Labour-based co-operative construction work qualifies for deduction where material purchases are only incidental to the contracts.

A co-operative society engaged in civil construction was treated as carrying on the collective disposal of members' labour for purposes of section 80P(2)(a)(vi), because labour remained the dominant element of the work contracts. Incidental purchase or handling of construction materials did not, by itself, take the activity outside the deduction where the overall business was labour-based. The Revenue's reliance on a Kerala High Court decision was distinguished on facts, as that case involved toddy business rather than labour-intensive construction work. On this basis, deduction under section 80P(2)(a)(vi) was sustained.

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Issues: Whether the assessee-cooperative society was entitled to deduction under section 80P(2)(a)(vi) of the Income-tax Act, 1961 on income arising from execution of work contracts involving purchase of construction materials, and whether the Revenue's reliance on a different Kerala High Court decision displaced the view taken in the assessee's favour.

Analysis: The income in dispute arose from civil works undertaken by the society in which labour of members was the dominant element. The receipt of material-related component did not, by itself, take the activity outside the scope of collective disposal of labour where the overall business was labour-intensive and the purchases were incidental to execution of the contracts. The decision relied upon by the Revenue was treated as factually distinct because the assessee there was engaged in toddy business and not in labour-based civil construction work. The earlier decision approving deduction on entire income in a labour contract society was held to be more apposite on the facts.

Conclusion: The assessee was held entitled to deduction under section 80P(2)(a)(vi), and the Revenue's challenge to the deletion of the disallowance failed.

Ratio Decidendi: Where a co-operative society's dominant activity is the collective disposal of its members' labour in civil construction work, incidental handling or purchase of materials does not defeat deduction under section 80P(2)(a)(vi) if the overall activity remains labour-based.

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