Cottage industry deduction permitted when members conduct manufacturing; incidental outside dyeing or transport does not bar the deduction. Deduction under section 80P(2)(a)(ii) is available to a co-operative society engaged in a cottage industry if it meets conditions: small-scale operations, not requiring Factories Act registration, owned and managed by the society, activities carried on by members and their families without outside hired labour, members are shareholders, work may be at members' residences or a common society place, and the activity is manufacture, production or processing. Payments to outside agencies for dyeing, bleaching or transport do not by themselves disqualify a weavers' co-operative if weaving is done by members and other conditions are satisfied.