Cottage-industry exemption applies only to manufacturing activity, not mere buying and selling of outsiders' goods.

The cottage-industry exemption for a co-operative society applies only to income arising from an actual industrial activity involving manufacture, not from a mere trading activity of buying and selling goods. Income from the society's Emporium was therefore outside the exemption to the extent it came from buying and selling products of outsiders, while manufacture and sale of the society's own products and those of its members remained within the exempt category.

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Issues: Whether the assessee-society's income from running the Cottage Industries Emporium was exempt as profits of a co-operative society engaged in a cottage industry, and whether the exemption extended to income from buying and selling products of outsiders as well as from manufacture and sale of the society's own products and those of its members.

Analysis: The relevant exemption applied only where the co-operative society was engaged in a cottage industry. The expression was held to require an industrial activity involving manufacture, and not a mere trading activity of purchasing and selling goods. The Court rejected the view that the business of facilitating marketing of cottage industries' products, by itself, amounted to engagement in a cottage industry. On the facts, the activities of the society relating to the Emporium, so far as they consisted of buying and selling products of outsiders, did not satisfy the statutory test. However, manufacture and sale of its own products, or products of its members, did amount to activity within the exemption.

Conclusion: The exemption was not available in respect of income derived from buying and selling products of outsiders, but it was available in respect of manufacture and sale of the society's own products and the products of its members.

Ratio Decidendi: For a co-operative society to obtain the cottage-industry exemption, the income must arise from an actual industrial activity of manufacture, not from a mere business of purchase and sale.

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