Income Tax Appellate Tribunal - Pune
Praj Employees Credit Co-Operative ... vs Assessee on 28 October, 2015
आयकर अपील य अ धकरण]] iq.ks यायपीठ "बी" iq.ks म
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
ी आर. के. पांडा, लेखा सद य
एवं ी वकास अव थी, या"यक सद य के सम#
BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.418/PN/2013
"नधा%रण वष% / Assessment Year : 2008-09
Praj Employees Credit .......... अपीलाथ /
Cooperative Society Limited, Appellant
Praj House,
Mumbai Bangalore Highway,
Bavdhan, Pune - 411 021
PAN No.AAATP3813A
बनाम v/s
DCIT, Circle-4, Pune .......... यथ /
Respondent
नधा रती क ओर से / Assessee by : Shri Deepak S. Sasar
यथ क ओर से / Department by : Shri B.C. Malakar
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :31.08.2015 Date of Pronouncement:28.10.2015
आदे श / ORDER
PER R.K. PANDA, AM :
This appeal filed by the assessee is directed against the order dated 07-09-2012 of the CIT(A)-II, Pune relating to Assessment Year 2008-09.
2. Facts of the case, in brief, are that the assessee is a Cooperative Society which was established in 1990 for giving credit facilities to its members and also engaged in security services, vehicle services, manpower services etc. The assessee filed return of income declaring 2 ITA No.418/PN/2013 Nil income after claiming deduction of Rs.5,57,193/- u/s.80P of the Act. During the course of assessment proceedings the AO noted that the assessee had claimed deduction u/s.80P amounting to Rs.5,07,193/-. However, the activities of the assessee was in diverse activities and it also earned commission income on the outsourcing of the activities to third parties.
3. During the course of assessment proceedings the AO noted that assessee society has diversified activities and it provided certain services to Praj Industries Ltd. The society instead of performing the work on its own had outsourced the activities to third parties and also earned commission of 1% in the transaction. The AO thus inferred that the assessee who had claimed deduction u/s.80P was not eligible for claiming the deduction. The AO noticed that the major source of the income of the assessee had come through providing manpower services, security services and vehicle service to Praj Industries Ltd. and the assessee, moreover had even outsourced the work further to third parties and in the process had earned commission being 1 % of the total receipts. The Assessing Officer noted that the issue of income attributable to the collective disposal of labour, the income declared by the society had been earned by undertaking contract works from its parent company and getting those executed through the engagement of sub-contractors and deployment of outside labour. The Assessing Officer found that the words contained in section "collective disposal of the labour of its members" meant rendering of actual labour by the members. The Assessing Officer in the case of the assessee found that no labour was exercised by the members of the society and the work assigned by Praj industries Ltd was outsourced on the condition of earning 1% commission and, 3 ITA No.418/PN/2013 therefore, the society had acted like any other businessman. The Assessing Officer also noticed that even an overall supervision by the members would not entitle the benefit of the section to them. Thus the Assessing Officer held that the assessee was entitled to claim 80P benefits in respect of income earned by way of interest from its members and on the bank deposits only and accordingly restricted the claim of deduction u/s 80P and disallowed a sum of Rs. 4,71, 900/-.
4. Before CIT(A) it was submitted that the Assessing Officer did not consider the object clause of the approved by-laws of the co- operative society which were approved by the Registrar of Co- operative, Govt. of Maharashtra. The assessee filed a copy of the bye laws along with the abridged translated copy. It was further submitted that the Registrar had approved the by-laws regarding collective disposal of labour and the said activity was allowed under section 80P(2)(a)(vi). The assessee thus contend that it is not possible that all activities should be carried under one roof so as to be eligible for deduction and that any prudent organization could manage their operation in such a manner that maximum economic benefit can be achieved by organizing the resources and this included even sub- contracting for the activity to earn profit. The assessee stated that the business had to be done within the four corners of law and the manner in which the work is to be executed is their own decision. It was thus contended that the interpretation of the AO regarding the collective disposal of labour is not correct as one cannot restrict the functionality of the business by saying that the society had not used its own labour. It was also stated that one Govt. Department has 4 ITA No.418/PN/2013 allowed labour as collective disposal of labour and the other Govt Department is denying the benefit of such activities.
5. However, the Ld.CIT(A) was not satisfied with the explanation given by the assessee and upheld the disallowance made by the AO by observing as under :
"3.4 The co-operative society is defined in Sec. 2(19) of the Act and it is an artificial juridical person and is distinct from the members constituting it. The deduction is granted under sub-section (1) to the extent specified in sub sec. (2) of Sec. 80P. Consequent to the insertion of clause (vi) to cl.
(a) of sub-section 2, labour co-operative societies engaged in the collective disposal of the labour of its members are being given concessional tax treatment. The eligibility to earn deduction u/s 80P(2)(a)(vi) is in respect of the amount of profits and gains of a business as is attributable to the labour of the members of the co-operative society.
The words are very clear and only mean that the earning of the society must have been through utilization of the actual labour of its members. 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 the utilization of the particular kind of labour in which the members are specialized. 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 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. In the case of Nilagiri Engineering Co-op. Society Vs CIT (1994) 208 ITR 326 (Ori), the assessee was a co-operative society of diploma holders and graduate engineers undertaking labour contracts. Actual supervision was done by paid employees. It was held that the society cannot be said to have at its disposal, in that manner, the labour of paid employees as they are not its members. As such, the members themselves did not exert their own labour in the execution of the work but confined themselves to overall supervision mostly at the office like any other prudent businessman. It has to be taken that the specialty of their discipline was never put to labour in execution of the work. In other words, there has been no direct proximate connection between the work executed and the specialty of the members of the society as diploma holders or graduated engineers. No supervision was made by the members and their only job was restricted like any other businessman to supervision by way of office management. Thus the court upheld the denial of the deduction u/s 80P(2)(a)(vi). Likewise in the present case too, the major source of the income of the appellant has been outsourced to various outside parties and the appellant has been earning commission. Similar view has also been held in the following cases
1. Drill well Associates co-op. society Ltd Vs ITO 73 ITD 240, ITAT Ahd
2. ITO Vs Ganesh Co-op (L&C) Society Ltd. 67 ITD 436, ITAT ASR. Therefore, the disallowance made by the Assessing Officer in given set of fact is justified.
5ITA No.418/PN/2013 3.5 So far as the contention raised by the appellant, regarding the object clause and the bye laws and the approval by the Registrar of co-operative and that one govt. dept allowed its object as collective disposal of labour and the other government department is denying the benefit of such activities, the notings made by the Hon. Supreme court in the case of Southern Technologies Ltd Vs JCIT (2010) 320 ITR 577 (SC) is relevant. The apex court on the scope and applicability of RBI Direction 1998 vis- a-vis I.T. Act 1961 and on the scope of total income held that the RBI direction dealt with the presentation of NPA provisions in the balance sheet of an NBFC and it has nothing to do with the computation or taxability of the provisions for NPA under the I.T. Act. Thus the court held that the RBI directions 1998 and the I.T. Act operate in different fields. The issue in the present case is similar and, therefore, it can be said that the I.T. Act is a separate code by itself and the taxable income has to be computed strictly in terms of the provisions of the I.T. Act, and the Registrar or co-operative and bye laws of co-operative society operate in their own field of co-operatives and the said bye laws as approved by the Govt. of Maharashtra never intended to compute taxable income of the co-op society for income tax purposes, hence there was no inconsistency between the two Acts. The two organizations are two different entities operating in different fields. Thus, the contention raised by the appellant of the bye laws and the approval by the Registrar will not bind the authority under the I.T Act and ultimately the nature of transaction has to be seen.
3.6 In view of the above fact, the disallowances made by the Assessing Officer are liable to be upheld and the ground of appeal No. 1 to 3 raised by the appellant is liable to be dismissed."
6. The Ld.CIT(A) also rejected the argument of the assessee that following the rule of consistency the deduction u/s.80P has to be allowed on the ground that principles of res judicata is not applicable to Income Tax proceedings and each assessment year is a separate proceeding.
7. Aggrieved with such order of the CIT(A) the assessee is in appeal before us with the following grounds :
"1. The I.T. Commissioner Appeals-II has erred in confirming the rejection of claim u/s.80P of the I.T. Act, 1961.
2. The I.T. Commissioner Appeals-II has erred in confirming that the society had not carried out any labour activity by its members.
3. The I.T. Commissioner Appeals-II has erred in confirming the disallowance of Expenses of Rs.4,71,900/- in the total income of the assessee.6 ITA No.418/PN/2013
4. The I.T. Commissioner Appeals-II has erred in confirming that the "Principal of Consistency and Res judicata" was not followed.
5. The I.T. Commissioner Appeals-II has erred in confirming the levying of interest u/s.234B and 234C.
6. The Appellant crave to add, delete, amend, alter, vary and/or withdraw all or any one of the above grounds of appeal."
8. The Ld. Counsel for the assessee strongly objected to the order of the CIT(A). Referring to the decision of the Pune Bench of the Tribunal in the case of Nashik District Labour Societies Cooperative Federation Ltd. Vs. ITO reported in 18 ITD 354 he submitted that the Tribunal in the said decision has held that where the assessee Apex Cooperative Society is engaged in providing collective labour of its member societies is eligible for relief u/s.80P(2)(a)(vi) of the I.T. Act. Referring to the decision of Hon'ble Supreme Court in the case of CIT Vs. U.P. Cooperative Federation Ltd. reported in 176 ITR 435 he submitted that the Hon'ble Supreme Court in the said decision has held that u/s.14(3) of the Cooperative Societies Act, 1912 the provisions has been made to extend certain advantages to cooperative societies in order that the legislative purpose of providing incentives to the cooperative movement may be fulfilled. He accordingly submitted that beneficial provisions in respect of cooperative societies Act to be interpreted liberally. Referring to the decision of the Hon'ble Supreme Court in the case of Broach District Cooperative Cotton Sales, Ginning and Pressing Society Ltd. Vs. CIT reported in 177 ITR 418 he submitted that the Hon'ble Supreme Court in the said decision has held that for the purpose of section 80P(2)(a)(iii) activities incidental or ancillary to marketing have to be regarded as the activity of marketing itself. Ginning and Pressing of cotton being ancillary or incidental to marketing, deduction u/s. 80P(2)(a)(iii) was available. 7 ITA No.418/PN/2013
9. Referring to the decision of the Hon'ble Madras High Court in the case of CIT Vs. Pondicherry Cooperative Housing Society Ltd. reported in 188 ITR 671 he submitted that the Hon'ble High Court in the said decision has held that a cooperative housing society engaged inter alia in providing credit facilities to its members for the purpose of building houses is entitled to deduction u/s.80P(2). Referring to the decision of the Hon'ble Supreme Court in the case of CIT Vs. Strawboard Manufacturing Company Ltd. reported in 177 ITR 431 he submitted that the Hon'ble High Court in the said decision has held that when a provision is made in the context of law providing for concessional rates of tax for the purpose of encouraging industrial activity, a liberal construction should be put upon the language of the statute. He also relied on the decision of the Hon'ble Kerala High Court in the case of Meenachil Rubber Marketing & Processing Cooperative Society Ltd. Vs. CIT reported in 192 ITR 108 and the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. Vs. CIT reported in 196 ITR 188. He accordingly submitted that since the assessee cooperative society is satisfying all the conditions prescribed in the provisions of section 80P the assessee is entitled to the deduction.
10. The Ld. Departmental Representative on the other hand heavily relied on the order of the CIT(A). Referring to the provisions of section 80P(2)(a)(vi) he submitted that the assessee is entitled to deduction provided the income of the cooperative society is from the collective disposal of the labour of its members. However, in the instant case, they have outsourced without the involvement of any member. The various decisions relied on by the Ld. Counsel for the assessee are not applicable to the facts of the present case and are distinguishable. He 8 ITA No.418/PN/2013 submitted that the Ld.CIT(A) has given cogent reasons as to why the assessee cooperative society is not entitled to the deduction u/s.80P(20(a)(vi). He accordingly submitted that the order of the CIT(A) be upheld and the grounds raised by the assessee be dismissed.
11. We have considered the rival arguments made by both the sides, perused the orders of the AO and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied on by both the sides. We find in the instant case the AO rejected the claim of deduction u/s.80P(2)(a)(vi) on the ground that the assessee society, instead of performing the work through its members, has outsourced the activities to third parties for which it has earned commission of 1% in the transaction. Therefore, the issue of income attributable to the collective disposal of labour is missing. Since no labour was exercised by the members of the society and the work assigned by Praj Industries Ltd. was outsourced on the condition of earning 1% commission, therefore, the society had acted like any other businessman. Therefore, it is not entitled to claim of deduction u/s.80P(2)(a)(vi). We find the Ld.CIT(A) upheld the same which has been challenged by the assessee in the present appeal.
12. As per the provisions of section 80P(2)(a(vi) the income from the collective disposal of labour of its members shall be deducted from the gross total of income. Therefore, the eligibility to earn deduction u/s.80P(2)(a)(vi) is in respect of the amount of profits and gains of a business which is attributable to the labour of the members of the cooperative society. It is only when collective disposal of labour of its 9 ITA No.418/PN/2013 members is made either manually or mechanically then the cooperative society will be entitled to get the deduction of such income. In the instant case, the facts are different. The assessee Cooperative society has got some work order from Praj Industries Ltd. which it had outsourced to some other concern on the condition of earning 1% commission. There is no involvement of the members of the cooperative society at all in executing the work. Therefore, we find no infirmity in the order of the CIT(A) in rejecting the claim of the assessee.
13. So far as various decisions relied on by the Ld. Counsel for the assessee are concerned, they are distinguishable on facts and not applicable to the facts of the present assessee. The argument of the Ld. Counsel for the assessee that consistency should be followed is also without any force since principles of res judicata are not applicable to income-tax proceedings and every year is an independent year. Merely because in the past the department has allowed such claim in summary assessment does not mean that the same should be perpetuated. In the impugned assessment year the AO has decided the issue in a scrutiny assessment. In this view of the matter and in view of the detailed reasoning given by the Ld.CIT(A) we find no infirmity in his order. Accordingly, the order of the CIT(A) is upheld and the grounds raised by the assessee on this issue are dismissed.
14. So far as disallowance of expenses of Rs.4,71,900/- as per Ground of appeal No.3 is concerned, neither the AO has made any such addition in the body of the assessment order nor the Ld. Counsel for the assessee has made any argument on this issue. 10 ITA No.418/PN/2013 Therefore, this ground of appeal No.3 being devoid of merit is dismissed.
15. So far as the ground relating to levy of interest u/s.234B and 234C are concerned, these are mandatory and consequential in nature. Accordingly, this ground is also dismissed.
16. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 28-10-2015.
Sd/- Sd/-
(VIKAS AWASTHY) (R.K. PANDA)
या"यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
iq.ks Pune; #दनांक Dated : 28th October, 2015.
lrh'k
आदे श क( )"त+ल प अ,े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु(त(अपील)s / The CIT(A)-II, Pune
4. आयकर आय( ु तs / The CIT-II, Pune
5.
+वभागीय त न.ध, आयकर अपील य अ.धकरण, "बी" iq.ks / DR, ITAT, "B" Pune;
6. गाड फाईल / Guard file.
आदे शानस
ु ार/ BY ORDER,स या+पत
स या+पत त //True Copy//
स या+पत त //True Copy//
व र2ठ नजी स.चव / Sr. Private Secretary
आयकर अपील य अ.धकरण, iq.ks / ITAT, Pune