Cottage industry exemption depends on ordinary meaning, not State aid definitions, when testing co-operative society eligibility.

A co-operative society seeking exemption under section 81(i)(b) had to show that its business was a cottage industry in the ordinary sense, meaning an industry carried on at or near the artisan's home. The note states that State aid definitions under the Maharashtra State Aid to Industries Act and Rules were created for a different purpose and were not conclusive for income-tax exemption. Because the assessee's typewriter servicing, repairing and rebuilding activity was conducted in rented premises rather than at or near members' homes, it did not satisfy the ordinary meaning of cottage industry and the exemption was denied.

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Issues: Whether the assessee-society was engaged in a cottage industry within the meaning of section 81(i)(b) of the Income-tax Act, 1961 and was therefore entitled to exemption.

Analysis: The exemption required the assessee to be a co-operative society engaged in a cottage industry. The statutory definitions in the Maharashtra State Aid to Industries Act, 1960 and the Maharashtra State Aid to Industries Rules, 1961 were treated as artificial definitions framed for the purpose of State aid and not as conclusive for the income-tax exemption. The phrase had to be understood in its ordinary sense, which emphasised an industry carried on at or near the home of the artisan. On the facts, the assessee's activity of servicing, repairing and rebuilding typewriters was carried on in rented premises and not at or near the homes of the members. The work also did not satisfy the ordinary concept of an industry as understood for the exemption.

Conclusion: The assessee was not engaged in a cottage industry and was not entitled to exemption under section 81(i)(b) of the Income-tax Act, 1961. The reference was answered against the assessee and in favour of the revenue.

Ratio Decidendi: For exemption under section 81(i)(b), a co-operative society must show that its business is a cottage industry in the ordinary sense, namely an industry carried on at or near the home of the artisan or members, and a State aid definition framed for another purpose is not conclusive.

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