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TMI Blog1991 (8) TMI 117X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80P(2)(a)(vi) as the entire income is attributable to the activity of collective disposal of the labour of its members to O.N.G.C. The appellant society entered into a contract with O.N.G.C. to carry out seismic shot hole drilling in the area allotted to the co-oprative society. The appellant society received drilling charges of Rs. 48,73,718 during the year under consideration for such contract work from O.N.G.C. 1.1 The ITO observed that as per the terms of contract executed by the appellant society with O.N.G.C., only employees of O.N.G.C. and no one else can be made members of this society. The society had employed 40 to 60 labourers per day on daily wage basis. A total amount of Rs. 6.37 lakhs was paid towards labour expenses to daily wage labourers. It also paid a total salary of Rs. 8.71 lakhs to its members. None of the daily wages labourers who have done the actual physical labour has been made a member of the co-operative society. Hence, the condition prescribed in the proviso to section 80P(2)(a)(vi) is not fulfilled. He also emphasized the fact that actual labour work is done by these 40 to 60 daily wages labourers employed by the assessee society, who are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The 13 members of the society are drillers. All these members of the society started at the last rung of the drilling work and over a period of time, they became labourers with experience but nonetheless a labourer only, though a better labourer, and rejection by the CIT(A) on the ground that when these labourers became a better labourers or a skilled labourers, they will not get the benefit of this clause is an uncalled for refinement of law and is clearly contrary to the interpretation of the said provision based on the plain reading of the provisions of law. The income was earned by the society from the collective disposal of the labour of its members. There cannot be any doubt or debate about this factual aspect, according to the learned counsel for the assessee. He submitted that the concept of "small man" introduced by the ITO as well as by the CIT(A) while denying desired exemption is contrary to the said provision of law which nowhere provides that collective supply of tabour only by the small man or poor man would alone be qualifying for grant of exemption under this section. He gave an example of a co-operative society, whose members are diamond cutters. Since the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction of the aforesaid taxing statute by introducing irrelevant and extraneous consideration of a "small man" or a "poor man" theory in the said provision of 80P(2)(a)(vi) although the language of the said section does not contain any such rider for grant of exemption under that section. He invited our attention towards the report of the auditor of the said society to highlight the fact that the members of the society are doing hard-work with perfect sincerity. The income is attributable to such collective disposal of the labour of its members by the society to O.N.G.C. The CIT(A) ought to have accepted the assessee's claim for grant of total exemption under the aforesaid section. 2. The learned Sr. D.R. contended that ONGC wanted to develop an ancillary unit and for that purpose, the said society was formed. All the 13 members of the society are Clause-I Officers of ONGC. They are highly technical persons and possess rich experience in the work of drilling. All of them have been paid handsome salary by the appellant society. They cannot be treated as labourers. They are expert technicians possessing rich experience, technical qualification and knowledge in the job of drilling. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r obligations undertaken by the society in the contract executed with ONGC. It cannot be said that the income of the society was derived by the collective disposal of labour of these 13 members of the society. The learned Sr. D.R. further contended that the reliance placed by the counsel of the assessee on the certificate granted under section 194C does not in any manner support the assessee's contention that such a certificate was granted after considering the assessee's eligibility for grant of total exemption under section 80P(2)(a)(vi). Any person who furnishes an application in the prescribed Form No. 13-C to the Assessing authority and gives a declaration that its total income computed in accordance with the provisions of the Income-tax Act is likely to be less than the minimum liable to Income-tax may be allowed to receive the contract money from the awarder of the contract without deduction of tax on issue of such a certificate under section 194C. The said certificate cannot amount to acceptance of assessee's claim for grant of exemption under section 80P(2)(a)(vi). The learned Sr. D.R. further argued that if such a society whose members are highly technical persons and who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I Officers of ONGC who have joined the society as its members without resigning from the services of ONGC on deputation. The total amount of remuneration paid to them during the year under consideration was Rs. 8,71,360. A perusal of the auditor report given by the Special Auditor No. 4 Co-operative Society, Baroda (page 72 of the paper-book) reveals that salary and allowances payable to these members was Rs. 5,000 + Rs. 5,000 each. In addition to this, they were paid travelling allowances of Rs. 100 and facility of field establishment and canteen was also made available. The society also provides for entertainment to these members. A deduction of a small amount of Rs. 200 from T.A. Bill is being made for such facilities provided to the members. The society also pays to every member a sum of Rs. 1,500 for local conveyance every month. It is also admitted fact that the said society employed 40 to 60 labourers on daily wages basis and an aggregate amount of Rs. 6.37 lakhs has been paid to these daily wages labourers who are neither members of the said society nor they have voting rights in the said society. 3.1 In the contract executed by the society with ONGC the society has undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following classes of the members, namely :-- '(1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities.' (2) ................. (3) ..................." 3.4 The learned counsel for the assessee submitted gist of definition of "labour" given in various dictionaries, Law of Lexicon etc. However, it will be worthwhile to reproduce the meaning of term "labour" given in the Webster's new Twentieth Century Dictionary Unabridged second edition at page 1010-- " Labor, n.L. Labor, Labor, exertion, hardship pain. 1. Physical or mental exertion; work; toil 2. a specific task; piece of work 3. All wage-earning workers; distinguished from capital or management. All manual workers whose work is characterised largely by physical exertion; distinguished from white-collar or professional workers. " 3.5 On perusal of section 80P of the Act, it is clear that the co-operative society is entitled to grant of general exemption of Rs. 20,000. Sub-clause (vi) of section 80P(2)(a) was introduced by the Finance (No. 2) Act of 1971 w.e.f. April 1, 1972. By introducing the said sub-clause (vi) along with the proviso, it is clear that the Legis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for performing the job work of shot hole drilling. These members were paid handsome salaries and allowances aggregating to Rs. 8.71 lakhs besides reimbursement of their Travelling & Conveyance expenses of Rs. 6,10,506 during the year under consideration. The society also employed 40 to 60 labourers on daily wages basis to whom wages payments aggregating to Rs. 6.37 lakhs was paid. The appellant society owned plant and machinery costing Rs. 18,81,800 in addition to other fixed assets as shown in the audited balance-sheet. This includes 6 drilling rigs, which are very heavy and cumbersome mechanical apparatus requiring at least 6/7 persons to operate those rigs. The technical members of the society have not themselves operated these drilling rigs without the aid of daily wage labourers. The technical experts may be supervising and controlling the operation of these rigs but the actual physical and hard work of operating these rigs was impossible without the aid of the daily wage labourers who were admittedly employed by the society. 3.8 The audited statements pertaining to the year under consideration reveals that the society received job-charges of Rs. 48,73,718 from the ONGC pursu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecified in the contract. There are several other obligations undertaken by the society under the agreement executed with the ONGC. 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 collective disposal of labour of its members and not meant for those ancillary industrial units constituted by highly paid technical experts and skilled persons, who regularly employ large number of daily wage-earning labourers for carrying out the technical job work of drilling of oil wells with the aid of sophisticated machineries like drilling rigs etc. In order to be eligible for grant of this exemption, the "activity of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of exemption under section 80P(2)(a)(vi) is the correct view. 3.12 The contention of the learned counsel for the assessee that by granting a certificate for non-deduction of tax at source, it should be presumed that the department accepted the assessee's contention regarding exemption under section 80P(2)(a)(vi) also has no merit. The assessee has not pointed out whether such a point was specially raised, examined and decided at that stage. Such authorisation for non-deduction of tax at source is issued by the ITO on the basis of a declaration given by any assessee in the prescribed Form No. 13-C declaring that its income is likely to be below the taxable limits. The assessing authority is not required to adjudicate upon the issue of eligibility of grant of exemption under any of the provisions of Income-tax Act, 1961. The assessee has not even submitted a copy of the application submitted to the ITO for such purpose nor it has submitted copies of any correspondence in relation to obtaining of such an authorisation from the ITO. In any event, the issue of an authorisation by the ITO on the basis of a declaration submitted by the assessee in the prescribed form is of no relevanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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