Loans forwarded by Agricultural Credit Society to non-members, qualifies for deduction in respect of income of Co-operative Societies
Giving a loans by primary agricultural credit society to non-members qualifies for purpose of deduction in respect of income of Co-operative Societies. 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.
Limited object of Section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking which means the accepting, for the purpose of lending or investment, of deposits of money from the public. No co-operative 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 RBI. As opposed to this, 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. As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking.
Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is 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, by adding the word "agriculture" into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now 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 the RBI.
Therefore, once section 80P(4) is out of harm's way, assessees are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted. Thus, the giving of loans by a primary agricultural credit society to non- members is not illegal.
