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TMI Blog2024 (8) TMI 1172X X X X Extracts X X X X X X X X Extracts X X X X ..... abour intensive consequently small to medium society have to bid for both in a competitive world even though their domain field is only pure labour. In order to survive in the competitive world they under quote on labour and a bare minimum on cost of material so that being lowest bidder they get the tender finally. The above requisite submissions are on record of the present case which has not been disputed by the Department seriously either before Ld. AO and / or before CIT(A). Consequently we are of the considered view that in the given context the services offered by the assessee society cumulatively comes within the mischief of the words Collective disposal of labour of its members falling under section 80P(2)(a)(vi) and therefore order of Ld. CIT(A) is sustained. The nature of broad activity which dominates the field is collective disposal of labour of its Members . Purchases are thus incidental and ancillary to main object of rendering labour services collectively . Society survives and makes profit income by sacrificing their collective labour in process to earn their livelihood on both counts. The dominating activity and purpose in the instant case is collective use of labo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act, 1961. Therefore, the case was referred by the A.O. to the Pr. Commissioner of Income Tax-2, Chandigarh with the recommendation for invoking the provisions of section 263 of the Income Tax Act, 1961. Consequently, a show cause notice was issued to the assessee by the Pr. Commissioner of Income Tax-2, Chandigarh on 10.2.2017 for invoking the provisions of Section 263 with the following observation:- Please refer to the return of income filed by you on 30.9.2012 declaring returned income at NIL and the assessment order u/s 143(3) passed by the Dy. Commissioner of Income Tax, Circle 6(1), Mohali (the assessing officer concerned in your case) on 28.2.2015 at returned income. 5. Perusal of assessment record in your case for the A. Y. 2012-13 reveals that the following issues remained unexplained on the part of assessing officer: i) A perusal of Profit Loss account reveals that during the year under consideration you had earned income on account of work contracts which included receipts on account of materials also. As per provisions of section 80P(2)(a)(vi) an assessee being a cooperative society engaged in the collective disposal of the labour of its members is eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered and accepted on the lowest rates. The society purchases materials like sand, cement, bajri, gatka, tiles, railings etc. for execution of a particular contract by collective disposal of labour of its members only. No profits have accrued to the society out of materials purchased, since the contracts are offered and accepted at competitive rates and even lesser than the cost of price of material, hoping for profit from utilization of labour of its members. The work contracts other than labour have been obtained on lesser rates ranging from 5% to 30% than the market rate. There is substantial loss on such contracts. It is only out of labour works executed that the profit has been earned. The assessee society has fulfilled all the conditions u/s 80P and thus eligible for the deduction. The issue was discussed in detail with the Assessing Officer and the details regarding such income were duly furnished at the time of assessment. Keeping in view the above your goodself is requested not to cancel the assessment framed vide assessment order dated 28.2.2015 u/s 143(3) of the Income Tax Act, 1961. After considering the submissions of the assessee, Pr. Commissioner of Income Tax -2, Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. That the Star Coop. Labour Construction Society Ltd., is a registered coop. Society under the Cooperative Societies Act, 1912 and the income from the collective disposal of the labour of its members is deductible u/s 80P(2)(a)(vi) of the Income Tax Act, 1961. The earning of the society is through the utilization of the actual labour of its members for executing a work contract. The society is engaged in carrying out labour and construction work for Municipal Corporation, Mundi Kharar and Mohali. The work contract is assigned by Municipal Corporation on the basis of tenders, which is offered and accepted on the lowest rates. The society purchases materials like sand, cement, bajri, gatka, tiles, railings etc. for execution of a particular contract by collective disposal of labour of its members only. No profits have accrued to the society out of materials purchased, since the contracts are offered and accepted at competitive rates and even lesser than the cost price of material hoping for profit from utilization of labour of its members. The work contract other than labour have been obtained on lesser rates ranging from 5% to 30% than the market rate. There is substantial loss on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred an appeal before us and has raised following grounds of appeal: (i) Whether in the facts and circumstances of the case and in law, the Ld.CIT(A)'s order is not perverse not erred in law as well as facts in allowing the appeal of the assessee without appreciating the facts of the case ? (ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act whereas the income earned by the society is not only from collective disposal of labour but also from amount received on account of trading of material? (iii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act whereas the assessee has not bifurcated the receipt on account of disposal of work and receipt on account of material to explain the assertion made regarding profit being attributable to both labour and material, whereas the deduction u / s 80P(2)(a)vi) of the act is only for collective disposal of labour? (iv) Whether on the facts and circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to explain the assertion made regarding profit being attributable to both labour and material whereas the deduction under section 80P(2)(a)(vi) of the Income Tax Act, 1961 is only for corrective disposal of labour . It was further contended that the assessee has failed to discharge its primary onus to furnish any evidence that all the works has been carried out by the members and further also one Tara Singh is the only member having 100% share of society. It was then contended that Ld. CIT(A) has erroneously placed reliance on the judgment in case of CIT Vs. Uralungal Labour Contract Society in ITA No. 1722 of 2009 dt. 29/11/2009 which is a judgement of Hon ble Kerala High Court. This judgement does not apply to the facts of the present case as income herein in present case is admixture of both labour and material. Whereas in Kerala High Court case income earned was found to be attributable to labour inputs and not trading. The quantum was marginal whereas in the case on hand no bifurcation is available for receipt on account of disposal of work and receipt on account of material purchased. Attention was further drawn to yet another decision of Kerala High Court in case of Nilesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and benefit of section 80P(2)(a)(vi) which section we reproduce below for sake of convenience and ease: Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, 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 sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely : a . (i) (ii) (iii).. (iv) (v) (vi) The collective disposal of the labour of its members The words Collective Disposal of labour of its Members assumes significance. In our considered view the dominant purpose of assessee is collective disposal of labour in area of civil works. The assessee admittedly while rendering civil works majorly in the terms of labour collectively works for gain. Since civil works is highly fragmented industry in India at times both the Central Government, the State Government, the Local Bodies like Municipal Corporation, Councils, etc. including PSU, State PSU, Electricity Boards, CPWD, PWD Corporate, fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be engaged in collective disposal of labour of its members. Therefore, the income earned from construction work qualifies for deduction under section 80P(2)(a)(vi) of the Act. The remaining issue is only with regard to the trading done in construction materials like sand which are stated to have been purchased and sold by the society. Here again, the transactions are incidental in nature and members themselves are engaged in handling the goods in the course of purchase and sale of the same. Construction material involved is also sand where the labour involved is substantial and the income earned is also not found to be attributable to profit in trading and not attributable to labour inputs. We, therefore, hold that the Tribunal rightly granted deduction on the entire income of the society under section 80P(2)(a)(vi) of the Act. Consequently appeals are dismissed. 15.4 The Ld. CIT(A) in para 6.3 of the impugned order has correctly held as under and we conquer with his views which is as under: 6.3 The submissions of the assessee and case law relied upon have been considered. During the relevant year, the assessee society derived its income from execution of work contracts obtained fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbers themselves are engaged in handling of the goods in the course of purchase and sale of the same. Construction material involved is also sand where the labour involved is substantial and the income earned is also not found to be attributable to profit in trading and not attributable to labour inputs. We, therefore, hold that the Tribunal rightly granted deduction on the entire income of the Society under Section 80P(2)(vi) of the Act. The ratio of the above judgement squarely covers the matter at hand. In view of the judgment of Kerela High Court, the disallowance of deduction of Rs. 14,70,480/: is deleted. Grounds of appeals are allowed. 15.5 We conquer with the submissions of Ld. AR that facts of the case in Nileswar Range Kallu Chethu (supra) are materially different. We on perusing para 11(8) of the judgement which we reproduce below as under: 8. The members of the society are also working as employees and are being paid remuneration based on their output of toddy. The assessee is not a labour contract co-op society. The main objectives of the Society as per registered bye laws are to run toddy shops under license from Excise Department; purchase implements for tapping todd ..... X X X X Extracts X X X X X X X X Extracts X X X X
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