Union Finance Minister Arun Jaitley on Friday said no income tax exemption would be provided to profit-making cooperative banks, adding that they should be treated at par with commercial banks, owing to their method of functioning.
Jaitley, during the Question Hour of the Lok Sabha session earlier this morning said the exemption would not be allowed, as cooperative and commercial banks function in a similar manner. The principle of mutuality, therefore, would not apply to them as their area of operations extends to non-members.
"The principle of mutuality is central to granting exemption under Section 80P of the Income Tax Act. Income tax is a tax on profits and there is no rationale for exempting profit-making cooperative banks from payment of income tax," he said.
Further, Jaitley argued that most cooperative banks provide standard banking facilities like opening of letters of credit, lockers and safe deposit vaults, and therefore, must be treated as commercial banks itself.
On a related note, Section 80P of Income-Tax Act, 1961 deals with deduction of tax in respect of income of co-operative societies. As per the norms of this legislation, if the gross total income includes any income related to cottage industries, marketing of agricultural produce grown by its members, fishing and other such activities, there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified as per law in computing the total income of the assessee.