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2015 (9) TMI 506 - KERALA HIGH COURT

2015 (9) TMI 506 - KERALA HIGH COURT - [2016] 380 ITR 34 - Benefit of deduction under section 80P(2)(a)(vi) denied - CIT(A) allowed claim - whether the appellant societies cannot be considered as co-operative societies engaged in the collective disposal of labour of its members as contemplated under section 80P (2) (a) (vi) of the Act and therefore, ineligible for deduction under section 80P (1) as held by ITAT? - Held that:- The collective disposal of the labour of the members of the society is .....

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rough the society's own toddy shops. When that is the activity of the society, it cannot be said that the sum referred to in section 80P(1) entitling the society for deduction is generated out of the collective disposal of the labour of the appellant societies.

For the aforesaid reasons, the Tribunal is fully justified in holding that the appellant societies are not eligible for the benefit of section 80P(2)(a)(vi) - Decided in favour of the Revenue - I.T.A. Nos. 141, 145 & 146 of 20 .....

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assessment year 2008-09 while ITA.399/13 pertains to the assessment year 2009-2010. 2. In the returns filed by the societies, they claimed the benefit of deduction under section 80P (2) (a) (vi) of the Income Tax Act. Denying that claim, the Assessing Officer completed the assessments. Appeals were filed before the Commissioner of Income Tax (Appeals). The Commissioner, in Annexure B orders, upheld the claim of the societies for the deduction in question and set aside the orders of the Assessin .....

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circumstances of the case, the Tribunal was right in setting aside the order of the first appellate authority and in holding that the appellant societies cannot be considered as co-operative societies engaged in the collective disposal of labour of its members as contemplated under section 80P (2) (a) (vi) of the Act and therefore, ineligible for deduction under section 80P (1) of the Act. 5. Section 80P to the extent it is relevant reads thus: "80P. Deduction in respect of income of cooper .....

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........ (vi) the collective disposal of the labour of its members, or (vii) ....... ......... the whole of the amount of profits and gains of business attributable to any one or more of such activities: Provided that in the case of a co-operative society falling under sub-clause (vi), or sub-clause (vii), the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely:- (1) the individuals who contribute their labour or, as the case may be, carr .....

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he society. The scope of this provision came up for consideration of the Orissa High Court in the judgment in Nilagiri Engineering Co-operative Society Ltd. v. Commissioner of Income Tax [(1994)208 ITR 326]. The appellant therein was a society, the membership of which was confined to unemployed diploma holders and graduates in Engineering. During the assessment year in question, the society had undertaken some contract works. But so far as the member engineers were concerned, their contribution .....

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to the consideration of the proper meaning of the provision of section 80P(2) (a)(vi). It is candidly admitted by learned counsel for both sides that there are no decided cases on the question. The eligibility to earn exemption is where the whole amount of profits and gains of a business is attributable to the collective disposal of the labour of its members. The words are very clear and only mean that the earning of the society must have been through utilisation of the actual labour of its mem .....

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earning may be said to be attributable to dispensation of labour of the members directly. Similarly, if the members belong to any other discipline, the work executed in actual application of the discipline would be disposal of labour of the members. On the other hand, if the members are manual labourers as in a labour contract service cooperative society, and the work undertaken is executed by the manual labour of the members, the whole of its income would be exempted. A power of disposal alway .....

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n of the work but as has been found by the statutory forums, they only confined themselves to overall supervision mostly at the office like any other prudent businessmen, it has to be taken that the speciality of their discipline was never put to labour in the execution of the work. In other words, as has been rightly submitted by Mr.Roy, learned standing counsel, there has been no direct proximate connection between the work executed and the speciality of the members of the society as diploma h .....

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ts members the income has been earned from labour employed by the society or out of the benefit of any capital available with the society it would not come under clause (vi) though it may fall under any other clause so that in the present case, the income actually derived from the labour of the members of the assessee would be exempt but not any income derived as a result of investment of capital or execution of any jobs by employed labour." The decision, according to us, indicated the corr .....

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before this Court. Repelling the challenge, this Court held thus: ". . . . . . . However, after going though the Tribunal's order and after considering the constitution and nature of activities of the respondent - Society, we feel the Society is entitled to deduction under S.80P(2)(vi) on the entire income because in the first place, all the members of the Society are workers and they engage themselves in the execution of civil works undertaken by them. There is no case for the departme .....

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ities, then the Society itself should be held to be engaged in collective disposal of labour of its members. Therefore, the income earned from construction work qualifies for deduction under S.80P(2)(vi) of the Act. The remaining issue is only with regard to the trading done in construction materials like sand which are stated to have been purchased and sold by the Society. Here again, the transactions are incidental in nature and the members themselves are engaged in handling of the goods in th .....

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of India Labour Contract Co-operative Society Ltd. [(2004) 266 ITR 315] and Madras High Court in Commissioner of Income Tax v. Salem District Printers Service Industrial Cooperative Society Ltd. [(2007) 290 ITR 371], we find that the controversies resolved in these cases are not helpful for the purpose of disposal of these appeals and therefore, we are not making any reference to those judgments. 10. Reading of the judgments of the Orissa High Court and this Court make it clear that the earning .....

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f the provisions in the above line, we shall now refer to the facts of these appeals. Facts of these cases are all similar. In the assessment order produced as Annexure A in I.T.A.141/14, the Assessing Officer has entered the following finding: "8. The members of the society are also working as employees and are being paid remuneration based on their output of toddy. The assessee is not a labour contract co-op society. The main objectives of the Society as per registered bye laws are to run .....

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e difference between the purchase price per litre of toddy and the compensation per litre of toddy procured from members is marginal. The main activity of the assessee is doing business of procuring and selling toddy and thereby making profit. The profit is not seen utilized for the immediate benefit of the members. For all these reasons the assessee cannot be considered to be a Society engaged in the collective disposal of labour of its members or in any other activity as is mentioned in sectio .....

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ced that the toddy has been purchased from non-members also. Though, there is some merit in the contention that there was collective disposal of labour while tapping the toddy, yet the fact remains that the tapping of the toddy, per se, has not generated any income to these societies. Thus these assessee societies have not generated income from the activity of tapping of toddy, which might involve collective disposal of labour. In fact, these societies have generated income only through sale of .....

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the activity of tapping the toddy and through that process, these societies have only ensured that the members earn reasonable wages. Thus, in our view, these societies have only generated only employment opportunities to its members. 13.4 It is not the case that these societies have engaged themselves in the business of tapping of toddy by utilizing the labour of its members and in that process they have earned income, in which case, it can be said that they have earned income on "Collect .....

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these societies. On the contrary, these societies have earned income only on sale of toddy, which is a naturally obtained product from coconut trees." 13. We have also gone through the bye-laws of the society. The factual findings of the Assessing Officer, which was confirmed by the appellate Tribunal show that though membership of the society is confined to persons who are enrolled as members of the Toddy Workers Welfare Fund Board and are toddy tapers, for the toddy that are tapped and de .....

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