Tax Case Appeal v. Senior Standing Counsel

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 15.2.2019 CORAM THE HON'BLE DR.JUSTICE VINEET KOTHARIANDTHE HON'BLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal No.131 of 2019 Principal Commissioner of Income TaxD.P.Thottam, Muthialpet, Puducherry.Appellant/Appellant Vs. NLC Indcoserve, Old MMC Complex,Opp to Thermal Power Station,Neyveli 607 801, Cuddalore Division,PAN: AAAAN 0095 MRespondent/Respondent Tax Case Appeal filed under Section 260A of the Income TaxAct, 1961 against the order of the Income Tax AppellateTribunal, Madras 'B' Bench, Chennai, dated 18.6.2018 made in ITANo.2539/Chny/2017, for the assessment year 2010-2011. againstthe order of the Commissioner of Income Tax (Appeals) puducherrydated 29.06.2017 made in ITA No.115/CIT(A)-PDY/2016-17 for theassessment year 2010-2011, against the order of the Income TaxOfficer Ward 2, Cuddalore dated 31.08.2016 made in PANNo.AAAAN0095M for the assessment year 2010-2011. For Appellant : Mr.T.R.Senthilkumar Senior Standing Counsel J U D G M E N T (Delivered by DR.VINEET KOTHARI,J) The Revenue has filed this Tax Case (Appeal) under Section260-A of the Income Tax Act by raising the following purportedsubstantial questions of law arising from the order passed bythe Income Tax Appellate Tribunal dated 18.6.2018 for theAssessment Year 2010-2011:-"Whether the Appellate Tribunal is right indeleting the addition made under Section 80P whenthe Society had violated the proviso to clause (vi)of Section 80P(2)(a) of the Income Tax Act which https://hcservices.ecourts.gov.in/hcservices/ is not limited to voting rights in elections inGeneral Body alone, but extends to the entire gamutof the functioning of the Co-operative Societyincluding the Board of Directors?" 2. The Tribunal held in favour of the respondent/Assesseefollowing its own order for the Assessment Year 2012-2013 thatthe Respondent/Assessee Co-operative Society did not violate anycondition for grant of deduction under Section 80P of ChapterVI-A of the Act and therefore, it was eligible to avail thededuction under Section 80P of the Act. 3. Section 80P(2)(a)(vi) of the Act provides for deductionto the extent of 100% of its income under such Head. It says'the collective disposal of the labour of its members'. TheProviso to this section 80P(2) of the Act provides that if thevoting rights of the specified class of persons in the saidProviso are not restricted, then, it will not be eligible forthe said exemption. The relevant provisions are quoted belowfor ready reference : "Section 80P. Deduction in respect of income of co-operative societies— (1) Where, in the case of an assesseebeing a co-operative society, the gross totalincome includes any income referred to insub-section (2), there shall be deducted, inaccordance with and subject to the provisionsof this section, the sums specified in sub-section (2), in computing the total income ofthe assessee. (2) The sums referred to in sub-section(1) shall be the following, namely:— (a) in the case of a co-operativesociety engaged in— (i) carrying on the business of bankingor providing credit facilities to itsmembers, or (ii) a cottage industry, or (iii) the marketing of agriculturalproduce grown by its members, or (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agriculture forthe purpose of supplying them to itsmembers, or (v) the processing, without the aid ofpower, of the agricultural produce ofits members, or (vi) the collective disposal of thelabour of its members, or (vii) fishing or allied activities, thatis to say, the catching, curing, (2) The sums referred to in sub-section(1) shall be the following, namely:— (a) in the case of a co-operativesociety engaged in— (i) carrying on the business of bankingor providing credit facilities to itsmembers, or (ii) a cottage industry, or (iii) the marketing of agriculturalproduce grown by its members, or (iv) the purchase of agriculturalimplements, seeds, livestock or otherarticles intended for agriculture forthe purpose of supplying them to itsmembers, or (v) the processing, without the aid ofpower, of the agricultural produce ofits members, or (vi) the collective disposal of thelabour of its members, or (vii) fishing or allied activities, thatis to say, the catching, curing, processing, preserving, storing ormarketing of fish or the purchase ofmaterials and equipment in connectiontherewith for the purpose of supplyingthem to its members, the whole of the amount of profits and gainsof business attributable to any one or moreof such activities: Provided that in the case of a co-operativesociety falling under sub-clause (vi), orsub-clause (vii), the rules and bye-laws ofthe society restrict the voting rights to thefollowing classes of its members, namely:— (1) the individuals who contribute theirlabour or, as the case may be, carry on thefishing or allied activities; (2) the co-operative credit societies whichprovide financial assistance to the society; (3) the State Government;"4. The findings of the learned Tribunal in the previousyear viz, Assessment Year 2012-2013 as quoted in the impugnedorder are extracted below for ready reference:-"7. From the above, it is clear that the boardof the assessee society is responsible for theaffairs of the assessee society and not the NLCboard. The ultimate authority of itsadministration is vested with the General Bodyof the members. NLC or its nominated members,if any, do not have voting rights in electionsof the assessee society as per Rule 22 of itsByelaws. NLC has been co-opted as a memberonly for operational ease and convenience toassist the board of the assessee society inadministration, without which the smoothrunning of the assessee society will bepracticallydifficult.Further,theregistration of the society has not beenrevoked under law for violation of theprovisions of TNSCA, 1983. On such facts andcircumstances, the order of the CIT(A) does notrequire any interference and hence therevenue's appeal is dismissed."5. The learned counsel for the Revenue could not point outany distinction of facts from the Assessment Year 2012-2013 inthe present Assessment Year 2010-2011 as far as the restrictionof the voting rights of the three categories of persons in theProviso is concerned. This finding of facts rendered by theTribunal for the Assessment Year 2012-2013 has been allowed tobecome final as the Appeal filed by the Revenue was withdrawn in view of the low tax effect as stipulated in CBDT Circular 3 of2018 which provides that if the tax effect is lesser than Rs.50lakhs, then Appeals shall not be filed by Revenue before theHigh Court and if already filed, they shall be withdrawn. 6. Prima facie, we find that the tax effect in the presentAppeal is also less than Rs.50 lakhs as the Assessment Orderitself raised a demand of Rs.49,49,309/- only including theinterest under Section 234B and therefore, the Appealpreferred by the Revenue could have been withdrawn by theAppellant/Revenue. 7. Be that as it may, we are of the clear opinion that thefinding of facts rendered by the Tribunal in respect of theprevious year viz., Assessment Year 2012-2013, without therebeing any change of facts for the present Assessment Year viz.,2010-2011, does not require any different consideration underArticle 260A of the Act in the present appeal. 6. Prima facie, we find that the tax effect in the presentAppeal is also less than Rs.50 lakhs as the Assessment Orderitself raised a demand of Rs.49,49,309/- only including theinterest under Section 234B and therefore, the Appealpreferred by the Revenue could have been withdrawn by theAppellant/Revenue. 7. Be that as it may, we are of the clear opinion that thefinding of facts rendered by the Tribunal in respect of theprevious year viz., Assessment Year 2012-2013, without therebeing any change of facts for the present Assessment Year viz.,2010-2011, does not require any different consideration underArticle 260A of the Act in the present appeal. 8. The finding of facts, based on relevant materials, doesnot give any rise to any substantial question of law requiringour consideration under Section 260-A of the Act. Therefore,the Tax Case (Appeal) filed by the Revenue is dismissed. Nocosts. Sd/-Assistant Registrar(CCC) //True copy// ssk. Sub Assistant Registrar To1. Principal Commissioner of Income Tax D.P.Thottam, Muthialpet, Puducherry.2. Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai 1. Principal Commissioner of Income Tax 3. Income Tax Officer Ward 2, Cuddalore, Neyveli 607 807.+1cc to Mr.T.R.Senthilkumar, Advocate SR.No.14682 T.C.(Appeal) No.131 of 2019 VBA(CO)GMY(22/03/2019)