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TMI Blog2022 (6) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... any interference and hence the revenue s appeal is dismissed. - ITA No. 934/CHNY/2020 - - - Dated:- 8-6-2022 - Shri Mahavir Singh, Vice-President And Shri Girish Agrawal, Accountant Member For the Appellant : Shri. AR V Sreenivasan, Addl. CIT. For the Respondent : None. ORDER PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the Department is arising out of the order of Commissioner of Income Tax (Appeals), Puducherry in ITA No. 439/CIT(A)-PDY/2018-19 dated 27.08.2020 against the assessment order passed by ITO, Ward-2, Cuddalore u/s. 143(3) of the Income-tax Act, 1961 (herein after referred to as the Act ) dated 27.12.2018. 2. In this the Department is aggrieved by the deletion of disallowance made by the Ld. AO in respect of claim made by the assessee u/s. 80P(2)(a)(vi) of the Act by the Ld. CIT(A). 3. There is a delay of 10 days in filing of this appeal by the assessee. The assessee placed on record petition for condonation of delay along with affidavit explaining the reason for the delay in filing the appeal. The Ld. Counsel for the assessee submitted that the delay in filing the appeal is attributable to the Pandemic o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Tamil Nadu Co-operative Act, 1983. In the assessment made for the assessment year 2012-13, the assessee claimed deduction u/s. 80P(2)(a)(vi) at Rs. 67,98,303/-. The Assessing Officer required the assessee to establish its claim. After considering its reply, the object of the society, its membership qualification and removal, conduct of general meetings, rules in connection with general body, constitution of the board, bye-law etc., the AO held , inter alia, that the assessee s board consists of 11 members viz., women members 3, schedule caste/schedule tribes 2, nominee of NLC 4, MD (Senior Officer) 1, other member 1, and the NLC may at any time withdraw any nominee so nominated to fill up the vacancy or vacancies for fresh nominees. Thus, the society is under the control of NLC Limited and the actual labour member had no independent right carry out the activities of the society. The society has provided voting rights to individual/persons who are nominated by the NLC, which is against the provisions of section 80P(2)(a)(vi). Since, the provisions in the rules and the bye-law of the society is not in accordance with the requirement of 80P(2)(a)(vi), the AO denied the benefit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inated members were given major roles in the board. d. Sec 80P provides as a precondition that the bye-laws restrict the right to vote to i. The individuals contributing their labour ii. Cooperative Credit financing funding Operations and iii. State Government e. Since the byelaws permit the voting by NLC, the requisite conditions for claiming the deduction are not fulfilled. f. The AO also made an observation relating to amendment of bye-law relating to Business where the words through subcontract was struck through and observed that the same was violative of the requirements of Sec 80P. In view of the above, the AO has correctly rejected the claim of the deduction . She pleaded on the basis of the grounds of appeal that the appeal may be allowed. 5. Per contra, the AR submitted that the CIT(A) has elaborately examined the membership of the society, voting rite , the major roles of the nominated members in the board, amendment in bye laws, the actual operation of the society etc , applied the ratios of the Hon ble High Courts of Madras Kerala in the cases of CIT Vs Salem District Printers Service Industrial Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are contrary to the proviso to section 80P(2)(a). Therefore, it is necessary to refer to the provisions of section 8OP. Under section 80P, in the case of a Cooperative Society, if the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sum specified in sub-section (2) in computing the total income of the assessee. Under clause (vi) of sub-section (2), the income, which relates to the collective disposal of the labour of its members, is liable to be deducted. There is no dispute that the income of the Co- operative Society relates to the collective disposal of the labour of its members. However, the proviso to sub-section (2)(a) says that in case of a Cooperative Society falling under sub-clause (vi) or sub-clause (vii), the rules and bye-laws of the society should restrict the voting right to the following classes of its members, viz. (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the cooperative credit societies which provide financial assistance to the society; and (3) the State Government. As we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lot be contrary to the provisions of the Act. If the voting power conferred to members, who are sympathisers, without the right to labour under clause (5) of the bye-laws is contrary to the provisions of section 20 of the Cooperative Societies Act, certainly, by virtue of the provisions of Rule 5, the said right conferred has to be held to be ultra vires, and consequently, has to be of no effect. 7.13 The analogy of the decision of Hon'ble Kerala High Court is very much applicable to the facts and circumstances of the case under consideration. For this purpose, the provisions of the Tamil Nadu Co-operative Societies Act 1983 (TNCSA 1983, in short) are examined. Under Chapter III of the said Act, Qualifications for membership and their rights and liabilities are given. Under this Chapter, section 21 deals with Qualifications for membership of society . Clause (iv) include 'any body of persons whether incorporated or not and whether or not established by or under any law, if such body is approved by the Government in this behalf by general or special order, shall be eligible for admission as a member of a registered society. As the bye-laws of the society has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is vested with the General Body of the members. c. NLC or its nominated members, if any, do not have voting rights in elections of the assessee society as per Rule 22 of its Byelaws. d. Board is responsible for management of affairs of the assessee society and not NLC Board can have 11 members, of which 4 can be nominated from NLC by Government. Rule 22 of the Byelaws of the assessee society stipulates that the nominated members of the Board have no voting rights in elections. 7.15 Therefore, following the above decisions of the Hon'ble High Courts of Madras and Kerala (supra) and as the voting rights in elections have not been conferred on the NLC or its nominated members as per Rule 22 of Byelaws of assessee society, I am of the view that the provisions of the Proviso to S 80P(2)(a)(vi) are not violated by the assessee society and so it is eligible for the deduction . 7. From the above, it is clear that the board of the assessee society is responsible for the affairs of the assessee society and not the NLC board. The ultimate authority of its administration is vested with the General Body of the members. NLC or its nominated members, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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