NASIK DISTRICT LABOUR SOCIETIES CO-OP. FEDERATION LTD. v. INCOME TAX OFFICER
[Citation -1986-LL-0505-1]

Citation 1986-LL-0505-1
Appellant Name NASIK DISTRICT LABOUR SOCIETIES CO-OP. FEDERATION LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 05/05/1986
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags co-operative society • general body meeting • agricultural produce • denial of exemption • gross total income • managing committee • state government • primary society • credit facility
Bot Summary: The assessee apex society has as its members, primary member societies, which are themselves engaged in disposal for the labour of its members. 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 assessee-society which supervises or co-ordinates affairs of members labour co- operative societies cannot be said to be engaged in collective disposal of labour of its members. The assessee is thus engaged in providing collective labour of its member societies. Although individuals contributing individual labour have no direct voting rights, the nominees of the primary societies having voting rights in the meeting of the assessee-society derive their authority from the individual members of the primary societies. Assam Co-operative Apex Marketing society Ltd.'s case deals with society engaged in marketing produce of its members. Regarding the voting rights too, in our opinion, the restriction clause applies only when there are individual laborers as members and not when primary societies representing individual labour are member.


This appeals is filed against order of Commissioner (Appeals), Nasik, dated 11-9-1984 for assessment year 1980-81 and raises and interesting question about availability of exemption under section 80P (2) of Income-tax Act, 1961 ('the Act'). At time of hearing it was brought to our notice that there is no direct judgment of any Tribunal or High Court on issue, our decision might affect number of apex societies formed at instance of State Government for co-ordinating village labour utilization. 2. assessee apex society has as its members, primary member societies, which are themselves engaged in disposal for labour of its members. Each primary member society nominates one representative to assessee-society. Under clause G1.1 supreme authority for assessee federation vests in general body meeting in terms of section 72 of Maharashtra Co-operative Societies Act. But power delegated by general body to managing committee under bye-laws cannot be interfered with by general body. 3. 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 Act claims. In support of its claim, assessee produced its constitution and bye-laws and showed that gross total income shown is attributable to subscriptions fixed from time to time in general meeting and received from primary societies. assessee contended that it was engaged in collective disposal of labour of its members what it received was subscription and not commission. 4. 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, members of primary societies cannot be treated as members of assessee-society. conditions of section 80P (2) (a) (vi) are thus not fulfilled. Further, what is required in section 80P is that assessee is engaged in collective disposal of labour of its members. assessee-society which supervises or co-ordinates affairs of members 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, ITO rejected claim. 5. In appeals Commissioner (Appeals) took note of proviso section 80P (2) (a) (vi) nd held that since voting rights are not restricted to individuals who contribute their labour, denial of exemption is correct. According to Commissioner (Appeals), exercise of voting rights by representative of primary society is not same thing as is required under section 80P (2) (a) (vi) proviso. Commissioner (Appeals) further relied on CIT v. U.P. Co-operative Marketing Federation Ltd/ [1983] 122 ITR 913 (All.). Commissioner (Appeals) was aware of 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 proviso above. commissioner (Appeals) also rejected claim regarding mutuality. 6. Shri Inamdar read out relevant parts of law. Section 80P (1) gives deduction of certain sums. These sums are as below: "(2) sums referred to in sub-section (1) shall be following, namely:- (a) in case of co-operative society engaged in - (i) to (v) ** ** ** (vi) collective disposal of labour of its members or (vii) ** ** ** whole of amount of profits and gains of business attributable to any one or more of such activities.: Provided that ..... rules and bye-laws of society restrict voting rights to following classes of its members, namely:- (1) individuals who contribute their labour ......." assessee collects 1 per cent of contradicts given to primary society by Government, Zilla Parishad, etc., to provide services. This receipt is in nature of income form business and not other sources alleged by ITO. words 'labour of its members' clearly show that member of assessee- society itself need not provide labour. What is contemplated is labour made available by member society. Thus, main condition of section 80P (2) (a) (vi) is satisfied. Assam Co-operative Apex Marketing Society Ltd's. case (supra) does not deal with provision regarding collective disposal of labour but regarding marketing agricultural produce of its members. words ' collective disposal' in section 80P (2) (a) (vi) indicate that there is no question of purchase and sale of commodities but he real issue is disposal. U.P. Co-operative Cane Union Federation Ltd's case (supra) deals with providing credit facilities to member, under section 80P (2) (a) (i) and, therefore, cannot be applied to section 80P (2) (a) (vi) . 7. Shri Inamdar next contended that even proviso does not take assessee out of exemption clause. proviso speaks of restricting voting rights to individuals who contribute their labour. As there are no such individuals who are members, question of restricting voting rights to such contributories does not arise. proviso applies only when individuals are members. Besides, in substance since such individuals in effect nominate person to act as representative of primary societies, real voting rights are restricted in manner contemplated by proviso. There are no person other than nominees of primary societies entitled to voting rights. authorities below, therefore, erred in denying exemption. 8. In reply Shri Sathe submitted that for exemption clause to be operative, it is necessary for person seeking such exemption to show that 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.). assessee has not shown that voting rights are restricted in 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 ratio of Tamil Nadu Co-operative Marketing Federation Ltd.'s case (supra) does ratio of Tamil Nadu Co-operative Marketing Federation Ltd.'s case (supra) does not apply as it does not deal with proviso. Lastly, it was contended that even main clause is not fulfilled as assessee is merely nominating body as to primary society which has to be engaged in collective disposal of labour of its members. 9. In his rejoinder Shri Inamdar submitted that one has to interpret provision so as to advance object and not to defeat purpose. Relying on CIT v. Katpadi Co-operative Timber Works Ltd. [1982] 135 ITR 287 (Mad.), Shri Inamdar submitted that it would not be proper to whittle down concession by reference to reason which is not warranted by nature of provision of law. Ground No. 5 (regarding mutuality) was not pressed. 10. We have examined facts. In our opinion assessee is entitled to exemption under section 80P (2) (a) (vi) read with proviso. assessee is engaged in providing collective labour of its members. For this purpose member need not be person providing individual labour but need be one who provides collective labour. assessee gets 1 per cent of contract as its commission for services of co-ordinating various activities. Nominations to Zilla Parishad, Collector, etc., are part of job for which assessee gets income. Such income is from business. assessee is thus engaged in providing collective labour of its member societies. Regarding voting rights, proviso applies only when individual provides his labour independently of others and such individual is member of assessee-society. There is no such thing in this case. Although individuals contributing individual labour have no direct voting rights, nominees of primary societies having voting rights in meeting of assessee-society derive their authority from individual members of primary societies. We agree with Shri Inamdar that provisions of section 80P regarding exemption cannot be whittled down by alleged non-fulfillment of conditions regarding restriction of voting rights. 11. case law relied upon by 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 person whose produce is market is members, exemption would not be available. We are, however, concerned with collective disposal of labour of members of society. 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. provisions are entirely different. Besides, we cannot say that ratio of Tamil Nadu Co-operative Marketing Federation Ltd.'s case (supra) does not apply. Regarding voting rights too, in our opinion, restriction clause applies only when there are individual laborers as members and not when primary societies representing individual labour are member. We, therefore, hold that assessee fulfills all conditions of section 80P (2) (a) (vi) including proviso. whole of such income is, therefore, deductible from gross total income. 12. Appeal is allowed. *** NASIK DISTRICT LABOUR SOCIETIES CO-OP. FEDERATION LTD. v. INCOME TAX OFFICER
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