Orissa High Court
Nilagiri Engineering Co-Operative ... vs Commissioner Of Income-Tax And Ors. on 5 April, 1994
JUDGMENT L. Rath, J.
1. The petitioner is a co-operative society of some graduate engineers undertaking labour contracts in the State of Orissa. The dispute relates to the assessment of income-tax for the year 1984-85. The moot question arising for consideration is whether the society is entitled to the benefit of Section 80P(2)(a)(vi) of the Income-tax Act of deduction from its gross total income, in computing the income, of the whole amount of its profits and gains since it is a co-operative society engaged in collective disposal of the labour of its members. The stand having been negatived by both the assessing and the appellate authorities as well as the second appellate authority, i.e., the Appellate Tribunal, the petitioners have come before this court under Articles 226 and 227 of the Constitution of India.
2. The brief facts necessary to elucidate the questions raised appear in the very order of the Appellate Tribunal, vide annexure-7. The undisputed facts are that the membership of the petitioner-society is confined to unemployed diploma-holders in engineering and graduate engineers but exclude retired engineers. The members lose their membership when they get employment, which may even be part time. It was found by the assessing and the appellate authorities that during the year of assessment the society had undertaken some contract works, but so far as the member engineers were concerned their contribution to the execution of the works was only supervisory work confined to the office. The actual supervision of the work at the field was done by the paid employees of the society and that the members only exercised overall supervision like any other prudent businessman. This finding was reiterated by the appellate authority saying that all the works undertaken by the society were executed by deployment of outside labour through sub-contractors. Supervision work was mostly done by the employees of the society who were paid remuneration to the extent of Rs. 95,540 during the year. The members, who had proprietary interest, were left with the management, control and overall supervision of the work like any other proprietor of a business. In second appeal, the Appellate Tribunal further found that it was an admitted fact that the income declared by the society had been earned by undertaking contract works and getting those executed through engagement of `contractors and by deployment of outside labour. All the three forums held that the words "collective disposal of the labour of its members" would mean rendering of actual labour by the members and that no labour was exercised by the members and they had acted like any other businessmen. A mere overall supervision by them would not entitle them to the benefit of the section.
3. Mr. Dash, learned counsel appearing for the petitioner, has urged the following questions for consideration :
(1) The interpretation of the very question was earlier before the Tribunal in connection with another year's assessment where the view pressed by the assessee had been agreed to by order dated March 12, 1982, and the assessment for the year in question, i.e., 1973-74, was vacated. Since the order of the Tribunal is binding, if the Tribunal hearing the appeal for a subsequent year came to a different conclusion, it should have referred the matter to a higher Bench ; and (2) The words "collective disposal of labour" have to be interpreted in a liberal manner so as to include not only dispensation of actual labour in the field, but also all types of labour including mental labour which function was discharged by the members of the society.
4. The submissions are contested by learned standing counsel for the Department questioning the maintainability of the writ petition in view of the alternative remedy available of getting a reference made to this court under Section 256 of the Income-tax Act, and, secondly, that the interpretation of the provision in the manner as is urged by the petitioner would frustrate the very objective of the provision. The other submission made regarding the binding nature of the order of the Tribunal in appeal relating to the year 1973-74, is that it was an order of a single member Tribunal and a Division Bench Tribunal was within its competence to take a contrary view.
5. So far as the question relating to ouster of interference by this court in writ jurisdiction because of the alternative remedy having not been followed is concerned, it is to be seen that such a plea does not relate to the jurisdiction of this court but is only related to the propriety of the court assuming jurisdiction. We agree with learned standing counsel that where an adequate efficacious remedy is available under a statute and that too under a revenue statute, the procedure laid down therein has to be followed by the aggrieved party without invoking the extraordinary jurisdiction of this court. But so far as the present case is concerned, since we do not intend to interfere with the findings of fact which must be taken to be binding and final, we do not think that the existence of an alternate remedy is an effective bar so far as the extraordinary jurisdiction is concerned as the question to be decided is only the interpretation of the relevant provision of the statute. Mr. Dash has tried to urge that actually what type of labour was dispensed by the members should be investigated and that the matter should be remanded for the purpose. We are afraid that such a plea is not available to be raised since the petitioner has chosen to invoke the jurisdiction of this court under Articles 226 and 227 of the Constitution of India where, as we have observed, the findings of fact are not to be disturbed. A further question which also impels us not to debar the petitioner from urging the question before us is that since the question of the alternative remedy being a bar had not been held out against the petitioner at the time of admission, the petition should not be thrown out on that ground at the hearing stage. We are supported for this view by the decision of the apex court in L. Hirday Narain v. ITO [1970] 78 ITR 26 ; AIR 1971 SC 33.
6. This brings us to the consideration of the proper meaning of the provision of Section 80P(2)(a)(vi). It is candidly admitted by learned counsel for both sides that there are no decided cases on the question. The eligibility to earn exemption is where the whole amount of profits and gains of a business is attributable to the collective 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 utilisation of the actual labour of its members. We agree with learned counsel for the petitioner that the labour need not always be manual. But then, be it manual or otherwise, the guiding factor must be that the earning of the society must be through utilisation of the particular kind of labour in which the members are specialised, An example would illustrate this. If there is a co-operative society of unemployed mathematics graduates who form a society, write out text books of mathematics and earning is made out of the text books, the earning may be said to be attributable to dispensation of labour of the members directly. Similarly, if the members belong to any other discipline, the work executed in actual application of the discipline would 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 labour of the members, the whole of its income would be exempted. A power of disposal always pre-supposes the possession of something to be disposed of. It is only when collective 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. The society cannot be said to have at its disposal, in that manner, the labour of paid employees as they are not its members. Since the members themselves did not exert their own labour in the execution of the work but as has been found by the statutory forums, they only confined themselves to overall supervision mostly at the office like any other prudent businessmen, it has to be taken that the speciality of their discipline was never put to labour in the execution of the work. In other words, as has been rightly submitted by Mr. Roy, learned standing counsel, there has been no direct proximate connection between the work executed and the speciality of the members of the society as diploma-holders or graduate engineers. Mr. Dash has brought to our notice that the question was raised before the two-member Tribunal even earlier to the order, annexure-3, in the appeals relating to the assessment years 1974-75 to 1978-79. The order is annexure-2 to the writ petition. There the two-member Tribunal held that Section 80P(2)(a)(vi) would restrict the exemption to the income earned from the labour of its members. It further explained :
".... In other words, if besides the labours of its members the income has been earned from labour employed by the society or out of the benefit of any capital available with the society it would not come under Clause (vi) though it may fall under any other clause so that in the present case, the income actually derived from the labour of the members of the assessee would be exempt but not any income derived as a result of investment of capital or execution of any jobs by employed labour."
7. The decision, according to us, indicated the correct position of law. The order of the single member Tribunal in annexure-3, though relating to an earlier assessment year, was delivered later on and therein the learned Member observed as follows :
".... I may clarify that the labour of the graduate engineers in this context has to be understood in a broad sense, namely, including supervision of the work executed with the help of masons, daily labourers, electricians and the like. . . . Otherwise, the income of the society, in my opinion, has to be taken as the amount resulting from the direct or indirect application of the labour of the members of the society and such income has to be treated as exempt under Sub-clause (vi)."
8. This order of the Tribunal was rendered even after referring to the earlier order of the two member Tribunal indicated above. The two-member Tribunal dealing with the second appeal of the petitioner relating to the assessment in question in this case considered both the orders of the Tribunal rendered earlier and held the earlier order of the two-member Tribunal to be correct and the order of the single member Tribunal rendered subsequently not to have been correctly decided.
9. In view of the analysis made above, we uphold the decision of the Tribunal in annexure-2. The two-member Tribunal in their earlier order had categorically held that any income earned by the society would not be exempted if the work has been executed by any employed labour and it remanded the matter, as it was not known to what extent the members had put in their own labour and what was the actual earning of that labour, to determine such facts afresh. A close reading of the order of the learned single member also does not show anything to the contrary to have been said as all that was observed was that if the members had supervised the work of their daily labourers, electricians and the like, such supervision would be collective disposal of the labour of its members. It is conceivable that while the work was executed by the paid labourers, their work was supervised by the members of the society because of their special training and skill. Such a case would be governed by the decision of the learned single member Tribunal as in annexure 3. But the facts here are quite different with a specific finding that no such supervision was made by the members and their only job was restricted like any other businessman to supervision by way of office management. It was as such not necessary to refer the matter to any higher Bench and at any rate a Division Bench of the Tribunal had also the authority to depart from the view expressed by the learned single member.
10. In that view of the matter, we do not find any merit in the writ application which is, therefore, dismissed, D.M. Patnaik, J.
11. I agree.