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M/s Jai Amba Co-op Labour & Construction Society Versus The Income Tax Officer Ward-2 Panchkula

2015 (5) TMI 1042 - ITAT CHANDIGARH

Disallowance claimed under section 80P(2)(a)(vi) - assessee society is registered with the Assistant Registrar of Co-operative Societies, Naraingarh - Held that:- As per the provisions of section 80P(2)(a)(vi) of the Act, eligibility for deduction is available where the profit and gains of the co-operative society is attributable to the collective disposal of the labour of its members. The above provision is meant for grant of exemption to labour oriented co-operative societies constituted by th .....

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the whole amount of profits and gains of a business is attributable to the collective disposal of the labour of its members. The Hon’ble High Court further observed that in the said case the works undertaken by the society was executed by deployment of outside labour through sub-contractors and the members acted like any other businessmen and therefore the assessee was not entitled to benefit under section 80P(2)(a)(vi) of the Act.

Considering the entire facts and circumstances of the .....

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and labourers who are not members of the society nor those employee and labourers were having any voting rights of the society. - Decided against assessee - ITA No. 24/Chd/2015 - Dated:- 28-5-2015 - SHRI H.L.KARWA, VICE PRESIDENT For the Appellant: Shri Tej Mohan Singh For the Respondent: Shri S.K. Mittal ORDER PER H.L.KARWA, VP This appeal filed by the assessee is directed against the order of CIT(A), Panchkula dated 12/11/2014 relating to assessment year 2008-09. 2. In this appeal the assesse .....

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illegal, arbitrary and unjustified. 3. That the Ld. Commissioner of Income Tax (Appeals) has further erred in upholding the charging of interest under section 234B & 234C of the act which is not chargeable in the facts of the case. Ground No. 1 & 2 3. Vide Ground No. 1 & 2 of the appeal the assessee has challenged the action of Ld. CIT(A) in confirming the disallowance of ₹ 4,05,733/- claimed under section 80P(2)(a)(vi) of the Income Tax Act, 1961(in short the Act ). 4. Briefl .....

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reply dated 06/12/2010 stated that the prime objective of the labour and construction society is to promote the economic interest of manual labour, skilled workers for the purpose of obtaining and execution of contracts of public or private work. The society is operating strictly under a frame work of by laws and provisions under the Co-operative Societies Act. The society is labour and construction society and claimed deduction under section 80P(2)(a)(vi) of the Income Tax Act, 1961 which prov .....

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engaged in the execution of civil contract. According to him, it cannot be said that the earning of the society through utilization of the particular kind of labour in which the members are specialized. The AO observed that the salary have been paid to non members namely S/Shri Vikas, Balram, Roop Chand, Krishna and Hari. S/Shri Vikas, Balram, Roop Chand, and Krishna are engaged as supervisor and Hari was engaged as chowkidar. As per the Income & Expenditure Account, the assessee society pai .....

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O concluded that no plausible explanation was offered by the assessee regarding its claim made under section 80P(2)(a)(vi) of the Act. Consequently, AO held that the assessee society is not eligible for deduction under section 80P(2)(a)(vi) of the Act. 5. Aggrieved by the order of Assessing Officer, the assessee carried the matter in appeal before CIT(A). The main contention before the CIT(A) was that the assessees society comprises of 11 members, out of which 2 members namely Smt. Renu Mahajan .....

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bers alone. Accordingly it was submitted that the assessee society is entitled to deduction under section 80P(2)(a)(vi) of the Act. 6. The Ld. CIT(A) rejected the claim of the assessee for the reasons stated in para 4.3 to 4.6 of the impugned order, which read as under: 4.3 I have gone through the facts of the case and written submissions filed by the appellant. It is noted that the appellant is a registered society as labour and construction society with 11 members. Out of 11 members, 3 members .....

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8377; 3,90,000/- in addition to other sundry expenses. This shows that the contract work undertaken by the appellant is not solely undertaken by the members of society but by engagement of other labourers. The appellant has also not been able to explain with evidences that the profit earned by the society is due to collective disposal of the labour of its members. Although, the appellant is duly registered as Labour & Construction Society, it has formulated byelaws and the object of the soci .....

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of the labour of its members. In this regard, the decision given by Hon ble High Court of Orissa in the case of Nilagiri Engg. Company-operative Society Ltd. Vs. CIT 208 ITR 326 is referred wherein the Hon ble High Court held as under:- As regards the benefit u/s 80P(2), 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 t .....

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to overall supervision mostly at the office like any other prudent businessman. It had to be taken that the speciality of their discipline was never out to labour in the execution of the work. There had been no direct proximate contention between the work executed and the speciailty of the members of the society as diploma holders or graduate engineers. Thus, the decision of the Tribunal was to be upheld. Thus, the work undertaken by the society was executed by deployment of outside labour throu .....

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AO in rejecting the claim u/s 80P(2)(a)(vi) was upheld as no proper explanation for the claim was submitted before the AO. Further, reliance is placed on the decision given by Hon ble ITAT, Ahmadabad in the case of Orient Borewell Cooperative Society Ltd. V. ITO [1991]39 ITD 557 wherein the Hon ble ITAT held that in order to be eligible for grant of exemption u/s 80P(2)(a)(vi), the activity of the collective disposal of labour of its members should be the sole or the main profit making apparatus .....

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en byelaws and objects of the society does not entitle the appellant for claim of deduction. Therefore, the AO was justified in denying the claim of deduction u/s 80P(2)(a)(vi) of the Act. These grounds of appeal are dismissed. 7. Before me Shri. Tej Mohan Singh, Ld.Counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that the assessee society was formed as Haryana Government issued a notification whereby preference and concessions were acco .....

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urer of the Society. Both these members were working in honorary capacity. He therefore submitted that the assessee society satisfies the condition of the Section 80P(2)(a)(vi) of the Act and as such is entitled to deduction. The Ld. Counsel for the assessee further submitted that the decision cited in the impugned order by the Ld. CIT(A)are not applicable to the facts and circumstances of the present case. He, therefore submitted that the order of the Ld. CIT(A) is not sustainable in law and th .....

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ved that where the assessee co-operative society consisted of individual, firms and other associations of persons as members used its resources, procured work and got the work done by its members, the assessee co-operative society is engaged in collective disposal of the labour of its members and eligible for deduction under section 80P(2)(a)(vi) of the Act. In view of the above Ld. Counsel for the assessee submitted that the appeal of the assessee may be allowed. 9. Ld. DR strongly defended the .....

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onomic interest of manual labourers, skilled workers for the purpose of obtaining and execution of contracts of public or private work. In the return of income the assessee claimed deduction under section 80P(2)(a)(vi) of the Act in respect of the claim of co-operative societies engaged in the collective disposal of the labour of its members. It is claimed that the society primarily engaged in the construction work with Govt. and Semi Govt. Department. The contract is procured through quotation .....

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p Chand Supervisor 5500.00 4. Krishna Supervisor 8000.00 5. Hari Chowkidar 6000.00 The assessee society has executed work contract of Government & Semi Government organization during the relevant assessment year. The work of such organizations are being executed at a large scale and the payments are released partly according to nature of work. The assessee has submitted the list of members of society containing complete details and addresses duly certified by Auditors of the co operative soc .....

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he assessee is that the entire income earned by the society is attributable to the activity of collective disposal of the labour of its members and therefore assessee should be granted total exemption under section 80P(2)(a)(vi) of the Act. The relevant provisions of Section 80P read as under:- Deduction in respect of Income of co-operative societies. 80P. (1)Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section(2), .....

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lip;…… 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, carry on the fishing or allied activities; From the above provisions, it is clea .....

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who formed a co-operative society and derived income from collective disposal of labour of its members and not meant for those contractors who regularly employ large numbers of daily wages earning labourers for carrying out construction work of Govt. or Semi Govt. Department. In order to eligibility for grant of exemption under section 80P(2)(a)(vi) of the Act, activity of the collective disposal of labour of its members should be the sole or the main profit making apparatus, as distinguished f .....

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k. Smt. Renu Mahajan was the President of the society and was looking after the administrative work while Ms. Nalini Mahajan was the treasurer of the society. Both these members were working in honorary capacity. It is an admitted fact that wages have been paid to other labour personnel also as the contracts awarded could not be executed completely by the members alone. The AO has categorically stated that as per muster roll the wages have also been paid to the persons who are not members of the .....

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ur co operative society from the activity of collective disposal of labour of its members. The contract work undertaken by the society was not solely executed by the members of the society but by engagement of supervisor(s), chowkidar and daily wages earning labourers who are not members of the society. Besides this two members of the assessee society namely Smt. Renu Mahajan and Ms. Nalini Mahajan were not engaged in labour work. Smt. Renu Mahajan was the President of the society and was lookin .....

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r force. In my opinion the assessee society is not eligible for exemption under section 80P(2)(a)(vi) of the Act. 12. It is observed that both the authorities below have relied on the decision of Hon ble Orissa High Court in case of Nilagiri Engineering Co-operative Society Ltd. Vs. CIT and Others 208 ITR 326, wherein, the Hon ble High Court has categorically held that as regard to benefit under section 80P(2)(a)(iv) of the Act, eligibility to earn exemption is where the whole amount of profits .....

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