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TMI Blog1992 (12) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... r short, called ' the assessee-society '). The assessee filed returns for assessment year 1987-88 on 30-3-1990 and for assessment year 1988-89 on 5-4-1990 declaring all incomes by claiming exemption under section 80P(2)(a)(vi). The Income-tax Officer, however, completed the assessments for both these assessment years by his independent orders dated 27-3-1991. The Income-tax Officer rejected the claim of the assessee-society under section 80P(a)(vi) of the Income-tax Act, 1961 but conceded deduction of Rs. 20,000 under section 80P(2)(c)(ii). Consequently for assessment year 1987-88 he computed the total income at Rs. 1,80,324 and for assessment year 1988-89, he computed the total income at Rs. 1,21,680. While framing the assessments, the claim of the assessee-society under section 80P(2)(a)(vi) was negatived on the following grounds : (1) As per bye-law 42 of the society, the works obtained by the society shall be executed either by giving sub-contracts to group of persons or by employing them on daily wages or on piece work. When sufficient members are not available, the Board of Directors may employ, with the permission of the Registrar, persons other than the members to such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted among the members of the society. In para No. 5, the conclusions of the learned Commissioner (Appeals) are found given which are as follows : " On going through the evidence taken out by the Assessing Officer I find he has been very harsh in applying a bye-law which was only protecting the interest of the society and cannot be treated as a bye-law detrimental to the interest of the society because of that bye-law say bye-law 42 one cannot say that the society is not meant for collective disposal of labour by its members. The Assessing Officer has not gone through the voting pattern followed by the society and simply rejected that there were no voting rights to the members just because no clause is found in the society's bye-laws. The deed in which bye-laws are mentioned may not be comprehensive, however, under the Society's Act it is paramount that elections are held regularly and it is also inherent in the formation of the society that the members of the society have the voting rights. Under these circumstances, I hold that this society comes under the purview of section 80P(2)(a)(vi) and also under the provisions of proviso to that sub-clause. Therefore, the entire income o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seen that the assessee-society is found to be genuine and its genuineness was also confirmed by the Asstt. Manager In-charge of the F. C. I. Khammam. From the statement given by the President of the assessee-society on 4-10-1990 it is seen that the assessee-society had submitted tender in March 1965 to the F. C. I. authorities. Their tender was accepted and under the labour contract which was finalised by the F. C. I. with the assessee-society, the assessee is obliged to supply labour for handling bags of foodgrains at railway sidings at Buffer Storage Complex of Food Corporation of India, Khammam like loading and unloading of bags from railway wagons. The Food Corporation of India had fixed labour charges for loading and unloading of bags of foodgrains. The President of the assessee society in his statement had stated that for unloading of 100 bags Kgs of bag the rate agreed was 54P per bag and for loading 100 Kgs of bag the hamali rate agreed was 64P per bag. The assessee society has been maintaining written books of account like cash book, abstract register and bill book. The abstract register would disclose as to the total quantity of the bags exported or imported for which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount not realised in the year in question but for which a claim is made against the FCI. Unless the amount is realised the question of distribution does not arise. The Income-tax Officer failed to investigate the true nature of the amount of Rs. 2,02,324. When the bill raised against Food Corporation of India for the whole of the accounting year amounted to Rs. 18,65,310.15P, the FCI had honoured the bills and paid through D/D only to the extent of Rs. 16,62,986, thus leaving the claim of Rs. 2,02,324 undecided in the accounting year relevant to assessment year 1987-88. The whole of amount for which the bill was raised against the FCI represent nothing but the labour charges for the number of bags handled by the members of the society and as and when the payment is made then distribution among the members takes place. When the claim is not considered and the amount is not paid then such amount not considered and not paid would be shown only as amount due but not actually paid. In that fashion it was revealed in the profit and loss account. Further the fact that book entries were made under a particular fashion, does not determine the real nature of the amount. The true nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion can be sought for only when sufficient members are not available. We have already seen that there are 224 members of the society and there is no evidence that any outside labour is engaged to handle the bags either for export or import. No permission was ever sought for or obtained from the Registrar. The Income-tax Inspector also did not obtain any such information. In the letter dated 26-3-1991 addressed by the counsel for the assessee to the Income-tax Officer, the following is what is stated : " Further, regarding the collective disposal of labour of the members of the Labour Contract Society, I may be permitted to submit that the strength of the society is such that there is no necessity for engaging the services of men other than the members of the society. The strength of the society since its inception has been in hundreds. " Therefore, the society denied of having engaged any outside labour whatsoever till now. Copy of letter dated 26-3-1991 was found at page 12 of the paper book filed on behalf of the assessee. Under Rule 12 of the A. P. Co-operative Societies Rules, 1964 (hereinafter called ' Societies Rules ') a labour contract society is defined to mean a soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o-operative Societies Act with its four sub-sections is as follows : " Vote and manner of its exercise :--- (1) Subject to such rules as may be made in this behalf every member shall have one vote in the affairs of the society and shall exercise his vote in person and not by proxy. (2) Every person nominated to the Committee by the Government or where the financing bank is a member, every person representing such financing bank, shall have one vote : Provided that no nominee of the Government or the representative of the financing bank, as the case may be, shall be entitled to participate in or vote at any election. (3) In the case of equality of votes, the chairman of the meeting shall have a second or casting vote. (4) Notwithstanding anything in sub-section (1), where a society is a member of another society, its president or a person appointed under section 32 or a special officer appointed under section 34, as the case may be, shall represent the society as its delegate In the affairs of that other society and vote on its behalf at the meeting of the other society : Provided that no officer of the Government shall be entitled to participate or vote at any electio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 658 (Guj.). 9. The decision in Gora Vibhag Jungle Kamdar Mandali's case spells out what are the requisite conditions precedent for claiming benefit by the co-operative labour contract societies. In the said decision it is stated as follows as per headnote : " If the co-operative society as specified in sub-clause (vi) of section 80P(2)(a) of the Income-tax Act wants to earn full exemption on the profit made by it, persons other than those three categories specified in the proviso to section 80P(2) of the Income-tax Act can be members of the society but they should not be given the right to vote and that fact should be clearly borne out from the rules and bye-laws restricting the right to vote to members specified in the proviso only. If the co-operative society gives the right to vote to any other person, it would not be entitled to the additional benefit conferred by section 80P(2)(a)(vi). " We have no quarrel with the proposition laid down by the Hon'ble Gujarat High Court. We have already seen section 25 of the A. P. Co-operative Societies Act and according to its provisions the voting rights are restricted only to members of the society. Neither the Government nor the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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