Radhakrishnan K.V.

Radhakrishnan K.VAs per Section 269ST transactions in the nature referred to in Section 269SS are exempted from the ambit of Section 269ST. 269 SS refers to the transactions of receiving Deposits and Loans from others. Therefore, 269 ST is not applicable to the receipt of deposits and loans. Resultantly, Deposits and loans of Rs.20,000/- or more and receipts other than deposits and loans of Rs. 2 lakhs or more shall not be accepted in cash.

Section 269SS does not cover receipt of repayment of loan and therefore such transactions are covered under section 269 ST. Therefore, receipt of loan repayment of Rs.2 lakhs and above shall not be accepted in cash. So is the case of withdrawal of Deposits also. All other receipts (other than deposits and loans) also shall attract provisions of section 269 ST.

So, theoretically, Section 269 ST affects a person (other than Government, Banking Company, Post Office savings Bank and Co-operative Bank) or a Co-operative Society which is not a Co-operative Bank in the following manner:-

(1) Deposits and loans from others, amounting to Rs. 20,000/- or more, shall not be accepted in cash. [Sec.269SS]

(2) Loan repayment from loanees amounting to Rs. 2 lakhs or more shall not be accepted in cash.[Sec.269ST]

(3) Deposits accepted from depositors shall not be repaid in cash if the amount is Rs.20,000/- and more. [Sec.269T]

(4) Loans availed by the Society shall not be repaid in cash if the amount is Rs.20,000/- and more. [Sec.269T]

(5) Deposit with other institutions shall not be withdrawn if the amount is Rs.2,00,000/- and more. [Sec.269ST]. Government, Ministry of Finance, by notification No.S.O.1057(E) dated 5-04-2017 has exempted withdrawals from the deposits with Government, Banking Company, Post Office savings Bank and a Co-operative Bank from this provision.

As far as all other transactions are concerned the liability of adherence to the provisions of section 269ST is on the recipient of the amount if it is Rs.2 lakhs and above. A co-operative society is liable for penalty for the violation of the provisions of sec. 269 ST only in a case where the transaction involves acceptance, not payment, of money.

Restrictions imposed by Section 269SS and 269 ST are not applicable in the case of Co-operative Banks [State Co-operative Banks, Central Co-operative Banks and Urban Co-operative Banks (Primary Co-operative Banks)]. These entities shall receive any amount of any nature in cash without any limit prescribed in the said Sections.  Besides, by virtue of Government notification No. S.O.1057 (E) dated 5-4-2017, receipts in the nature of withdrawal of deposits from the Co-operative Banks by other persons are also not restricted by the provisions of these Sections. Similarly, repayment made by any person towards loans taken from Co-operative Banks are exempted from the provision of Section 269 T and therefore such repayments need not be made by account payee cheque or draft or electronic clearing system or by crediting the amount to the Savings Bank account or current account even if the amount is Rs.20,000/- or more.

There are several decisions of ITATs to the effect that Section 269 SS and 269 ST are not applicable to Co-operative Societies as transactions of Co-operative Societies are only with members which cannot be treated as transaction “by a person with another person”. For that reason, Section 269 ST also is not applicable to Co-operative societies.

Some of the decisions in the subject matter are quoted below:- 

“In view of the transaction took place between the assessee and its member, the strict provisions of the sec.269SS/269T cannot be applied.”

Income Tax Appellate Tribunal – Hyderabad

The Citizen Co-Op. Society Ltd., vs. Assessing officer – on 19 October, 1997

“The repayments of the deposits were made to the Members of the Society and it is obvious that the assesses Society entertained a bona fide belief that no contravention of any provisions of Income-tax Act is being made while making the repayments of loans/deposits in cash.”

Income Tax Appellate Tribunal – Pune

Muslim Urban Co-Op. Credit Society vs. Jt. Commissioner of Income tax, Sangli- on 25 March, 2004

“According to us, these observations of the Tribunal are good enough to show that the view of the assessee society that its members being not any separate/distinct persons as contemplated in section 269T, the deposits repaid to them were not covered by the said provisions was a possible or conceivable view and the belief entertained by it on the basis of such view was a bona-fide belief. As such, considering all the facts and circumstances of the case, we are of the view the assessee society had entertained bona-fide belief that the deposits repaid by it to its members were not covered by the provisions of section 269T and this bona-fide belief coupled with the fact that the deposits were genuine and were also accepted and repaid in the regular course of business constitutes a reasonable cause for its failure to comply with the requirements of section 269T. In that view of the matter, we find no justification in the action of the learned CIT (A) confirming the penalty imposed U/s 271E and reversing his impugned order, we direct the A.O. to cancel the said penalty.”

Income Tax Appellate Tribunal – Mumbai

Salgaon Sanmitra Sahakari vs. Assessing Officer- on 21 December, 2010

The assessee society was classified as ‘co-operative bank’ under Section 12(1) of the Maharashtra Co-operative Society Act, 1960 as per the registration certificate issued by the Assistant Registrar, Co-operative 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

(Republished with Amendments)

More Under Income Tax


  1. Jose M.P. FCA says:

    Co operative bank and co op society should be differentiated. Income Tax Act in 269ss, T, St treats co op bank defined in BRAct in par with banks. But co op society other than co op bank is not specifically so treated. This creates the confusion.
    However, I am of the view, that for any co op society, 269SS & T are not applicable, as these are not any loan taken or deposits accepted strictly in the spirits of these terms. These are for furtherence of the object of the society of uplifting the group members, economically and socially. Those who have surplus funds contributes to the resources, others avail these funds for use. A society is only a platform for co ordinating these for members mutually.
    To compensate those sacrificing interest is paid and those taking advantage is made to pay a portion as interest on loan. The purpose is mutual growth unlike a bank where the banking companies profit is the prime goal.
    Besides, the states are duty bound to encourage co operatives, not discourage, not restrict, co operatives as per the article 43 B of the directive principles of state policy, in the constitution of India.
    This any act, decision, by any authority, is against the spirit of the constitution of India.

  2. Radhakrishnan K.V. says:

    Well. In such cases also Section 269 SS/ST/T does not apply but Section 40 A(3) may be invoked. Interest payment in cash may not be allowed as an expenditure, if it exceeds Rs. 10000/- in a day. But as far as a co-operative society is concerned such disallowance only result in the enhancement in total income which is otherwise deductible u/s 80 P(2)(a)(1) and therefore does not affect the tax liability of the Co-operative society. vide CBDT Circular No.37/2016 dated 02-11-2016.
    Further, Primary Agricultural Credit Society and Primary Credit Society are exempted from such disallowance. vide rule 6DD of Income Tax Rules 1962.

    1. Manku Yadhagiri says:

      I think after this circular there was another circular stating that enhanced profits due to 40A(3),43B etc are not admissible for the 80P deduction.

  3. sudershan prakash raja says:

    The txn done between member and the soceity is not considered as txn done with others. Then how to consider interest payment/received by society on deposit/loan to/from its members as expenditure/income of soceity.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

January 2021