High Court Of Kerala
CIT vs. Palghat Food Corporation Of India Labour Contract Co-Operative Society Ltd.
Sections 80P(2)(a)(vi), 80P(2)(a), proviso
Asst. Year 1992-93
G. Sivarajan & J.M. James, JJ.
IT Ref. No. 11 of 2000
28th March, 2003
Counsel Appeared
P.K.R. Menon, for the Applicant : P. Balakrishnan & R. Amritharaj, for the Respondent
JUDGMENT
G. Sivarajan, J. :
The Tribunal, Cochin Bench, has referred the following question of law at the instance of the Revenue pursuant to the directions issued in the judgment, dt. 5th Oct., 1999, in O.P. 21571 of 1999, for decision of this Court : “Whether, on the facts and in the circumstances of the case the assessee was entitled to exemption under s. 80P(2)(a)(vi) of the IT Act, 1961 ?”
2. The brief facts necessary for the purpose of this case are as follows. The respondent-assessee is a co-operative society, the members of which are engaged in labour work on contract with the Food Corporation of India, Palakkad. For the asst. yr. 1992-93, the assessee filed nil return, contending that its entire income is exempted under s. 80P(2)(a)(vi) of the IT Act, 1961 (for short ‘the Act’). The AO completed the assessment on a total income of Rs. 6,25,893. The exemption claimed was denied on the ground that the voting right was not restricted by the bye-laws of the society to the members doing labour. The AO noted that certain other categories of members, who were sympathisers, but had no right to labour, were also given the right to vote under the byelaws. According to the AO, this provision in the bye-laws was in contravention of the proviso to s. 80P(2)(a). Being aggrieved, the assessee filed appeals before the CIT(A), who, by his order dt. 18th Jan., 1996, dismissed the appeal, confirming the order of the AO. The assessee filed appeal against that order before the Tribunal. The orders of the two authorities were set aside and the assessee’s claim was allowed by the Tribunal. It is against this order of the Tribunal, the question extracted above was referred.
3. Sri George K. George, learned Central Government standing counsel for taxes appearing for the applicant, submitted that the bye-laws of the society had clearly provided for voting right to members who are sympathisers, without any right to work, and, therefore, the proviso to s. 80P(2) (a) squarely applies. Standing counsel further submits that the contention of the assessee before the AO and before the first appellate authority was that sympathiser members were also doing manual work, and, therefore, the proviso is not attracted. However, a different contention was taken up before the Tribunal to the effect that the provisions in the bye-laws giving voting power to the sympathisers, who were not given the right to work, was contrary to the provisions of the Kerala Co- operative Societies Act, particularly, s. 20 thereof, and the Tribunal, without even considering the scope and ambit of the provisions of s. 20 of the Co-operative Societies Act, had held that the assessee is entitled to exemption under s. 80P(2)(a)(vi). Shri P. Balachandran, learned counsel appearing for the respondent, on the other hand, submits that though the sympathisers, a few in number (5 members), were also admitted as members of the society, without any right to work, and were given right to vote, the right to vote conferred to those members were contrary to the provisions of s. 20 of the Co-operative Societies Act, and, by virtue of the provisions of r. 5 of the Co- operative Societies Rules, the provision of the bye-laws, to the extent it is contrary to the provisions of the Co- operative Societies Act and the rules, are void. Counsel accordingly submitted that the Tribunal was justified in relying on the decision of the Hyderabad Bench of the Tribunal, which considered a similar situation with reference to the provisions of the Co-operative Societies Act and rules of the Andhra Pradesh State.
The following facts are not in dispute. The assessee is a co-operative society, the members of which are engaged in labour work, on contract with the Food Corporation of India, Palakkad. The entire income belonging to the society are from the said contract work. The exemption sought for by the assessee was denied solely on the ground that the bye-laws of the society are contrary to the proviso to s. 80P(2)(a). Therefore, it is necessary to refer to the provisions of s. 80P. Under s. 80P, in the case of a co-operative society, if the gross total income includes any income referred to in sub-s. (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sum specified in sub-s. (2) in computing the total income of the assessee. Under cl. (vi) of sub-s. (2), the income, which relates to the collective disposal of the labour of its members, is liable to be deducted. There is no dispute that the income of the co-operative society relates to the collective disposal of the labour of its members. However, the proviso to sub-s. (2)(a) says that in case of a co-operative society falling under sub-cl. (vi) or sub-cl. (vii), the rules and bye-laws of the society should restrict the voting right to the following classes of its members, viz. (1) the individuals who contribute their labour or, as the case may be, carry on the fishing or allied activities; (2) the co-operative credit societies which provide financial assistance to the society; and (3) the State Government. As we have already noted, under the bye-laws of the society voting power is given to its members, who are sympathisers, who have no right to work, also (cl. 5 of the bye-laws dealt with by the AO in paras. 2 and 3 of the assessment order). Thus, going by the proviso mentioned above, the inhibition contained in the said proviso will apply. However, the case of the assessee is that the cl. 5 of the bye-laws, giving voting right to the members who are sympathisers without any right to labour, is against the provisions of the Co-operative Societies Act and the rules framed thereunder, and that r. 5 of the said rules, clearly provides that the bye-laws of the society shall not be contrary to the provisions of the Act. It is also the assessee’s case that s. 20 of the Act interdicts the conferment of any voting right to persons other than members of the society. Hence, we have to refer to the provisions of the Co-operative Societies Act and the rules framed thereunder. Sec. 20 of the Act reads thus : “20. Votes of members—Every member of a society shall have one vote in the affairs of the society : Provided that— (a) nominal or associate member shall not have the right to vote ; (b) where the Government is a member of the society, each person nominated by the Government on the committee of the society shall have one vote except when the right to vote is to be exercised for election of office bearers of the society; xxx xxx” The expression ‘nominal or associate member’ is defined in s. 2(m) as follows : “(m) ‘nominal or associate member’ means a member who possess only such privileges and rights of a member who is subject only to such liabilities of a member as may be specified in the byelaws;” Thus, going by the provisions of s. 20, voting right is conferred only to an active member of a society. It is also specified that a nominal or associate member shall not have the right to vote. Thus, the question that arises for consideration is as to whether sympathisers, who have no right to labour can be treated as active members of a society, or only nominal or associate member falling under cl. (a) of the proviso to s. 20 r/w s. 2(m). Rule 5 of the Co-operative Societies Rules clearly provides that the bye-laws of a co-operative society shall not be contrary to the provisions of the Act. If the voting power conferred to members, who are sympathisers, without the right to labour under cl. (5) of the bye-laws is contrary to the provisions of s. 20 of the Co-operative Societies Act, certainly, by virtue of the provisions of r. 5, the said right conferred has to be held to be ultra vires, and consequently, has to be of no effect.
We have perused the orders of the three authorities including that of the Tribunal, we do not find any consideration of the provisions of the Co-operative Societies Act and the rules by the first two authorities. We find at the Tribunal had adverted to the provisions of the Kerala Co-operative Societies Act and the rules, but there is no due consideration of the said provision at all. The Tribunal had simply followed the decision of the Hyderabad Bench of the Tribunal. Nothing was brought out to show that the provisions of the Co-operative Societies Act and the rules of Andhra Pradesh are similar to the Kerala Co-operative Societies Act and rules, and as to whether the said decision can be applied to the facts of this case as well. According to us, the Tribunal was not justified in blindly following the decision of the Hyderabad Bench of the Tribunal, without adverting to the provisions of the Kerala Co-operative Societies Act and rules, particularly the provisions which we have referred to above.
In the above circumstances, we set aside the order of the Tribunal and remit the matter back to the Tribunal for fresh consideration in accordance with law and in the light of the observations made hereinabove. In view of the above, we decline to answer the question referred.
[Citation : 266 ITR 315]
