THE COMMISSIONER OF INCOME TAX vs. M/S.URALUNGAL LABOUR CONTRACT

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 29TH OCTOBER 2009 / 7TH KARTHIKA 1931 ITA.No. 1722 of 2009() ---------------------- ITA.04/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX,CALICUT. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- M/S. URALUNGAL LABOUR CONTRACT CO-OPERATIVE SOCIETY, MADAPALLY COLLEGE.P.O., VATAKARA, KOZHIKODE-673 102.

THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ALONG WITH I.T.A. NO.1738/2009 ON 29/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C.R. C.N.RAMACHANDRAN NAIR & V.K.MOHANAN, JJ. .................................................................... I.T. Appeal Nos.1722 & 1738 of 2009 .................................................................... Dated this the 29th day of October, 2009. JUDGMENT Ramachandran Nair, J. The connected appeals are filed by the Revenue against the orders of the Income Tax Appellate Tribunal upholding respondent's claim for deduction/exemption under Section 80P(2)(vi) of the Income Tax Act. We have heard Senior Standing Counsel Sri.P.K.R.Menon appearing for the appellant. 2. Respondent is a Co-operative Society, all of it's members being workers. The Society is engaged in civil construction work and is also said to be engaged in purchase and sale of construction materials like sand. In the return filed for 2003-2004, respondent did not make any claim of deduction or exemption under Section 80P(2)(vi). However, when the return was taken for scrutiny assessment and notice received under Section 143(2), the assessee's representative raised a claim of exemption/deduction available to the assessee under Section 80P(2)(vi)

2 of the Act as the purpose of constitution and functioning of the Society is “collective disposal of labour of it's members” qualifying for deduction under the above provision. The Assessing Officer allowed the assessee to raise the claim of deduction/exemption, but rejected the claim on the ground that assessee is engaged in civil construction work and also in purchase and sale of sand and other construction materials. However, when assessment was challenged in first appeal on merit, the first appellate authority namely, the C.I.T.(Appeal), held that assessee was not entitled to raise the claim of deduction without filing a revised return which in fact it did not file. However, for the assessment year 2004-2005, the claim for deduction was made in the return itself and though the assessing authority declined the relief claimed, based on it's order for the year 2003-2004, the C.I.T.(Appeal) in first appeal granted relief for the year 2004-2005 holding that respondent is engaged in collective disposal of labour entitling it for deduction under the abovereferred provision. The assessee filed appeal before the Tribunal for the year 2003-2004 and Department filed appeal before the Tribunal for 2004-2005. The Tribunal after hearing both sides allowed the claim of deduction on merits for both years and the technical

3 objection raised by the department that claim for the year 2003-2004 is not maintainable for the reason of non-filing of revised return, was also turned down holding that appellate authorities have the authority to entertain the claim of deduction made by the assessee. 3. Senior counsel appearing for the appellant contended that assessee has not claimed deduction under Section 80P(2)(vi) in the original return filed for the year 2003-2004 and no revised return was also filed when assessment was taken up for scrutiny. However, we find no substance in this contention because the claim was raised through a letter filed by the representative appearing for the assessee before the Assessing officer and the Assessing Officer in fact accepted the same, considered the case on merits and completed the assessment. Even though Senior Counsel for the appellant has relied on the decision of the Supreme Court in GOETZE (INDIA) LTD. V. COMMISSIONER OF INCOME-TAX reported in (2006) 284 ITR 323 and contended that without filing a revised return assessee is not entitled to put forward a claim of deduction, we do not think the decision has any application because making a claim through a letter in the assessment proceeding virtually amounts to revision of the return

4 already filed and on facts in this case, we find that the Assessing Officer without raising any objection admitted the claim and considered the same on merits. Once the claim is entertained and decided by the Assessing Officer on merits, we do not think the department is entitled to canvass the position that the claim cannot be entertained for want of a revised return. This is because if the Assessing Officer had raised objection against raising the claim through a letter, assessee would have been able to file a revised return a that stage and maintain the claim within the norms covered by the decision of the Supreme Court. We, therefore, uphold the finding of the Tribunal that the technical objection raised by the department is not tenable. 4. So far as the merits of the case is considered, even though no specific question is raised in the appeals filed, Senior Standing Counsel for the appellant submitted that this is an omission and department wants to amend the appeal to cover such a question also. We do not think any written amendment is required for this court to permit the counsel to raise a question of law, if it is substantial question of law warranting decision by this court under Section 260A of the Income

5 Tax Act. We, therefore, permitted the counsel to raise this question orally and argue on merits. However, after going through the Tribunal's order and after considering the constitution and nature of activities of the respondent-Society, we feel the Society is entitled to deduction under Section 80P(2)(vi) on the entire income because in the first place, all the members of the Society are workers and they engage themselves in the execution of civil works undertaken by them. There is no case for the department that Society consists of any member other than construction worker and there is also no case that all the member- workers are not engaged in the activities of the Society which is execution of civil construction work. A workers' Society undertaking civil construction work and executing the work by themselves rightly answers the activity referred to in Section 80P(2)(vi) i.e. collective disposal of labour of the members of the Society. If members of the Society are engaged in construction activities, then the Society itself should be held to be engaged in collective disposal of labour of it's members. Therefore, the income earned from construction work qualifies for deduction under Section 80P(2)(vi) of the Act. The remaining issue is only with regard to the trading done in construction

6 materials like sand which are stated to have been purchased and sold by the Society. Here again, the transactions are incidental in nature and the members themselves are engaged in handling of the goods in the course of purchase and sale of the same. Construction material involved is also sand where the labour involved is substantial and the income earned is also not found to be attributable to profit in trading and not attributable to labour inputs. We, therefore, hold that the Tribunal rightly granted deduction on the entire income of the Society under Section 80P(2)(vi) of the Act. Consequently the appeals are dismissed.

C.N.RAMACHANDRAN NAIR Judge V.K.MOHANAN Judge pms