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TMI Blog2014 (1) TMI 1080X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in favour of Revenue. - I.T.A. Nos. 547 & 548/Coch/2013, I.T.A. No. 399/Coch/2013 - - - Dated:- 17-1-2014 - Shri N. R. S. Ganesan, JM And B. R. Baskaran, AM,JJ. For the Petitioner : Shri K. K. John Sr. DR For the Respondent : Shri M. C. Jacob, CA and Shri George Thomas, CA ORDER Per B. R. Baskaran, Accountant Member: All these three appeals, filed by the Department, are directed against the orders passed by Ld CIT(A), Kozhikode in the hands of the respective assessees. The appeal Numbered as ITA 399/Coch/13 relates to the assessment year 2008- 09 and other two appeals relate to the assessment year 2009-10. 2. Since the main issue urged in these appeals is identical in nature, they were heard together and are being disposed of by this common order, for the sake of convenience. 3. The appeals numbered as I.T.A Nos. 547 548/Coch/2013 are barred by limitation by 127 days. The revenue has filed petitions requesting the Bench to condone the delay. It is submitted in the petitions that the appeal documents were mistakenly forwarded to the office of the Sr. Authorised Representative instead of sending the same to the Assistant Registrar, ITAT. It is further s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these assessees took alternative stand before AO that the activities carried on by them falls in the category of collective disposal of labour of its members and accordingly claimed exemption u/s. 80P(2)(a)(vi) of the Act. However, the said claim was also rejected by the AO. However, in the appellate proceedings, the ld CIT(A) concurred with the submissions made by the assessees and accordingly held that these assessees are to be treated as Co-operative societies engaged in collective disposal of labour and hence eligible for deduction u/s 80P(2)(a)(vi) of the Act. The AO had also made disallowances u/s 40A(3) and 40(a)(ia) of the Act. Since the entire income of the assessees were held to be deductible u/s 80P(2)(a)(vi) of the Act, the Ld CIT(A) did not find it necessary to adjudicate the issues relating to the other disallowances made by the AO. Aggrieved, by the order of Ld CIT(A), the revenue has filed these appeals before us. 7. The Ld D.R submitted that the main objective of these societies, as per their registered bye-law, is to run toddy shops under the license obtained from Excise department. He further submitted that these societies acquire right to tap toddy from cocon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and equipment in connection therewith for the purpose of supplying them to its members." The Ld D.R submitted that in the fishing activities also i.e., catching, curing, processing, preserving, storing or marketing of fish, there is collective involvement of all members and hence they are akin to the activity of tapping toddy, storing or marketing it, since in both the activities, the labour of the members ( as workers of the societies) are fully utilized. He submitted that the contention of the assessee, if accepted for a moment, there was no necessity for the parliament to insert clause (vii) referred above in sec. 80P(2)(a) of the Act. 6 I.T.A. No.547,548 399/Coch/2013 7.3 The Ld D.R further submitted that the purpose of introduction sec 80P(2)(a)(vi) is to exempt the income of co-op societies which are engaged in collective use of the individual physical man power to achieve a common group objective by which the group members stand employed and the resultant end product fetching an income which is shared by the group as wages/salary. However, in the instant cases, according to Ld D.R, the intention of these assessees is commercial exploitation of toddy shops only and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir labour or, as the case may be, carry on the fishing or allied activities; (b) the co-operative credit societies which provide financial assistance to the society; (c) the State Government. The Ld D.R submitted that the voting right in the case of assessees herein is open to all members. Since there is violation of the condition prescribed in the proviso to sec. 80P(2)(a) of the Act, on that ground also, these societies are not entitled to deduction u/s 80P of the Act, as held by Hon'ble Gujarat High Court in the case of Gora Vibhag Jungle Kamdar Mandal Vs. CIT (161 ITR 658)(24 taxman 631). 8. Ld Counsel for the assessee Shri George Thomas, appearing for M/s The Peravoor Range Kallu Chethu Vyavasa Thozhilali Sahakarana Sangham, submitted that, under the bye laws of the assessee society, the membership is restricted to toddy workers only, which means that these societies are engaged in collective disposal of labour of its members. With regard to the contention of the Ld D.R that the purchases are made from non-members also, the Ld A.R submitted that the provisions of sec. 80P do not bar such kind of purchases, i.e., so long as the society is engaged in collective disposa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a)(vi). b. Nilagiri Engineering Co-operative Society Ltd. vs. CIT (1994) 208 ITR 326 (Orissa) In this case the Hon. High Court of Orissa has considered the meaning of Section 80P(2)(a)(vi) and observed as follows. "the eligibility to earn exemption is where the whole amount of profits and gains of a business is attributable to the collective disposal of the labour of its members. The words are very clear and only mean that the earning of the society must have been through utilization of the actual labour of its members. We agree with learned counsel for the petitioner that the labour need not always be manual. But then, be it manual or otherwise, the guiding factor must be that the earning of the society must be through utilization of the particular kind of labour in which the members are specialized. An example would illustrate this. If there is a co-operative society of unemployed mathematics graduates who form a society, write out text books of mathematics and earning is made out of the text books, the earning may be said to be attributable to dispensation of labour of the members directly. Similarly, if the members belong to any other discipline, the work executed in act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our with the assessee. The matter was carried to High Court of Gujarat. The Court did not allow the benefit since the bye-law permitted voting right to well wishers other than labour members. d) Nasik District Labour Societies Vs. ITO, (1986) 18 ITD 354 (Pune): The Assessee was an apex society, which had as its members, primary member societies, who are themselves engaged in disposal of the labour of its members. The assessee (apex society) was held to be engaged in providing collective labour of its members. For this purpose the member need not be the persons providing the individual labour but need be the one who provides collective labour. e) The Hon. ITAT, Ahmedabad had considered a similar issue in Orient Borewell Co-operative.......Vs. Income Tax Officer (1991) 39 ITD 557 Ahd. It was a case of a co-operative society there were 13 Sr. class-I officers of ONGC formed a Co-operative Society. The Society entered into a contract with ONGC to carry out Seismic Shot hole drilling in the area allotted to the Co-operative Society. The Society was not admitted to the benefits of section 80P(2)(a)(vi) because the all 13 members of the Society where class I officers possessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular kind of labour in which the members are specialized. (iii) A power of disposal always pre-supposes the possession of something to be disposed of. It is only when collective disposal is made of such a disposable commodity over which the society has control as inhering in its members that the income is directly attributable and to such disposal by the society the benefit is earned. (b) Orient Borewell Co-operative .... Vs. ITO (1991)(39 ITD 557)(Ahd). The relevant observations made by the Tribunal at para 3.9 of its order are extracted below:- "3.9 The income which is exempt under section 80P(2)(a)(vi) is in respect of business income derived by the labour co-operative society from the activity of disposal of collective labour of its members. This provision, as rightly pointed out in ground no.1, was introduced with a view to avoid the exploitation of labour and to encourage those actual workers / labourers to form co-operative society for the collective disposal of labour of its members. The meaning of term "labour" or "labourers" in a welfare society is well known. It is meant for those actual workmen / labourers, who form a co-operative society and derives income from c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... license from Excise Department; purchase implements for tapping toddy for use of members; arrange buildings, furniture and vehicles for setting up toddy shops etc. There is no mention about the collective disposal of labour of the members. The assessee is collecting toddy from members and also purchasing toddy from outside. The compensation by way of wages paid to members depends on the quantity of toddy supplied by them to the society. Toddy is also purchased from outside. The difference between the purchase price per litre of toddy and the compensation per litre of toddy procured from members is marginal. The main activity of the assessee is doing business of procuring and selling toddy and thereby making profit. The profit is not seen utilized for the immediate benefit of the members. For all these reasons the assessee cannot be considered to be a Society engaged in the collective disposal of labour of its members or in any other activity as is mention in section 80P(2)(a). Accordingly the claim of the deduction u/s. 80P(2) is not allowable." As per the observations made by the assessing officer, the main objectives of the society, as found in the registered bye-laws, are to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies have obtained disposable commodity on the exertion of labour of its members. Accordingly, the Ld D.R contended that the purpose of introduction sec 80P(2)(a)(vi) is to exempt the income of co-op societies which are engaged in the collective use of the individual physical man power to achieve a common group objective by which the group members stand employed and the resultant end product fetching an income which is shared by the group as wages/salary. 13. There is no dispute that the assessees herein have generated income out of sale of toddy. We have already noticed that, in order to avail deduction u/s 80P(2)(a)(vi) of the Act, the earning of the society must have been through utilization of the actual labour of its members. According to the assessee, the toddy itself is saleable commodity obtained on collective activity of its members and accordingly it was contended that the profit earned on sale of toddy should be considered as the income generated out of collective disposal of labour. However, we are unable to agree with the said submissions. 13.1 The provisions of sec. 80P(2)(a)(vi) uses the terminology "the collective disposal of labour of its members". The word "lab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have generated income only through sale of toddy. There should not be any dispute that the activities of tapping of toddy and the activities of sale of toddy are two different activities. As contended by the Ld D.R, the main objective of these societies is to run toddy shops. Accordingly, we notice that the incidental object of these societies appear to be to ensure that their members earn reasonable wages on tapping of toddy. Hence, in order to achieve the said objectives, these societies have only utilized the labour of its members for the activity of tapping the toddy and through that process, these societies have only ensured that the members earn reasonable wages. Thus, in our view, these societies have only generated only employment opportunities to its members. 13.4 It is not the case that these societies have engaged themselves in the business of tapping of toddy by utilizing the labour of its members and in that process they have earned income, in which case, it can be said that they have earned income on "Collective disposal of labour". On the contrary, these societies have been carrying on the business of sale of toddy and in that process they have only generated empl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome. 16. There is no dispute that all the members are toddy tapping workers. But, these societies have only used the labour of its members in tapping toddy, a naturally available product. Thus, in our view, 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. Though the labour of the members has been used for toddy tapping, yet these societies have not generated any income out of toddy tapping activity. Instead, these societies have generated income only through the sale of toddy, which will not, in our view; fall in the category of "Collective disposal of labour". Thus, it is seen that the toddy tapping is an incidental activity required to be done in order to achieve its main objective of running retail toddy shops. It is also pertinent to note that these societies have purchased toddy from non- members also, which only reinforces the contention of the Ld D.R that the objective of these societies is selling toddy only. 17. In view of the foregoing discussions, in our view, these assessees cannot be considered as Co-operative societies eng ..... X X X X Extracts X X X X X X X X Extracts X X X X
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