1991 (8) TMI 117 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for total exemption under section 80P(2)(a)(vi) of the Income-tax Act, 1961.
2. Interpretation of the term "labour" in the context of section 80P(2)(a)(vi).
3. Impact of the society's structure and membership on eligibility for exemption.
4. Relevance of the certificate for non-deduction of tax at source under section 194C.

Detailed Analysis:

1. Eligibility for Total Exemption under Section 80P(2)(a)(vi)
The appellant, a registered co-operative society formed by ONGC employees, claimed a deduction of Rs. 14,11,813 under section 80P(2)(a)(vi) of the Income-tax Act, 1961, asserting that its entire income is exempt as it is attributable to the collective disposal of the labour of its members. The ITO rejected this claim, noting that the society employed 40 to 60 daily wage labourers who were not members of the society and did not have voting rights, thus failing to meet the conditions prescribed in the proviso to section 80P(2)(a)(vi). The CIT(A) upheld this decision, leading to the present appeal.

2. Interpretation of the Term "Labour"
The appellant argued that the term "labour" should include skilled labourers such as the society's members, who are Class-I Officers of ONGC with technical expertise in drilling. The ITO and CIT(A) countered that the provision is intended to benefit societies formed by actual labourers of small means, not highly paid professionals. The Tribunal noted that the term "labour" typically refers to manual workers, distinguishing them from professional or technical workers. The Tribunal concluded that the society's members, being highly skilled and well-compensated professionals, do not fit within the intended scope of "labour" under section 80P(2)(a)(vi).

3. Impact of the Society's Structure and Membership
The Tribunal examined the society's structure, noting that its members were Class-I Officers of ONGC who received substantial salaries and allowances, and the society owned significant assets, including drilling rigs. The society also employed daily wage labourers to perform the actual physical labour. The Tribunal found that the society's income was derived from a combination of technical expertise, the use of sophisticated machinery, and the employment of daily wage labourers, rather than solely from the collective disposal of the labour of its members. This composite nature of the society's operations disqualified it from the exemption under section 80P(2)(a)(vi).

4. Relevance of the Certificate for Non-Deduction of Tax at Source
The appellant argued that the certificate for non-deduction of tax at source under section 194C indicated acceptance of its eligibility for exemption. The Tribunal dismissed this argument, noting that such certificates are issued based on a declaration that the total income is likely to be below the taxable limit, without adjudicating the eligibility for specific exemptions. The Tribunal emphasized that the issuance of the certificate did not imply acceptance of the appellant's claim for exemption under section 80P(2)(a)(vi).

Conclusion
The Tribunal upheld the CIT(A)'s decision to deny the appellant's claim for total exemption under section 80P(2)(a)(vi), concluding that the society did not meet the necessary conditions. The appeal was dismissed.