2017 (3) TMI 1802 - AT - Income Tax

Deduction u/s. 80P - HELD THAT - Since in this case even though assessee is not involved in trading but is engaged in contract works, which included material being supplied by the Government, assessee is eligible for claim u/s. 80P(2)(a)(vi). No other contrary judgment has been brought to my notice. Respectfully following the principles laid down in M/s. Uralungal Labour Contract 2009 (10) TMI 890 - KERALA HIGH COURT direct the AO to allow the deduction u/s. 80P(2)(a)(vi), as being allowed in earlier years also. Grounds are allowed.

Summary

Issues Involved:
Appeal against Commissioner of Income Tax (Appeals) order on deduction u/s. 80P of the Income Tax Act.

Analysis:
1. Issue of Deduction u/s. 80P:
The appellant, engaged in civil contracts, claimed exemption u/s. 80P(2)(a)(vi) for the entire income but was disallowed by the Assessing Officer. The contention was that the appellant was a civil contractor for GHMC and not a labour contractor. The CIT(A) rejected the claim, emphasizing that only profits from labour supply activities are exempt under sec. 80P. The appellant argued that the society's members are only labourers, profits are shared as dividends, and material/machinery charges are incidental to contract work. However, the CIT(A) found no mechanism to determine profits exclusively from labour works and directed a proportionate amount for exemption u/s. 80P. The appellant cited a Kerala High Court decision supporting full deduction on society income.

2. Application of Precedent:
Citing the Kerala High Court decision, the ITAT held that if a society's members are construction workers engaging in civil works, the society is entitled to deduction u/s. 80P(2)(vi) on the entire income. The Tribunal emphasized that if members are involved in construction activities, the society is engaged in collective disposal of their labour, qualifying for the deduction. The Tribunal found the appellant eligible for the claim u/s. 80P(2)(a)(vi) based on the principles established in the cited judgment, directing the AO to allow the deduction as in previous years.

3. Conclusion:
The ITAT allowed the appellant's appeal, pronouncing the order in favor of the assessee on 31st March 2017. The judgment highlighted the eligibility of the appellant for deduction u/s. 80P(2)(a)(vi) based on the nature of activities and the collective involvement of members in executing civil contracts. The decision aligned with the interpretation of relevant provisions and precedent, ensuring the appellant's entitlement to the claimed exemption under the Income Tax Act.