CHAPTER

CO-OPERATIVE SOCIETY AND

11 PRODUCER COMPANIES

Part A: Taxation of Co-operative Societies

Tax Rate
Slab of Total Income Tax Rate
Income Rs. 0 – Rs. 10,000 10%
Income Rs. 10,001 – Rs. 20,000 20%
Income Rs. 20,001 – Above 30%
Health & Education Cess @ 4%
Add:
Surcharge: If taxable income exceeds Rs. 1 crore.
(a) If total income/Book profit exceeds Rs.1crore but upto 10crore. 7% of IT
(b) If total income/Book profit exceeds Rs.10crore. 12% of IT

11.1
 Income Eligible for Deduction u/s 80P

Income Eligible for

Deduction u/s 80P

Primary Activity
(Income Chargeable under Income from Investments
PGBP)

Income from Specified Income from 1) 80P(2)(d): 100% of interest and

dividend derived by a Co-operative
activities: 100% other activities society from its investments in any
other Co-operative Society is
deductible u/s 80P(2)(d).

Deduction u/s 2) 80P(2)(e): 100% of income derived

Income of banking business for its by a Co-operative Society from letting
members: 80P(2)(a)(i) 80P(2)(c): of godowns or warehouse for storage,
Profits attributable to cottage In case of a consumer processing etc. shall be deductible u/s
industry: 80P(2)(a)(ii) 80P(2)(e).
Co-operative Society: Rs.
Profits attributable to the marketing 1,00,000
of agricultural produce grown by the 3) 80P(2)(f): Upto 20,000 of
In any other case: Rs.
members: 80P(2)(a)(iii)
50,000 income derived by Coperative Society
Income from purchase of agricultural other than housing Society, Urban
implements, seeds, live stock Society, or Society Carrying on
intended for the purposes of transport business or engaged in
supplying them to its members is manufacturing operation with the aid
deductible u/s 80P(2)(a)(iv). of power from Property Income and
Income from processing (without the Interest Income from Securities shall
aid of power) of the agricultural be deductible u/s 80P(2)(f).2)
produce of its members is deductible
u/s 80P(2)(a)(v).
Income from activity of collective
disposal of labour of its members:
80P(2)(a)(vi)
Profit of society engaged in Fishing
and allied activities: 80P(2)(a)(vii).
Primary society engaged in supply of
milk, oil seeds, fruits etc.: 80P(2)(b).

11.2
 Taxation of Co-operative Societies

(i) General provisions: The expression "co-operative society" means a society registered under the
Cooperative Societies Act, 1912 or under any other law for the time being in force in any State for the
registration of co-operative societies [Section 2(19)].
For taxation, it is treated as a separate assessable entity. The profits of any business of insurance
carried on by a co-operative society are to be computed in accordance with the rules set out in the
First Schedule to the Act. Apart from this, the computation of income in the case of a co-operative
society should also be made in the same way under each head of income as in the case of any other
assessee. Entrance fees received by a co-operative society from its members is taxable as its income
from business irrespective of the nature of the business carried on by the society as was held in Co-
operative Central Bank vs. C.I.T. (1965) 57 /TR 579.
A member of a co-operative society to whom a building or a part thereof is allotted or leased under a
house building scheme of the society must be deemed to be the owner of that building or part thereof
under section 27(iii). Accordingly, the co-operative society is not liable to pay tax in respect of the
income from the house property even though it may be the real owner according to official records
and the tenant may have taken the building on lease. But where the tenant is not a member of the
society or where the house is allotted to him otherwise than under a house building scheme of the
society, the society will be liable to tax in respect of the income of the house property.

(ii) Deduction under section SOP: Section 80P provides certain exemptions to co-operative societies.
However, the exemption is not available to co-operative banks, other than primary agricultural credit
societies and primary co-operative agricultural and rural development banks.

(iii) Option to exercise concessional rates of tax under section 115BAD or 115BAE: Section
115BAA provides an option to an existing domestic company to pay tax at concessional rate of 22%, if
it does not claim incentive /exemption and deduction as provided in said section. Section 115BAB
provides that new manufacturing domestic companies set up on or after 01.10.2019, which commence
manufacturing or production by 31.03.2024 and do not avai l of any specified incentive or deductions,
may opt to pay tax at a concessional rate of 15%.
On similar lines, section 115BAD was inserted w.e.f. A.Y. 2021-22 to provide that a co- operative society
resident in India has the option to pay tax at 22%, subject to fulfilment of certain conditions. Further,
w.e.f. A.Y. 2024-25, new section 115BAE has been inserted to provide an option to a new
manufacturing co- operative society set up on or after 01.04.2023, which commences manufacturing
or production on or before 31.03.2024 and does not avail of any specified incentive or deductions,
may opt to pay tax at a concessional rate of 15%. In both cases, surcharge would be levied@ 10% on
such tax. However, it may be noted that deduction u/s BOP will not be available under the
concessional tax regimes.

11.3
Sections 115BAE and 115BAD provides for concessional rates of tax and exemption from Alternate
Minimum Tax (AMT) in respect of certain resident co-operative societies. The provisions of these two
sections are tabulated hereunder –
(1) (2) (3) (4)
Particulars Section 11SBAE Section 115BAD
1. Applicability Co-operative society resident Co-operative society resident in
in India engaged in India
manufacturing /generation of
electricity
2. Rate of tax 15% 22%
3. Rate of surcharge 10% 10%
4. Effective rate of tax 17.16% 25.168%
(including surcharge & {Tax@15% (+) [Tax@22% (+)
HEC) Surcharge@10% (+) HEC@4%] Surcharge@10% (+) HEC@4%]
5. Applicability of AMT Not applicable Not applicable
6. Manner of computation of tax liability
Income on which The rate of tax (i.e., 17.16%) is The rate of tax (i.e., 25.168%) IS
concessional rate of tax is applicable in respect of income Notwithstanding anything
applicable derived from or incidental to contained In the Income-tax Act,
manufacturing or production 1961, but subject to the
of an article or thing or provIsIons of Chapter XII, other
generation of electricity. than section 115BAE
[Read with point no.11 below,
wherein the rate of 34.32%
(i.e., Tax@30% +
surcharge@10% +
HEC@4%) would be applicable
in specified circumstance]
Rate of tax on income Such income would be subject Such income would be subject
covered under to tax at the rates mentioned to tax at the rates mentioned in
Chapter XII [for example, in the said sections in Chapter the said sections in Chapter
long- term capital gains XII. Surcharge@10% would be XII. Surcharge@10% is leviable
chargeable to tax u/s 112 levied on tax computed on on tax computed on such
and 112A, short- term such income. HEC@4% would income. HEC@4% would be
capital gains chargeable to be levied on the income-tax levied on the income-tax plus
tax u/s 111A] plus surcharge. surcharge.
Rate of tax on other The applicable tax rate is The applicable tax rate IS
income in respect of 25.168% (i.e.,tax@22%, plus 25.168% (i.e., tax@22% plus
which no specific Surcharge @10% plus surcharge@10% plus
rate of tax is HEC@4%), ….. if such income HEC@4%).
provided in Chapter has neither been derived from There is, however, no
XII nor is incidental to restriction regarding claim of
manufacturing or production any Deduction or allowance
of an article or thing or permissible under the relevant
generating electricity (For provisions of the Act.
example, income from house
property and income from
other sources).
In respect of such income, no
deduction or allowance in

11.4
 respect of any expenditure
or allowance shall be allowed
in computing such income.
Rate of tax on STCG The applicable rate of tax is The applicable rate of tax is
derived from transfer of a 25.168% (i.e., tax@22%, plus 25.168% i.e., tax @22%, plus
capital asset on which no surcharge@10% plus surcharge @10% plus cess@4%.
depreciation is allowable HEC@4%). There is no restriction
under the Act There is, however, no regarding claiming of
restriction regarding claiming deduction or allowance
of deduction or allowance in in this regard.
this regard.
7. Conditions to be fulfilled for availing concessional rate of tax and exemption from AMT
Conditions to be fulfilled i The co-operative No time limit specified.
for availing concessional society should be set- Both existing co- Operative
rate of tax and exemption up and registered on society and newco-
from AMT or after 1.4.2023. operative society can avail
benefit.
ii It should commence Need not be engaged in a
manufacturing or manufacturing or a
production of an article production
or thing or business of
generating electricity
on or before 31.3.2024
iii It should not be formed No similar condition has
by splitting up or the been prescribed
reconstruction of a
business already in
existence
iv It does not use any No similar condition has
machinery or plant been prescribed
previously used for any
purpose [Refer Note at
the end]
v It should not be engaged No similar condition has
in any business other than been prescribed
the business of
manufacture or
production of any article
or thing and research in
relation to, or distribution
of, such article or thing
manufactured or
produced by it.

Note - Business of
manufacture or
production of any article
or thing shall include
generation of electricity

11.5
 does not include business
of -
(1) Development of
computer software in
any form or in any
media
(2) Mining
(3) Conversion of marble
blocks or similar items
into slabs
(4) Bottling of gas into
cylinder
(5) Printing of books or
production of
cinematograph films
(6) Any other business as
may be notified by the
Central Govt. in this
behalf.

8. Common conditions for In case of a company opting for either section 115BAE or
both sections for availing 115BAD, the total income should be computed -
the concessional rate of tax
and exemption from AMT 1 1
i without providing for deduction under any of the
following sections:
Section Provision
10AA Exemption of profits and gains derived
from export of articles or things or from
services by an assesse from unit inSEZ.
32(1)(iia) Additional depreciation @20%, as the
case may be, of actual cost of new plant
and machinery acquired and installed
by manufacturing undertakings.
33AB Deduction@40% of profits and gains of
business of growing and manufacturing
tea, coffee or rubber in India, to the
extent deposited with NABARD in
accordance with scheme approved by
the Tea/Coffee/Rubber Board .
33ABA Deduction@20% of the profits of a
business of prospecting for, or
extraction or production of, petroleum
or natural gas or both in India, to the
extent deposited with SB/ in an
approved scheme or deposited in Site
Restoration Account.
35(1)(ii) / Deduction for payment to any research
(iia)/(iii) association, company, university etc.

11.6
 for undertaking scientific research or
social science or statistical research.
35(2AA) Deduction of payment to a National
Laboratory or University or /IT or
approved specified person for scientific
research
35AD Investment-linked tax deduction
35CCC Deduction of expenditure incurred on
notified agricultural extension project
BOC to Deductions from gross total income
BOU under Chapter VI-A other than the
provisions of section BOJJAA.
ii without set-off of any loss carried forward or
depreciation from any earlier assessment year, if such
loss or depreciation is attributable to any of the
deductions listed in (i) above [Such loss and
depreciation would be deemed to have been already
given effect to and no further deduction for such loss
shall be allowed for any subsequent year]
iii by claiming depreciation u/s 32 determined in the
prescribed manner (i.e., in respect of depreciation of
any block of assets entitled to more than 40% shall be
restricted to 40% on the written down value of such
block of assets). However , additional depreciation
u/s32(1)(iia)cannot be claimed.
Note - Additional points relevant in the context of section
115BAD:
(1) In the case of a person having a Unit in the IFSC, referred
to in section BOLA(1A), which has exercised option for
section 115BAD, deduction u/s BOLA would be allowed
subject to fulfilment of the conditions specified in that
section.
(2) Since there is no time line within which option under
section 115BAD can be exercised, a co-operative society
having brought forward losses and depreciation on
account of deductions listed in (i) above may, if it so
desires, postpone exercise the option under section
115BAD to a later assessment year, after set off of the
losses and depreciation so accumulated.
9. Failure to satisfy On failure to satisfy the On failure to satisfy the
conditions conditions mentioned in point conditions mentioned in point
no. 7 and 8 above in any P.Y., no. 8 above in any P.Y., the
the option exercised would be option exercised would be
invalid in respect of the invalid in respect of the
assessment year relevant to assessment year relevant to that
that previous year and previous year and subsequent
subsequent assessment years; assessment years;
Consequently, the other
provisions of the Act would

11.7
 apply to the person as if the Consequently, the other
option had not been exercised provisions of the Act provisions
for the assessment year of to the person as if the option
relevant to that previous year had not been exercised for the
and subsequent assessment assessment year relevant to that
years. previous year and subsequent
assessment years.
10. Availability of set-off of Since it is a new co-operative Brought forward AMT credit
AMT credit Brought society , there would be no cannot be set-off against
forward from earlier years brought forward AMT credit income u/s 115BAD.

Note - If a co-operative society

has b/f AMT credit, it can first
exhaust the AMT credit, and
thereafter opt for section
115BAD in a subsequent
previous year.
11. Adjustments for If the Assessing Officer opines No such requirement to
Transactions with that the course of business make any adjustment
personshaving between the co-operative
close connection society and any other person
having close connection there
with is so arranged that the
business transacted between
them produces more than the
ordinary profits to the co-
operative society, he is
empowered to take into
account the amount of profits
as may be reasonably deemed
to have been derived there
from, while computing profits
and gains of such co- operative
society .
In case the arrangement
referred above involves a
specified domestic transaction
referred to in section 92BA,
then, the amount of profits
from such transaction would
be determined by considering
the arm's length price (ALP).

The amount, being profits in

excess of the amount of the
profits determined by the
Assessing Officer, shall be
deemed to be the income of
the person.
The income-tax on the income
so deemed shall be subject to

11.8
 tax @ 34.32% (i.e., tax ,@ 30%
+ surcharge @10% +HEC@
4%).
Note – The scope of "specified
domestic transactio"n referred
to in section 92BA has been
expanded to include within its
ambit, any business
transacted between such
persons with close connection,
where one such person is a
company claiming benefit
under section 115BAE.
12. Exercise of option by the The beneficial provisions of The beneficial provisions of this
co-operative society within this section would apply only if section would apply if option is
the prescribed time option is exercised in the exercised in the prescribed
prescribed manner on or manner on or before the due
before the due date u/s139(1) date u/s 139(1) for furnishing
for furnishing l the first of the the return of income for any
returns of income for any previous year relevant to
previous year relevant to A.Y. assessment year or any
or any subsequent assessment subsequent A.Y.
year. Such option, once exercised,
Such option, once exercised, would apply to subsequent
would apply to subsequent assessment years.
assessment years.
Further, once the option has Further, once the option has
been exercised for any been exercised for any previous
previous year, it cannot be year, it cannot be subsequently
subsequently withdrawn for withdrawn for the same or any
the same or any other previous other previous year.
year.
Note - The option can be
Note - The option has to be exercised even ina later year,
Exercised at the time of but once exercised, cannot be
Furnishing the first of the withdrawn subsequently.
returns of income for any
previous year. If a person fails
to so exercise such option, it
cannot be exercised thereafter
for any subsequent previous
year.

Note - For the purpose of point no. l(iv) in column (3) of the above table in relation to a co- operative society
exercising option under section 115BAE, any machinery or plant which was used outside India by any other
person shall not be regarded as machinery or plant previously used for any purpose, if all the following
conditions are fulfilled, namely:-

(a) such machinery or plant was not, at any time previous to the date of the installation, used in India;

11.9
(b) such machinery or plant is imported into India from any country outside India;
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or
is allowable under the provisions of the Income-tax Act, 1961 in computing the total income of any person
for any period prior to the date of installation of the machinery or plant by the person.

Further, where in the case of a person, any machinery or plant or any part thereof previously used for any
purpose is put to use by the co-operative society and the total value of the machinery or plant or part so
transferred does not exceed 20% of the total value of the machinery or plant used by the co-operative
society, then , the condition specified that the co-operative society does not use any machinery or plant
previously used for any purpose would be deemed to have been complied with.

Exemptions from Provisions of AMT on opting for new Tax Scheme [Section 115JC and Section 115JD]
AMT is payable by a non-company assessee whose regular tax on total income is less than 18.5% (or 9% in
case of IFSC Unit or 15% in case of co-operative society) of ‘Adjusted total Income’. However, an exemption
from AMT is given to the assesses who have opted for the new tax scheme under section 115BAD (for co-
operative society) and Section 115BAC (individual, HUF, AOP , BOI , AJP).
From the A.Y. 2024-25, the co-operative societies opting for the new tax scheme under Section 115BAE have
also been given an exemption from the payment of AMT. A consequential amendment has also been made
to Section 115JD that such co-operative society shall not be allowed to carry forward and set off the AMT
credit lying unutilised, consequent to the exercise of such option. It is not clear how a co-operative society
will have the unutilised credit of the AMT because it is required to exercise the option to apply the scheme
on or before furnishing the return of Income.

Further, consequent to the insertion of sub-section (1A) to section 115BAC, corresponding changes have
been made to Section 115JC and section 115JD.

Question 1:
XYZ Co-operative society is engaged in marketing of agricultural produce grown by its members. The
profits and gains attributable to such business for P.Y.2023 -24 is 65 lakhs (computed). It has employed
ten new employees with salary of Rs 22,000 p.m. on 1.5.2023. Salary is paid by account payee cheque. It
gets its books of accounts audited under section 44AB. It also earns interest of Rs 30 lakhs on fixed deposits
with banks. Compute its total income and tax liability for A.Y.2024-25 and advise whether it should opt for
the special provisions under section 115BAD.

Solution:
Computation of total income & tax liability of XYZ Co-operative Society for P.Y.2023-24 (under the
regular provisions of the Act)
Particulars ` `
Profits and gains of business or profession 65,00,000

11.10
 Income from other sources – Interest on bank fixed deposits
30,00,000
Gross Total Income 95,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 22,000 x 10 employees x 11 7,26,000
months]
Deduction u/s 80P 65,00,000
[XYZ Co-operative society is entitled for deduction under
section 80P on the whole of the amount of profits and gains of
business attributable to the activity of marketing of agricultural
produce grown by its members]
72,26,000
Total Income 22,74,000
Tax liability:
Upto ` 10,000 – 10% 1,000
` 10,000 – ` 20,000 – 20% 2,000
` 20,000 – ` 22,74,000 – 30% 6,76,200
6,79,200
Add: Health and education cess@4% 27,168
Tax liability 7,06,368
Tax liability (Rounded off) 7,06,370
Alternate Minimum Tax
Total Income 22,74,000
Add: Deduction under section 80JJAA 7,26,000
Adjusted Total Income 30,00,000
Alternate Minimum Tax@15% of ` 30,00,000 4,50,000
Add: Health and education cess@4% 18,000
Alternate Minimum Tax 4,68,000
Since AMT is lower than the tax payable under the regular provisions of the Act, the tax
liability of the co-operative society would be ` 7,06,370.

Computation of total income & tax liability of XYZ Co-operative Society under section 115BAD for
A.Y.2024-25
Particulars ` `
Profits and gains of business or profession 65,00,000
Income from other sources – Interest on bank fixed deposits 30,00,000
Gross Total Income 95,00,000
Less: Deductions under Chapter VI-A
Deduction u/s 80JJAA [30% of ` 22,000 x 10 employees x 11 7,26,000

11.11
 months]
Deduction u/s 80P [Not allowable where the co-operative society
opts for section 115BAD] -
7,26,000
Total Income 87,74,000
Tax liability
22% of ` 87,74,000 19,30,280
Add: Surcharge@10% 1,93,028
21,23,308
Add: Health and education cess@4% 84,932
Tax liability 22,08,240

Since the tax liability under section 115BAD is higher than the tax liability under the regular provisions of
the Act, XYZ Co-operative Society should not opt for section 115BAD.

Question 2:
Meenakshi Urban, is a cooperative society engaged in providing credit facilities to its members for the
previous year 2023-24, it provides you the following information:
Particulars `
Interest received from deposit with other cooperative societies 5,47,000
Interest received from members (including 2,63,000 for personal 11,85,000
purposes of a member)
Rent Received (per month) 36,000
Income from Agency business 2,87,500
Interest received from deposit of idle funds of members 2,04,000
Expenses incurred on agency business 1,24,000
Brought forward loss from earlier years (Financial Year 2022-23) 98,000

Compute the total income of the co-operative society after allowing eligible deduction under section 80-
P, if any, and also the tax payable thereon.

Solution:
Computation of total income & tax payable by Meenakshi Urban, a Cooperative Society for the A.Y.
2024-25
Particulars ` `
Income from house property
Rental income( 36,000 x 12) 4,32,000
Less: Deduction under section 24(a) @30% 1,29,600 3,02,400
Profits and gains from business or profession Credit facility business
Interest received from deposits with other cooperative society. 5,47,000
Interest received from members 11,85,000

11.12
 Interest received from deposit of idle funds of members [Since Meenakshi co-
operaitve society is engaged in the business of providing credit facility to its
members, the interest on un-utilised fund would be taxable under the head
"Profits and gains from business or profession"9] 2,04,000 19,36,000
Agency business
Income from agency business 2,87,500
Less: Expenses incurred (1,24,000)
163500
Less: Brought forward loss from F.Y. 2021-22 (98000) 65000
Gross Total Income 2303900
Less: Deduction under Chapter VI-A: Section 80P
– Deduction in respect of profits and gains from credit facility business 19,36,000
– Deduction in respect of agency business allowable to the extent of 50,000 19,86,000
Total Income 3,17,900
Computation of Tax Liability
Tax @30% on 297900 plus 3000 on income upto 20000 92370
Add: Health & Education Cess @4% 3695
Tax Liability 96065
Tax Liability (Rounded off) 96070
Tax u/s 115 BAD
Total Income 3,17,900
+Blocked Deduction U/s 115BAD 19,86,000
Total Income as per 115BAD 23,03,900
+Tax @22% u/s 115BAD 5,06,858
+ Surcharge 10% 5,06,86
+ Cess 4% 22,302
Total Liability 5,79,846

Example
A resident co-operative society has the following incomes, and it opts for concessional tax scheme under
section 115BAE.
(a) Income from manufacturing activities : Rs 10,00,000
(b) Income from non - manufacturing activities : Rs 15,00,000
(c) Short term capital gain from transfer of depreciable assets : Rs 5,00,000
(d) Short term capital gain from transfer of non - depreciable assets : Rs 7,00,000
(e) Excess profit derived due to arranged affairs : Rs 3,00,000 Calculate the tax liability of the
cooperative society.

Solution:
Particulars Amount in Rs.
Tax on Income from manufacturing activities (15%) 1,50,000

11.13
Tax on Income from non- manufacturing activities (22%) 3,30,000
Tax on Short term capital gain from transfer of depreciable assets (15%) 75,000
Tax on Short term capital gain from transfer of non - depreciable assets (22%) 1,54,000
Tax on Excess profit derived due to arranged affairs (30%) 90,000
Income Tax (A) 7,99,000
Add: Surcharge at 10% [B = (A) * 10%] 79,900
Total Tax including surcharge [C = A+B] 8,78,900
Add: Cess at 4% [D = C * 4%] 35,156
Total Tax Liability [E = C+D] 9,14,056

Case PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. [2023] 454 /TR 117 (SC)
Law
Issue Analysis & Decision
Would a co-operative Merely because a co-operative society gives credit to its
society engaged in members, it cannot be said to be a co-operative bank under
providing credit facilities the Banking Regulation Act, 1949. Banking activities under that
solely to its members be Act are altogether different activities. There is a vast
eligible for deduction difference between credit societies giving credit to their own
under section BOP? members only and banks providing banking services including
the credit to the public at large also.
Considering the CBDT Circulars and the definition of bank under
the Banking Regulation Act, the assessee cannot be said to be a
co-operative bank/bank, and, therefore, section BOP(4) denying
benefit of deduction to a co-operative bank would not be
applicable in this case.
Accordingly, the assessee could not be termed as a bank or
cooperative bank. Being accredit society, it is entitled to
deduction under section BOP.

11.14