2.1 Query:

Applicability of Taxation Laws (Amendment) Act, 1991, to Co-Operative Societies.

1. The Taxation Laws (Amendment) Act, 1991, provided for 75% restriction on deduction in respect of depreciation on assets. The querist has sought the opinion of the Expert Advisory Committee on the following issues arising from the said amendment:

(a) Whether the said amendment is applicable to an industrial unit registered under the Co-operative Societies Act, in which the State Government and National Co-operative Development Corporation jointly hold more than 90% of its paid-up share capital.

                        (b)            Whether the said amendment is applicable in the assessment year 1991-92.

(c) The co-operative society in question is following written down value (WDV) method for charging depreciation at the rates prescribed in the Income-tax Act and the rules made thereunder. Can the co-operative society prepare its fixed assets and depreciation schedules at the rates arrived at after 25% cut in depreciation?

                                                             Opinion                                 January 20, 1993

1.  The Committee notes that the Taxation Laws (Amendment) Act, 1991, provided that “in the case of all companies the deduction in relation to any block of assets in respect of the previous year relevant to the assessment year commencing on 1.4.1991 shall be restricted to seventy five percent of the amount calculated at the percentage prescribed under the Income-tax Act immediately before the commencement of the Amending Act, 1991.” [emphasis supplied]

2. The Committee notes that Section 2 (17) of the Income-tax Act, 1961, defines the term ‘company’as follows:

                        “(17)            ‘company’ means –

                                    (i) any Indian company, or

(ii) any body corporate incorporated by or under the laws of a country outside India, or

(iii) any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1^st day of April, 1970, or

(iv) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company:

Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1^st day of April, 1971, or on or after that date) as may be specified in the declaration.”

3. On the basis of the above, the Committee is of the view that a co-operative society will not be covered by the definition of the term ‘company’ unless it falls under category (iii) or (iv) of Section 2(17) reproduced above.

4. On the basis of the above, the Committee is of the following opinion in respect of the issues raised in the query:

(a) The restriction on the deduction in respect of depreciation will not apply to the co-operative society, unless it falls in Section 2(17) (iii) or (iv) of the Income-tax Act, 1961.

                        (b)            Yes.

(c) The society should provide full depreciation, calculated as per the method and rates being consistently followed by it, in its books of account, and should prepare its fixed assets and depreciation schedules accordingly, irrespective of the fact whether the said amendment is applicable to the society or not.

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