In a major development, the Supreme Court of India has restored income tax relief to Kerala State Co-operative Agricultural and Rural Development Bank (SCARDB) under 80P. The apex court ruled that since the SCARDB is not a bank in the true sense of the term, it can enjoy the benefits.
After completing the hearing of this case, which was filed in 2016, the Supreme Court gave its judgment yesterday, on 14 September 2023. The bench consisting of Justice Mrs B V Nagarathna and Justice Mr Ujjal Bhuyan in their judgement ruled that Kerala SCARDB not being a bank coming under the BR Act is entitled to deductions under section 80 P.
This judgement of the apex court will settle once and for all, hundreds of disputes on the subject between ARDBs and IT Department pending in various courts across states.
There are 16 State Cooperative Agriculture & Rural Development Banks (SCARDBs) of which only 13 are fully functional with a network of 1,744 PCARDBs/branches of SCARDBs at ground level. These banks have a total membership of 1,10,84,964 rural households of which 65,30,812 have outstanding loans.
The total loans outstanding and borrowings outstanding of these banks as on 31.03.2022 were Rs 21341.06 crores and Rs 13337.10 crores respectively. The fully functional SCARDBs have total deposits of Rs 2257.67 crores as on 31.3.2022.
The SC observed “In the instant case, although the appellant society is an apex cooperative 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.”
It bears recall that the Section 80 P of income tax Act was amended in 2008 by adding subsection 80 P (4) which disallows deductions under 80 P for Cooperative banks coming under the BR Act.
Subsequently the tax department applied the above amendment to SCARDBs as well by treating them as banks though they are not banks coming under the Banking Regulation Act and started levying tax on their entire income with effect from 2008.
This has forced the SCARDBs to knock the door of courts and many litigations are going on throughout the country. Though, SCARDBs in some states managed to restore tax deductions under Section 80 P in appeal petitions at tribunal level.
Talking to the Indian Cooperative correspondent, Kerala SCARDB General Manager Sindhu Nair said, “Finally, the Supreme Court of India announced the verdict in favour of the Kerala SCARDB and we are happy with the decision. We will provide you with the Judgment copy once I go to the office”.
The dispute between the IT Department and Kerala SCARDB went up to the Supreme Court after the bank lost their appeals both before the Tribunal and the High Court of Kerala.
One can read the judgment by clicking following link-