2014 (1) TMI 1080 - AT - Income Tax

Deduction u/s 80P(2)(a)(vi) - Held that - The societies have only used the labour of its members in tapping toddy, a naturally available product as all the members were toddy tapping workers - These societies have only generated employment opportunities to its members and they have paid wages to its member-workers in proportion to the quantity of toddy tapped by each of the members - These societies have generated income only through the sale of toddy (not from toddy tapping activity) which is a naturally obtained product Sale of toddy does not fall in the category of Collective disposal of labour - The assessees have not engaged any skill and labour of the members there was not any collective disposal of labour - The toddy tapping is an incidental activity required to be done in order to achieve its main objective of running retail toddy shops 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 Decided in favour of Revenue.

Summary

Issues Involved:
1. Condonation of delay in filing appeals.
2. Eligibility for deduction under Section 80P(2)(a)(vi) of the Income Tax Act.
3. Interpretation of "Collective disposal of labour".
4. Compliance with conditions prescribed in the proviso to Section 80P(2)(a).
5. Adjudication of additional disallowances under Sections 40A(3), 40(a)(ia), and contribution to Provident Fund.

Detailed Analysis:

1. Condonation of Delay in Filing Appeals:
The appeals numbered as I.T.A Nos. 547 & 548/Coch/2013 were barred by limitation by 127 days. The revenue requested the Bench to condone the delay, citing that the appeal documents were mistakenly forwarded to the office of the Sr. Authorised Representative instead of the Assistant Registrar, ITAT, and the oversight by the concerned Income-tax Officer. The Tribunal, having regard to the submissions, condoned the delay and admitted the appeals for hearing.

2. Eligibility for Deduction under Section 80P(2)(a)(vi):
The main issue was whether the assessees, co-operative societies engaged in tapping and selling toddy, were entitled to deduction under Section 80P(2)(a)(vi) of the Income Tax Act. The Ld. CIT(A) had held that these assessees fell under "Co-operative Society engaged in the collective disposal of the labour of its members". The Assessing Officer (AO) had rejected this claim, stating that the societies' income was generated from the sale of toddy, not from the collective disposal of labour.

3. Interpretation of "Collective Disposal of Labour":
The Tribunal referred to various case laws to interpret "Collective disposal of labour". It was noted that the earning of the society must be through the utilization of the actual labour of its members. The Tribunal observed that the societies were primarily involved in the business of selling toddy, which was a naturally obtained product, and not in the collective disposal of labour. The members were paid wages for toddy tapping, and the societies generated income from selling toddy, not from the tapping activity itself. Therefore, the Tribunal concluded that the societies did not qualify for deduction under Section 80P(2)(a)(vi).

4. Compliance with Conditions Prescribed in the Proviso to Section 80P(2)(a):
The Ld. D.R argued that the voting power in the societies was not restricted to the three classes of persons listed in the proviso to Section 80P(2)(a). However, since the Tribunal held that the societies did not generate income from collective disposal of labour, it did not find it necessary to address the issue relating to voting rights.

5. Adjudication of Additional Disallowances:
The AO had made certain additions under Sections 40A(3), 40(a)(ia), and disallowed contributions to Provident Fund. The Ld. CIT(A) did not adjudicate these issues on merits, as the entire income of the societies was held to be deductible under Section 80P. Since the Tribunal held that the societies were not eligible for deduction under Section 80P, it restored the issues relating to these additions to the file of Ld CIT(A) for adjudication.

Conclusion:
The Tribunal set aside the orders of the Ld. CIT(A) and ruled that the assessees were not eligible for deduction under Section 80P(2)(a)(vi) of the Income Tax Act. The appeals filed by the revenue were allowed, and the issues relating to additional disallowances were remanded back to the Ld. CIT(A) for adjudication.