2009 (10) TMI 890 - HC - Income Tax

Deduction/exemption u/s 80P(2)(vi) - claim for the year 2003-2004 is not maintainable for the reason of non-filing of revised return - As per assessee purpose of constitution and functioning of the Society is collective disposal of labour of it's members qualifying for deduction - AO allowed the assessee to raise the claim of deduction/exemption, but rejected the claim on the ground that assessee is engaged in civil construction work and also in purchase and sale of sand and other construction materials - HELD THAT - Once the claim is entertained and decided by the AO on merits, we do not think the department is entitled to canvass the position that the claim cannot be entertained for want of a revised return. This is because if the Assessing Officer had raised objection against raising the claim through a letter, assessee would have been able to file a revised return a that stage and maintain the claim within the norms covered by the decision of the Supreme Court 2006 (3) TMI 75 - SUPREME COURT . We, therefore, uphold the finding of the Tribunal that the technical objection raised by the department is not tenable. Deduction on the entire income - We feel the Society is entitled to deduction u/s 80P(2)(vi) on the entire income because in the first place, all the members of the Society are workers and they engage themselves in the execution of civil works undertaken by them. There is no case for the department that Society consists of any member other than construction worker and there is also no case that all the member- workers are not engaged in the activities of the Society which is execution of civil construction work. If members of the Society are engaged in construction activities, then the Society itself should be held to be engaged in collective disposal of labour of it's members. Therefore, the income earned from construction work qualifies for deduction u/s 80P(2)(vi). The trading done in construction materials like sand which are stated to have been purchased and sold by the Society. Here again, the transactions are incidental in nature and the members themselves are engaged in handling of the goods in the course of purchase and sale of the same. Construction material involved is also sand where the labour involved is substantial and the income earned is also not found to be attributable to profit in trading and not attributable to labour inputs. We, therefore, hold that the Tribunal rightly granted deduction on the entire income of the Society u/s 80P(2)(vi). Consequently the appeals are dismissed.

Summary

Issues:
1. Claim for deduction/exemption under Section 80P(2)(vi) of the Income Tax Act.
2. Entitlement to raise a claim of deduction without filing a revised return.
3. Merits of the case regarding the eligibility for deduction under Section 80P(2)(vi).

Analysis:

1. The appeals were filed by the Revenue against the orders of the Income Tax Appellate Tribunal upholding the respondent's claim for deduction/exemption under Section 80P(2)(vi) of the Income Tax Act. The respondent, a Co-operative Society, engaged in civil construction work and purchase/sale of construction materials like sand, initially did not claim deduction under Section 80P(2)(vi) for the year 2003-2004. However, during scrutiny assessment, the claim was raised through a letter, which the Assessing Officer accepted but later rejected based on the nature of the Society's activities. The first appellate authority held that without filing a revised return, the claim could not be entertained. Nonetheless, for the year 2004-2005, the claim was made in the return itself, and the C.I.T.(Appeal) granted relief, leading to appeals before the Tribunal for both years. The Tribunal allowed the deduction for both years, rejecting the technical objection raised by the department regarding the non-filing of a revised return.

2. The Senior Counsel for the appellant contended that without a claim in the original return for 2003-2004 and no revised return filed, the deduction claim should not have been entertained. However, the court found the claim raised through a letter before the Assessing Officer as equivalent to a revision of the return, especially since the Officer admitted and considered the claim on merits. The court upheld the Tribunal's decision that the technical objection was not valid, emphasizing that if the Officer had objected, the assessee could have filed a revised return.

3. Regarding the merits of the case, the court found that the Society, consisting solely of construction workers engaged in civil construction work collectively, qualified for deduction under Section 80P(2)(vi). The court highlighted that all members were workers involved in construction activities, meeting the criteria of collective disposal of labor. Even the trading in construction materials like sand was considered incidental, with substantial labor involvement and income not solely attributable to trading profits. Thus, the Tribunal's decision to grant deduction on the entire income of the Society under Section 80P(2)(vi) was upheld, leading to the dismissal of the appeals.

In conclusion, the judgment addressed the issues of claiming deduction/exemption under Section 80P(2)(vi), entitlement to raise a claim without a revised return, and the merits of the case regarding eligibility for deduction. The court emphasized the nature of the Society's activities, the collective disposal of labor by its members, and the incidental nature of trading in construction materials to support the decision to grant deduction on the entire income.