In a decision that could have far-reaching implications for the urban cooperative banking sector in India, the Madras High Court has granted a historic verdict. The ruling asserts that Civil Cooperative Banks, registered under the Maharashtra Co-Operative Societies Act of 1960, should be eligible for the tax exemption provided by Section 80(P)(2) of The Income-tax Act, 1961. This decision marks a significant turning point for these banks, previously denied this exemption since April 1, 2007.
Civil Cooperative Banks, initially established as cooperative societies and later recognized as banks under the Co-operative Act, play a vital role in the financial landscape. Licensed by the Reserve Bank to conduct banking activities under the Banking Regulation Act, these banks faced a setback in 2007 when the Central Government revoked their tax exemption under Section 80(P) of the Income Tax Act. The rationale behind this move was the assertion that civic banks engage in banking activities similar to other commercial banks.
However, the recent judgment from the Madras High Court challenges this stance. The court, responding to a case filed by two civil cooperative banks, emphasized that since civic cooperative banks are the initial cooperative societies, they should be entitled to relief under Section 80(P)(2)(d) of the Income Tax Act. This specific section exempts the interest earned on investments made by one co-operative society in another, a provision that was previously denied to civic cooperative banks by the Income Tax Department.
Vidyadhar Anaskar, an expert in administration and banking at the Maharashtra State Co-operative Bank, sees this decision as a potential game-changer. He commented, “If the stand taken by the single bench of the Madras High Court is sustained in the future, civil cooperative banks may be exempted from several oppressive amendments in the Banking Regulation Act, 1949.”
The significance of this decision is underscored by the ongoing legal proceedings challenging amendments to the Banking Regulation Act made by the Central Government in 2020. Anaskar notes that claims filed by various cooperative banking bodies and banks across different states are currently being heard collectively in the respective High Courts.
This landmark verdict not only offers a glimmer of hope for tax relief for civil cooperative banks but also opens the door for potential changes in the regulatory landscape. As the legal battles continue, the implications of the Madras High Court’s decision are likely to resonate across the cooperative banking sector in India.
