Income Tax Appellate Tribunal - Pune
Nasik District Labour Societies Co-Op. ... vs Income-Tax Officer on 5 May, 1986
Equivalent citations: [1986]18ITD354(PUNE)
ORDER
V.S. Gaitonde, Accountant Member
1. This appeal is filed against the order of the Commissioner (Appeals), Nasik, dated 11-9-1984 for the assessment year 1980-81 and raises an interesting question about the availability of exemption under Section 80P(2) of the Income-tax Act, 1961 ('the Act'). At the time of hearing it was brought to our notice that there is no direct judgment of any Tribunal or High Court on the issue, our decision might affect a number of apex societies formed at the instance of the State Government for co-ordinating village labour utilisation.
2. The assessee apex society has as its members, primary member societies, which are themselves engaged in disposal of the labour of its members. Each primary member society nominates one representative to the assessee-society. Under Clause G1.1 the supreme authority of the assessee federation vests in the general body meeting in terms of Section 72 of the Maharashtra Co-operative Societies Act. But the powers delegated by the general body to the managing committee under the bye-laws cannot be interfered with by the general body.
3. The assessee filed its return showing gross total income of Rs. 1,50,101. Net income came to nil in view of deduction under Sections 80P and 80L of the Act claims. In support of its claim, the assessee produced its constitution and bye laws and showed that the gross total income shown is attributable to subscriptions fixed from time to time in the general meeting and received from the primary societies. The assessee contended that it was engaged in collective disposal of the labour of its members an what it received was subscription and not commission.
4. The ITO held that since Clause D1.1 says that only primary labour society can become member and since such member, being artificial juridical person cannot contribute labour, the members of the primary societies cannot be treated as members of the assessee-society. The conditions of Section 80P(2)(a)(vi) are thus not fulfilled. Further, what is required in Section 80P is that the assessee is engaged in the collective disposal of the labour of its members. The assessee-society which supervises or co-ordinates affairs of member labour co-operative societies cannot be said to be engaged in collective disposal of labour of its members. Reliance was placed on Assam Co-operative Apex Marketing Society Ltd. v. Addl. CIT [1977] 110 ITR 33 (Gauhati). Accordingly, the ITO rejected the claim.
5. In appeal the Commissioner (Appeals) took note of the proviso to Section 80P(2)(a)(vi) and held that since the voting rights are not restricted to individuals who contribute their labour, the denial of exemption is correct. According to the Commissioner (Appeals), exercise of voting rights by a representative of the primary society is not the same thing as is required under Section 80P(2)(a)(vi) proviso. The Commissioner (Appeals) further relied on CIT v. U.P. Co-operative Cane Union Federation Ltd. [1980] 122 ITR 913 (All.). The Commissioner (Appeals) was aware of the contrary view in CIT v. Tamil Nadu Co-operative Marketing Federation Ltd. [1983] 144 ITR 74 (Mad.) but found no reason to grant relief in view of the proviso above. The Commissioner (Appeals) also rejected the claim regarding mutuality.
6. Shri Inamdar read out the relevant parts of the law. Section 80P(1) gives deduction of certain sums. These sums are as below :
(2) The sums referred to in Sub-section (1) shall be the following, namely :-
(a) in the case of a co-operative society engaged in-
(i) to (v) ** ** ** (vi) the collective disposal of the labour of its members, or (vii) ** ** **
the whole of the amount of profits and gains of the business attributable to any one or more of such activities :
Provided that...the rules and bye-laws of the society restrict the voting rights to the following classes of its members, namely :-
(1) the individuals who contribute their labour ....
The assessee collects 1 per cent of contracts given to primary society by the Government, Zilla Parishad, etc., to provide services. This receipt is in the nature of income from business and not other sources alleged by the ITO. The words 'labour of its members' clearly show that the member of the assessec-society itself need not provide labour. What is contemplated is the labour made available by the member society. Thus, the maincondition of Section 80P(2)(a)(vi) is satisfied. Assam Co-operative Apex Marketing Society Ltd.'s case (supra) does not deal with the provision regarding collective disposal of labour but regarding marketing agricultural produce of its members. The words 'collective disposal' in sec-tion 80P(2)(a)(vi) indicate that there is no question of purchase and sale of commodities but the real issue is disposal. U.P. Co-operative Cane Union Federation Ltd.'s case (supra) deals with providing credit facilities, to members, under Section 80P(2)(a) and, therefore, cannot be applied to Section 80P(2)(a)(vi).
7. Shri Inamdar next contended that even the proviso does not take the assessee out of exemption clause. The proviso speaks of restricting the, voting rights to individuals who contribute their labour. As there are no such individuals who are members, the question of restricting the voting rights to such contributories does not arise. The proviso applies only when individuals are members. Besides, in substance since such individuals, in effect nominate a person to act as a representative of the, primary societies, the real voting rights are restricted in the manner contemplated, by the proviso. There are no persons other than nominees of primary societies entitled to voting rights. The authorities below, therefore, erred in denying the exemption.
8. In reply Shri Sathe submitted that for an exemption Clause to be operative, it is necessary for the person seeking such exemption to show that the requisite conditions are actually (not merely by implication, assumption and presumption) fulfilled. He referred to observation in Vidarbha Co-operative Marketing Society Ltd. v. CIT [1985] 156 ITR 422 (Bom.). The assessee has not shown that the voting rights are restricted in the manner contemplated by proviso to Section 80P(2)(a)(vi). On merits Shri Sathe took us through U.P. Co-operative Cane Union Federation Ltd.'s case (supra) and Assam Co-operative Apex Marketing Society Ltd.'s case (supra) whose ratio would be applicable; as they dealt with similar Sub-clause of Section 80P. He further submitted that the ratio of Tamil Nadu Co-operative Marketing Federation Ltd.'s case (supra) does not apply as it does not deal with the proviso. Lastly, it was contended that even the main Clause is not fulfilled as the assessee is merely a nominating body as to the primary society which has to be engaged in the collective disppsal of the labour of its members.
9. In his rejoinder Shri Inamdar submitted that one has to interpret the provision so as to advance the object and not to defeat the purpose. Relying on CIT v. Katpadi Co-operative Tiimber Works Ltd. [1982] 135 ITR 287 (Mad.), Shri Inamdar submitted that it would not be proper to whittle down a concession by reference to a reason which is not warranted by the nature of the provision of law. Ground No. 5 (regarding mutuality) was not pressed.
10. We have examined the facts. In our opinion the assessee is entitled to exemption under Section 80P(2)(a)(vi) read with proviso. The assessee is engaged in providing the collective labour of its members. For this purpose the member need not be the person providing the individual labour but need be one who provides collective labour. The assessee gets 1 per cent of contract as its commission for the services of co-ordinating the various activities. Nominations to Zilla Parishad, Collector, etc., are part of the job for which the assessee gets the income. Such income is from business. The assessee is thus engaged in providing collective labour of its member societies. Regarding the voting rights, the proviso applies only when the individual provides his labour independently of others and such individual is a member of the assessee-society. There is no such thing in this case. Although individuals contributing individual labour have no direct voting rights, the nominees of the primary societies having voting rights in the meetings of the assessee-society derive their authority from the individual members of the primary societies. We agree with Shri Inamdar that the provisions of Section 80P regarding exemption cannot be whittled down by the alleged non-fulfilment of conditions regarding restriction of voting rights.
11. The case law relied upon by the departmental representative does not help. Assam Co-operative Apex Marketing Society Ltd.'s case (supra) deals with society engaged in marketing produce of its members. Unless the person whose produce is marketed is a member, the exemption would not be available. We are, however, concerned with collective disposal of labour of the members of society. The words 'collective disposal' exclude application of individual disposal. Similarly, U.P. Co-operative Cane Union Federation Ltd.'s case (supra) deals with providing credit facility to members. The provisions are entirely different. Besides, we cannot say that the ratio of Tamil Nadu Co-operative Marketing Federation Ltd. 's case (supra) does not apply. Regarding the voting rights too, in our opinion, the restriction Clause applies only when there are individual labourers as members and not when primary societies representing individual labour are members. We, therefore, hold that the assessee fulfils all the conditions of Section 80P(2)(a)(vi) including the proviso. The whole of such income is, therefore, deductible from the gross total income.
12. Appeal is allowed.