TaxTMI 
TaxTMI 
2017 (8) TMI 1389
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....oard, bye-law etc., the AO held , inter alia, that the assessee's board consists of 11 members viz., women members 3, schedule caste/schedule tribes 2, nominee of NLC 4, MD (Senior Officer) 1, other member 1, and the NLC may at any time withdraw any nominee so nominated to fill up the vacancy or vacancies for fresh nominees. Thus, the society is under the control of NLC Limited and the actual labour member had no independent right carry out the activities of the society. The society has provided voting rights to individual/persons who are nominated by the NLC, which is against the provisions of section 80P(2)(a)(vi). Since, the provisions in the rules and the bye-law of the society is not in accordance with the requirement of 80P(2)(a)(vi), the AO denied the benefit for deduction claimed by the assessee and added it to the taxable income. Aggrieved, the assessee filed an appeal before the CIT(A). 3. The CIT(A) following the decisions of the Hon'ble High Court of Madras in the case of CIT Vs Salem District Printers Service Industrial Co-operative Society Ltd [2007] 290 ITR 371 and the Hon'ble High Court of Kerala in the case of CIT vs Palghat Food Corporation of India....
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....permit the voting by NLC, the requisite conditions for claiming the deduction are not fulfilled. f. The AO also made an observation relating to amendment of byelaw relating to Business where the words 'through subcontract' was struck through and observed that the same was violative of the requirements of Sec 80P. In view of the above, the AO has correctly rejected the claim of the deduction . She pleaded on the basis of the grounds of appeal that the appeal may be allowed. 5. Per contra, the AR submitted that the CIT(A) has elaborately examined the membership of the society, voting rite , the major roles of the nominated members in the board, amendment in bye -laws, the actual operation of the society etc , applied the ratios of the Hon'ble High Courts of Madras & Kerala in the cases of CIT Vs Salem District Printers Service Industrial Co-operative Society Ltd [2007] 290 ITR 371 (Mad)and CIT vs Palghat Food Corporation of India, Labour Contract Cooperative Society Ltd [2003] 266 ITR 315 (Ker) and allowed the appeal. Hence, he pleaded that the revenue's appeal may be dismissed. 6. We have heard the rival submissions. The relevant portion of the order....
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....ce with and subject to the provisions of this section, the sum specified in sub-section (2) in computing the total income of the assessee. Under clause (vi) of sub-section (2), the income, which relates to the collective disposal of the labour of its members, is liable to be deducted. There is no dispute that the income of the Cooperative Society relates to the collective disposal of the labour of its members. However, the proviso to sub-section (2)(a) says that in case of a Co-operative Society falling under sub-clause (vi) or sub-clause (vii), the rules and byelaws of the society should restrict the voting right to the following classes of its members, viz. (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; and (3) the State Government. As we have already noted, under the bye-laws of the society voting power is given to its members, who are sympathisers, who have no right to work, also' (clause 5 of the bye-laws dealt with by the Assessing Officer in paragraphs 2 and 3 of the assessment order). Thus, going by the proviso ment....
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....provisions of Rule 5, the said right conferred has to be held to be ultra vires, and consequently, has to be of no effect. " 7.13 The analogy of the decision of Hon'ble Kerala High Court is very much applicable to the facts and circumstances of the case under consideration. For this purpose, the provisions of the Tamil Nadu Cooperative Societies Act 1983 (TNCSA 1983, in short) are examined. Under Chapter III of the said Act, "Qualifications for membership and their rights and liabilities" are given. Under this Chapter, section 21 deals with "Qualifications for membership of society". Clause (iv) include 'any body of persons whether incorporated or not and whether or not established by or under any law, if such body is approved by the Government in this behalf by general or special order, shall be eligible for admission as a member of a registered society. As the bye-laws of the society has been approved by the Registrar of Cooperative Societies on behalf of the State Government, membership of NLC in the society can be considered as confirming to the provisions of the TNCSA, 1983. Section 26 under the same chapter deals with "Votes of members' of the Socie....