ITO, Kasargode V. M/s.Nileswar Range Kallu Chethu Vyavasaya Thozhilali sahakarana Sangham, Kasargode

ITA 547/COCH/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73845 (ITAT-COCHIN)
• Duration Of Justice: 4 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2014
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 04-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-09-2013
• Court: TRIBUNAL
• Department Lawyers: K K JOHN
• Assessee Lawyers: M C JACOB
• Keywords: Business income
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 547 & 548/COCH/2013 ASSESSMENT YEAR : 2008-09 THE I.T.O., WARD-1, KASARGOD. VS. 1.M/S. NILESHWAR RANGE KALLU CHETHU VYAVASAYA THOZHILALI SAHAKARANA SANGHAM, PALLIKKARE, NILESHWAR, KASARGOD DIST. [PAN: AAAAN 8969J] 2.M/S. HOSDURG RANGE KALLU CHETHU VYAVASAYA THOZHILALI SAHAKARANA SANGHAM, KOTTACHERRY, KANHANGAD, KASARGOD DIST. [PAN: AAAAH 4840A] (REVENUE-APPELLANT) (ASSESSEE-RESPONDENT ) I.T.A. NO. 399/COCH/2013 ASSESSMENT YEAR : 2009-10 THE I.T.O., WARD-2, KANNUR. VS. M/S. THE PERAVOOR RANGE KALLU CHETHU VYAVASAYA THOZHILALI SAHAKARANA SANGHAM, PERAVOOR, THALASSERY, KANNUR-670 673. [PAN: AABTP 5109L] (REVENUE -APPELLANT) (ASSESSEE-RESPONDEN T) REVENUE BY SHRI K.K. JOHN SR. DR ASSESSEE BY SHRI M.C. JACOB, CA AND SHRI GEORGE THOMAS, CA DATE OF HEARING 04/12/2013 DATE OF PRONOUNCEMENT 17/01/2014 I.T.A. NO.547,548 & 399/COCH/2013 2 O R D E R 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 T HE ASSESSMENT YEAR 2008- 09 AND OTHER TWO APPEALS RELATE TO THE ASSESSMENT Y EAR 2009-10. 2. SINCE THE MAIN ISSUE URGED IN THESE APPEALS IS I DENTICAL IN NATURE, THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY TH IS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 3. THE APPEALS NUMBERED AS I.T.A NOS. 547 & 548/COC H/2013 ARE BARRED BY LIMITATION BY 127 DAYS. THE REVENUE HAS FILED PETI TIONS REQUESTING THE BENCH TO CONDONE THE DELAY. IT IS SUBMITTED IN THE PETITION S THAT THE APPEAL DOCUMENTS WERE MISTAKENLY FORWARDED TO THE OFFICE OF THE SR. AUTHORISED REPRESENTATIVE INSTEAD OF SENDING THE SAME TO THE ASSISTANT REGIST RAR, ITAT. IT IS FURTHER SUBMITTED THAT THE CONCERNED INCOME-TAX OFFICER, WH O WAS HOLDING ADDITIONAL CHARGE, DID NOT TAKE NOTICE OF THE ABOVE MISTAKE BY OVERSIGHT. ACCORDINGLY IT IS SUBMITTED THAT THE DELAY IN FILING THE APPEALS WAS NOT INTENTIONAL AND ACCORDINGLY, IT WAS PRAYED THAT THE DELAY MAY BE CONDONED. WE HEARD THE PARTIES ON THIS PRELIMINARY ISSUE. HAVING REGARD TO THE SUBMISSION S MADE IN THE PETITIONS, WE CONDONE THE DELAY AND ADMIT THE APPEALS FOR HEARING . 4. THE MAIN ISSUE URGED IN THESE APPEALS IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THESE ASSESSEES ARE ENTIT LED FOR DEDUCTION U/S. 80P(2)(A)(VI) OF THE INCOME TAX ACT. IT MAY BE NOT ICED THAT THE SAID PROVISION IS APPLICABLE TO A CO-OPERATIVE SOCIETY ENGAGED IN THE COLLECTIVE DISPOSAL OF I.T.A. NO.547,548 & 399/COCH/2013 3 THE LABOUR OF ITS MEMBERS . THE LD CIT(A) HAS HELD THAT THESE ASSESSEES FALL IN THE CATEGORY OF CO-OPERATIVE SOCIETY ENGAGED IN THE COLLECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS. 5. THE FACTS RELATING TO THE ASSESSEES ARE STATED I N BRIEF. ALL THE THREE ASSESSEES ARE CO-OPERATIVE SOCIETIES AND THEY ARE M AINLY ENGAGED IN TAPPING AND SALE OF TODDY. THE ASSESSEE-SOCIETIES ACQUIRE THE RIGHT TO TAP TODDY FROM COCONUT TREES BELONGING TO THE AGRICULTURISTS ON PA YMENT OF A FIXED AMOUNT PER TREE, WHICH IS CALLED LOCALLY AS KULAPATTAM. IT I S PERTINENT TO NOTE THAT THESE AGRICULTURISTS ARE NOT MEMBERS OF THE SOCIETIES. HO WEVER, THE MEMBERS OF THE ASSESSEE-SOCIETIES, WHO ARE ALSO EMPLOYEES OF THE S OCIETIES, UNDERTAKE THE WORK OF TAPPING THE TODDY. THESE SOCIETIES COLLECT, ST ORE AND SELL THE TODDY TAPPED BY MEMBERS AS WELL AS NON-MEMBERS. THESE SOCIETIES HO LD THE LICENSE FROM THE EXCISE DEPARTMENT FOR TAPPING AND SELLING TODDY. TH E SOCIETIES HAVE OBTAINED LICENSE FROM GOVERNMENT OF KERALA TO SELL TODDY THR OUGH SEVERAL RETAIL TODDY SHOPS. THE PAYMENTS MADE TO THE MEMBERS FOR COLLEC TION OF TODDY ARE INCLUDED IN THE WAGES. THE PAYMENTS MADE TO NON-MEMBERS FOR THE TODDY COLLECTED BY THEM ARE ACCOUNTED AS PURCHASES. 6. THESE SOCIETIES INITIALLY CLAIMED BEFORE THE ASS ESSING OFFICER THAT THEIR INCOME IS EXEMPT U/S 80P(2)(V) OF THE ACT, AS THEY ARE ENGAGED IN HE PROCESSING, WITHOUT AID OF POWER, OF THE AGRICULTUR AL PRODUCE OF ITS MEMBERS. HOWEVER, THE ASSESSING OFFICER, BY PLACING RELIANCE ON THE FULL BENCH DECISION OF MADRAS HIGH COURT IN THE CASE OF CIT VS. YAGAPPA NA DAR AIR 1927, REJECTED THE SAID CONTENTIONS OF THE ASSESSEES. THEN THESE ASSE SSEES TOOK ALTERNATIVE STAND BEFORE AO THAT THE ACTIVITIES CARRIED ON BY THEM FA LLS IN THE CATEGORY OF COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS AND ACCORDINGLY C LAIMED 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 I.T.A. NO.547,548 & 399/COCH/2013 4 SUBMISSIONS MADE BY THE ASSESSEES AND ACCORDINGLY H ELD 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 ADJUDICA TE 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 UND ER THE LICENSE OBTAINED FROM EXCISE DEPARTMENT. HE FURTHER SUBMITTED THAT THESE S OCIETIES ACQUIRE RIGHT TO TAP TODDY FROM COCONUT TREES BELONGING TO AGRICULTURIST S ON PAYMENT OF A FIXED AMOUNT. THEY ENGAGE THE WORKERS FOR TAPPING TODDY FROM THE TREES. THE WORKER GROUP CONSISTS OF BOTH MEMBERS OF THE ASSESS EE SOCIETIES AND ALSO NON- MEMBERS. THE WORKERS WHO ARE MEMBERS ARE PAID REMU NERATION BASED UPON THEIR OUTPUT OF TODDY. ACCORDINGLY HE SUBMITTED THA T THESE SOCIETIES HAVE GENERATED INCOME FROM SALE OF TODDY ONLY. THE LD D .R SUBMITTED THAT AS PER THE PROVISIONS OF SEC. 80P(2)(A)(VI) OF THE ACT, THE IN COME GENERATED BY THE CO- OPERATIVE SOCIETIES SHOULD BE ENGAGED IN THE COLLEC TIVE DISPOSAL OF LABOUR IS DEDUCTIBLE. HOWEVER, IN THE INSTANT CASES, NO INCO ME IS GENERATED ON COLLECTIVE DISPOSAL OF LABOUR, BUT THE INCOME WAS GENERATED ON SALE OF TODDY ONLY. HE SUBMITTED THAT MERE EMPLOYMENT OF MEMBERS AS WORKER S CANNOT BE CONSIDERED AS COLLECTIVE DISPOSAL OF LABOUR, AS IT, PER SE, DOES NOT GENERATE ANY INCOME. 7.1 THE LD D.R FURTHER SUBMITTED THAT THESE SOC IETIES ARE GOVERNED BY THE KERALA CO-OPERATIVE SOCIETIES ACT AND RULES. UNDER THE SAID ACT, THE SOCIETIES ARE CLASSIFIED INTO VARIOUS CATEGORIES ON THE BASIS OF THEIR OBJECTIVES. ONE OF THE CLASSIFICATIONS IS LABOUR CONTRACT CO-OPERATIVE SO CIETIES, WHICH IS AKIN TO I.T.A. NO.547,548 & 399/COCH/2013 5 COLLECTIVE DISPOSAL OF LABOUR. HOWEVER, THE PRES ENT ASSESSEES HAVE BEEN CLASSIFIED AS MISCELLANEOUS SOCIETIES AND NOT AS LABOUR CONTRACT CO-OP SOCIETIES UNDER THE KERALA CO-OPERATIVE SOCIETIES ACT. ACCORDINGLY, THE LD D.R SUBMITTED THAT THE NATURE OF CLASSIFICATION GIVEN U NDER THE STATE ACT CLEARLY PROVES THAT THEY CANNOT BE CONSIDERED AS SOCIETIES ENGAGED IN THE COLLECTIVE DISPOSAL OF LABOUR. 7.2 THE LD D.R FURTHER SUBMITTED THAT THE MEMBE RS OF THE SOCIETY HAVE BEEN EMPLOYED BY THESE SOCIETIES FOR TAPPING TODDY ON PA YMENT OF WAGES. IF THE CONTENTION OF THE ASSESSEE THAT THE EMPLOYMENT OF M EMBERS WOULD AMOUNT TO COLLECTIVE DISPOSAL OF LABOUR IS ACCEPTED FOR A MOM ENT, IT WOULD LEAD TO AN ANOMALOUS SITUATION WHERE THE CO-OPERATIVE SOCIETIE S MENTIONED IN SEC. 80P(2)(A)(I TO V) AND (VII) CAN ALSO CLAIM THAT THE Y ARE EXEMPT UNDER SEC. 80P(2)(A)(VI) OF THE ACT. LD D.R SUBMITTED THAT SE C. 80P(2)(A)(VII) PROVIDES FOR DEDUCTION OF WHOLE AMOUNT OF THE PROFITS AND GAINS OF BUSINESS ATTRIBUTABLE TO THE FOLLOWING ACTIVITY:- FISHING OR ALLIED ACTIVITIES, THAT IS TO SAY, THE CATCHING, CURING, PROCESSING, PRESERVING, STORING OR MARKETING OF FISH OR THE PUR CHASE OF MATERIALS AND EQUIPMENT IN CONNECTION THEREWITH FOR THE PURPOSE O F 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 FIS H, 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 A CTIVITIES, THE LABOUR OF THE MEMBERS ( AS WORKERS OF THE SOCIETIES) ARE FULLY UT ILIZED. HE SUBMITTED THAT THE CONTENTION OF THE ASSESSEE, IF ACCEPTED FOR A MOMEN T, THERE WAS NO NECESSITY FOR THE PARLIAMENT TO INSERT CLAUSE (VII) REFERRED ABOV E IN SEC. 80P(2)(A) OF THE ACT. I.T.A. NO.547,548 & 399/COCH/2013 6 7.3 THE LD D.R FURTHER SUBMITTED THAT THE PURPO SE OF INTRODUCTION SEC 80P(2)(A)(VI) IS TO EXEMPT THE INCOME OF CO-OP SOCI ETIES 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 G ROUP 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 COLLECTIVE DISPOSAL OF LABOUR. HE SUBMITTED THAT THE EMPLOYME NT OF MEMBERS AS WORKERS IS AN INCIDENTAL ACTIVITY FOR THESE ASSESSEES IN THE C OURSE OF EARNING INCOME OUT OF SALE OF TODDY. HE FURTHER SUBMITTED THAT THE RESUL TANT PROFIT IS NOT SHARED BY THE LABOURER MEMBERS ALONE. THE LD D.R FURTHER SUBMIT TED THAT THE OBJECT OF INTRODUCTION OF SEC. 80P(2)(A)(VI) WAS EXPLAINED IN THE CIRCULAR NO.72 DATED 6 TH JANUARY, 1972 ISSUED BY THE CBDT, WHEREIN IT IS, IN TER ALIA, CLARIFIED AS UNDER:- 86. WITH A VIEW TO PROMOTING SELF HELP AMONG PERS ONS OF SMALL MEANS WHO FORM CO-OPERATIVE SOCIETIES FOR THE COLLECTIVE DISPOSAL OF THEIR LABOUR, OR FISHING AND ALLIED ACTIVITIES, SECTION 80P HAS B EEN AMENDED BY SECTION 22 OF THE FINANCE (NO.2) ACT, 1971 SO AS TO EXEMPT FROM TAX THE BUSINESS INCOME OF LABOUR CO-OPERATIVE SOCIETIES AND ALSO CO -OPERATIVE SOCIETIES ENGAGED IN FISHING AND OTHER ALLIED PURSUITS IN ORDER, HOWEVER, TO PREVENT ANY POSSIBLE MISUSE OF THE TAX CONCESSION B Y THOSE FOR WHOM IT IS NOT INTENDED, IT HAS BEEN PROVIDED THAT THE TAX CON CESSION WILL BE AVAILABLE ONLY IN THE CASES OF SUCH OF THESE CO-OPE RATIVE SOCIETIES AS, UNDER THEIR RULES AND BYE LAWS, RESTRICT THE VOTING RIGHTS TO MEMBERS WHO CONSTITUTE THE LABOUR FORCE OR ACTUALLY CARRY ON TH E FISHING OR OTHER ALLIED ACTIVITIES, THE STATE GOVERNMENT AND THE CO-OPERATI VE CREDIT SOCIETIES THAT PROVIDE FINANCIAL ASSISTANCE TO THEM. THE LD D.R SUBMITTED THAT THE CIRCULAR CITED ABOVE MAKES IT VERY CLEAR THAT THE PROVISIONS OF SEC. 80P(2)(A)(VI) WAS NOT INTENDED T O COVER ONLY LABOUR CO- OPERATIVE SOCIETIES AND TO THE SOCIETIES WHICH ENGA GE MEMBERS AS TODDY TAPPING WORKERS IN THE COURSE OF CARRYING ON THE BUSINESS O F SALE OF TODDY. 7.4 BY PLACING RELIANCE ON THE DECISION OF HONB LE SUPREME COURT IN THE CASE OF CIT VS. RAJASTHAN RAJYA BANKAR SAMITHI LTD (CIVIL A PPEAL NO.9485 OF 2003 DATED I.T.A. NO.547,548 & 399/COCH/2013 7 16-02-2010), THE LD D.R SUBMITTED THAT IT IS IMPERA TIVE TO EXAMINE THE BYE LAWS OF THE SOCIETY TO ASCERTAIN ITS OBJECTIVES. HE SUB MITTED THAT THE BYE LAWS OF THE PRESENT ASSESSEES DO NOT CONTAIN ANY CLAUSE OR AT L EAST ANY REFERENCE TO COLLECTIVE DISPOSAL OF LABOUR OF THE MEMBERS. 7.5 THE LD D.R FURTHER SUBMITTED THAT THE BYE L AWS OF THE ASSESSEES HEREIN DOES NOT RESTRICT THE VOTING RIGHTS TO THE THREE CL ASS OF MEMBERS SPECIFIED IN THE PROVISO TO SEC. 80P(2)(A) OF THE ACT VIZ., (A) THE INDIVIDUALS WHO CONTRIBUTE THEIR LABOUR OR, AS THE CASE MAY BE, CARRY ON THE FISHING OR ALLIED ACTIVITIES; (B) THE CO-OPERATIVE CREDIT SOCIETIES WHICH PROVID E FINANCIAL ASSISTANCE TO THE SOCIETY; (C) THE STATE GOVERNMENT. THE LD D.R SUBMITTED THAT THE VOTING RIGHT IN THE C ASE OF ASSESSEES HEREIN IS OPEN TO ALL MEMBERS. SINCE THERE IS VIOLATION OF T HE CONDITION PRESCRIBED IN THE PROVISO TO SEC. 80P(2)(A) OF THE ACT, ON THAT GROUN D ALSO, THESE SOCIETIES ARE NOT ENTITLED TO DEDUCTION U/S 80P OF THE ACT, AS HELD B Y HONBLE GUJARAT HIGH COURT IN THE CASE OF GORA VIBHAG JUNGLE KAMDAR MANDAL VS. CI T (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 SAHA KARANA 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. WI TH REGARD TO THE CONTENTION OF THE LD D.R THAT THE PURCHASES ARE MADE FROM NON-MEM BERS ALSO, THE LD A.R SUBMITTED THAT THE PROVISIONS OF SEC. 80P DO NOT BA R SUCH KIND OF PURCHASES, I.E., SO LONG AS THE SOCIETY IS ENGAGED IN COLLECTIVE DIS POSAL OF LABOUR OF ITS MEMBERS, THERE IS NO RESTRICTION IN DEALING WITH OTHER PERSO NS. THE LD A.R ALSO SUBMITTED I.T.A. NO.547,548 & 399/COCH/2013 8 THAT THERE IS NO REQUIREMENT TO REFER TO KERALA CO- OP SOCIETIES ACT, SO LONG AS THE ASSESSEE COMPLIES WITH THE REQUIREMENT OF INCOME TA X ACT. 9. THE LD COUNSEL FOR THE ASSESSEES SHRI M.C. JA COB, APPEARING FOR THE REMAINING TWO ASSESSEES, SUBMITTED THAT THESE SOCIE TIES HAVE BEEN FORMED TO TAKE CARE OF FINANCIAL AND SOCIAL WELFARE OF TODDY WORKS WITHIN ITS JURISDICTION. THE MEMBERSHIP IS GRANTED ONLY TO TODDY TAPPERS, WH O ARE RECOGNIZED BY THE TODDY WORKERS WELFARE FUND BOARD. THESE PERSONS A RE GIVEN A CLASS MEMBERSHIP AND THE VOTING RIGHTS ARE RESTRICTED TO A CLASS MEMBERS ONLY. HE SUBMITTED THAT THE MEMBERS THEMSELVES LOCATE THE CO CONUT TREES IN THEIR RESPECTIVE EXCISE RANGES. HOWEVER, THE LEASE RENT ( KALLUPATTAM) IS PAID BY THE SOCIETY. THEREAFTER THE LABOUR OF THE MEMBERS IS A PPLIED IN THE ACTIVITY OF PREPARING THE LEASED COCONUT TREES FOR TAPPING OF T ODDY. THUS, THE MEMBERS OF THE SOCIETY APPLY THEIR COLLECTIVE LABOUR BY CLIMBI NG THE TREES AT REGULAR INTERVALS FOR TAPPING THE TREE AND EXTRACTING TODDY. THE TOD DY SO EXTRACTED IS POOLED TOGETHER AND MARKETED THROUGH THE VARIOUS RETAIL OU TLETS (TODDY SHOPS). 9.1 THE LD COUNSEL FURTHER SUBMITTED THAT THE F UNDS GENERATED OUT OF TODDY SALES IS FULLY APPLIED TO THE ACTIVITIES OF THE SOC IETY, VIZ., MEETING EXPENSES FOR TAPPING THE TODDY AND ALSO ON WELFARE ACTIVITIES OF LABOURER MEMBERS. 9.2 THE LD COUNSEL REFERRED CERTAIN CASE LAWS, W HICH ARE AGAINST THE ASSESSEE, AND SUBMITTED THAT THEY ARE DISTINGUISHABLE. HE AL SO PLACED RELIANCE ON CERTAIN CASE LAWS TO SUPPORT HIS CONTENTIONS. THE RELEVANT PORTION OF ARGUMENTS OF LD A.R, GIVEN IN HIS WRITTEN SUBMISSIONS ON VARIOUS CA SE LAWS, IS EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE:- A . IN THE CASE M/S. BANGALORE RURAL INDUSTRIAL SUPPLY & MARKETING CO-OPERATIVE SOCIETY LTD. I.T.A. NOS. 726, 727 & 744/BANG/2010, THE HON. ITAT BANGALORE BENCH A HAD CONSIDERED AN IDE NTICAL SITUATION. I.T.A. NO.547,548 & 399/COCH/2013 9 IT WAS A CASE OF CO-OPERATIVE SOCIETY, ENGAGED IN P ROVIDING MARKETING ASSISTANCE TO ITS MEMBERS WHO ARE CARRYIN G ON ARTISAN WORKS. IT ASSISTS THE MEMBERS BY MARKETING THE PRO DUCTS MANUFACTURED BY THEM TO VARIOUS GOVERNMENT DEPARTME NTS, IN EXHIBITIONS ETC. THE HON. TRIBUNAL HAVE ENTERED IN TO A FINDING THAT THE ACTIVITY OF THE SOCIETY IS ENTITLED TO DEDUCTIO N U/S. 80P(2)(A)(VI). B. NILAGIRI ENGINEERING CO-OPERATIVE SOCIETY LTD. V S. CIT (1994) 208 ITR 326 (ORISSA) IN THIS CASE THE HON. HIGH COURT OF ORISSA HAS CONS IDERED THE MEANING OF SECTION 80P(2)(A)(VI) AND OBSERVED AS FOLLOWS. THE ELIGIBILITY TO EARN EXEMPTION IS WHERE THE WHO LE AMOUNT OF PROFITS AND GAINS OF A BUSINESS IS ATTRIBUTABLE TO THE COLL ECTIVE DISPOSAL OF THE LABOUR OF ITS MEMBERS. THE WORDS ARE VERY CLEAR AN D ONLY MEAN THAT THE EARNING OF THE SOCIETY MUST HAVE BEEN THROUGH U TILIZATION OF THE ACTUAL LABOUR OF ITS MEMBERS. WE AGREE WITH LEARNE D COUNSEL FOR THE PETITIONER THAT THE LABOUR NEED NOT ALWAYS BE MANUA L. BUT THEN, BE IT MANUAL OR OTHERWISE, THE GUIDING FACTOR MUST BE THA T THE EARNING OF THE SOCIETY MUST BE THROUGH UTILIZATION OF THE PART ICULAR KIND OF LABOUR IN WHICH THE MEMBERS ARE SPECIALIZED. AN EXAMPLE W OULD ILLUSTRATE THIS. IF THERE IS A CO-OPERATIVE SOCIETY OF UNEMPL OYED MATHEMATICS GRADUATES WHO FORM A SOCIETY, WRITE OUT TEXT BOOKS OF MATHEMATICS AND EARNING IS MADE OUT OF THE TEXT BOOKS, THE EARN ING MAY BE SAID TO BE ATTRIBUTABLE TO DISPENSATION OF LABOUR OF THE ME MBERS DIRECTLY. SIMILARLY, IF THE MEMBERS BELONG TO ANY OTHER DISCI PLINE, THE WORK EXECUTED IN ACTUAL APPLICATION OF THE DISCIPLINE WO ULD BE DISPOSAL OF LABOUR OF THE MEMBERS. ON THE OTHER HAND, IF THE MEMBERS ARE MANUAL LABOURERS AS IN A LABOUR CONTRACT SERVICE CO -OPERATIVE SOCIETY, AND THE WORK UNDERTAKEN IS EXECUTED BY THE MANUAL L ABOUR OF THE MEMBERS, THE WHOLE OF ITS INCOME WOULD BE EXEMPTED. A POWER OF DISPOSAL ALWAYS PRE-SUPPOSES THE POSSESSION OF SOME THING TO BE DISPOSED OF. IT IS ONLY WHEN COLLECTIVE DISPOSAL IS MADE OF SUCH A DISPOSABLE COMMODITY OVER WHICH THE SOCIETY HAS CON TROL AS INHERING IN ITS MEMBERS THAT THE INCOME IS DIRECTLY ATTRIBUTABL E AND TO SUCH DISPOSAL BY THE SOCIETY THE BENEFIT IS EARNED. THE SOCIETY CANNOT BE SAID TO HAVE AT ITS DISPOSAL, IN THAT MANNER, THE L ABOUR OF PAID EMPLOYEES AS THEY ARE NOT ITS MEMBERS. (EMPHASIS SUPPLIED). HAVING OBSERVED AS ABOVE THE DECISION WENT AGAINST THE ASSESSEE- APPELLANT BECAUSE: I.T.A. NO.547,548 & 399/COCH/2013 10 SINCE THE MEMBERS THEMSELVES DID NOT EXERT THEIR O WN LABOUR IN THE EXECUTION OF THE WORK BUT AS HAS BEEN FOUND BY THE STATUTORY FORUMS, THEY ONLY CONFINED THEMSELVES TO OVERALL SU PERVISION MOSTLY AT THE OFFICE LIKE ANY OTHER PRUDENT BUSINESSMEN, I T HAS TO BE TAKEN THAT THE SPECIALTY OF THEIR DISCIPLINE WAS NEVER PU T TO LABOUR IN THE EXECUTION OF THE WORK. BEFORE THE HON. ORISSA HIGH COURT THE ISSUE WAS REL ATING TO AN ENGINEERING CO-OPERATIVE SOCIETY OF UNEMPLOYED DIPL OMA HOLDERS IN ENGINEERING. THE ENGINEERS DID NOT ACTUALLY EXERT THEIR OWN LABOUR IN THE EXECUTION OF THE WORK, BUT ONLY DID SUPERVISION . THE WORK WAS EXECUTED BY DEPLOYING OUTSIDE LABOURS THROUGH SUB-C ONTRACT. THEREFORE THE DECISION WAS NOT IN FAVOUR OF THE ASS ESSEE. IN THE CASE BEFORE THIS THE HON. TRIBUNAL, THE MEMB ERS OF THE SOCIETY ARE MANUAL LABOURS, WHO HAVE PUT IN THEIR OWN LABOU R AND THEREFORE THERE IS DISPOSAL OF THE LABOUR OF MEMBERS. C) GORA VIBHAG JUNGLE KAMDAR MANGAIL VS. COMMER. 161 I TR 658 THE ASSESSEE SOCIETY WAS A SOCIETY FORMED WITH A VI EW TO GIVE EMPLOYMENT AS WELL AS PROPER REMUNERATION TO THE AD HIVASIS WHO LIVED AND WORKED IN THE FOREST AND WERE EXPLOITED BY FORE ST CONTRACTORS. THE FORMATION OF THE SOCIETY WAS A SORT OF A WELFAR E MEASURE TO HELP ADHIVASIS. THE SOCIETY CLAIMED ELIGIBILITY FOR THE BENEFIT OF SEC. 80P(2)(VI). BUT THE CLAIM WAS NOT ADMITTED BY THE ASSESSING AUTHORI TY BECAUSE THE BYE-LAW PERMITTED MEMBERSHIP TO SOCIAL WORKERS WORK ING FOR THE WELFARE OF ADHIVASI. THE FIRST APPELLATE AUTHORITY FOUND FAVOUR WITH THE ASSESSEE. THE MATTER WAS CARRIED TO HIGH COURT OF GUJARAT. THE COURT DID NOT ALLOW THE BENEFIT SINCE THE BYE-LAW PERMITT ED 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 DIS POSAL OF THE LABOUR OF ITS MEMBERS. THE ASSESSEE (APEX SOCIETY) WAS HELD TO BE ENGAGED IN PROVIDING COLLECTIVE LABOUR OF ITS MEMBE RS. FOR THIS PURPOSE I.T.A. NO.547,548 & 399/COCH/2013 11 THE MEMBER NEED NOT BE THE PERSONS PROVIDING THE IN DIVIDUAL 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 OFFIC ER (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. TH E 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 SEC TION 80P(2)(A)(VI) BECAUSE THE ALL 13 MEMBERS OF THE SOCIETY WHERE CLA SS I OFFICERS POSSESSING RICH TECHNICAL EXPERIENCE AND DRAWING HA NDSOME SALARY FROM ONGC. THE SOCIETY ALSO EMPLOYED 40 TO 60 LABO URERS OF DAILY WAGES. THE HON. TRIBUNAL HELD THAT THE PRINCIPLES AND INTENTION OF THE LEGISLATION DOES NOT WARRANT THE BENEFIT OF SECTION 80P(2)(A)(VI) TO SUCH A SOCIETY. F) . IN THE CASE OF PALGHAT FOOD CORPORATION OF INDIAN LABOUR CONTRACT CO-OPERATIVE SOCIETIES LTD. (2004) ITR 315 (KERALA) , IT WAS A CASE OF THE SOCIETY FORMED BY LABOURERS FO R UNDERTAKING MANUAL LABOUR FOR FOOD CORPORATION OF INDIA. THE H C FOUND THAT IT WAS A LABOUR SOCIETY. HOWEVER IN THAT CASE THERE WAS A LSO A DISPUTE ABOUT APPLICATION OF THE PROVISIONS FOR RESTRICTION OF VO TING RIGHTS IN THE BYE- LAW. THE HIGH COURT DIRECTED TO ASSESSING AUTHORIT Y TO EXAMINE THIS ISSUE. G). IN THE ORALUNGAL LABOUR CONTRACT CO-OPERATIVE SOCIETY CASE (2010) KHC 59 , HC FOUND WHERE THE WORKERS SOCIETY UNDERTOOK CIVIL CONSTRUCTION WORKS AND WERE DOING T HE WORK THEMSELVES, ANSWERS THE ACTIVITY REFERRED TO IN SEC TION 80P(2)(VI). 9.3 WITH REGARD TO THE REFERENCE MADE BY LD D.R TO THE KERALA CO-OP SOCIETIES ACT, THE LD A.R SUBMITTED THAT THE STATE ACT WAS NO T IN EXISTENCE WHEN THE CENTRAL LAW WAS INTRODUCED. FURTHER HE SUBMITTED T HAT THE INCOME TAX ACT, BEING CENTRAL ENACTMENT, THE PROVISIONS OF THE SAME CANNO T BE READ WITH A STATE ENACTMENT. I.T.A. NO.547,548 & 399/COCH/2013 12 10. WE HAVE HEARD RIVAL CONTENTIONS AND CAREFUL LY PERUSED THE RECORD. WE NOTICE THAT THE DISPUTE IS WITH REGARD TO THE INTER PRETATION OF THE WORDS COLLECTIVE DISPOSAL OF LABOUR. ON A PERUSAL OF T HE VARIOUS CASE LAWS RELIED UPON BY BOTH THE PARTIES, WE NOTICE THAT THE WORDS COLLECTIVE DISPOSAL OF LABOUR HAVE BEEN EXPLAINED IN THE FOLLOWING DECISIONS:- (A) NILAGIRI ENGINEERING CO-OPERATIVE SOCIETY LTD. VS. CIT (1994) 208 ITR 326 (ORISSA) . THE RELEVANT OBSERVATIONS MADE BY THE HONBLE OR ISSA HIGH COURT ARE EXTRACTED IN THE PRECEDING PARAGRAPH . AT THE COST OF REPETITION, WE EXTRACT BELOW CERTAIN OBSERVATIONS, WHICH WE CON SIDER AS MOST RELEVANT:- (I) THE ELIGIBILITY TO EARN EXEMPTION IS WHERE THE WHOLE AMOUNT OF PROFITS AND GAINS OF A BUSINESS IS ATTRIBUTABLE TO THE COLL ECTIVE 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 U TILIZATION OF THE ACTUAL LABOUR OF ITS MEMBERS. (II) THE GUIDING FACTOR MUST BE THAT THE EARNING O F THE SOCIETY MUST BE THROUGH UTILIZATION OF THE PARTICULAR KIND OF LABOU R 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 COLLEC TIVE 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 I TD 557)(AHD). THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNAL AT P ARA 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-OPERATI VE SOCIETY FROM THE ACTIVITY OF DISPOSAL OF COLLECTIVE LABOUR OF ITS ME MBERS. 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 A CTUAL WORKERS / LABOURERS TO FORM CO-OPERATIVE SOCIETY FOR THE COLL ECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS. THE MEANING OF TERM LABOUR OR L ABOURERS IN A WELFARE I.T.A. NO.547,548 & 399/COCH/2013 13 SOCIETY IS WELL KNOWN. IT IS MEANT FOR THOSE ACTUAL WORKMEN / LABOURERS, WHO FORM A CO-OPERATIVE SOCIETY AND DERI VES INCOME FROM COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS AND NOT MEANT FOR THOSE ANCILLARY INDUSTRIAL UNITS CONSTITUTED BY HIG HLY PAID TECHNICAL EXPERTS AND SKILLED PERSONS, WHO REGULARLY EMPLOY LARGE NUM BER OF DAILY WAGE EARNING LABOURERS FOR CARRYING OUT THE TECHNICAL JO B WORK OF DRILLING OF OIL WELLS WITH THE AID OF SOPHISTICATED MACHINERIES LIK E DRILLING RIGS ETC. IN ORDER TO BE ELIGIBLE FOR GRANT OF THIS EXEMPTION, T HE ACTIVITY OF THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS S HOULD BE THE SOLE OR THE MAIN PROFIT MAKING APPARATUS, AS DISTINGUISHED FROM THE INCOME DERIVED BY THE APPELLANT SOCIETY FROM THE CO MPOSITE AND INDIVISIBLE ACTIVITIES OF (I) PROVIDING THE HIGHLY TECHNICAL KN OWLEDGE AND EXPERIENCE, THE TECHNICAL KNOWHOW, THE TECHNICAL EXPERTISE AND SPECIALIZED PROFESSIONAL SKILL OF ITS MEMBERS WHO ARE CLASS-I O FFICERS OF ONGC, (II) 10.1. FROM THE PRINCIPLES DISCUSSED IN THE ABOVE CITED TWO DECISIONS, IT MAY BE CLEAR THAT, IN ORDER TO CLAIM DEDUCTION U/S 80P(2)( A)(VI) OF THE ACT, IT IS IMPERATIVE THAT THE EARNING OF THE SOCIETY MUST HAV E BEEN THROUGH UTILIZATION OF ACTUAL LABOUR OF ITS MEMBERS. THE OBSERVATIONS MAD E BY THE HONBLE HIGH COURT THAT WHAT CAN BE DISPOSED IS THE POWER WHICH ONE P OSSESSES IS ALSO VERY PERTINENT. FURTHER THERE MUST BE COLLECTIVE DISPOS AL OF THE SAME. 10.2 HENCE, THE EARNING OF THE CO-OPERATIVE SOCI ETY MUST BE THROUGH UTILIZATION OF PARTICULAR KIND OF LABOUR IN WHICH THE MEMBERS ARE SPECIALIZED AND THEN ONLY THE SAID EARNING WOULD BE DEDUCTIBLE U/S 80P(2)(A)( VI) OF THE ACT. THUS, IN ORDER TO BE ELIGIBLE FOR GRANT OF THIS EXEMPTION, THE AC TIVITY OF THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS SHOULD BE THE SOLE OR THE MA IN PROFIT MAKING APPARATUS. 11. NOW WE SHALL EXAMINE THE FACTS PREVAILING I N THE INSTANT CASES IN THE LIGHT OF PRINCIPLES DISCUSSED ABOVE. THE OBSERVATIONS MA DE BY THE ASSESSING OFFICER WITH REGARD TO THE FACTS PREVAILING IN THE CASE OF M/S. NILESHWAR RANGE KALLU CHETHU VYAVASAYA THOZHILALI SAHAKARANA SANGHAM ARE EXTRACTED BELOW, FOR THE SAKE OF CONVENIENCE. THERE IS NO DISPUTE THAT THE FACTS ARE IDENTICAL IN ALL THE THREE CASES. I.T.A. NO.547,548 & 399/COCH/2013 14 8. THE MEMBERS OF THE SOCIETY ARE ALSO WORKING A S EMPLOYEES AND ARE BEING PAID REMUNERATION BASED ON THEIR OUTPUT OF TO DDY. 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 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 A LSO PURCHASING TODDY FROM OUTSIDE. THE COMPENSATION BY WAY OF WAG ES PAID TO MEMBERS DEPENDS ON THE QUANTITY OF TODDY SUPPLIED B Y THEM TO THE SOCIETY. TODDY IS ALSO PURCHASED FROM OUTSIDE. TH E DIFFERENCE BETWEEN THE PURCHASE PRICE PER LITRE OF TODDY AND THE COMPE NSATION 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 RE ASONS THE ASSESSEE CANNOT BE CONSIDERED TO BE A SOCIETY ENGAGED IN THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS OR IN ANY OTHER ACTIVITY A S 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 OFFIC ER, THE MAIN OBJECTIVES OF THE SOCIETY, AS FOUND IN THE REGISTERED BYE-LAWS, ARE T O RUN TODDY SHOPS UNDER LICENCE OBTAINED FROM EXCISE DEPARTMENT, PURCHASE IM PLEMENTS FOR TAPPING TODDY FOR USE OF MEMBERS; ARRANGE BUILDINGS, FURNITURE AN D VEHICLES FOR SETTING UP TODDY SHOPS ETC. THE ASSESSING OFFICER HAS ALSO NO TICED THAT THE MAIN ACTIVITY OF THE ASSESSEES WAS FOUND TO BE PROCURING AND SELLING TODDY. THUS, ACCORDING TO THE ASSESSING OFFICER, THE PROFIT EARNING ACTIVITY OF THE ASSESSEES IS TRADING IN TODDY. 12. THE CONTENTION OF THE ASSESSEES IS THAT THE TODDY IS PROCURED BY LABOUR OF ITS MEMBERS AND HENCE THERE IS COLLECTIVE DISPOSAL OF LABOUR. ACCORDING TO THE ASSESSEES, THE MEMBERS ARE SPECIALIZED IN A PARTICU LAR DISCIPLINE, I.E., TAPPING OF TODDY. THE SOCIETY HAS APPLIED THE LABOUR OF ITS M EMBERS DIRECTLY TO TAKE THE COCONUT TREES ON LEASE AND PREPARE THEM FOR TAPPING . IN THAT PROCESS, THE I.T.A. NO.547,548 & 399/COCH/2013 15 SOCIETY HAS OBTAINED A DISPOSABLE COMMODITY, I.E., TODDY, OVER WHICH THE SOCIETY HAS CONTROL. THUS, ACCORDING TO THE ASSESSEES, THE TODDY IS THE OUTCOME OF DEPLOYING THE LABOUR OF ITS MEMBERS AND HENCE THERE IS COLLECTIVE DISPOSAL OF LABOUR. 12.1 HOWEVER, THE SAID CONTENTIONS OF THE ASSESS EES HAVE BEEN COUNTERED BY LD D.R BY INVITING OUR ATTENTION TO THE PROVISIONS OF SEC. 80P(2)(A)(VII) OF THE ACT, WHICH RELATE TO THE CO-OPERATIVE SOCIETIES ENGAGED IN FISHING OR ALLIED ACTIVITIES. WE HAVE ALREADY NOTICED THAT THE LD D.R HAS CONTEND ED THAT, IN THE CASE OF FISHING SOCIETIES ALSO, THE MEMBERS ARE SPECIALIZED IN A PARTICULAR DISCIPLINE, I.E., FISHING ACTIVITY. FURTHER THE FISHING SOCIETY WOULD APPLY THE LABOUR OF ITS MEMBERS IN FISHING AND OTHER PROCESSING ACTIVITIES. IN THAT PROCESS, IT WOULD GET A DISPOSABLE COMMODITY, OVER WHICH THE SOCIETY HAS CO NTROL OVER. ACCORDINGLY, THE LD D.R CONTENDED THAT THE ARGUMENTS ADVANCED BY LD A.R, IF ACCEPTED AS CORRECT FOR A MOMENT, THEN THERE WAS NO NECESSITY FOR THE P ARLIAMENT TO INSERT CLAUSE (VII) RELATING TO FISHING ACTIVITIES IN SEC. 80P(2) (A) OF THE ACT. THUS, ACCORDING TO LD D.R, MOST OF THE CO-OPERATIVE SOCIETIES USE THE LABOUR OF ITS MEMBERS ONLY IN CARRYING THEIR BUSINESS ACTIVITIES. HE SUBMITTED T HAT A CO-OPERATIVE BANK EARNS ITS INCOME BY GIVING LOAN ONLY TO ITS MEMBERS. SIM ILARLY THE COOPERATIVE SOCIETY ENGAGED IN MARKETING OF AGRICULTURAL PRODUCE GROWN BY ITS MEMBERS EARNS ITS INCOME ON SALE OF THE PRODUCT GROWN BY THE MEMBERS. HE SUBMITTED THAT IN THE ABOVE SAID CO-OPERATIVE SOCIETIES ALSO, THE SOCIETI ES 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 G ROUP 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 . I.T.A. NO.547,548 & 399/COCH/2013 16 13. THERE IS NO DISPUTE THAT THE ASSESSEES HERE IN 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 SOCIE TY MUST HAVE BEEN THROUGH UTILIZATION OF THE ACTUAL LABOUR OF ITS MEMBERS. A CCORDING TO THE ASSESSEE, THE TODDY ITSELF IS SALEABLE COMMODITY OBTAINED ON COLL ECTIVE ACTIVITY OF ITS MEMBERS AND ACCORDINGLY IT WAS CONTENDED THAT THE PROFIT EA RNED ON SALE OF TODDY SHOULD BE CONSIDERED AS THE INCOME GENERATED OUT OF COLLEC TIVE DISPOSAL OF LABOUR. HOWEVER, WE ARE UNABLE TO AGREE WITH THE SAID SUBMI SSIONS. 13.1 THE PROVISIONS OF SEC. 80P(2)(A)(VI) USES TH E TERMINOLOGY THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS. THE WORD LABO UR HAS NOT BEEN DEFINED IN THE ACT. THE AHMEDABAD BENCH OF TRIBUNAL HAS EXTRA CTED THE DEFINITION OF THE WORD LABOUR AS GIVEN IN THE WEBSTERS NEW TWENTIE TH CENTURY DICTIONARY UNABRIDGED SECOND EDITION AT PAGE 1010 AS UNDER IN THE CASE OF ORIENT BOREWELL CO-OPERATIVE. (SUPRA):- 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 CA PITAL OR MANAGEMENT. ALL MANUAL WORKERS WHOSE WORK IS CHARACTERIZED LARG ELY BY PHYSICAL EXERTION; DISTINGUISHED FROM WHITE-COLLAR OR PROFES SIONAL WORKERS. HAVING CONSIDERED THE ABOVE SAID DEFINITION, THE TR IBUNAL HAS OBSERVED THAT IT IS MEANT FOR THOSE ACTUAL WORKMEN / LABOURERS, WHO FOR M A CO-OPERATIVE SOCIETY AND DERIVES INCOME FROM COLLECTIVE DISPOSAL OF LABO UR OF ITS MEMBERS. THE HONBLE ORISSA HIGH COURT HAS TAKEN THE VIEW IN THE CASE OF NILAGIRI ENGINEERING CO-OPERATIVE SOCIETY LTD THAT THE LABOUR NEED NOT A LWAYS BE MANUAL. HOWEVER, IN THE INSTANT CASE, ACCORDING TO LD A.R, THE LABOU R EXERTED BY THE MEMBERS IS MANUAL ONLY. I.T.A. NO.547,548 & 399/COCH/2013 17 13.2 WE HAVE ALREADY NOTICED THAT THE HONBLE O RISSA HIGH COURT, IN THE CASE OF NILAGIRI ENGINEERING CO-OPERATIVE SOCIETY LTD. VS . CIT (SUPRA) HAS OBSERVED THAT A POWER OF DISPOSAL ALWAYS PRE-SUPPOSES THE POSSESSION OF SOMETHING TO BE DISPOSED OF. HENCE, IF ONE CAREFULLY CONSIDER THE WORDS COLLECTIVE DISPOSAL OF LABOUR, WHAT IS REQUIRED TO BE DISPOSED OF IS THE LABOUR . THUS, THE INCOME SHOULD HAVE BEEN GENERATED BY A CO-OPERATIVE BY UTILIZING THE LABOUR OF THE MEMBERS IN A COLLECTIVE MANNER, IF IT WANTS TO AVAIL DEDUCTION U/S 80P(2)(A)(VI) OF THE ACT. 13.3 HOWEVER, WE NOTICE THAT THE ASSESSEES HERE IN HAVE USED THE LABOUR OF ITS MEMBERS FOR TAPPING THE TODDY ON PAYMENT OF WAGES T O THEM. IF MEMBERS WERE NOT AVAILABLE, THESE ASSESSEES WOULD HAVE EMPLOYED NON-MEMBERS AS WORKERS FOR TAPPING THE TODDY. WE HAVE ALREADY NOTICED THA T THE TODDY HAS BEEN PURCHASED FROM NON-MEMBERS ALSO. THOUGH, THERE IS SOME MERIT IN THE CONTENTION THAT THERE WAS COLLECTIVE DISPOSAL OF LA BOUR WHILE TAPPING THE TODDY, YET THE FACT REMAINS THAT THE TAPPING OF TODDY, PER SE, HAS NOT GENERATED ANY INCOME TO THESE SOCIETIES. THUS THESE ASSESSEE SOC IETIES HAVE NOT GENERATED INCOME FROM THE ACTIVITY OF TAPPING OF TODDY, WHICH MIGHT INVOLVE COLLECTIVE DISPOSAL OF LABOUR. IN FACT, THESE SOCIETIES HAVE GENERATED INCOME ONLY THROUGH SALE OF TODDY. THERE SHOULD NOT BE ANY DISPUTE THA T THE ACTIVITIES OF TAPPING OF TODDY AND THE ACTIVITIES OF SALE OF TODDY ARE TWO D IFFERENT ACTIVITIES. AS CONTENDED BY THE LD D.R, THE MAIN OBJECTIVE OF THES E 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 REAS ONABLE WAGES ON TAPPING OF TODDY. HENCE, IN ORDER TO ACHIEVE THE SAID OBJECTI VES, 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 ENS URED THAT THE MEMBERS EARN REASONABLE WAGES. THUS, IN OUR VIEW, THESE SOCIETI ES HAVE ONLY GENERATED ONLY EMPLOYMENT OPPORTUNITIES TO ITS MEMBERS. I.T.A. NO.547,548 & 399/COCH/2013 18 13.4 IT IS NOT THE CASE THAT THESE SOCIETIES HAV E ENGAGED THEMSELVES IN THE BUSINESS OF TAPPING OF TODDY BY UTILIZING THE LABOU R 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 SAL E OF TODDY AND IN THAT PROCESS THEY HAVE ONLY GENERATED EMPLOYMENT OPPORTUNITIES T O ITS MEMBERS AND HAVE ENSURED THAT THE MEMBERS GET REASONABLE AMOUNT AS W AGES. THUS, IN OUR VIEW, THE EMPLOYMENT OPPORTUNITY GENERATED TO ITS MEMBERS CANNOT BE CONSIDERED AS COLLECTIVE DISPOSAL OF LABOUR. FURTHER, THE COL LECTIVE DISPOSAL OF LABOUR, PER SE, HAS NOT GENERATED ANY INCOME TO THESE SOCIETIES . ON THE CONTRARY, THESE SOCIETIES HAVE EARNED INCOME ONLY ON SALE OF TODDY, WHICH IS A NATURALLY OBTAINED PRODUCT FROM COCONUT TREES. 14. THE PARTIES HAVE INVITED OUR ATTENTION TO T HE TWO DECISIONS RENDERED BY THE HONBLE JURISDICTIONAL KERALA HIGH COURT. IN TH E CASE OF PALGHAT FOOD CORPORATION LTD (266 ITR 315)(KER), THE MEMBERS OF THE CO-OPERATIVE SOCIETY WERE LABOURERS AND THE SOCIETY UNDERTOOK CONTRACT W ITH FOOD CORPORATION OF INDIA. THE MEMBERS THEMSELVES EXECUTED THE LABOUR WORK TAKEN ON CONTRACT. THUS, IT CAN BE SEEN THAT, IN THIS CASE, THE SOCIET Y HAS TAKEN LABOUR CONTRACT WORKS AND THE SOCIETY EARNED INCOME ON EXECUTION OF LABOUR CONTRACT BY UTILIZING THE LABOUR OF ITS MEMBERS. HENCE THERE WAS COLLECT IVE DISPOSAL OF LABOUR. 14.1 IN THE CASE OF M/S URALUNGAL LABOUR CONTRAC T CO-OPERATIVE SOCIETY (ITA NO. 1722 OF 2009 DATED 29 TH OCTOBER, 2009)(KER), (2010 KHC 59), ALL THE MEMBERS WERE WORKERS AND THEY THEMSELVES ENGAGED IN EXECUTION OF CIVIL WORKS. HENCE THE HONBLE JURISDICTIONAL HIGH COURT HELD TH AT THE ABOVE SAID SOCIETY IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(VI) OF THE ACT . I.T.A. NO.547,548 & 399/COCH/2013 19 15. THE ASSESSEES HAVE ALSO PLACED RELIANCE IN T HE CASE OF M/S BANGALORE RURAL INDUSTRIAL SUPPLY & MARKETING CO-OPERATIVE SO CIETY, WHEREIN THE SOCIETY WAS ENGAGED IN PROVIDING MARKETING ASSISTANCE TO IT S MEMBERS WHO WERE CARRYING ARTISAN WORKS. THE BANGALORE TRIBUNAL HAS HELD THAT THE SOCIETY IS ELIGIBLE FOR DEDUCTION U/S 80P(2)(A)(VI) OF THE ACT . HOWEVER, IN OUR VIEW, THE ASSESSEES HEREIN CANNOT TAKE SUPPORT FROM THIS DECI SION. FIRST OF ALL, THE MEMBERS OF THE ABOVE SAID SOCIETY WERE ARTISANS AND THEY THEMSELVES HAVE MANUFACTURED SOME PRODUCT BY USING THEIR SKILL AND LABOUR. SECONDLY, THE SOCIETY HAS ONLY PROVIDED MARKETING ASSISTANCE TO I TS MEMBERS AND IN THAT PROCESS, IT HAS EARNED INCOME. ON THE CONTRARY, IN THE INSTANT CASE, THE MEMBERS HAVE ONLY TAPPED THE TODDY, WHICH IS NATURALLY AVAI LABLE PRODUCT, BY GETTING WAGES FROM THE ASSESSEES HEREIN. FURTHER THE ASSES SEES HEREIN HAVE SOLD THE TODDY SO TAPPED BY ITS MEMBERS AND THUS EARNED ITS INCOME. 16. THERE IS NO DISPUTE THAT ALL THE MEMBERS ARE TODDY TAPPING WORKERS. BUT, THESE SOCIETIES HAVE ONLY USED THE LABOUR OF ITS ME MBERS IN TAPPING TODDY, A NATURALLY AVAILABLE PRODUCT. THUS, IN OUR VIEW, TH ESE SOCIETIES HAVE ONLY GENERATED EMPLOYMENT OPPORTUNITIES TO ITS MEMBERS A ND 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 CAT EGORY OF COLLECTIVE DISPOSAL OF LABOUR. THUS, IT IS SEEN THAT THE TODDY TAPPING I S AN INCIDENTAL ACTIVITY REQUIRED TO BE DONE IN ORDER TO ACHIEVE ITS MAIN OBJECTIVE O F RUNNING RETAIL TODDY SHOPS. IT IS ALSO PERTINENT TO NOTE THAT THESE SOCIETIES H AVE 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. I.T.A. NO.547,548 & 399/COCH/2013 20 17. IN VIEW OF THE FOREGOING DISCUSSIONS, IN OU R VIEW, THESE ASSESSEES CANNOT BE CONSIDERED AS CO-OPERATIVE SOCIETIES ENGAGED IN THE COLLECTIVE DISPOSAL OF LABOUR OF ITS MEMBERS AS CONTEMPLATED U/S 80P(2)(A) (VI) OF THE ACT. ACCORDINGLY, WE ARE UNABLE TO AGREE WITH THE VIEW EXPRESSED BY L D CIT(A) IN ALL THE THREE CASES. ACCORDINGLY, WE SET ASIDE HIS ORDER ON THIS ISSUE IN ALL THE THREE CASES. 18. THE LD D.R ALSO CONTENDED THAT THE VOTING PO WER WAS NOT RESTRICTED TO THE THREE CLASSES OF PERSONS LISTED OUT IN THE PROVISO TO SEC. 80P(2)(A) OF THE ACT. THERE IS NOT DISPUTE BETWEEN THE PARTIES THAT THE C OMPLIANCE OF THE CONDITION STATED IN PROVISO TO SEC. 80P(2)(A) IS ESSENTIAL TO AVAIL DEDUCTION U/S 80P OF THE ACT. ACCORDING TO THE ASSESSEES, THEY HAVE COMPLIE D WITH THE CONDITIONS PRESCRIBED IN THE PROVISO, CITED ABOVE. HOWEVER, S INCE WE HAVE TAKEN THE VIEW THAT THESE ASSESSEES CANNOT BE CONSIDERED AS HAVING GENERATED INCOME OUT OF COLLECTIVE DISPOSAL OF LABOUR, WE DO NOT FIND IT NE CESSARY TO ADDRESS THE ISSUE RELATING TO THE VOTING RIGHTS. 19. IN ALL THESE THREE CASES, THE AO HAD MADE CER TAIN ADDITIONS. IN THE CASE OF M/S NILESWAR RANGE KALLU CHETH VYAVASAYA THOZHILALI SAHAKARANA SANGAM, THE AO HAD MADE ADDITIONS U/S 40(3) AND 40(A)(IA) OF TH E ACT. IN THE CASE OF HOOSDURG RANGE KALLU CHETH VYAVASAYA THOZHILALI SAH AKARANA SANGAM, THE AO HAD MADE ADDITION U/S 40(A)(IA) OF THE ACT. IN THE CASE OF THE PERAVOOR RANGE KALLU CHETH VYAVASAYA THOZHILALI SAHAKARANA SANGAM, THE AO HAD DISALLOWED THE CONTRIBUTION MADE TO PROVIDENT FUND. THOUGH THESE A SSESSEES CHALLENGED THE ABOVE SAID ADDITIONS IN THEIR RESPECTIVE APPEALS FI LED BEFORE LD CIT(A), YET THE FIRST APPELLATE AUTHORITY DID NOT ADJUDICATE THE IS SUES RELATING TO THOSE ADDITIONS ON MERITS FOR THE REASON THAT THE ENTIRE INCOME OF THESE SOCIETIES IS DEDUCTIBLE U/S 80P OF THE ACT. SINCE, WE HAVE HELD THAT THESE SOCIETIES ARE NOT ELIGIBLE FOR DEDUCTION U/S 80P OF THE ACT, IN OUR VIEW, IT BECOM ES NECESSARY FOR LD CIT(A) TO ADJUDICATE THE ISSUES RELATING TO THE ADDITIONS DIS CUSSED ABOVE. ACCORDINGLY, WE I.T.A. NO.547,548 & 399/COCH/2013 21 RESTORE THE ISSUES RELATING TO THE ABOVE SAID ADDIT IONS IN ALL THE THREE CASES TO THE FILE OF LD CIT(A) IN ORDER TO ENABLE HIM TO DIS POSE OF THE GROUNDS RELATING TO THE ADDITIONS URGED BY THE ASSESSEES IN THE APPEALS FILED BEFORE HIM. 20. IN THE RESULT, ALL THE THREE APPEALS FILED BY THE REVENUE STAND ALLOWED. PRONOUNCED ACCORDINGLY ON 1 7-01-2014. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 17TH JANUARY, 2014 GJ COPY TO: 1. 1.M/S. NILESHWAR RANGE KALLU CHETHU VYAVASAYA TH OZHILALI SAHAKARANA SANGHAM, PALLIKKARE, NILESHWAR, KASARGOD DIST. 2.M/S. HOSDURG RANGE KALLU CHETHU VYAVASAYA THOZHIL ALI SAHAKARANA SANGHAM, KOTTACHERRY, KANHANGAD, KASARGOD DIST. 3. M/S. THE PERAVOOR RANGE KALLU CHETHU VYAVASAYA T HOZHILALI SAHAKARANA SANGHAM, PERAVOOR, THALASSERY, KANNUR-670 673. 4. THE INCOME-TAX OFFICER, WARD-1, KASARGOD. 5. THE INCOME-TAX OFFICER, WARD-2, KANNUR. 6. THE COMMISSIONER OF INCOME-TAX(APPEALS), KOZHIK ODE. 7. THE COMMISSIONER OF INCOME-TAX, KOZHIKODE. 8. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 9. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN