# CASE DETAILS KERALA STATE CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BANK LTD. KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM AND ORS

- **Citation:** 2023 INSC 830
- **Court:** Supreme Court of India
- **Decided:** 2023-09-14
- **Case number:** Civil Appeal No.10069 of 2016
- **Bench:** B.V. Nagarathna, Ujjal Bhuyan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-kerala-state-co-operative-agricultural-and-rural-development-bank-36464
- **Pages:** 52

## Headnote

Issue for consideration: Whether the appellant-assessee, a cooperative society, is entitled to claim deduction of the whole of its profi ts
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 benefi t 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
fi nancial 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 defi ned in clause (b) of s.5 of the BR
Act, 1949, it would not be a cooperative bank - Then the defi nitions 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 benefi t 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
319
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 benefi t 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) - TravancoreCochin 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 specifi ed in subsection (2), in computing the
total income of the assessee for the purpose of payment of income tax - Subsection (2) of s.80P enumerates various kinds of co-operative societies - Subsection (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 profi ts 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 defi nition 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
KSCARDB v. THE A

## Text

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[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 cooperative society, is entitled to claim deduction of the whole of its profi ts
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 benefi t 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
fi nancial 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 defi ned in clause (b) of s.5 of the BR
Act, 1949, it would not be a cooperative bank - Then the defi nitions 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 benefi t 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
319
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 benefi t 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) - TravancoreCochin 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 specifi ed in subsection (2), in computing the
total income of the assessee for the purpose of payment of income tax - Subsection (2) of s.80P enumerates various kinds of co-operative societies - Subsection (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 profi ts 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 defi nition 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
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS.
320
SUPREME COURT REPORTS
[2023] 12 S.C.R.
well as primary co-operative agricultural and rural development bank are
defi ned 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 defi ned 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 fi rst place a
co-operative society must be engaged in banking business as defi ned in
s.5(b) - For that, s.22 speaks about licence to be obtained by a bank to do
banking business which is modifi ed 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 fi t 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 defi ned in clause (b) of s.5, BR Act, 1949, it would not be a cooperative 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 defi ned 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:
321
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 modifi cations
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, cooperative societies as they apply to, or in relation to, banking companies
subject to certain modifi cations - The object of s.56 is to provide a deeming
fi ction 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 defi nition 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
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS.
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.
323
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
profi ts 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
Certifi cate 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 offi ce 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 Benefi t Fund
and Staff Benefi t 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
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
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 defi nes "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 CoOperative Agricultural Development Banks Act, 1984 (for short, "State
Act, 1984"). This Act was passed 'to facilitate the more effi cient working
of Co-operative "Agricultural and Rural Development Banks" in the State
of Kerala.'
8. Section 2(a) of the State Act, 1984 defi nes "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 defi nes "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 defi nes "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 briefl y state
relevant facts giving rise to these appeals.
9.1. On 27.10.2007 the appellant/assessee fi led its Return of Income
for the Assessment Year 2007-08 of Rs. 27,18,052 claiming deduction under
325
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
Offi cer 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 cooperative agricultural and rural development bank. The Assessing Offi cer
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 benefi t of
Section 80(P)(2) of the Act. The Assessing Offi cer observed that with eff ect
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 cooperative bank other than a primary agricultural credit society or a primary
co-operative agricultural and rural development bank. The Assessing Offi cer
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 fi led an appeal before the Commissioner of Income Tax
(Appeals) ("CIT(A)"). The CIT(A) vide Order dated 30.07.2010 confi rmed
the disallowance made by the Assessing Offi cer. 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 satisfi es 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 defi nitely 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 fi led further appeal before the Income Tax Appellate Tribunal
("ITAT"). The ITAT vide Order dated 23.02.2011 partly allowed the appeal
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
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 clarifi ed 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 fi nancial 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 fi nding that the appellant/
assessee was neither a primary agricultural credit society nor a primary cooperative 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 fi ndings 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 benefi t 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
327
'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 cooperative 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 fi rst 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 cooperative 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
defi nes a co-operative society with limited liability. That on the enactment
of the State Act, 1984, Section 2(a) thereof defi nes "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 modifi cations, 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 defi ned 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 defi nes a
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
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) defi nes "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 fi t 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 cooperative land mortgage bank; and (c) any other co-operative society, except
in the manner and to the extent specifi ed 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
329
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 cooperative 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 Cooperative Bank. That such an approach has been adopted by the Assessing
Offi cer 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 cooperative 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 cooperative society and therefore such a society did not require Reserve Bank
of India licence but the appellant is not a primary agriculture credit society
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
330
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[2023] 12 S.C.R.
but a co-operative bank which is excluded from the benefi t 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 benefi t 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 fi nancing of other
co-operative societies in that district. The appellant is defi nitely not a central
co-operative bank. That the appellant is also not a state co-operative bank
whose primary object is the fi nancing 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) defi nes 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 cooperative 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
331
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
defi nition 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
defi ned under the provisions of the NABARD Act, 1981 and the district cooperative banks are central co-operative banks as defi ned in that Act. Hence,
they are co-operative banks falling within the notifi cation 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
benefi t 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 defi nes a "state co-operative
bank"; Section 2(ia) which defi nes a "district co-operative bank"; Section
2(ra) which defi nes a state co-operative agricultural and rural development
bank and Section 2(oc) which defi nes 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
defi ned 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
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
332
SUPREME COURT REPORTS
[2023] 12 S.C.R.
as its members as defi ned 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, defi nes 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 diff erent from "Kerala State Co-operative Bank" which is a state
co-operative bank defi ned under the NABARD Act, 1981. Therefore, the
benefi t 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 Cooperative 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
333
with and subject to the provisions of this section, the sums
specifi ed 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) fi shing or allied activities, that is to say, the catching,
curing, processing, preserving, storing or marketing
of fi sh 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 fi shing or allied activities;
KSCARDB v. THE ASSESSING OFFICER, TRIVANDRUM
AND ORS. [B.V. NAGARATHNA, J.]
334
SUPREME COURT REPORTS
[2023] 12 S.C.R.
(2) the co-operative credit societies which provide fi nancial
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 defi ned 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 profi ts and gains of such business;
(c) in the case of a co-operative society engaged in activities
other than those specifi ed in clause (a) or clause(b) (either
independently of, or in addition to, all or any of the activities
so specifi ed), so much of its profi ts and gains attributable
to such activities as does not exceed,-
(i) where such co-operative society is a consumers' cooperative society, one hundred thousand rupees.
(ii) in any other case, fi fty thousand rupees.
Explanation.