prevailing from time to time”, opening of
medical stores, running of showrooms and providing loans to members
for purposes other than agriculture.”
Further, this Court referred to various judgments of this Court including
Citizen Co-operative Society Ltd. as discussed in paragraphs 24 to 24.5 of
the judgment and held that Full Bench of the Kerala High Court had not
356 SUPREME COURT REPORTS [2023] 12 S.C.R.
properly understood the ratio in Citizen Co-operative Society Ltd. Also,
an analysis of Section 80P was made particularly of sub-section (4) of the
said Section in paragraphs 24 to 24.5 and paragraphs 39 to 43. Paragraphs
24 to 24.5 and paragraphs 39 to 43 are extracted as under:
24. An analysis of this judgment would show that the question of law
that was reflected in para 5 of the judgment was answered in favour
of the assessee. The following propositions may be culled out from
the judgment in Citizen Coop. Society case:
24.1. That Section 80-P of the IT Act is a benevolent provision,
which was enacted by Parliament in order to encourage and promote
the growth of the co-operative sector generally in the economic life
of the country and must, therefore, be read liberally and in favour of
the assessee;
24.2. That once the assessee is entitled to avail of deduction, the entire
amount of profits and gains of business that are attributable to any one
or more activities mentioned in sub-section (2) of Section 80-P must
be given by way of deduction;
24.3. That this Court in Kerala State Coop. Mktg. Federation Ltd. has
construed Section 80-P widely and liberally, holding that if a society
were to avail of several heads of deduction, and if it fell within any
one head of deduction, it would be free from tax notwithstanding that
the conditions of another head of deduction are not satisfied;
24.4. This is for the reason that when the legislature wanted to restrict
the deduction to a particular type of cooperative society, such as is
evident from Section 80-P(2)(b) qua milk cooperative societies, the
legislature expressly says so — which is not the case with Section
80-P(2)(a)(i)
24.5. That Section 80-P(4) is in the nature of a proviso to the main
provision contained in Sections 80-P(1) and (2). This proviso
specifically excludes only cooperative banks, which are cooperative
societies who must possess a licence from RBI to do banking business.
Given the fact that the assessee in that case was not so licensed, the
assessee would not fall within the mischief of Section 80-P(4).
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 357
AND ORS. [B.V. NAGARATHNA, J.]
X X X
39. Coming to the provisions of Section 80-P(4), it is important to
advert to the speech of the Finance Minister dated 28-2-2006, which
reflects the need for introducing Section 80-P(4). Shri P. Chidambaram
specifically stated:
“166. Cooperative Banks, like any other bank, are lending
institutions and should pay tax on their profits. Primary Agricultural
Credit Societies (PACS) and Primary Cooperative Agricultural and
Rural Development Banks (P56789) stand on a special footing and
will continue to be exempt from tax under Section 80-P of the Income
Tax Act. However, I propose to exclude all other cooperative banks
from the scope of that section.”
40. Likewise, a Circular dated 28-12-2006, containing explanatory
notes on provisions contained in the Finance Act, 2006, is also
important, and reads as follows:
“Withdrawal of tax benefits available to certain cooperative banks
***
22.2. The cooperative banks are functioning on a par with other
commercial banks, which do not enjoy any tax benefit. Therefore
Section 80-P has been amended and a new sub-section (4) has
been inserted to provide that the provisions of the said section shall
not apply in relation to any cooperative bank other than a primary
agricultural credit society or a primary cooperative agricultural and
rural development bank. The expressions “cooperative bank”, “primary
agricultural credit society” and “primary cooperative agricultural
and rural development bank” have also been defined to lend clarity
to them.”
41. A clarification by the CBDT, in a letter dated 9-5-2008, is also
important, and states as follows:
“Subject.—Clarification regarding admissibility of deduction
under Section 80-P of the Income Tax Act, 1961.
***
358 SUPREME COURT REPORTS [2023] 12 S.C.R.
2. In this regard, I have been directed to state that sub-section
(4) of Section 80-P provides that deduction under the said section
shall not be allowable to any cooperative bank other than a primary
agricultural credit society or a primary cooperative agricultural and
rural development bank. For the purpose of the said sub-section,
cooperative bank shall have the meaning assigned to it in Part V of
the Banking Regulation Act, 1949.
3. In Part V of the Banking Regulation Act, “Cooperative Bank”
means a State Cooperative bank, a Central Cooperative Bank and a
primary cooperative bank.
4. Thus, if the Delhi Co-op Urban T & C Society Ltd. does not
fall within the meaning of “Cooperative Bank” as defined in Part V
of the Banking Regulation Act, 1949, sub-section (4) of Section 80-P
will not apply in this case.
5. Issued with the approval of Chairman, Central Board of Direct
Taxes.”
42. The above material would clearly indicate that the limited object
of Section 80-P(4) is to exclude cooperative banks that function on a
par with other commercial banks i.e. which lend money to members
of the public. Thus, if the Banking Regulation Act, 1949 is now to be
seen, what is clear from Section 3 read with Section 56 is that a primary
cooperative bank cannot be a primary agricultural credit society, as
such cooperative bank must be engaged in the business of banking as
defined by Section 5(b) of the Banking Regulation Act, 1949, which
means the accepting, for the purpose of lending or investment, of
deposits of money from the public. Likewise, under Section 22(1)
(b) of the Banking Regulation Act, 1949 as applicable to cooperative
societies, no cooperative society shall carry on banking business in
India, unless it is a cooperative bank and holds a licence issued in that
behalf by RBI. As opposed to this, a primary agricultural credit society
is a cooperative society, the primary object of which is to provide
financial accommodation to its members for agricultural purposes or
for purposes connected with agricultural activities.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 359
AND ORS. [B.V. NAGARATHNA, J.]
43. As a matter of fact, some primary agricultural credit societies
applied for a banking licence to RBI, as their bye-laws also contain
as one of the objects of the Society the carrying on of the business of
banking. This was turned down by RBI in a letter dated 25-10-2013
as follows:
“Application for licence
Please refer to your application dated 10-4-2013 requesting for
a banking licence. On a scrutiny of the application, we observe that
you are registered as a Primary Agricultural Credit Society (PACS).
In this connection, we have advised RCS vide Letter dated UBD
(T) No. 401/10.00/16A/2013-14 dated 18-10-2013 that in terms of
Section 3 of the Banking Regulation Act, 1949 (AACS), PACS are
not entitled for obtaining a banking licence. Hence, your society does
not come under the purview of Reserve Bank of India. RCS will issue
the necessary guidelines in this regard.”
Consequently, the judgment of the Full Bench of the Kerala High Court
was set aside by observing that Section 80P of the Act, being a benevolent
provision enacted by Parliament to encourage and promote the credit of co-
operative sector in general must be read liberally and reasonably, and if there
is any ambiguity, in favour of the assessee. A deduction that is given without
any reference to any restriction or limitation cannot be restricted or limited
by implication, as is sought to be done by the Revenue in the said case by
adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there.
Further, sub-section (4) of Section 80P had to be read as a proviso, which
specifically excludes co-operative banks which are co-operative societies
engaged in banking business i.e., engaged in lending money to members of
the public, which have a licence in this behalf from Reserve Bank of India.
Therefore, the benefit of deduction was extended to the assessee in the said
case notwithstanding that they may also be giving loans to the members
which are not related to agriculture. Also, in case it was found that there
are instances of loans being given to non-members, profits attributable to
such loans obviously cannot be deducted.
Analysis:
14. We shall now analyse the aforesaid judgments in a common
conspectus.
360 SUPREME COURT REPORTS [2023] 12 S.C.R.
14.1. In Apex Co-operative Bank of Urban Bank of Maharashtra
and Goa Ltd., it was categorically held that under Section 56 of the BR
Act, 1949 only three co-operative banks have been defined, namely, state
co-operative bank, central co-operative bank and primary co-operative bank
which are covered under Section 56 (cci) read with (ccvii) read with the
provisions of the NABARD Act, 1981. Thus, it is only these three banks
which are co-operative banks which require a licence under the BR Act,
1949 to engage in banking business. If any bank does not fall within the
nomenclature of the aforesaid three banks as defined under the NABARD
Act, 1981, it would not be a co-operative bank within the meaning of Section
56 of BR Act, 1949 irrespective of whatever nomenclature it may have or
structure it may possess or incorporated under any Act. It was further stated
that if a bank has to be a state co-operative bank, there has to be a declaration
made by the State Government in terms of Section 2(u) of NABARD Act,
1981. Hence, it is necessary to go into the question as to, whether, the
appellant herein has been so declared as a state co-operative bank. This
question would need not detain us for long as the Kerala High Court in
A.P. Varghese had categorically stated that the “Kerala State Co-operative
Bank” is a “state co-operative bank” as defined under the NABARD Act,
1981. Therefore, the appellant bank has not been declared as a state co-
operative bank under the provisions of NABARD Act, 1981. Further, in
the case of Mavilayi Service Co-operative Bank, this Court observed that a
co-operative bank would engage in banking business on obtaining a licence
under Section 22(1b) of the BR Act, 1949. In the instant case, the appellant
herein is not a co-operative bank having regard to the aforesaid conspectus
of the provisions so as to require a licence under the aforesaid provision for
carrying on banking business. In the circumstances, the question could still
arise as to whether the appellant herein is entitled to benefit of deduction
under Section 80P of the Act.
14.2. In Mavilayi Service Co-operative Bank, it has been observed
that Section 80P of the Act is a beneficial provision which was enacted
in order to encourage and promote the growth of the co-operative sector
generally in the economic life of the country and therefore, has to be read
liberally in favour of the assessee. That once the assessee is entitled to avail
of deduction, the entire amount of profits and gains of business that are
attributable to any one or more activities mentioned in sub-section (2) of
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 361
AND ORS. [B.V. NAGARATHNA, J.]
Section 80P must be given by way of deduction vide Citizen Co-operative
Society. This is because sub-section (4) of Section 80P is in the nature of a
proviso to the main provision contained in sub-sections (1) and (2) of Section
80P. The proviso excludes co-operative banks, which are co-operative
societies which must possess a licence from the Reserve Bank of India to
do banking business. In other words, if an entity does not require a licence
to do banking business within the definition of banking under Section5(b)
of the BR Act, 1949, then it would not fall within the scope of sub-section
(4) of Section 80P.
14.3. While analysing Section 80P of the Act in depth, the following
points were noted by this Court:
i) Firstly, the marginal note to Section 80P which reads
“Deduction in respect of income of co-operative societies” is significant
as it indicates the general “drift” of the provision.
ii) Secondly, for purposes of eligibility for deduction, the assessee
must be a “co-operative society”.
iii) Thirdly, the gross total income must include income that is
referred to in sub-section (2).
iv) Fourthly, sub-clause (2)(a)(i) speaks of a co-operative society
being “engaged in”, inter alia, carrying on the business of banking or
providing credit facilities to its members.
v) Fifthly, the burden is on the assessee to show, by adducing
facts, that it is entitled to claim the deduction under Section 80P.
vi) Sixthly, the expression “providing credit facilities to its
members” does not necessarily mean agricultural credit alone.
It was highlighted that the distinction between eligibility for
deduction and attributability of amount of profits and gains to an
activity is a real one. Since profits and gains from credit facilities
given to non-members cannot be said to be attributable to the activity
of providing credit facilities to its members, such amount cannot be
deducted.
vii) Seventhly, under Section 80P(1)(c), the co-operative societies
must be registered either under Co-operative Societies Act, 1912, or
362 SUPREME COURT REPORTS [2023] 12 S.C.R.
a State Act and may be engaged in activities which may be termed as
residuary activities i.e. activities not covered by sub-clauses (a) and (b),
either independently of or in addition to those activities, then profits
and gains attributable to such activity are also liable to be deducted,
but subject to the cap specified in sub-clause (c).
viii) Eighthly, sub-clause (d) states that where interest or dividend
income is derived by a co-operative society from investments with
other co-operative societies, the whole of such income is eligible for
deduction, the object of the provision being furtherance of the co-
operative movement as a whole.
14.4. In paragraph 42 of Mavilayi Service Co-operative Bank, this
Court observed that the object and purpose of sub-section (4) of Section
80P is to exclude only co-operative banks that function on par with other
commercial banks i.e. which lend money to members of the public. That
on a reading of Section 3 read with Section 56 of the BR Act, 1949, the
primary co-operative bank cannot be a primary agricultural credit society.
As such co-operative bank must be engaged in the business of banking
as defined by Section 5(b) of the BR Act, 1949, which means accepting,
for the purpose of lending or investment, of deposits of money from the
public. Also under Section 22(1)(b) of the BR Act, 1949, no co-operative
society can carry on banking business in India, unless it is a co-operative
bank and holds a licence issued in that behalf by Reserve Bank of India. It
was pointed out that as opposed to the above, a primary agricultural credit
society is a co-operative society, the primary object of which is to provide
financial accommodation to its members for agricultural purposes or for
purposes connected with agricultural activities.
14.5. It was further observed in the said case that some primary
agricultural credit societies had sought for banking licence from Reserve
Bank of India but the same was turned down by observing that such a society
was not carrying on the business of banking and that it did not come under
the purview of Reserve Bank of India requiring a licence for its business.
14.6. Thereafter in paragraph 48 of the judgment, it was observed
that a deduction that is given without any reference to any restriction or
limitation cannot be restricted or limited by implication. That sub-section
(4) of Section 80P which is in the nature of a proviso specifically excludes
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 363
AND ORS. [B.V. NAGARATHNA, J.]
co-operative banks which are co-operative societies engaged in banking
business i.e. engaged in lending money to members of the public, which
have a licence in this behalf from Reserve Bank of India.
15. It is on the aforesaid touchstone that these appeals must now be
further considered from the point of view of the applicable provisions of law.
15.1. Section 80P speaks about deduction in respect of income of co-
operative societies from the gross total income referred to in sub-section
(2) of the said Section. From the said income, there shall be deducted, in
accordance with the provisions of Section 80P, sums specified in sub-section
(2), in computing the total income of the assessee for the purpose of payment
of income tax. Sub-section (2) of Section 80P enumerates various kinds
of co-operative societies. Sub-section (2)(a)(i) states that if a co-operative
society is engaged in carrying on the business of banking or providing credit
facilities to its members, the whole of the amount of profits and gains of
business attributable to any one or more of such activities shall be deducted.
The sub-section makes a clear distinction between business of banking on
the one hand and providing credit facilities to its members by co-operative
society on the other. Thus, the definition of banking under Section 5(b) of
the BR Act must be borne in mind as opposed to providing credit facilities
to its members.
15.2. Section 80P was inserted to the Act with effect from 01.04.1968,
however, sub-section (4) was reinserted with effect from 01.04.2007, in
the present form. Earlier sub-section (4) was omitted with effect from
01.04.1970. Sub-section (4) of Section 80P in the present form is in the nature
of an exception which states that the provisions of Section 80P shall 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.
The expressions co-operative bank and primary agricultural credit society
as well as primary co-operative agricultural and rural development bank are
defined in the Explanation as co-operative bank and primary agricultural
credit society having the meanings respectively assigned to them in Part V
of the BR Act, 1949.
15.3. The controversy in this case is, whether, the appellant entity is
a co-operative bank and if so, it would be covered within the scope and
364 SUPREME COURT REPORTS [2023] 12 S.C.R.
meaning of sub-section (4) of Section 80P and therefore, would not be
eligible to the benefit of deduction as provided therein.
15.4. Having regard to the Explanation to sub-section (4) of Section
80P, it is necessary to consider Chapter V of the BR Act, 1949 which states
that the said Act shall apply to co-operative societies subject to modifications
made thereunder. Section 56 begins with a non-obstante clause and states
that notwithstanding anything contained in any other law for the time being
in force, the provisions of the said Act shall apply to, or in relation to, co-
operative societies as they apply to, or in relation to banking companies
subject to the following modifications, namely,
• in clause (a) throughout the said Act, unless the context otherwise
requires,- (i) references to a “banking company” or “the company”
or “such company” shall be construed as references to a co-
operative bank.
• in clause (c), it is stated that in Section 5 as per clause (cci),
“co-operative bank” means a state co-operative bank, a central
co-operative bank and a primary co-operative bank.
• clause (ccv) defines “primary co-operative bank” while clause
(ccvii) defines “central co-operative bank” and “state co-operative
bank” to have the meanings assigned to them in the NABARD
Act, 1981.
Since the expression ‘banking company’ is defined under the BR Act,
1949, it would be useful to consider the definition of banking company
in Section 5(c) thereof which means any company which transacts the
business of banking in India. “Banking” is defined in Section 5(b) of the
said Act to mean the accepting, for the purpose of lending or investment,
of deposits of money from the public, repayable on demand or otherwise,
and withdrawal by cheque, draft, order or otherwise. Therefore, a banking
company must transact banking business vis-à-vis the public. Thus, in the
first place a co-operative society must be engaged in banking business as
defined in Section 5(b) of the said Act. For that, Section 22 of the BR Act,
1949, speaks about licence to be obtained by a bank to do banking business
which is modified as per clause (o) of Section 56 thereof which states that
no co-operative society shall carry on banking business in India unless it is
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 365
AND ORS. [B.V. NAGARATHNA, J.]
a co-operative bank and holds a licence issued in that behalf by the Reserve
Bank, subject to such conditions, if any, as the Reserve Bank may deem
fit to impose. Secondly, a co-operative society must obtain a licence under
Section 22 of the BR Act, 1949, only if it functions as a co-operative bank
and not otherwise. Thus, a co-operative society including a co-operative
credit society which is not a co-operative bank does not require a licence
to function as such.
15.5. Further, Section 2(d) of NABARD Act, 1981 defines central co-
operative bank while Section 2(u) defines a state co-operative bank to mean
the principal co-operative society in a State, the primary object of which is
financing of other co-operative societies in the State which means, it is in
the nature of an apex co-operative bank having regard to the definition under
Section 56 of the BR Act, 1949, in relation to co-operative bank. The proviso
states that in addition to such principal society in a State, or where there
is no such principal society in a State, the State Government may declare
any one or more co-operative societies carrying on business of banking in
that State to be also or to be a state co-operative bank or state co-operative
banks within the meaning of the definition. Section 2(v) of NABARD Act,
1981 defines state land development bank to mean the co-operative society
which is the principal land development bank (by whatever name called)
in a State and which has as its primary object the providing of long-term
finance for agricultural development.
15.6. Section 2(w) states that words and expressions used in the
NABARD Act, 1981 which are not defined therein but defined in the RBI
Act, shall have the meanings respectively assigned to them in that Act.
Section 2(x) of the said Act states that words and expressions used in the
NABARD Act, 1981 and not defined either in the said Act or in the RBI
Act, but defined in the BR Act, 1949, shall have the meanings respectively
assigned to them in the BR Act, 1949. Therefore, we revert back to BR
Act, 1949.
15.7. What is central to the controversy in this batch of cases is, whether,
the appellant bank is a co-operative bank. What is of significance to know is,
a state co-operative bank or central co-operative bank under the NABARD
Act, 1981 is essentially a principal co-operative society either in a district
or in a State, respectively, the primary object of which is the financing of
366 SUPREME COURT REPORTS [2023] 12 S.C.R.
other co-operative societies in the district or the State respectively. Further,
NABARD Act, 1981 does not define banking business. Hence, reliance is
to be placed, on the definition of banking business in terms of clause (w) of
Section 2 of NABARD Act, 1981 which means the RBI Act has to be seen.
When the RBI Act is perused, it is noted that clause (i) of Section 2 defines
“co-operative bank”, “co-operative credit society”, “director”, “primary
agricultural credit society”, “primary co-operative bank” and “primary credit
society” to have the meanings respectively assigned to them in Part V of the
BR Act, 1949. Therefore, we have to again fall back on Part V of the BR
Act, 1949 which has defined a co-operative bank in Section 56 (c)(i)(cci)
to be a state co-operative bank, a central co-operative bank and a primary
co-operative bank and central co-operative bank and state co-operative bank
to have the same meanings as NABARD Act, 1981.
15.8. Since the words ‘bank’ and ‘banking company’ are not defined
in the NABARD Act, 1981, the definition in sub-clause (i) of clause
(a) of Section 56 of the BR Act, 1949 has to be relied upon. It states
that a co-operative society in the context of a co-operative bank is in
relation to or as a banking company. Thus, co-operative bank shall be
construed as references to a banking company and when the definition of
banking company in clause (c) of Section 5 of the BR Act, 1949 is seen,
it means any company which transacts the business of banking in India
and as already noted banking business is defined in clause (b) of Section
5 to mean the accepting, for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or otherwise,
and withdrawal by cheque, draft, order or otherwise. Thus, it is only
when a co-operative society is conducting banking business in terms of
the definition referred to above that it becomes a co-operative bank and
in such a case, Section 22 of the BR Act, 1949 would apply wherein
it would require a licence to run a co-operative bank. In other words,
if a co-operative society is not conducting the business of banking as
defi ned in clause (b) of Section 5 of the BR Act, 1949, it would not be a
co-operative bank and not so within the meanings of a state co-operative
bank, a central co-operative bank or a primary co-operative bank in terms
of Section 56(c)(i)(cci). Whereas a co-operative bank is in the nature of
a banking company which transacts the business of banking as defined
in clause (b) of Section 5 of the BR Act, 1949. But if a co-operative
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 367
AND ORS. [B.V. NAGARATHNA, J.]
society does not transact the business of banking as defined in clause (b)
of Section 5 of the BR Act, 1949, it would not be a co-operative bank.
Then the definitions under the NABARD Act, 1981 would not apply.
If a co-operative society is not a co-operative bank, then such an entity
would be entitled to deduction but on the other hand, if it is a co-operative
bank within the meaning of Section 56 of BR Act, 1949 read with the
provisions of NABARD Act, 1981 then it would not be entitled to the
benefi t of deduction under sub-section (4) of Section 80P of the Act.
15.9. Section 56 of the BR Act, 1949 begins with a non-obstante
clause which states that notwithstanding anything contained in any other
law for the time being in force, the provisions of the said Act, shall apply
to, or in relation to, co-operative societies as they apply to, or in relation to,
banking companies subject to certain modifications. The object of Section
56 is to provide a deeming fiction by equating a co-operative society to a
banking company if it is a co-operative bank within the meaning of the
said provision. This is because Chapter V of the BR Act, 1949, deals with
application of the Chapter to co-operative societies which are co-operative
banks within the meaning of the said chapter. For the purpose of these cases,
what is relevant is that throughout the BR Act, 1949, unless the context
otherwise requires, - references to a “banking company” or “the company”
or “such company” shall be construed as references to a co-operative bank.
Therefore, while considering the meaning of a co-operative bank inherently,
such a co-operative society must be a banking company then only it would
be construed as a co-operative bank requiring a licence under Section 22
of BR Act, 1949 in order to function as such a bank.
15.10. Further, while considering the definition of a co-operative bank
under Section 56(cci) of the BR Act, 1949, to mean a state co-operative
bank, a central co-operative bank and a primary co-operative bank which is
defined in (ccviii) thereof, to have meanings respectively assigned to them
in the NABARD Act, 1981 would imply that if a state co-operative bank
is within the meaning of NABARD Act, 1981 then it would be excluded
from the benefit under Section 80P of the Act. Conversely, if a co-operative
society is not a co-operative bank within the meaning of Section 56 of the
BR Act, 1949, it would be entitled to the benefit of deduction under Section
80P of the Act.
368 SUPREME COURT REPORTS [2023] 12 S.C.R.
15.11. Looked at from another angle, a co-operative society which is
not a state co-operative bank within the meaning of NABARD Act, 1981
would not be a co-operative bank within the meaning of Section 56 of the
BR Act, 1949. In the instant case, as already noted in A.P. Varghese case,
the Kerala State Co-operative Bank being declared as a state co-operative
bank by the Kerala State Government in terms of NABARD Act, 1981 and
the appellant society not being so declared, would imply that the appellant
society is not a state co-operative bank.
15.12. In fact, in Citizen Co-operative Society Ltd., this Court held
that the appellant therein was having both members as well as nominal
members who were depositing and availing loan facilities from the
appellant therein and therefore, appellant therein was not entitled to the
benefi t of Section 80P of the Act as it was functioning as a co-operative
bank. But, the appellant herein is not a co-operative bank and neither
has it been so declared under the provisions of NABARD Act, 1981
or the State Act. On the other hand, under the provisions of State Act,
1969, the Kerala State Co-operative Bank has been so declared by the
Government of Kerala as a co-operative bank.
15.13. Further, under the provisions of the State Act, 1984, ‘agricultural
and rural development bank’ means the Kerala Co-operative Central Land
Mortgage Bank Limited, registered under Section 10 of the Travancore-
Cochin Co-operative Societies Act, 1951, which shall be known as Kerala
State Co-operative Agricultural and Rural Development Bank Limited
i.e. the appellant herein. Thus, from a conjoint reading of all the relevant
statutory as alluded to hereinabove, it is quite clear that the appellant is not
a co-operative bank within the meaning of sub-section (4) of Section 80P of
the Act. The appellant is a co-operative credit society under Section 80P(2)
(a)(i) of the Act whose primary object is to provide financial accommodation
to its members who are all other co-operative societies and not members
of the public.
15.14. Therefore, when the definition of “co-operative bank” in Section
56 of BR Act, 1949 is viewed in terms of Sections 2(u) of the NABARD
Act, 1981, it is clear that only a state co-operative bank would be within
the scope and meaning of a banking company under Section 2(c) of the BR
Act, 1949 on obtaining licence under Section 22 of the said Act.
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM 369
AND ORS. [B.V. NAGARATHNA, J.]
Conclusion:
In the instant case, although the appellant society is an apex co-
operative society within the meaning of the State Act, 1984, it is not a co-
operative bank within the meaning of Section 5(b) read with Section 56 of
the BR Act, 1949.
In the result, the appeals filed by the appellant are allowed and the
order(s) of the Kerala High Court and other authorities to the contrary are
set aside. Consequently, we hold that the appellant is entitled to the benefit
of deduction under Section 80P of the Act. The questions for consideration
are answered accordingly.
Parties to bear their respective costs.
Headnotes prepared by: Appeals allowed.
Divya Pandey
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