ITO, W-6(3), MOHALI vs. THE STAR CO-OPERATIVE LABOUR & CONSTRUCTION SOCIETY LTD., MOHALI

आयकर अपीलीय अिधकरण,च"ीगढ़ "ायपीठ “बी” , च"ीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH “B”, CHANDIGARH HEARING THROUGH: PHYSICAL MODE "ी िव"म िसंह यादव, लेखा सद" एवं "ी परेश म. जोशी, "ाियक सद" BEFORE: SHRI. VIKRAM SINGH YADAV, AM & SHRI. PARESH M. JOSHI, JM आयकर अपील सं./ िनधा"रण वष" / Assessment Year : 2012-13 The ITO बनाम The Star Co-operative Labour & Ward 6(3), Mohali Construction Society Ltd. H.No. 3232, Sector- 70, Mohali "ायी लेखा सं./PAN NO: AAJPD0748D अपीलाथ"/Appellant ""थ"/Respondent िनधा"रती की ओर से/Assessee by : Shri Nalin Nohria, CA and Shri B.K. Nohria, CA राज" की ओर से/ Revenue by : Shri Vivek Vardhan, JCIT, Sr. DR सुनवाई की तारीख/Date of Hearing : 08/08/2024 उदघोषणा की तारीख/Date of Pronouncement : 21/08/2024 आदेश/Order PER PARESH M. JOSHI, J.M. :

This is an appeal which is filed by the Revenue under section 253 of the Income Tax Act, 1961 as they are aggrieved by an order dt. 12/04/2019 passed in Appeal No. 10328/2/17-18 by the Ld. CIT(A) in terms of Section 250(6) of the Income Tax Act, 1961 which is hereinafter referred to as the “impugned order”. Factual Matrix 2. The assessee is a registered cooperative society under the Cooperative Societies Act, 1912 and the prime object of the society is to promote the economic interest of manual labour, skilled worker for the purpose of obtaining and execution of work contracts of Govt. Municipal Corporation or Private work. The society is primarily engaged in construction work with Govt. and Semi Govt. Departments. Income Tax Return was filed on 30/09/2012 declaring NIL income. The 3. original assessment was framed under section 143(3) vide order dt. 28/02/2015 by the then DCIT Circle 6(1), while framing the assessment, the returned income was accepted.

4. Subsequently, it was noticed by the A.O. that order passed by the then A.O. under section 143(3) dated 28/2/2015 is erroneous in so far as it is prejudicial to the interest of the revenue in terms of provisions of section 263 of the Income Tax Act, 1961. Therefore, the case was referred by the A.O. to the Pr. Commissioner of Income Tax-2, Chandigarh with the recommendation for invoking the provisions of section 263 of the Income Tax Act, 1961. Consequently, a show cause notice was issued to the assessee by the Pr. Commissioner of Income Tax-2, Chandigarh on 10.2.2017 for invoking the provisions of Section 263 with the following observation:-

"Please refer to the return of income filed by you on 30.9.2012 declaring returned income at NIL and the assessment order u/s 143(3) passed by the Dy. Commissioner of Income Tax, Circle 6(1), Mohali (the assessing officer concerned in your case) on 28.2.2015 at returned income.

"Please refer on the above captioned subject and to your letter No.PCIT- 2/CHD/Judl/2653/27/201617/7028 dated 10.2.2017 received by the undersigned today only. In this regard, we have to explain as under:- That the Star Coop. Labour & Construction Society Ltd. is a registered co-olp. Society under the Co-operative Societies Act, 1912 and the income from the collective disposal of the labour of its members is deductible u/s 80P(2)(a)(vi) of the Income Tax Act, 1961. The earning of the society is through the utilization of the actual labour of its members for executing a work contract. The society is engaged in carrying out labour and construction works for Municipal Corporation, Mundi Kharar and Mohali. The work contract is assigned by Municipal Corporation on the basis of tenders, which is offered and accepted on the lowest rates. The society purchases materials like sand, cement, bajri, gatka, tiles, railings etc. for execution of a particular contract by collective disposal of labour of its members only. No profits have accrued to the society out of materials purchased, since the contracts are offered and accepted at competitive rates and even lesser than the cost of price of material, hoping for profit from utilization of labour of its members. The work contracts other than labour have been obtained on lesser rates ranging from 5% to 30% than the market rate. There is substantial loss on such contracts. It is only out of labour works executed that the profit has been earned. The asssessee society has fulfilled all the conditions u/s 80P and thus eligible for the deduction. The issue was discussed in detail with the Assessing Officer and the details regarding such income were duly furnished at the time of assessment.

Keeping in view the above your goodself is requested not to cancel the assessment framed vide assessment order dated 28.2.2015 u/s 143(3) of the Income Tax Act, 1961." After considering the submissions of the assessee, Pr. Commissioner of Income Tax -2, Chandigarh however cancelled the assessment framed u/s 143(3) on 28.2.2015 with the following observations:- "The assessee society during the relevant financial year earned income from work contract including receipts on account of material but it has not bifurcated the reeipts from work contract & material. It is thus clear that income earned by the society is not only from collective disposal of labour but also from amount received on account of material whereas the word 'collective disposal' in section 80P(2)(a)(vi) indicates that there is no question of purchase & sale of material but there should be only 'collective disposal of the labour of its members. 3.1 As per provisions of section 80P(2)(a)(vi) an assessee being a cooperative society engaged in the collective disposal of the labour of its members, is eligible for deduction equal to the whole of amount of profits and gains of business attributable to such activity subject to conditions laid down in the provisio. However, the Assessing Officer has failed to examine the above issue in the instant case and accepted the contention put forward by the counsel and allowed deduction u/s 80P(2)(a)(vi) on receipts from work Contract & Material as is evident from the assessment record. In the facts and circumstances of the case. The assessing officer has failed to gather the complete facts and to correctly apply the law while making the assessment, thus resulting in an erroneous order which is also prejudicial to the intereest of revenue.

"That the Star Coop. Labour & Construction Society Ltd., is a registered coop. Society under the Cooperative Societies Act, 1912 and the income from the collective disposal of the labour of its members is deductible u/s 80P(2)(a)(vi) of the Income Tax Act, 1961. The earning of the society is through the utilization of the actual labour of its members for executing a work contract. The society is engaged in carrying out labour and construction work for Municipal Corporation, Mundi Kharar and Mohali. The work contract is assigned by Municipal Corporation on the basis of tenders, which is offered and accepted on the lowest rates. The society purchases materials like sand, cement, bajri, gatka, tiles, railings etc. for execution of a particular contract by collective disposal of labour of its members only. No profits have accrued to the society out of materials purchased, since the contracts are offered and accepted at competitive rates and even lesser than the cost price of material hoping for profit from utilization of labour of its members. The work contract other than labour have been obtained on lesser rates ranging from 5% to 30% than the market rate. There is substantial loss on such contracts . It is only out of labour works executed that the profit has been earned.

The assessee society has fulfilled all the conditions u/s 80P and thus eligible for the deduction. The issue was discussed in detail with the Assessing Officer and the details regarding such income were duly furnished at the time of assessment.

(i) Whether in the facts and circumstances of the case and in law, the Ld.CIT(A)'s order is not perverse not erred in law as well as facts in allowing the appeal of the assessee without appreciating the facts of the case ?

(ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act whereas the income earned by the society is not only from collective disposal of labour but also from amount received on account of trading of material? (iii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act whereas the assessee has not bifurcated the receipt on account of disposal of work and receipt on account of material to explain the assertion made regarding profit being attributable to both labour and material, whereas the deduction u / s 80P(2)(a)vi) of the act is only for "collective disposal of labour? (iv) Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was right in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act when assessee has failed to discharge its primary onus to furnish any evidence that all the works has been carried out by the members in terms of section 114 of the Indian Evidence Act 254 ITR 449 (Delhi) and also in view of the fact that ITS database of the assessee shows Tara Singh as the only member having 100% share?

(v) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 14,70,480/- made on account of disallowance u / s 80P(2)(a)(vi) of the Act by relying upon CIT vs Uralungal Labour Contract Society in of 2009 dated 29 Oct 2009, but the facts of this case are distinguishable since in the case referred supra, the income earned was found to be attributable to labour inputs and not trading and the quantum was marginal whereas in the case on hand no bifurcation was available for the receipt on account of disposal of work and receipt on account of material purchased and also Hon'ble Kerala High Court in a subsequent decision has in (2015) 62 Taxmann.com. 189(Ker) ITA No 141 of 2014, Nileswar Range Kallu Chethu Vyavasya Thozhilali Sahakarana Sangham V CIT Calicut distinguished the case and rejected a similar claim holding in favour of Revenue? (vi) It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing officer may be restored. (vii) The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off. Record of Hearing

14. The hearing before us took place on 08/08/2024 when both the parties appeared before us. Both the parties were heard patiently and equal treatment was given to them. Provisions of Section 80P(2)(a)(vi) were discussed and debated during the course of hearing. The Ld. DR contended that impugned order of Ld. CIT()A is illegal and not proper and further ought to be set aside as he has not correctly appreciated the provision of Section 80P of the Income Tax Act, 1961. The Ld. CIT(A) ought not to have deleted the addition of Rs. 14,70,480/- and instead ought ot have upheld the order of Ld. AO dt. 18/12/2017. It was vehemently contended that the assessee has not bifurcated the receipt on account of disposal of work and receipt on account of material to explain the assertion made regarding profit being attributable to both labour and material whereas the deduction under section 80P(2)(a)(vi) of the Income Tax Act, 1961 is only for “corrective disposal of labour”. It was further contended that the assesse has failed to discharge its primary onus to furnish any evidence that all the works has been carried out by the members and further also one Tara Singh is the only member having 100% share of society. It was then contended that Ld. CIT(A) has erroneously placed reliance on the judgment in case of CIT Vs. Uralungal Labour Contract Society in ITA No. 1722 of 2009 dt. 29/11/2009 which is a judgement of Hon’ble Kerala High Court. This judgement does not apply to the facts of the present case as income herein in present case is admixture of both labour and material. Whereas in Kerala High Court case income earned was found to be attributable to labour inputs and not trading. The quantum was marginal whereas in the case on hand no bifurcation is available for receipt on account of disposal of work and receipt on account of material purchased. Attention was further drawn to yet another decision of Kerala High Court in case of Nileshwar Range Kallu Chethu Vs. CIT Calicut reported in (2015) 62 Taxmann.com(Kerala) ITA No. 141 of 2014 wherein a decision has come in favour of Revenue and aforesaid case of CIT Vs. Uralungal Labour Contract Soceity was distinguished.

14.1 Per contra the Ld. AR fully supported the impugned order of Ld. CIT(A). The Ld. AR then tendered the copy of the judgement of Hon’ble Kerala High Court in case of Nileshwar Range Kallu Chethu Vs. CIT Calicut reported in (2015) 62 Taxmann.com 189 (Kerala) and relied upon para 8 of the judgment and stated that by virtue of following which is recorded. “The compensation by way of wages paid to members depends on the quantity of toddy supplied by them to the society. Toddy is also purchased from outside. The difference between the purchase price per litre of toddy and the compensation per litre of toddy procured from members is marginal. The main activity of the assessee is doing business of procuring and selling toddy and thereby making profit. The profit is not seen utilized for the immediate benefit of the members. For all these reasons the assessee cannot be considered to be a Society engaged in the collective disposal of labour of its members or in any other activity as is mentioned in section 80P(2)(a). Accordingly the claim of deduction u/s. 80P(2) is not allowable." The facts are not parimateria and therefore said judgment relied upon by the Revenue cannot be taken into consideration and that judgement of CIT Vs. Uralungal Labour Contract Society of Kerala High Court supra holds the field as fact herein are parimateria with that of Kerala High Court in Uralungal Case (supra).

14.2 The matter was heard finally and was closed for order.

Findings and Conclusions 15. In the premises set out hereinabove, we now have to examine the legality, validity and proprietary of the impugned order basis reasons given in the impugned order. The moot question is whether in the facts and circumstances of the instant case the income of Rs. 14,70,480/- is entitled in law to deduction under section 80P(2)(a)(vi) of the Income Tax Act, 1961 ? The second issue is whether out of two judgments of Kerala High Courts (supra) which one would apply to the facts and circumstances of the present case?

15.2 The income of Rs. 14,70,480/- is not in dispute. What is in dispute is whether the said income of Rs. 14,70,480/- is entitled in law to the deduction and benefit of section 80P(2)(a)(vi) which section we reproduce below for sake of convenience and ease:

Deduction in respect of income of co-operative societies. 80P. (1) Where, in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee. (2) The sums referred to in sub-section (1) shall be the following, namely :— a…. (i)… (ii)… (iii).. (iv)… (v)… (vi) The collective disposal of the labour of its members The words “Collective Disposal of labour of its Members” assumes significance. In our considered view the dominant purpose of assessee is collective disposal of labour in area of civil works. The assessee admittedly while rendering civil works majorly in the terms of labour collectively works for gain. Since civil works is highly fragmented industry in India at times both the Central Government, the State Government, the Local Bodies like Municipal Corporation, Councils, etc. including PSU, State PSU, Electricity Boards, CPWD, PWD Corporate, firms, NGO etc. Nowadays by way of tenders for small and medium size civil works invite the bids which are consisting of both ‘material and labour’ as such civil works primarily are highly labour intensive consequently small to medium society have to bid for both in a competitive world even though their domain field is only pure labour. In order to survive in the competitive world they under quote on labour and a bare minimum on cost of material so that being lowest bidder they get the tender finally. The above requisite submissions are on record of the present case which has not been disputed by the Department seriously either before Ld. AO and / or before CIT(A). Consequently we are of the considered view that in the given context the services offered by the assessee society cumulatively comes within the mischief of the words “Collective disposal of labour of its members” falling under section 80P(2)(a)(vi) and therefore order of Ld. CIT(A) is sustained. The nature of broad activity which dominates the field is ‘collective disposal of labour of its Members’. Purchases are thus incidental and ancillary to main object of rendering labour services collectively’. Society survives and makes profit income by sacrificing their collective labour in process to earn their livelihood on both counts. 15.3 The Ld. CIT(A) on page 3, 4 & 5 of the impugned order has rightly placed reliance on the judgement of Hon’ble Kerala High Court in case of CIT Vs. Uralungal Labour Contract Society in of 2009 dt. 29/10/2009 (reported in indiankanoon.org/doc/226697/) particularly the following: “ We feel the society is entitled to deduction under section 80P(2)(a)(vi) on the entire income because in the first place, all the members of the society are works 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 therefore 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 society are engaged in construction activities then the society itself should be held to be engaged in collective disposal of labour of its members. Therefore, the income earned from construction work qualifies for deduction under section 80P(2)(a)(vi) of the Act. The remaining issue is only with regard to the trading done in construction materials like sand which are stated to have been purchased and sold by the society. Here again, the transactions are incidental in nature and members themselves are engaged in handling 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)(a)(vi) of the Act. Consequently appeals are dismissed.” 15.4 The Ld. CIT(A) in para 6.3 of the impugned order has correctly held as under and we conquer with his views which is as under:

6.3 The submissions of the assessee and case law relied upon have been considered. During the relevant year, the assessee society derived its income from execution of work contracts obtained from Municipal Corporation, Kharar & Mohali. To carry out execution of work orders assigned through tenders, the assessee society purchases construction materials like sand, cement, bajri, tiles etc. The AO denied the claim of deduction u / s 80P(2)(a)|vi) on the basis that apart from deriving income from disposal of work contacts, the assessee had receipts on account of trading construction materials, but the assessee had not bifurcated the receipts from work contract and construction materials. During appellate proceedings, the counsel of the assessee submitted that the society purchases raw materials for execution of a particular contract by collective disposal of labour of its members only. In support reliance is placed on judgement of Kerala High Court in case of CIT vs. Uralungal Labour Contract Society in of 2009 dated 29.11.2009. In the said Judgement the court has held that trading in construction material is incidental to the nature of work carried out by the assessee and the members themselves are engaged in handling of goods in course of purchase and sale of the same. Relevant excerpts from the said judgement is reproduced below:

4 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 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. The ratio of the above judgement squarely covers the matter at hand. In view of the judgment of Kerela High Court, the disallowance of deduction of Rs. 14,70,480/: is deleted. Grounds of appeals are allowed. 15.5 We conquer with the submissions of Ld. AR that facts of the case in Nileswar Range Kallu Chethu (supra) are materially different. We on perusing para 11(8) of the judgement which we reproduce below as under:

8. The members of the society are also working as employees and are being paid remuneration based on their output of toddy. The assessee is not a labour contract co-op society. The main objectives of the Society as per registered bye laws are to run toddy shops under license from Excise Department; purchase implements for tapping toddy for use of members; arrange buildings, furniture and vehicles for setting up toddy shops etc. There is no mention about the collective disposal of labour of the members. The assessee is collecting toddy from members and also purchasing toddy from outside. The compensation by way of wages paid to members depends on the quantity of toddy supplied by them to the society. Toddy is also purchased from outside. The difference between the purchase price per litre of toddy and the compensation per litre of toddy procured from members is marginal. The main activity of the assessee is doing business of procuring and selling toddy and thereby making profit. The profit is not seen utilized for the immediate benefit of the members. For all these reasons the assessee cannot be considered to be a Society engaged in the collective disposal of labour of its members or in any other activity as is mentioned in section 80P(2)(a). Accordingly the claim of deduction u/s. 80P(2) is not allowable.

A bare perusal shows that nature of activity of assesse therein is materially different from the activity of assessee herein. The dominating activity and purpose in the instant case is “collective use of labour by societie’s each member / collective disposal of labour of its members” and is not of doing business of procuring and selling toddy and thereby making profit. Hence we hold the facts in CIT Vs. Uralungal (supra) to be more parimateria and almost identical with activity of present assessee and respectively disagree with the submissions made by Ld. DR of Revenue.

15.6 In respect of the Revenue’s contention that its database of the assessee shows Tara Singh as the only member having 100% share we observe that in the proceedings before Ld. AO and so also before CIT(A) this issue does not arises and consequently there is no finding. However before us this issue has been raised for the first time without any material evidence in support of same. There is no application to bring additional evidence on record consequently we reject the contention of the Revenue. Further such contention is not legal question of law.

ORDER 16. In the view above analysis we dismiss the appeal of Revenue and sustain the impugned of Ld. CIT(A).