Author : Pramod Jain*
Relevant Provisions: Through the Companies (Amendment) Act, 2002 which became effective from 6-2-2003, section 581J has been introduced in the Companies Act, 1956 whereby inter-state Co-operative Societies have been given an option to become Producer Companies.
Issue: The question that arises is that should such inter-state Co-operative Societies opt to become a Producer Company?
Discussion: The concept of Producer Companies has been introduced through the Companies (Amendment) Act, 2002. The main object to do so is to facilitate formation of cooperative business as companies and to convert existing cooperative business into companies.
The benefit of conversion can be availed only by those inter-state Co-operative Societies whose main object is to produce, process, manufacture and sell primary produce as well as allied matters. All the special features of mutual assistance and cooperative principles have been taken care of within the more liberal regulatory framework afforded by the Company Law with suitable adaptions.
From the above it seems that such societies should invariably opt for such conversion. But it is not so.
These Cooperative Societies are entitled to deduction of 100% of their profits under section 80P of the Income-tax Act, 1961. But on opting for such conversion they will have to pay income tax on whole of their profits. This is so because deduction under section 80P is available only to a Co-operative Society and not to any other entity say firm, individual or a company. This deduction to producer companies was not extended, even in the Budget 2003.
Hence, such inter-state Co-operative Societies should not opt for such conversion and should, instead, wait till a favourable amendment is made in 80P, whereby the benefit of 100% deduction of profits is extended to Producer Companies established under under Part IXA of the Companies Act 1956.
1. This article was authored prior to the passing of the Finance Bill, 2003 by the Parliament.
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*The author is a Delhi based Chartered Accountant. For any clarification or discussion on this article, the author can be contacted at A2/132, Prateek Apartments, Paschim Vihar, New Delhi - 110 063, Ph. : (011) 25278405/6; E-mail : ca@lunawat.com
