TaxTMI 
TaxTMI 
TaxTMI 
2014 (1) TMI 1080
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....eal documents were mistakenly forwarded to the office of the Sr. Authorised Representative instead of sending the same to the Assistant Registrar, ITAT. It is further submitted that the concerned Income-tax Officer, who was holding additional charge, did not take notice of the above mistake by oversight. Accordingly it is submitted that the delay in filing the appeals was not intentional and accordingly, it was prayed that the delay may be condoned. We heard the parties on this preliminary issue. Having regard to the submissions made in the petitions, we condone the delay and admit the appeals for hearing. 4. The main issue urged in these appeals is whether the Ld. CIT(A) was justified in holding that these assessees are entitled for deduction u/s. 80P(2)(a)(vi) of the Income Tax Act. It may be noticed that the said provision is applicable to a co-operative society engaged in the collective disposal of the labour of its members. The Ld CIT(A) has held that these assessees fall in the category of "Co-operative Society engaged in the collective disposal of the labour of its members". 5. The facts relating to the assessees are stated in brief. All the three assessees are co-operativ....
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....ed bye-law, is to run toddy shops under the license obtained from Excise department. He further submitted that these societies acquire right to tap toddy from coconut trees belonging to agriculturists on payment of a fixed amount. They engage the workers for tapping toddy from the trees. The worker group consists of both members of the assessee societies and also non- members. The workers who are members are paid remuneration based upon their output of toddy. Accordingly he submitted that these societies have generated income from sale of toddy only. The Ld D.R submitted that as per the provisions of sec. 80P(2)(a)(vi) of the Act, the income generated by the Co- operative Societies should be engaged in the collective disposal of labour is deductible. However, in the instant cases, no income is generated on collective disposal of labour, but the income was generated on sale of toddy only. He submitted that mere employment of members as workers cannot be considered as "Collective disposal of labour", as it, per se, does not generate any income. 7.1 The Ld D.R further submitted that these societies are governed by the Kerala Co-operative Societies Act and Rules. Under the said Act, t....
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....p as wages/salary. However, in the instant cases, according to Ld D.R, the intention of these assessees is commercial exploitation of toddy shops only and not collective disposal of labour. He submitted that the employment of members as workers is an incidental activity for these assessees in the course of earning income out of sale of toddy. He further submitted that the resultant profit is not shared by the labourer members alone. The Ld D.R further submitted that the object of introduction of sec. 80P(2)(a)(vi) was explained in the Circular No.72 dated 6th January, 1972 issued by the CBDT, wherein it is, inter alia, clarified as under:- "86. With a view to promoting self help among persons of small means who form co-operative societies for the collective disposal of their labour, or fishing and allied activities, section 80P has been amended by section 22 of the Finance (No.2) Act, 1971 so as to exempt from tax the business income of labour co-operative societies and also co-operative societies engaged in fishing and other allied pursuits......... In order, however, to prevent any possible misuse of the tax concession by those for whom it is not intended, it has been provided t....
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.... the Ld A.R submitted that the provisions of sec. 80P do not bar such kind of purchases, i.e., so long as the society is engaged in collective disposal of labour of its members, there is no restriction in dealing with other persons. The Ld A.R also submitted that there is no requirement to refer to Kerala Co-op Societies Act, so long as the assessee complies with the requirement of Income tax Act. 9. The Ld Counsel for the assessees Shri M.C. Jacob, appearing for the remaining two assessees, submitted that these societies have been formed to take care of financial and social welfare of toddy works within its jurisdiction. The membership is granted only to Toddy tappers, who are recognized by "The Toddy Workers Welfare Fund Board". These persons are given "A" class membership and the voting rights are restricted to "A" Class members only. He submitted that the members themselves locate the coconut trees in their respective Excise Ranges. However, the lease rent (Kallupattam) is paid by the Society. Thereafter the labour of the members is applied in the activity of preparing the leased coconut trees for tapping of toddy. Thus, the members of the society apply their collective labour....
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....ributable 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 co-operative 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 always pre-supposes the possession of something to be disposed of. It is only when collective disposal is made of such a disposable commodity over which the society has control as inhering in its members that the income is directly attributable and to such disposal by the society the benefit is earned. The society cannot be said to have at its disposal, in that manner, the labour of paid employees as they are not its members." (emphasis supplied). Having observed as above the decision went against the assessee- Appellant because: "Since the members themselves did not exert their own labour in the execution of the work but as has been found by the statutory forums, they only confined themselves to overall supervision mostl....
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....not admitted to the benefits of section 80P(2)(a)(vi) because the all 13 members of the Society where class I officers possessing rich technical experience and drawing handsome salary from ONGC. The Society also employed 40 to 60 labourers of daily wages. The Hon. Tribunal held that the principles and intention of the legislation does not warrant the benefit of section 80P(2)(a)(vi) to such a society. f). In the case of Palghat Food Corporation of Indian Labour Contract Co-operative Societies Ltd. (2004) ITR 315 (Kerala), it was a case of the Society formed by labourers for undertaking manual labour for Food Corporation of India. The HC found that it was a labour society. However in that case there was also a dispute about application of the provisions for restriction of voting rights in the bye- law. The High Court directed to Assessing Authority to examine this issue. g). In the Oralungal Labour Contract Co-operative Society case (2010) KHC 59, HC found where the Workers Society undertook civil construction works and were doing the work themselves, answers the activity referred to in Section 80P(2)(vi)." 9.3 With regard to the reference made by Ld D.R to the Kerala Co-op Socie....
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.... well known. It is meant for those actual workmen / labourers, who form a co-operative society and derives income from collective disposal of labour of its members and not meant for those ancillary industrial units constituted by highly paid technical experts and skilled persons, who regularly employ large number of daily wage earning labourers for carrying out the technical job work of drilling of oil wells with the aid of sophisticated machineries like drilling rigs etc. In order to be eligible for grant of this exemption, the "activity of the collective disposal of labour of its members" should be the sole or the main profit making apparatus, as distinguished from the income derived by the appellant society from the composite and indivisible activities of (i) providing the highly technical knowledge and experience, the technical knowhow, the technical expertise and specialized professional skill of its members who are Class-I officers of ONGC, (ii)......" 10.1. From the principles discussed in the above cited two decisions, it may be clear that, in order to claim deduction u/s 80P(2)(a)(vi) of the Act, it is imperative that the earning of the society must have been through util....
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....ns made by the assessing officer, the main objectives of the society, as found in the registered bye-laws, are to run toddy shops under licence obtained from Excise department, purchase implements for tapping toddy for use of members; arrange buildings, furniture and vehicles for setting up toddy shops etc. The assessing officer has also noticed that the main activity of the assessees was found to be procuring and selling toddy. Thus, according to the assessing officer, the profit earning activity of the assessees is trading in toddy. 12. The contention of the assessees is that the toddy is procured by labour of its members and hence there is collective disposal of labour. According to the assessees, the members are specialized in a particular discipline, i.e., tapping of toddy. The society has applied the labour of its members directly to take the coconut trees on lease and prepare them for tapping. In that process, the society has obtained a disposable commodity, i.e., toddy, over which the society has control. Thus, according to the assessees, the toddy is the outcome of deploying the labour of its members and hence there is collective disposal of labour. 12.1 However, the sai....
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....ns of sec. 80P(2)(a)(vi) uses the terminology "the collective disposal of labour of its members". The word "labour" has not been defined in the Act. The Ahmedabad bench of Tribunal has extracted the definition of the word "labour" as given in the Webster's new Twentieth Century Dictionary Unabridged second edition at page 1010 as under in the case of Orient Borewell Co-operative.... (supra):- Labor, n.L Labor, Labor, exertion, hardship pain 1. Physical or mental exertion; work; toil 2. a specific task; piece of work 3. All wage-earning workers; distinguished from capital or management. All manual workers whose work is characterized largely by physical exertion; distinguished from white-collar or professional workers. Having considered the above said definition, the Tribunal has observed that it is meant for those actual workmen / labourers, who form a co-operative society and derives income from collective disposal of labour of its members. The Hon'ble Orissa High Court has taken the view in the case of Nilagiri Engineering Co-operative Society Ltd that the labour need not always be manual. However, in the instant case, according to Ld A.R, the labour exerted by the members is....
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....s have been carrying on the business of sale of toddy and in that process they have only generated employment opportunities to its members and have ensured that the members get reasonable amount as wages. Thus, in our view, the employment opportunity generated to its members cannot be considered as "Collective disposal of labour". Further, the "Collective disposal of labour", per se, has not generated any income to these societies. On the contrary, these societies have earned income only on sale of toddy, which is a naturally obtained product from coconut trees. 14. The parties have invited our attention to the two decisions rendered by the Hon'ble jurisdictional Kerala High Court. In the case of Palghat Food Corporation Ltd (266 ITR 315)(Ker), the members of the Co-operative society were labourers and the society undertook contract with Food Corporation of India. The members themselves executed the labour work taken on contract. Thus, it can be seen that, in this case, the society has taken labour contract works and the society earned income on execution of labour contract by utilizing the labour of its members. Hence there was collective disposal of labour. 14.1 In the case of ....
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....going discussions, in our view, these assessees cannot be considered as Co-operative societies engaged in the collective disposal of labour of its members as contemplated u/s 80P(2)(a)(vi) of the Act. Accordingly, we are unable to agree with the view expressed by Ld CIT(A) in all the three cases. Accordingly, we set aside his order on this issue in all the three cases. 18. The Ld D.R also contended that the voting power was not restricted to the three classes of persons listed out in the proviso to sec. 80P(2)(a) of the Act. There is not dispute between the parties that the compliance of the condition stated in proviso to sec. 80P(2)(a) is essential to avail deduction u/s 80P of the Act. According to the assessees, they have complied with the conditions prescribed in the proviso, cited above. However, since we have taken the view that these assessees cannot be considered as having generated income out of collective disposal of labour, we do not find it necessary to address the issue relating to the voting rights. 19. In all these three cases, the AO had made certain additions. In the case of M/s Nileswar Range Kallu Cheth Vyavasaya Thozhilali Sahakarana Sangam, the AO had made ad....