1987 (7) TMI 59 - HC - Income Tax

Co-op handloom society qualifies as 'cottage industry' under Income-tax Act. Court rules in favor of assessee.

Commissioner Of Income-Tax Versus Taj Textile Industries Co-operative Society Limited

Commissioner Of Income-Tax Versus Taj Textile Industries Co-operative Society Limited - [1988] 170 ITR 465, 66 CTR 103, 34 TAXMANN 271 Issues:- Interpretation of whether the assessee is engaged in a 'cottage industry' and entitled to relief under section 80P(2)(a)(ii) of the Income-tax Act, 1961.Detailed Analysis:The case involved a co-operative society engaged in the manufacture and sale of handloom cloth. The society purchased raw materials and entrusted them to workers who worked in thatched sheds provided by the society. The workers were remunerated at piece rates and provided with bonuses. The main issue was whether the society qualified as a 'cottage industry' under section 80P(2)(a)(ii) of the Income-tax Act. The Appellate Tribunal held in favor of the assessee, but the Revenue challenged this decision, arguing that the society operated in a large and organized manner, not fitting the definition of a 'cottage industry'.The High Court analyzed the concept of a 'cottage industry' in the context of the Income-tax Act and previous judicial interpretations. The court referred to the definition in Webster's dictionary and emphasized that the term should be understood within the framework of the Act. It cited a case where a co-operative society engaging only its members in manufacturing goods on its premises was considered a 'cottage industry'. The court noted that a co-operative society could be likened to a family, and its premises could be viewed as a home or cottage. In this case, the society employed 80 artisans who worked in the thatched shed belonging to the society, meeting the criteria of a 'cottage industry'.The court distinguished a previous Bombay High Court decision where a co-operative society servicing typewriting machines was not considered a 'cottage industry' due to substantial work being done at customers' premises. The court found the facts in the present case to be different and held that the society qualified as a 'cottage industry' under section 80P(2)(a)(ii) of the Income-tax Act. The court upheld the decision of the Appellate Tribunal, ruling in favor of the assessee and against the Revenue.Additionally, the court addressed a procedural issue raised by the Revenue regarding the timing of the claim under section 80P(2)(a)(ii). The Revenue contended that the claim was raised for the first time before the Appellate Assistant Commissioner and should not have been entertained. However, since this question was not referred by the Appellate Tribunal, it was not considered in the current judgment.In conclusion, the High Court upheld the decision of the Appellate Tribunal, ruling that the co-operative society was engaged in a 'cottage industry' and entitled to the benefit under section 80P(2)(a)(ii) of the Income-tax Act. The judgment was in favor of the assessee, and a copy of the decision was to be forwarded to the Income-tax Appellate Tribunal as required by law.