THIRUVANANTHAPURAM: With primary cooperative banks and societies agreeing to adopt KYC norms, the advantage has shifted towards the Income Tax Department. During the last two years the IT Department has issued notices to 5600 cooperative bodies in the state seeking information about depositors but only 800, or less than 15 percent, had responded. Coop banks in Kozhikode were the most cooperative. “800 notices were issued to banks in the district and 200 responded. The response from other districts is better left unsaid,” a top IT official said. Attempts of IT sleuths to enter certain cooperative banks were met with stiff, at times violent, opposition.
Cooperative banks have always sought cover under law, saying that primary societies are exempted from the provisions of IT Act. The IT Department, in turn, has argued that cooperative banks could no longer claim entitlements under the Act. It is Section 80 (P) of the IT Act that confers exemptions on cooperative bodies. Under the law, banks, post offices and most financial institutions should automatically deduct tax if the annual interest is above Rs 5000 for some, and Rs 10,000 for others. Primary cooperative societies need not bother as they have the cover of Section 80 (P).
The IT Department agrees, but has a nuanced interpretation of Section 80 (P). “The income tax exemption is for primary agricultural credit societies that serves farmers exclusively and offers loans for agriculture-related activities. But when IT officials made an extensive check it was found that these societies function more like other banks. Nearly 80 percent of their credit is for non-agricultural purposes, like housing loans, business loans, commercial loans and the like” a top IT official said.
Primary cooperative service banks, though they have ‘banks’ in their names, have registered themselves as primary cooperative credit societies under Kerala Cooperative Societies Act. Therefore, they are not regulated under the Banking Regulations Act. Information from banks that adhere to the BR Act is easy to secure for the IT Department. Finance Act 2003 had made it mandatory for such banks, even corporate firms and property registrars, to inform the IT Department about transactions over a specific limit. This has to be filed in the form of annual information return (AIR). Banks should inform any deposit of over Rs 10 lakh or any credit card deal over Rs 2.5 lakh to the IT Department by filing AIRs. PACS were exempted from such stipulations, too.
