2015 (5) TMI 1042 - AT - Income Tax

Disallowance claimed under section 80P(2)(a)(vi) - assessee society is registered with the Assistant Registrar of Co-operative Societies, Naraingarh - Held that - As per the provisions of section 80P(2)(a)(vi) of the Act, eligibility for deduction is available where the profit and gains of the co-operative society is attributable to the collective disposal of the labour of its members. The above provision is meant for grant of exemption to labour oriented co-operative societies constituted by the actual labour force. In my opinion the assessee society is not eligible for exemption under section 80P(2)(a)(vi) of the Act. Both the authorities below have relied on the decision of Hon ble Orissa High Court in case of Nilagiri Engineering Co-operative Society Ltd. Vs. CIT and Others 1994 (4) TMI 70 - ORISSA High Court , wherein, the Hon ble High Court has categorically held that as regard to benefit under section 80P(2)(a)(iv) of the Act, eligibility to earn exemption is where the whole amount of profits and gains of a business is attributable to the collective disposal of the labour of its members. The Hon ble High Court further observed that in the said case the works undertaken by the society was executed by deployment of outside labour through sub-contractors and the members acted like any other businessmen and therefore the assessee was not entitled to benefit under section 80P(2)(a)(vi) of the Act. Considering the entire facts and circumstances of the present case the profit earned by the assessee society cannot be regarded as profit derived by the labour co-operative society from the activity of collective disposal of labour of its members. I fully agree with the observations made by the Ld. CIT(A) that in the instant case the profit earned by the society is not solely from the collective disposal of labour of its members as all the members were not engaged in the labour work and the work done by the assessee was through outside employees and labourers who are not members of the society nor those employee and labourers were having any voting rights of the society. - Decided against assessee

Summary

Issues Involved:
1. Disallowance of deduction claimed under section 80P(2)(a)(vi).
2. Charging of interest under section 234B and 234C.

Detailed Analysis:

1. Disallowance of Deduction Claimed under Section 80P(2)(a)(vi):

The appellant, a labour and construction society, contested the disallowance of a deduction amounting to Rs. 4,05,733/- under section 80P(2)(a)(vi) of the Income Tax Act, 1961. The society, registered with the Assistant Registrar of Co-operative Societies, claimed the deduction on the basis that it was engaged in the collective disposal of the labour of its members.

The Assessing Officer (AO) denied the deduction, noting that the society engaged in civil contract execution and paid salaries to non-members, including supervisors and a chowkidar, amounting to Rs. 3,90,000/-. Additionally, labour charges of Rs. 11,14,862/- were paid to non-member labourers. The AO concluded that the society did not demonstrate that the profits were attributable to the collective disposal of the labour of its members.

Upon appeal, the CIT(A) upheld the AO's decision, citing that the society included non-labour members and engaged outside labourers for contract execution. The CIT(A) referenced judicial precedents, including the Orissa High Court's decision in Nilagiri Engineering Co-operative Society Ltd. Vs. CIT, which emphasized that eligibility for deduction requires profits to be attributable to the collective disposal of the labour of its members. The Punjab & Haryana High Court's decision in Bandi Cooperative Labour & Construction Society Vs. CIT and the ITAT Ahmadabad's decision in Orient Borewell Cooperative Society Ltd. V. ITO were also cited to support the disallowance.

The appellant argued that most members were labourers and that the society's activities fell within the parameters of section 80P(2)(a)(vi), referencing the Madras High Court's decision in CIT vs. Salem District Printers Service Industrial Co-operative Society Ltd. However, the Tribunal found that the society's profits were not solely from the collective disposal of the labour of its members, as substantial amounts were paid to non-member labourers and staff, and two members were not engaged in labour work but performed administrative roles.

The Tribunal concluded that the society did not meet the conditions for deduction under section 80P(2)(a)(vi), as the income was not derived solely from the collective disposal of the labour of its members. The decision of the CIT(A) was upheld.

2. Charging of Interest under Section 234B and 234C:

The appellant also contested the charging of interest under sections 234B and 234C of the Act. The Tribunal noted that this ground was consequential in nature and held accordingly.

Conclusion:

The appeal was dismissed, with the Tribunal upholding the disallowance of the deduction under section 80P(2)(a)(vi) and the charging of interest under sections 234B and 234C. The judgment emphasized the necessity for the profits of a labour co-operative society to be attributable solely to the collective disposal of the labour of its members to qualify for the deduction under section 80P(2)(a)(vi).