(a) Profits and gains of any business of banking carried on by a co-operative society with its members included in the definition of income [Insertion of sub-clause (viia) in section 2(24)] Sub-clause (viia) has been inserted in section 2(24) to include within the scope of definition of income, the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members (Effective from A.Y.2007-08)
(b) Withdrawal of tax benefit to co-operative banks [Section 80P] Related amendment in section: 2(24) (i) Section 80P provides for deduction in respect of income of co-operative societies. (ii) The Finance Act, 2006 has withdrawn this benefit w.e.f. A.Y.2007-08 in respect of all co-operative banks, other than primary agricultural credit societies (i.e. as defined in Part V of the Banking Regulation Act, 1949) and primary cooperative agricultural and rural development banks (i.e. societies having its area of operation confined to a taluk and the principal object of which is to provide for long-term credit for agricultural and rural development activities). (iii) This is for the purpose of treating co-operative banks at par with other commercial banks, which do not enjoy similar tax benefits. (iv) The scope of the definition of â€˜incomeâ€™ as given in section 2(24) has accordingly been widened to include within its ambit, the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members. (Effective from A.Y.2007-08)
All urban Co operative credit society and Pat-Pedhis by virtue of provisions of [Note :Part V contains amendement in definition ] - Section 5(ccii),5(ccv) and 5(ccvi) of Banking Regulation Act, 1949 Further, Section 5A of Banking regulation Act,1949 overrides Bye laws of the co op credit society whose principal business of a primary credit society is the transaction of banking business and When its paid up capital and reserves attain the level of Rs.1 lakh, a primary credit society automatically becomes a primary cooperative bank.
Further, vide para 8 in the case of [Salgaon Sanmitra Sahakari Pathpedhi Ltd. v. Additional Commissioner of Income-tax, Ward-17(3),Mumbai. - [12 Taxmann.com 246 (2011)] the assessee society was classified as 'cooperative bank' under section 12(1) of the Maharashtra Cooperative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar, Cooperative Society, Mumbai.
Once the urban Co operative credit society and Pat-Pedhis are classified as Bank then they are not eligible for benefit provided under section 80P of the Income Tax Act,1961, from Assessment Year 2007-08 by virtue of Section 80P(4) read with section 2(24)(viia) both of income Tax Act, 1961.
Further, Federation doing Banking Activities with co operative credit societies or Pat Pedhi’s who are its members and located in urban area is also not entitled for benefit provided under section 80P of the Income Tax Act,1961, from Assessment Year 2007-08 by virtue of Section 80P(4) read with section 2(24)(viia) both of income Tax Act, 1961. The said view is Kerala State Co-operative Agricultural Rural Development Bank Ltd., Statue, Trivandrum-695001. Vs. The Assistant Commissioner of Income-tax, Circle-1(2), Trivandrum vide ITA No. 506/Coch/2010 & S.P. No.67/Coch/2010 For AY 2007-08.(unreported but available on internet) Note : Please also refer point no. 4 of page 15 of Banking regulation Amendment Bill No. 18 of 2011 introduced in the loksabha.
If your co-operative society is not licensed under BR Act 1949 you will not be hit by secion 80(P)(4) and is eligible for deduction u/s 80(P)(2). For copy of judgments ask for in my email id :- firstname.lastname@example.org