2003 (3) TMI 19 - HC - Income Tax

Exemption u/s 80P(2)(a)(vi) - Whether sympathisers, who have no right to labour can be treated as active members of a society, or only nominal or associate member falling under clause (a) of the proviso to section 20 read with section 2(m) of the Co-operative Societies Act, 1969 ? - exemption sought for by the assessee was denied solely on the ground that the bye-laws of the society are contrary to the proviso to section 80P(2)(a) - Tribunal was not justified in blindly following the decision of the Hyderabad Bench of the Tribunal, without adverting to the provisions of the Kerala Cooperative Societies Act and the Rules - we set aside the order of the Tribunal and remit the matter back to the Tribunal for fresh consideration in accordance with law

Summary

Issues:
Whether the assessee was entitled to exemption under section 80P(2)(a)(vi) of the Income-tax Act, 1961?

Analysis:
The case involved a co-operative society engaged in labor work with the Food Corporation of India, seeking exemption under section 80P(2)(a)(vi) of the Income-tax Act, 1961. The Assessing Officer denied the exemption claim based on voting rights granted to sympathizer members without the right to work, which was deemed contrary to the proviso of section 80P(2)(a). The Commissioner of Income-tax upheld the denial, but the Tribunal allowed the claim. The key dispute was whether sympathizer members could be considered active members entitled to voting rights under the Co-operative Societies Act. The Tribunal's decision was challenged on the grounds of misinterpretation and failure to consider relevant provisions.

The proviso to section 80P(2)(a) mandates that voting rights in a co-operative society should be restricted to specific classes of members, including those contributing labor. The bye-laws of the society in question granted voting rights to sympathizer members without labor rights, raising concerns about compliance with the Act. The respondent argued that such provisions were void under the Co-operative Societies Act and Rules, specifically citing section 20 which limits voting rights to active members. The interpretation of whether sympathizers could be classified as active members was crucial in determining the validity of the voting rights granted.

The High Court scrutinized the Tribunal's decision and found a lack of thorough consideration of the Co-operative Societies Act and rules by the lower authorities. The Tribunal's reliance on a decision from the Hyderabad Bench without proper assessment of Kerala's specific legal framework was deemed unjustified. Consequently, the High Court set aside the Tribunal's order and remanded the matter for fresh consideration in alignment with the law and the court's observations. The High Court declined to answer the referred question, emphasizing the need for a comprehensive review of the case in light of the legal provisions discussed.

In conclusion, the judgment highlighted the importance of adhering to the specific provisions of the Co-operative Societies Act and Rules when determining eligibility for exemptions under the Income-tax Act. The case underscored the significance of a detailed analysis of relevant legal frameworks in decision-making processes to ensure accurate interpretation and application of the law.