M/S Jai Amba Co-Op Labour & Construction Society, Panchkula v. Commissioner Of Income Tax, Panchkula And Another

ITA No. 473 of 2015 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 473 of 2015 (O&M) Date of Decision: 25.4.2016 M/s Jai Amba Co-op Labour & Construction Society, Panchkula ....Appellant. Versus Commissioner of Income Tax, Panchkula and another ...Respondent. 1.Whether the Reporters of the local papers may be allowed to see the judgment?the judgment? 2.To be referred to the Reporters or not? YES 3.Whether the judgment should be reported in the Digest? CORAM:-HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE DARSHAN SINGH. PRESENT: Ms. Rinku Dahiya, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.Delay of 18 days in refiling the appeal is condoned. 2.The present appeal has been filed by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) against theorder dated 28.5.2015 (Annexure A-5) passed by the Income TaxAppellate Tribunal, Chandigarh Benches “SMC”, Chandigarh (hereinafterreferred to as “the Tribunal”) in ITA No. 24/Chd/2015 for the assessmentyear 2008-09, claiming the following substantial question of law:- Whether in facts and circumstances of the case, theIncome Tax Appellate Tribunal was correct in law in denying the benefit of deduction under Section 80P(2) (a)(vi) of the Income Tax Act to the appellant? 3.A few facts necessary for adjudication of the instant appealas narrated therein may be noticed. The assessee was registered as aLabour and Construction Society with the Assistant Registrar,Cooperative Society, Naraingarh on 26.9.2005 and is following its ByeLaws dated 26.9.2005 (Annexure A-1). The assessee filed its return ofincome on 21.10.2008 for the assessment year 2008-09 claimingdeduction under Section 80P(2)(a)(vi) of the Act. The case was taken upfor scrutiny under CASS. A notice dated 25.5.2010 under Section 143(2)of the Act was issued and vide letter dated 26.11.2010, the assesseewas asked to explain the reason for exemption under Section 80P(2)(a)(vi) of the Act. The assessee submitted detailed written submissions on10.6.2010 (Annexure A-2). The Assessing Officer vide order dated7.12.2010 (Annexure A-3) framed the assessment at ` 4,42,340/-. TheAssessing Officer disallowed the deduction claimed under Section 80P(2)(a)(vi) of the Act and made addition of ` 4,05,733/- on that account.Besides this, the Assessing Officer also made disallowances amountingto ` 75,000/- relating to consumable stores and ` 5,000/- on account oflabour and welfare. Further, 1/6[th] of the travelling and conveyanceexpenses were also disallowed by the Assessing Officer. Feelingaggrieved, the assessee filed an appeal before the Commissioner ofIncome Tax (Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide orderdated 12.11.2014 (Annexure A-4) upheld the order of the AssessingOfficer and dismissed the appeal. The assessee assailed the order,Annexure A-4, in appeal before the Tribunal. The Tribunal vide orderdated 28.5.2015 (Annexure A-5) dismissed the appeal by upholding the orders of the CIT(A) and the Assessing Officer. Hence, the presentappeal. 4.We have heard learned counsel for the appellant-assessee. 5.Learned counsel for the appellant submitted that the ordersof the authorities below are not sustainable in law as the society fulfilledthe conditions enumerated under Section 80P(2)(a)(vi) of the Act and assuch was entitled for deduction thereunder. In support of hersubmission, learned counsel has relied upon the judgment of the ApexCourt in Kerala State Co-operative Marketing Federation Ltd. andothers v. Commissioner of Income Tax (1998) 231 ITR 814 (SC) andof this Court in Commissioner of Income Tax v. Punjab StateCooperative Bank Ltd.(2008) 300 ITR 24 (P&H). 6.The point that arises for consideration in this appeal relatesto the scope of Section 80P(2)(a)(vi) of the Act. 7.Section 80P(2)(a)(vi) of the Act, which is the bone ofcontention in this appeal, reads thus:- 5.Learned counsel for the appellant submitted that the ordersof the authorities below are not sustainable in law as the society fulfilledthe conditions enumerated under Section 80P(2)(a)(vi) of the Act and assuch was entitled for deduction thereunder. In support of hersubmission, learned counsel has relied upon the judgment of the ApexCourt in Kerala State Co-operative Marketing Federation Ltd. andothers v. Commissioner of Income Tax (1998) 231 ITR 814 (SC) andof this Court in Commissioner of Income Tax v. Punjab StateCooperative Bank Ltd.(2008) 300 ITR 24 (P&H). 6.The point that arises for consideration in this appeal relatesto the scope of Section 80P(2)(a)(vi) of the Act. 7.Section 80P(2)(a)(vi) of the Act, which is the bone ofcontention in this appeal, reads thus:- “Deduction in respect of income of cooperativesocieties. 80P.(1)Where, in the case of an assessee beinga co-operative society, the gross total income includesany income referred to in sub-section (2), there shallbe deducted, in accordance with and subject to theprovisions of this section, the sums specified in sub-section (2), in computing the total income of theassessee. (2)The sums referred to in sub-section (1) shall bethe following, namely:- ITA No. 473 of 2015 (a)(i) to (v)XXXXXXXX 8.Sub-section (1) of Section 80P of the Act provides thatwhere the gross total income, of an assessee being cooperative society,includes any income referred to in sub-section (2) thereof, deductionshall be allowed to the assessee in computing its income in accordancewith and subject to the provisions of this Section. 9.The eligibility to earn deduction under clause (vi) of sub-section (2) of Section 80P of the Act, is where the entire amount ofprofits and gains of the cooperative society is attributable to 'thecollective disposal of the labour of its members'. There is no ambiguityin the words used as they are very clear to mean that the earning ofsociety must have been through utilization of the actual labour of itsmembers. The Orissa High Court in Nila Giri Engineering CooperativeSociety Ltd. v. Commissioner of Income Tax (1994) 208 ITR 326(Orissa) was considering the case of the assessee-cooperative societyof graduate engineers undertaking labour contracts in the State ofOrissa who had claimed benefit of Section 80P(2)(a)(vi) of the Act. Theclaim of the assessee was negatived as there was no direct proximateconnection between the work executed and the speciality of themembers of the society as diploma holders or graduate engineers. Itwas held that a mere overall supervision by them would not entitle themto the benefit of this provision. The relevant observations recordedtherein are quoted below:- “This brings us to the consideration of the propermeaning of the provision of section 80P(2)(a)(vi). It iscandidly admitted by learned counsel for both sidesthat there are no decided cases on the question. Theeligibility to earn exemption is where the wholeamount of profits and gains of a business isattributable to the collective disposal of the labour ofits members. The words are very clear and onlymean that the earning of the society must have beenthrough utilization of the actual labour of its members.We agree with learned counsel for the petitioner thatthe labour need not always be manual. But then, be itmanual or otherwise, the guiding factor must be thatthe earning of the society must be through utilizationof the particular kind of labour in which the membersare specialized. An example would illustrate this. Ifthere is a co-operative society of unemployedmathematics graduates who form a society, write outtext books of mathematics and earning is made out ofthe text books, the earning may be said to beattributable to dispensation of labour of the membersdirectly. Similarly, if the members belong to any otherdiscipline, the work executed in actual application ofthe discipline would be disposal of labour of themembers. On the other hand, if the members aremanual labourers as a labour contract service co-operative society, and the work undertaken is executed by the manual labour of the members, thewhole of its income would be exempted. A power ofdisposal always pre-supposes the possession ofsomething to be disposed of. It is only whencollective disposal is made of such a disposablecommodity over which the society has control asinhering in its members that the income is directlyattributable and to such disposal by the society thebenefit is earned. The society cannot be said to haveat its disposal, in that manner, the labour of paidemployees as they are not its members. Since themembers themselves did not exert their own labour inthe execution of the work but as has been found bythe statutory forums, they only confined themselves tooverall supervision mostly at the office like any otherprudent businessmen, it has to be taken that thespeciality of their discipline was never put to labour inthe execution of the work. In other words, as hasbeen rightly submitted by Mr. Roy, learned standingcounsel, there has been no direct proximateconnection between the work executed and thespeciality of the members of the society as diplomaholders or graduate engineers. Mr. Dash has broughtto our notice that the question was raised before thetwo-member Tribunal even earlier to the order,annexure-3, in the appeals relating to the assessmentyears 1974-75 to 1978-79. The order is annexure-2 to the writ petition. There the two-member Tribunalheld that Section 80P(2)(a)(vi) would restrict theexemption to the income earned from the labour of itsmembers. It further explained: “....In other words, if besides the labour of itsmembers the income has been earned fromlabour employed by the society or out of thebenefit of any capital available with the society itwould not come under clause (vi) though it mayfall under any other clause so that in thepresent case, the income actually derived fromthe labour of the members of the assesseewould be exempt but not any income derived asa result of investment of capital or execution ofany jobs by employed labour.” to the writ petition. There the two-member Tribunalheld that Section 80P(2)(a)(vi) would restrict theexemption to the income earned from the labour of itsmembers. It further explained: “....In other words, if besides the labour of itsmembers the income has been earned fromlabour employed by the society or out of thebenefit of any capital available with the society itwould not come under clause (vi) though it mayfall under any other clause so that in thepresent case, the income actually derived fromthe labour of the members of the assesseewould be exempt but not any income derived asa result of investment of capital or execution ofany jobs by employed labour.” 10.Applying the aforesaid legal principles to the facts in hand,herein the main object of the appellant-society is to promote theeconomic interest of manual labourers, skilled workers for the purpose ofobtaining and execution of contracts of public or private work. Theassessee claimed deduction under Section 80P(2)(a)(vi) of the Act beinga cooperative society engaged in the collective disposal of the labour ofits members. The assessee-society had executed work contract ofGovernment and Semi Government Organization during the year underconsideration. The contract work undertaken by the society was notsolely executed by the members of the society but by engagement ofSupervisors, Chowkidars and daily wages earning labourers who werenot members of the society. As per the income and expenditure account, the assessee had paid labour charges amounting to ` 11,14,862/- whichindicated that substantial amount on account of labour charges werepaid to labourers engaged on daily basis and who were not members ofthe appellant-society. Therefore, the income derived by the appellant-society could not be considered as income derived by the labourcooperative society from the activity of collective disposal of labour of itsmembers. 11.Thus, the Tribunal had rightly held that the profits and gainsearned by the assessee is not attributable to the collective disposal oflabour of its members as all the members were not engaged in thelabour work and the work done by the assessee was through outsideemployees and labourers who were not members of the society nor theyhad any voting rights of the society. Accordingly, the disallowance underSection 80P(2)(a)(vi) of the Act was upheld. The approach of theTribunal is in conformity with the law enunciated by the Orissa HighCourt in Nila Giri Engineering Cooperative Society Ltd's case(supra). 12.Adverting to the judgment of the Apex Court in KeralaState Co-operative Marketing Federation Ltd. and of this Court inPunjab State Cooperative Bank Ltd Ltd's cases (supra) relied uponby the learned counsel for the assessee, suffice it to notice that theprinciple of law enunciated therein, is well recognized. However, theissue before the Apex Court was relating to clause (iii) of Section 80P(2)whereas this Court on facts had held the assessee entitled to benefit ofSection 80P(2)(a)(vi) of the Act. Thus, no benefit can be derived by theappellant from any of the said authorities referred to above beingdistinguishable factually. ITA No. 473 of 2015 -9- 13.It being concurrently recorded by the authorities below onappreciation of material on record that the profit earned by the assesseecannot be regarded as profit derived by the labour cooperative societyfrom the activity of collective disposal of labour of its members, theassessee had rightly been held not entitled to claim deduction underSection 80P(2)(a)(vi) of the Act. No ground for interference by this Courtis made out. Accordingly, the appeal is dismissed. (AJAY KUMAR MITTAL)JUDGE April 25, 2016gbs (DARSHAN SINGH) JUDGE