# Ajayan | It is a hurricane of income-tax notices being slapped on several Kerala’s co-operative societies, plunging them into a crisis of staggering proportions. With tax demands looming, society officials are in a frantic scramble to extricate themselves from the suffocating grip of massive arrears. The very foundations of these primary societies tremble under the weight of these relentless demands, leaving them gasping for relief from a crisis that has grown due to their own handiwork.
The cooperative sector in Kerala holds a formidable 40 per cent share in the State’s banking business, with deposits soaring beyond a staggering Rs 2.5 lakh crore.
Tax experts paint a grim picture of several embattled co-operative societies making it a daily routine filing appeals for tax rebates. Shockingly, they admit that several of these institutions, operating in blatant violation of regulations, do not even possess a Permanent Account Number (PAN), yet have been engaging in full-fledged banking activities with impunity. To make matters worse, auditing, an exercise meant to ensure financial integrity, has been reduced to a mere formality resulting in a financial freefall.
These institutions were originally envisioned as lifelines for rural farmers, designed to foster self-sufficiency and financial security within a defined community. This very purpose explains the territorial boundaries of each Primary Agricultural Cooperative, ensuring that only residents of a particular area could become members and reap its benefits. Whether it was access to a fertilizer store, a short-term loan to tide over difficult times, or even a modest grocery shop offering essentials or a Neethi medical store, these cooperatives were meant to serve as a safety net, shielding farmers from financial distress and market uncertainties.
But the chasm between noble intent and stark reality is astonishingly vast. What were meant to be grassroots financial support systems have now morphed into unregulated banking entities, brazenly flouting the rules. Masquerading as legitimate financial institutions, these primary co-operative societies have been accepting hefty deposits, disbursing loans and even running chit funds. Norms of credit-deposit ratio which reflects the percentage of a bank’s total deposits lent out as loans, have been flouted. This explains why depositors have to wait for long to withdraw money as there is a financial crunch.
Worse still, they have become lucrative sanctuaries for deep-pocketed investors to park their wealth, reaping massive interest earnings that conveniently slip through the cracks of the Income Tax net. With no Tax Deducted at Source (TDS) in place, these shadow banks allow wealth to grow unchecked while the spirit of cooperation is left in ruins.
A part of these huge deposits, interest earned from loans and profit from fertilizer and grocery stores are deposited mostly in government treasury and the Kerala Bank and its district banks, which is as per norms. Legal experts admit that some of this is also kept with selected private banks. But the rule is that the Income-Tax department should be kept in the loop about these transactions.
Every norm, from the fundamental principle of area restrictions for primary cooperatives to regulatory oversight, is being trampled upon. However, the veil of secrecy is slowly lifting, and the long arm of the law is beginning to tighten its grip. The Income Tax Department, now peeling back the layers of these clandestine operations, is invoking Section 68 of the Income Tax Act, 1961, slapping hefty surcharges on these wayward cooperatives. Under this provision, any sum recorded in the books as loans or borrowings, without a credible explanation of its nature or source, falls under the scanner. If the assessing officer deems the justification inadequate, the amount is treated as unexplained cash credit and taxed accordingly.
Now, it is the cooperatives scrambling to pay 20 per cent of the tax in a desperate bid to seek refuge under Section 80P of the Cooperative Societies Act. This provision, a lifeline for registered societies, offers deductions on profits and gains derived from their specified activities. But with financial mismanagement laid bare and regulatory scrutiny tightening, the question looms; can these embattled institutions still claim the privileges meant for genuine cooperatives, or is the curtain finally falling on their era of unchecked exploitation?