1992 (12) TMI 76 - AT - Income Tax

Summary

Issues Involved:
1. Entitlement of the assessee-society to exemption under section 80P(2)(a)(vi) of the Income-tax Act.
2. Validity of the Income-tax Officer's objections based on the society's bye-laws and voting rights.

Issue-Wise Detailed Analysis:

1. Entitlement to Exemption under Section 80P(2)(a)(vi):
The primary issue in these appeals was whether the assessee-society was entitled to the exemption under section 80P(2)(a)(vi) of the Income-tax Act. The assessee-society, named Food Corporation of India & Central and State Ware Housing Labour Contract Co-op. Society Ltd., Khammam, filed returns for the assessment years 1987-88 and 1988-89, claiming exemption under the said section. The Income-tax Officer, however, rejected this claim but allowed a deduction of Rs. 20,000 under section 80P(2)(c)(ii) for each year. The Commissioner (Appeals) subsequently allowed the assessee's appeals, holding that the entire income was exempt under section 80P(2)(a)(vi).

The Tribunal found that the assessee-society was registered under the A.P. Co-operative Societies Act, 1964, and its main objective was to promote the economic interest of its labour members by obtaining and executing contract works through its members. The society had 224 members and was engaged in loading and unloading bags at Food Corporation of India godowns. The income of the society was derived solely from the collective disposal of its members' labour. The Tribunal concluded that the society was a genuine labour contract society and its income was earned through the hard work of its members. Thus, the society was entitled to the exemption under section 80P(2)(a)(vi).

2. Validity of Income-tax Officer's Objections:
The Income-tax Officer had rejected the exemption claim based on two primary objections:

(a) Bye-law No. 42:
The Officer argued that bye-law No. 42 allowed the society to engage outside labour, which disqualified it from being a society engaged in the collective disposal of its members' labour. However, the Tribunal noted that no permission to engage outside labour was ever sought or granted, and the society had always denied engaging any outside labour. Furthermore, the Tribunal held that bye-law No. 42, to the extent it contravened the definition of a labour contract society under the A.P. Co-operative Societies Rules, was invalid. Therefore, this objection did not stand in the way of the society getting full exemption.

(b) Voting Rights:
The Officer contended that the society's bye-laws did not restrict voting rights to the classes of persons enumerated in the proviso to section 80P(2)(a). The Tribunal, however, found that the A.P. Co-operative Societies Act, specifically section 25, already restricted voting rights to members of the society, excluding government nominees and representatives of financing banks from participating in elections. Thus, the society complied with the proviso to section 80P(2)(a), and this objection was also dismissed.

Conclusion:
The Tribunal dismissed the departmental appeals, affirming the Commissioner (Appeals)'s decision that the assessee-society was entitled to full exemption under section 80P(2)(a)(vi) for the assessment years 1987-88 and 1988-89. The Tribunal found no merit in the objections raised by the Income-tax Officer and upheld the view that the society's income was exempt from tax.