Supreme Court explains section 80P(4) deduction

By Editor Income Tax Judiciary January 12, 2021 2 comments

TaxGuru Citation: 2021 taxguru.in 35
Case Name: The Mavilayi Service Coop Bank Ltd Vs. CIT (Supreme Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2007-08
Courts: Supreme Court of India

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The Mavilayi Service Coop Bank Ltd Vs. CIT (Supreme Court of India)

Limited object of section 80P(4) is to exclude co-operative banks that function at par with other commercial banks i.e. which lend money to members of the public. Thus, if the Banking Regulation Act, 1949 is now to be seen, what is clear from section 3 read with section 56 is that a primary co-operative bank cannot be a primary agricultural credit society, as such co-operative bank must be engaged in the business of banking as defined by section 5(b) of the Banking Regulation Act, 1949, which means the accepting, for the purpose of lending or investment, of deposits of money from the public. Likewise, under section 22(1)(b) of the Banking Regulation Act, 1949 as applicable to co-operative societies, no co-operative 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 RBI. As opposed to this, a primary agricultural credit society is a co-operative society, the primary object of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities.

As a matter of fact, some primary agricultural credit societies applied for a banking licence to the RBI, as their bye-laws also contain as one of the objects of the Society the carrying on of the business of banking. This was turned down by the RBI in a letter dated 25.10.2013.

A number of judgments have held that a proviso cannot be used to cut down the language of the main enactment where such language is clear, or to exclude by implication what the main enactment clearly states.

To sum up, therefore, the ratio decidendi of Citizen Cooperative Society Ltd. (supra), must be given effect to. Section 80P of the IT Act, being a benevolent provision enacted by Parliament to encourage and promote the credit of the co-operative sector in general must be read liberally and reasonably, and if there is ambiguity, in favour of the assessee. A deduction that is given without any reference to any restriction or limitation cannot be restricted or limited by implication, as is sought to be done by the Revenue in the present case by adding the word “agriculture” into Section 80P(2)(a)(i) when it is not there. Further, section 80P(4) is to be read as a proviso, which proviso now specifically excludes co-operative banks which are co-operative societies engaged in banking business i.e. engaged in lending money to members of the public, which have a licence in this behalf from the RBI. Judged by this touchstone, it is clear that the impugned Full Bench judgment is wholly incorrect in its reading of Citizen Cooperative Society Ltd. (supra). Clearly, therefore, once section 80P(4) is out of harm’s way, all the assessees in the present case are entitled to the benefit of the deduction contained in section 80P(2)(a)(i), notwithstanding that they may also be giving loans to their members which are not related to agriculture. Also, in case it is found that there are instances of loans being given to non-members, profits attributable to such loans obviously cannot be deducted.

Considering the definition of ‘member’ under the Kerala Act, loans given to such nominal members would qualify for the purpose of deduction under section 80P(2)(a)(i).

Further, unlike the facts in Citizen Cooperative Society Ltd. (supra), the Kerala Act expressly permits loans to non-members under section 59(2) and (3). Thus, the giving of loans by a primary agricultural credit society to non-members is not illegal.

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. I.A. Nos.192273 and 192277 of 2019 are allowed. Leave granted in the Special Leave Petition arising out of Diary No.31268 of 2019.

2. These appeals have been filed by co-operative societies who have been registered as ‘primary agricultural credit societies’, together with one ‘multi-State co-operative society’, and raise important questions as to deductions that can be claimed under section 80P(2)(a) (i) of the Income-Tax Act, 1961 (“IT Act”); and in particular, whether these assessees are entitled to such deductions after the introduction of section 80P(4) of the IT Act by section 19 of the Finance Act, 2006 (21 of 2006) with effect from 01.04.2007. It may be stated at the outset that all these assessees, who are stated to be providing credit facilities to their members for agricultural and allied purposes, have been classified as primary agricultural credit societies by the Registrar of Cooperative Societies under the Kerala Co-operative Societies Act, 1969 (“Kerala Act”), and were claiming a deduction under section 80P(2)(a) (i) of the IT Act, which had been granted to them up to Assessment Year 2007-08.

3. However, with the introduction of section 80P(4) of the IT Act, the scenario changed. In respect of the assessees before us, the assessing officer denied their claims for deduction, relying upon section 80P(4) of the IT Act, holding that as per the Audited Receipt & Disbursal Statement furnished by the assessees in these cases, agricultural credits that were given by the assessee-societies to its members were found to be negligible – the credits given to such members being for purposes other than agricultural credit. The decisions of the assessing officers were challenged up to the Kerala High Court. Before the High Court, the assessees relied upon a decision of a Division Bench of the Kerala High Court in Chirakkal Service Co-operative Bank Ltd. v. CIT (2016) 384 ITR 490 (Ker.), where in a batch of appeals challenging assessments completed under section 147 read with 143(3)/144 of the IT Act, the High Court, after considering section 80P(4) of the IT Act, various provisions of the Kerala Act, the Banking Regulation Act, 1949, the bye-laws of the Societies, etc., held that once a Co-operative Society is classified by the Registrar of Co-operative Societies under the Kerala Act as being a primary agricultural credit society, the authorities under the IT Act cannot probe into whether agricultural credits were in fact being given by such societies to its members, thereby going behind the certificate so granted. This being the case, the High Court in Chirakkal (supra) held that since all the assessees were registered as primary agricultural credit societies, they would be entitled to the deductions under section 80P(2)(a)(i) read with section 80P(4) of the IT Act.

4. However, the Department contended that the judgment in Chirakkal (supra) was rendered per incuriam by not having noticed the earlier decision of another Division Bench of the Kerala High Court in Perinthalmanna Service Co-operative Bank Ltd. v. ITO and Anr. (2014) 363 ITR 268 (Ker.), where, in an appeal challenging orders under section 263 of the IT Act, it was held that the revisional authority was justified in saying that an inquiry has to be conducted into the factual situation as to whether a co-operative bank is in fact conducting business as a co-operative bank and not as a primary agricultural credit society, and depending upon whether this was so for the relevant assessment year, the assessing officer would then allow or disallow deductions claimed under section 80P of the IT Act, notwithstanding that mere nomenclature or registration certificates issued under the Kerala Act would show that the assessees are primary agricultural credit societies. These divergent decisions led to a reference order dated 09.07.2018 to a Full Bench of the Kerala High Court.

5. The Full Bench of the Kerala High Court, by the impugned judgment dated 19.03.2019, referred to section 80P of the IT Act, various provisions of the Banking Regulation Act and the Kerala Act and held that the main object of a primary agricultural credit society which exists at the time of its registration, must continue at all times including for the assessment year in question. Notwithstanding the fact that the primary agricultural credit society is registered as such under the Kerala Act, yet, the assessing officer must be satisfied that in the particular assessment year its main object is, in fact, being carried out. If it is found that as a matter of fact agricultural credits amount to a negligible amount, then it would be open for the assessing officer, applying the provisions of section 80P(4) of the IT Act, to state that as the co-operative society in question – though registered as a primary agricultural credit society – is not, in fact, functioning as such, the deduction claimed under section 80P(2)(a)(i) of the IT Act must be refused. This conclusion was reached after referring to several judgments, but relying heavily upon the judgment of this Court in Citizen Cooperative Society Ltd. v. Asst. CIT, Hyderabad (2017) 9 SCC 364. Thus, the conclusion of the Full Bench was as follows:

“33. In view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1] it cannot be contended that, while considering the claim made by an assessee society for deduction under section 80P of the IT Act, after the introduction of sub-section (4) thereof, the Assessing Officer has to extend the benefits available, merely looking at the class of the society as per the certificate of registration issued under the Central or State Co-operative Societies Act and the Rules made thereunder. On such a claim for deduction under section 80P of the IT Act, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of section 80P.

34. In Chirakkal [384 ITR 490] the Division Bench held that the appellant societies having been classified as Primary Agricultural Credit Societies by the competent authority under the KCS Act, it has necessarily to be held that the principal object of such societies is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances to be at the rate to be fixed by the Registrar of Co-operative Societies under the KCS Act and having its area of operation confined to a Village, Panchayat or a Municipality and as such, they are entitled for the benefit of sub-section (4) of section 80P of the IT Act to ease themselves out from the coverage of section 80P and that, the authorities under the IT Act cannot probe into any issues or such matters relating to such societies and that, Primary Agricultural Credit Societies registered as such under the KCS Act and classified so, under that Act, including the appellants are entitled to such exemption.

35. In Chirakkal [384 ITR 490] the Division Bench expressed a divergent opinion, without noticing the law laid down in Antony Pattukulangara [2012 (3) KHC 726] and Perinthalmanna [363 ITR 268]. Moreover, the law laid down by the Division Bench in Chirakkal [384 ITR 490] is not good law, since, in view of the law laid down by the Apex Court in Citizen Co-operative Society [397 ITR 1], on a claim for deduction under section 80P of the Income Tax Act, by reason of sub-section (4) thereof, the Assessing Officer has to conduct an enquiry into the factual situation as to the activities of the assessee Society and arrive at a conclusion whether benefits can be extended or not in the light of the provisions under sub-section (4) of section 80P of the IT Act. In view of the law laid down by the Apex Court in Citizen Co-Operative Society [397 ITR 1] the law laid down by the Division Bench in Perinthalmanna [363 ITR 268] has to be affirmed and we do.

36. In view of the law laid down by the Apex Court in Ace Multi Axes Systems’ case (supra), since each assessment year is a separate unit, the intention of the legislature is in no manner defeated by not allowing deduction under section 80P of the IT Act, by reason of sub-section (4) thereof, if the assessee society ceases to be the specified class of societies for which the deduction is provided, even if it was eligible in the initial years.

The question referred to the Full Bench is answered as above. Registry shall list the appeals before appropriate Bench as per roster.”

6. Being aggrieved by the Full Bench judgment, the Appellant assessees are now before us.

7. Shri Shyam Divan, learned Senior Advocate leading the charge on behalf of the assessees, has argued that the advent of section 80P(4) of the IT Act has not led to any change insofar as the Appellant assessees are concerned. He read to us in copious detail the provisions of section 80P, various provisions contained in the Banking Regulation Act, 1949 and the various provisions of the Kerala Act and rules made thereunder, together with the bye-laws of some of the assessees before us. His main argument, based upon the language of section 80P(1) and (2), is that section 80P is a beneficial provision which is meant to further the co-operative movement in India. For this purpose, certain income of a co-operative society, once it is registered under a State Act, becomes deductible from its gross total income. According to him, the moment a co-operative society that is registered as such is engaged in providing credit facilities to its members, the inquiry of an assessing officer stops there. He argued that the Full Bench was wholly incorrect in adding credit facilities related to agriculture, as no such thing is contained in section 80P(2)(a)(i), as contrasted with sections 80P(2)(a)(iii) to (v) of the IT Act. He therefore argued that the moment a co-operative society is registered under the said Act, whatever be its classification, so long as it provides credit facilities to its members – which need not be credit facilities related to agriculture – it is entitled to a deduction contained in section 80P(2)(a) (i) of the IT Act. A distinction must be drawn, therefore, between eligibility for deduction, and whether the whole of the amounts of profits and gains of business attributable to any one or more such activities under the sub-section is to be given. He argued, stating that if credit facilities were given to non-members, for example, such credit facility would not be attributable to the activity of providing credit facilities to members and would, therefore, not be entitled to deduction under section 80P. He also brought to our notice the other provisions in section 80P, such as in section 80P(2)(b), where the Society must be a “primary” society engaged in supplying milk, etc. before it can claim any deduction, which is absent in section 80P(2)(a)(i). He then argued, placing reliance upon the speech of the Finance Minister dated 28.02.2006 moving the amendment to section 80P by introducing subsection (4) thereof, that the object of the amendment was to remove co-operative banks from section 80P(1) and (2) as such banks, like any other commercial bank, are lending amounts to members of the general public and that, therefore, merely by being co-operative banks, should not be entitled to avail of the deductions given under section 80P. According to him, since none of the assessees are co-operative banks licenced by the Reserve Bank of India (“RBI”) to carry on banking business, section 80P(4) has no application. He argued that any inquiry into whether the assessee is a primary agricultural credit society so as to be outside section 80P(4) should not, in any manner, cut down the beneficial provision contained in section 80P(1) and (2), as section 80P(4) is in the nature of a proviso which cannot cut down the main enacting part. In any case, he argued that once a registration certificate stating that the assessee is a primary agricultural credit society is given by the Registrar under the Kerala Act, then short of such certificate being cancelled under the Kerala Act and rules thereunder, the assessing officer, who is an authority for purposes of collection of revenue, cannot possibly go into whether, in substance, the society continues to be a primary agricultural credit society. He relied upon various judgments of this Court to buttress his submissions. He also relied upon a circular, being Circular 14/2006 dated 28.12.2006 containing explanatory notes to the Finance Act, 2006, and the letter of the Central Board of Direct Taxation (“CBDT”) dated 09.05.2008, both of which made it clear that if a co-operative society cannot be said to be a co-operative bank, then the provisions of section 80P(4) would have no application.

8. Shri Diwan’s second broad submission was that the Full Bench of the Kerala High Court completely misread this Court’s judgment in Citizen Cooperative Society Ltd. (supra). He contended that if the judgment is seen closely, all the assessees’ contentions in law were answered in their favour. However, on facts, it was held that since the co-operative society in that case carried on business illegally i.e. by giving loans to nominal members who had no place under the statute under which it was registered, and was also giving loans to the members of the general public, it could not be said to be a co-operative society at all, as a result of which the findings of fact of all the authorities below were not interfered with by the Supreme Court. There was no argument, neither was there any finding by the Court in that case, that the assessing officer is entitled to go behind a certificate given under a particular statute. Indeed, he pointed out that both under the Banking Regulation Act, 1949 and the Kerala Act, if any dispute arose as to classification of a society as being a primary agricultural credit society versus being a co-operative bank, it is the RBI alone who is to decide such dispute under the Banking Regulation Act, 1949, and the Registrar, Co-operative Societies, who is to decide on classification under Rule 15 of the Kerala Co-operative Societies Rules 1969. Thus, according to him, the judgment in Citizen Cooperative Society Ltd. (supra) is directly in his client’s favour on the applicability of section 80P(4), which has been completely missed by the Full Bench.

9. Shri Arvind Datar, learned Senior Advocate appearing on behalf of some of the assessees, supported the submissions of Shri Divan, and argued that all co-operative societies, once they are registered under a State Act, are entitled to deductions under section 80P. The extent of the deduction would depend upon attributability and not eligibility for deduction. Once it is found, having regard to letters issued by the RBI in the present case stating that the Appellants cannot be classified as co-operative banks, and once it is found that licences have not been given to function as co-operative banks, all these societies qualify under section 80P(2)(a)(i) for deductions to be granted, section 80P(4) having no application as they are not and cannot be stated to be co-operative banks.

10. Shri Balbir Singh, learned Additional Solicitor General appearing on behalf of the Revenue, refuted all the arguments made by the learned Senior Advocates for the assessees. According to him, the Full Bench was wholly correct in stating that a mere certificate of registration as a primary agricultural credit society would not avail. For the assessment year in question, the assessing officer has to be satisfied that the assessee is “engaged in” activities as a primary agricultural credit society i.e. in giving loans for agricultural and allied purposes to its members. He read from some of the assessing officers’ orders the fact that loans given for agricultural purposes by the aforesaid societies were negligible, the main business being that of banking, as such loans were given for purposes other than agricultural credit. He also read copiously from the various Acts, rules and bye-laws to buttress his submission that in actual fact, since the Appellants were no longer doing business as primary agricultural credit societies, they would be disentitled to any deduction under Section 80P after the advent of Section 80P(4). According to him, the classification of a cooperative society under the State Act, which is expressly referred to in Section 2(19) of the IT Act, is of primary importance, and once classified as a primary agricultural credit society, it is only if activities relatable to agriculture are carried out that eligibility for deduction would arise in the first place under section 80P(1) and (2). The whole object of section 80P would be defeated if the Division Bench in Chirakkal (supra) was held to be correct in law, as then, despite being engaged in activities other than agricultural credit, a society undeserving of any deduction would still get such deduction contrary to what was sought to be achieved by section 80P(4) of the IT Act. According to him, the Supreme Court judgment in Citizen Cooperative Society Ltd. (supra) was correctly read by the Full Bench, as permitting an assessing officer to get to the real facts of a case in order to conclude as to whether activities of a primary agricultural credit society were, in fact, being carried out in the assessment year in question. For this purpose, he referred to several provisions of the IT Act, which give very vast powers of investigation into the facts of any given case and, in particular, relied upon section 133(6) of the IT Act. He also relied upon several judgments of this Court which would show that mere registration as a primary agricultural credit society is not enough, the expression “engaged in” meaning that there must be a continuing obligation on such society to carry out its main objects from year to year, and if does not do so, it would be disentitled to any deduction under Section 80P(4). He further argued, relying upon judgments of this Court, that the burden is on the assessee to establish by facts, in every assessment year, that it is entitled to the deduction under Section 80P; and if it cannot adduce facts to show that it is in fact carrying on its business as a primary agricultural credit society in the assessment year in question, it would not discharge such burden, and would, therefore, be unable to avail of any deduction under Section 80P. He also relied upon certain RBI Press releases of the year 2017 cautioning the public not to deal with such societies who, though unlicenced, are in fact carrying on banking business.

11. Having heard learned counsel for the assessees as well as for the Revenue, it is first important to set out sections 2(19) and 80P of the Income Tax Act, which read as follows:

“2. In this Act, unless the context otherwise requires,-

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(19). “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any law for the time being in force in any State for the registration of co-operative societies.”

“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 with and subject to the provisions of this section, the sums specified 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 agricultural produce grown by 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) fishing or allied activities, that is to say, the catching, curing, processing, preserving, storing or marketing of fish 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 fishing or allied activities;

(2) the co-operative credit societies which provide financial assistance to the society;

(3) the State Government;

(b) in the case of a 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 milk, oilseeds, fruits, or vegetables, as the case may be; or

(ii) the Government or a local authority; or

(iii) a Government company as defined 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 profits and gains of such business;

(c) in the case of a co-operative society engaged in activities other than those specified in clause (a) or clause (b) (either independently of, or in addition to, all or any of the activities so specified), so much of its profits and gains attributable to such activities as does not exceed,—

(i) where such co-operative society is a consumers’ co-operative society, one hundred thousand rupees; and

(ii) in any other case, fifty thousand rupees.

Explanation.—In this clause, “consumers’ co-operative society” means a society for the benefit of the consumers;

(d) in respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income;

(e) in respect of any income derived by the co-operative society from the letting of go downs or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income;

(f) in the case of a co-operative society, not being a housing society or an urban consumers’ society or a society carrying on transport business or a society engaged in the performance of any manufacturing operations with the aid of power, where the gross total income does not exceed twenty thousand rupees, the amount of any income by way of interest on securities or any income from house property chargeable under section 22.

Explanation.—For the purposes of this section, an “urban consumers’ co-operative society” means a society for the benefit of the consumers within the limits of a municipal corporation, municipality, municipal committee, notified area committee, town area or cantonment.

(3) In a case where the assessee is entitled also to the deduction under section 80HH or section 80HHA or section 80HHB or section 80HHC or section 80HHD or section 80-I or section 80-IA, the deduction under sub-section (1) of this section, in relation to the sums specified in clause (a) or clause (b) or clause (c) of sub-section (2), shall be allowed with reference to the income, if any, as referred to in those clauses included in the gross total income as reduced by the deductions under section 80HH, section HHA, section 80HHB, section HHC, section 80HHD, section 80-I, section 80-IA, section 80J and section 80JJ.

(4) The provisions of this section shall not 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.

Explanation.—For the purposes of this sub-section,—

(a) “co-operative bank” and “primary agricultural credit society” shall have the meanings respectively assigned to them in Part V of the Banking Regulation Act, 1949 (10 of 1949);

(b) “primary co-operative agricultural and rural
development bank” means a society 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.”

12. The relevant provisions of the Banking Regulation Act, 1949, insofar as it has bearing on the facts of these cases are also set out as follows:

“3. Act to apply to co-operative societies in certain cases.—Nothing in this Act shall apply to—

(a) a primary agricultural credit society;

(b) a co-operative land mortgage bank; and

“56. Act to apply to co-operative societies subject to modifications.—The provisions of this Act, as in force for the time being, shall apply to, or in relation to, co-operative societies as they apply to, or in relation to, banking companies subject to the following modifications, namely:—

(a) throughout this Act, unless the context otherwise requires,—

(i) references to a “banking company” or “the company” or “such company” shall be construed as references to a co-operative bank,

(ii) references to “commencement of this Act” shall be construed as references to commencement of the Banking Laws (Application to Co-operative Societies) Act, 1965 (23 of 1965);

(b) in section 2, the words and figures “the Companies Act, 1956 (1 of 1956), and” shall be omitted;

(i) after clause (cc), the following clauses shall be inserted namely:—

(cci) “co-operative bank” means a state cooperative bank, a central co-operative bank and a primary co-operative bank;

(ccii) “co-operative credit society” means a cooperative society, the primary object of which is to provide financial accommodation to its members and includes a co-operative land mortgage bank;

(cciia) “co-operative society” means a society registered or deemed to have been registered under any Central Act for the time being in force relating to the multi-State co-operative societies, or any other Central or State law relating to cooperative societies for the time being in force;

(cciii) “director”, in relation to a co-operative society, includes a member of any committee or body for the time being vested with the management of the affairs of that society;

(cciiia) “multi-State co-operative bank” means a multi-State co-operative society which is a primary co-operative bank;

(cciiib) “multi-State co-operative society” means a multi-State co-operative society registered as such under any Central Act for the time being in force relating to the multi State co-operative societies but does not include a national co-operative society and a federal co-operative;

(cciv) “primary agricultural credit society” means a co-operative society,—

(1) the primary object or principal business of which is to provide financial accommodation to its members for agricultural purposes or for purposes connected with agricultural activities (including the marketing of crops); and

(2) the bye-laws of which do not permit admission of any other co-operative society as a member:

Provided that this sub-clause shall not apply to the admission of a co-operative bank as a member by reason of such co-operative bank subscribing to the share capital of such cooperative society out of funds provided by the State Government for the purpose;

(ccv) “primary co-operative bank” means a cooperative society, other than a primary agricultural credit society,—

(1) the primary object or principal business of which is the transaction of banking business;

(2) the paid-up share capital and reserves of which are not less than one lakh of rupees; and

(3) the bye-laws of which do not permit admission of any other co-operative society as a member:

(ccvi) “primary credit society” means a co-operative society, other than a primary agricultural credit society,—

(1) the primary object or principal business of which is the transaction of banking business;

(2) the paid-up share capital and reserves of which are less than one lakh of rupees; and

(3) the bye-laws of which do not permit admission of any other co-operative society as a member:

Explanation.—If any dispute arises as to the primary object or principal business of any cooperative society referred to in clauses (cciv), (ccv) and (ccvi), a determination thereof by the Reserve Bank shall be final;

(ccvii) “central co-operative bank”, “primary rural credit society” and “state co-operative bank” shall have the meanings respectively assigned to them in the National Bank for Agriculture and Rural Development Act, 1981 (61 of 1981);”

13. So far as the Kerala Act and the rules framed thereunder are concerned, the following provisions are relevant:

Act

“2. In this Act, unless the context otherwise requires,-

(f) “Co-operative Society” or “society” means a Cooperative society registered or deemed to be registered under this Act;

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(l) “member” means a person joining in the application for the registration of a Co-operative society or a person admitted to membership after such registration in accordance with this Act, the rules and the bye-laws and includes a nominal or associate member;

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(m) “nominal or associate member” means a member who possess only such privilege and rights of a member who is subject only to such liabilities of a member as may be specified in the bye-laws;

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(oaa) “Primacy Agricultural Credit Society” means a Service Co-operative Society, a Service Co-operative Bank, a Farmers Service Co-operative Bank and a Rural Bank, the principal object of which is to undertake agricultural credit activities and to provide loans and advances for agricultural purposes, the rate of interest on such loans and advances shall be the rate fixed by the Registrar and having its area of operation confined to a Village, Panchayat or a Municipality;

Provided that the restriction regarding the area of operation shall not apply to Societies or Banks in existence at the commencement of the Kerala Co-operative Societies (Amendment) Act, 1999 (1 of 2000).

Provided further that if the above principal object is not fulfilled, such societies shall lose all characteristics of a Primary Agricultural Credit Society as specified in the Act, Rules and Bye-laws except the existing staff strength.

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(ob) “Primary Credit Society” means a society other than an apex or central society which has as its principal object the raising of funds to be lent to its members;

(oc) “Primary Co-operative Agricultural and Rural Development Bank” means a society 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;

Provided that no Primary Co-operative Agricultural and Rural Development Bank shall be registered without the bifurcation of assets and liabilities of the existing societies having the area of operation in more than one Taluk and the societies shall restrict their operation in the area of the respective society on such bifurcation.”

“3. Registrar.- (1)The Government may appoint a person to be the Registrar of Co-operative Societies for the State.

(2)The Government may by general or special order confer on any person all or any of the powers of the Registrar under this Act.

4. Societies which may be registered.- Subject to the provisions of this Act, a co-operative society which has as its object the promotion of the economic interests of its members or of the interests of the public in accordance with co-operative principles, or a society established with the object of facilitating the operations of such a society, may be registered under this Act:

Provided that no co-operative society shall be registered if it is likely to be economically unsound, or the registration of which have an adverse effect on development of cooperative movement.

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7. Registration.- (1)If the Registrar is satisfied within a period of ninety days from the date of the application —

(a) that the application complies with the provisions of this Act and the rules;

(b) that the objects of the proposed society are in accordance with section 4;

(c) that the area of operation of the proposed society and the area of operation of another society of similar type do not overlap;

(d) that the proposed bye-laws are not contrary to the provisions of this Act and the rules; and

(e) that the proposed society complies with the requirements of sound business, he may register the society and its bye-laws within a period of ninety days from the date of receipt of the application.

(2) Where the Registrar refuses to register a society, he shall communicate the order of refusal together with the reasons therefore within seven days of such order to such of the applicants as may be prescribed.

(3) An application for registration of a society shall be disposed of by the Registrar within ninety days from the date of receipt of the application.

(4) Where an application for registration of a society is not disposed of within the time specified in sub-section (3), the applicant may make a representation,–

(a)before the Registrar, if the application for registration is made to a person on whom the powers of the Registrar is conferred under subsection (2) of section 3; or

(b)before the Government, if the application for registration is made before Registrar,

and the Registrar or the Government, as the case may be, shall, within sixty days from the date of receipt of such representation, issue directions to the authority concerned to take appropriate decision on the application for registration and the authority concerned shall comply with such directions.

8. Registration certificate.- (1)Where a co-operative society is registered under this Act, the Registrar shall issue a certificate of registration signed and sealed by him, which shall be conclusive evidence that the said society is duly registered under this Act.

(2)Notwithstanding anything contained in subsection (1), where the Registrar is satisfied that the original registration certificate is irrecoverably lost and the duplicate certificate could not be issued as the files or records regarding the registration of the co-operative society was lost, after registration, the Registrar shall issue a certificate stating the registration number and date of registration of a cooperative society, on the basis of the details available in the audit certificate and the records available with the Registrar, signed and sealed by him, which shall be conclusive proof that the said society is duly registered and it shall be treated as a certificate of registration.”

Rules

“15. Classification of societies according to types.- After the registration of a society the Registrar shall classify the society into one or other of the following types according to the principal object provided in the bye-laws: