Cottage industry exemption and land depreciation claims fail where brick-kiln operations are large-scale and land is non-depreciable.

Brick-kiln activity was held not to qualify as a cottage industry because it was carried on on a large scale, with numerous kilns, substantial labour and turnover, and operations conducted through others under agreements; the claimed exemption under section 14(3)(i)(b) therefore failed. Depreciation was also denied on the cost of land, because depreciation is confined to depreciable assets and does not extend to land, even where it is appurtenant to a building. The reference questions were answered against the assessee and in favour of the revenue.

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Issues: (i) Whether the assessee's brick-kiln activity constituted a cottage industry so as to qualify for exemption from tax under section 14(3)(i)(b) of the Indian Income-tax Act, 1922; (ii) Whether depreciation could be allowed on the amount incurred for purchase of land.

Issue (i): Whether the assessee's brick-kiln activity constituted a cottage industry so as to qualify for exemption from tax under section 14(3)(i)(b) of the Indian Income-tax Act, 1922

Analysis: A cottage industry was treated as one characteristically carried on in the homes or cottages of artisans, on a small scale, with limited capital, few workers, and correspondingly limited turnover. The assessee's activity did not answer that description, since it involved numerous brick-kilns, large turnover, substantial employment, and operation through others under agreements.

Conclusion: The activity was not a cottage industry and the exemption claim failed.

Issue (ii): Whether depreciation could be allowed on the amount incurred for purchase of land

Analysis: Depreciation was claimed on open land appurtenant to the building. Depreciation under the income-tax law was not allowable on the cost of land, but only on the cost of the superstructure, and no provision was shown to support the claim.

Conclusion: Depreciation on the cost of land was not allowable and the claim was rightly rejected.

Final Conclusion: Both reference questions were answered against the assessee and in favour of the revenue, with the exemption and depreciation claims both rejected.

Ratio Decidendi: An industrial activity is not a cottage industry unless it bears the defining features of home-based, small-scale production with limited capital, labour, and turnover, and depreciation is not allowable on the cost of land, being confined to depreciable assets such as the superstructure.

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