TAXATION OF CO-OPERATIVE SOCIETIES

CO-OPERATIVE SOCIETY IS A SEPARATE ASSESSABLE ENTITY

Section 2(19) of the Income Tax Act defines a co-operative society as a co-
operative society registered under the Co-operative Society Act 1912 or under
any law for the time being in force in any State for the registration of Co-
operative societies. For the purposes of the income tax Act, a regional rural Bank
is deemed to be a Co-operative societies- circular No. 319 dated 11.1.1992.Thus
only registered co-operative societies are enable to be assessed under special
status of co-operative society under the Income Tax Act.

This form of organization is normally formed with the basic idea of uniting
various individuals to enable them to get goods and services at reasonable prices.
This form of organization is best suited for persons with small means to combine
their resources and efforts in the promotion of production, distribution or
consumption of goods or services in which they have a common interest. Just like
any other assessee, a co-operative society can also carry on business activities,
subject of course to the bye laws, regulations and the legislations governing them.
There are large number of industrial co-operative socities, co-operative consumer
stores, co-operative transport societies, which carry on regular profit-earning
activity in the same way as any other business undertaking. For purposes of
taxation, it is treated as a separate assessable entity.

It may be stated here that though for taxation purposes, the status of a
society is to be taken as an AOP, sections 67A and 86 of the Act have been
specifically excluded from application to the case of its members. Besides, as
provided in Part I of the First Schedule to an annual Finance Act, a co-operative
society is taxed at rates, which are different from those applicable to an AOP. It
may be seen from Part I of the First Schedule to an annual Finance Act, wherein
though individuals, Hindu undivided family, AOPS or body of individual, whether
incorporated or not, or every artificial juridical person referred to an section 2(31)
(vii) of the Act, are chargeable at the rates prescribed under paragraph B thereof.
PROVISIONS UNDER THE INCOME-TAX ACT, 1961
Under the Income-tax Act, 1961, there are a number of provisions, which relate to the co-
operative societies, and related main provisions are contained in sections 2(19),80 P and 194,
197. Section 2(19), “co-operative society” means a co-operative society, registered under Co-
operative Societies Act, 1912 or under any other law for the time being in force in any state for
the registration of co-operative Societies, Under section 80 P, under which exemptions and
deductions have been provided in respect of various types of income being earned by co-
operative societies.

It may also be noted that the provisions of section 194 A which require deductions of
income tax at source from interest other than interest on securities, credited or paid, where the
aggregate payment in any financial year exceeds Rs. 10,000/- do not apply to cases of interest
paid by co-operative banks (including co-operative land mortgage banks and co-operative land
development banks) or to a member of the society on deposits made with the society.

INCOMES OF CO-OPERATIVE SOCIETY

A co-operative society may mainly have the following types of income :

(I) Interest on securities

(II) Income from house property,
(III) Capital gains income,
(IV) Income from business,

Most of the societies, now-a-days are found to be carrying on business activity. The profits and
gains from such business are to be determined according to the regularly employed method for
such computation and according to accepted commercial principles. The method adopted by
the society must be consistently followed every year. Thus a co-operative society may adopt
cash basis method or mercantile basis method. What is required is that the same system should
normally be continued.

EXEMPTION TO CO-OPERATIVE SOCIETY

1. any income of a co- operative society formed for promoting the interests of the members of
either the Scheduled Castes or Scheduled Tribes or both referred to in clause (26B):
Provided that the membership of the co- operative society consists of only other co- operative
societies formed for similar purposes and the finances of the society are provided by the
Government and such other societies;].
2. Section 80 P provides certain exemptions to co-operative societies.
 Where the co-operative society is also entitled to the deductions available under
sections 80HH, 890HHA, 80HHB, 801, 80J, 80JJ and 80JJA. The deduction under this
section [i.e. 80 P (I)] shall be allowed with reference to the total income as reduced by
the deduction allowable respectively uinder sections 80HH, 80HHA, 80HHB, 80HHC, 80J,
80JJ and 80I.

DEDUCTION UNDER SECTION 80 P

The following amounts are allowed as deduction under this section. However, from the
assessment year 2007-08 onwards, deduction under section 80 P is not available to a co-
operative bank. A primary agricultural credit society, a primary co-operative agricultural and
rural development bank will continue to get deduction under section 80P.

The whole of the amount of the profits attributable to any one or more of the following
activities 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 grown by its members, or
(iv) The purchase of the agricultural implements, seeds, live-stock or other articles
intended for agricultural 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

However, in 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;
2. The co-operative credit societies which provide financial assistance to the society;
3. The state government.
(A) In the case of a co-operative society, being a primary society engaged in supplying milk,
oil-seeds, 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 milk, oil-seeds, 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 or
a corporation established by or under a central, state or provincial Act (being a
company or corporation engaged in supplying milk, oil seeds, fruits or
vegetables, as the case may be, to public), the whole of the amount of profits
and gains of such business;
(B) 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 other 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,
Rs.100,000; and
(ii) In any other case, Rs. 50,000

Here, “consumers” co-operative society” means a society for the benefit of the consumers;

(C) 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;
(D) In respect of any income derived by the co-operative society from the letting of
godowns or warehouses for storage, processing or faciliting the marketing of
commodities, the whole of such income;
(E) 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 exceeed Rs.20000/- the amount of any income by way of interest
on securities or any income from house property, chargeable under section 22.

NO WEALTH-TAX LIABILITY ON A CO-OPERATIVE SOCIETY

As per section 3(1) of the Weath-tax Act, 1957, only individuals. Hindu undivided
families and companies are liable to wealth-tax. It clearly implies that no wealth-tax is
chareable in the case of co-operative society.

“LOWER” OR “NIL” RATE OF TDS

 A co-operative society like any other assessee may make an application to the
assessing officer under section 197 of the act, fro deduction of tax at lower rate in case, the
income likely to be received so warrants. The relevant rules are 28, 28AAand 29.

Similarly, a co-operative society may furnish declaration in duplicate under section

197A (IA) of the act, to the person responsible for paying any income of the nature referred
to section 193 (interest on security), section 194 A (interest other than interest on
securities) for no deduction of tax at source. The relevant form is 15H, which has to be
verified in the prescribed manner to the effect that the tax on the estimated total income of
the previous year will be “nil”.

RATE OF INCOME TAX

Rates of income tax applicable to co-operative societies for the assessment year
2014-2015 are given below for the convenience of co-operative societies to work out their
liability to tax.

Income Tax Rate

1. On total income upto Rs. 10,000 10%

2. Total income in excess 10,000 upto 20,000 20%
3. Total income in excess of 20,000 30%

And education cess is 2% and Secondary higher education cess is 1%.

For the assessment year 2014-2015 surcharge is 10 % of income tax, where taxable income
exceeds Rs 1 crore.

Alternative Minimum Tax :- Tax Payable by a co-operative cannot be less than 18.5%
(surcharge + education cess + SHEC) of “adjusted total income” as per see 115 JC Since A.Y.
2013-2014.