1987 (7) TMI 59

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....i) of the Income-tax Act, 1961 ? " The respondent/assessee is a co-operative society engaged in the manufacture and sale of handloom cloth. The members of the society are eighty artisans weaving handloom cloth. The society purchases raw materials for the manufacture of cloth and entrusts the materials to the workers who carry out the work in thatched sheds belonging to the society. The looms are kept in a thatched shed. The members are remunerated at piece rates. They are also provided with bonus and other compensation. The plea of the assessee is that it is entitled to the benefit of section 80P(2)(a)(ii) of the Income-tax Act and is entitled to deduction. The plea was put forward before the Appellate Assistant Commissioner for the firs....

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.... in their homes. But, we have to understand the said phrase in the context of the Income-tax Act and in the background of section 80P of the Act. Section 80P(1) provides that in computing the taxable income of a co-operative society, there shall be deducted the sums specified in subsection (2). Sub-section (2)(a)(ii) specifies that the sums referred to in sub-section (1) in the case of a co-operative society engaged in a cottage industry is one of those items which will be entitled to deduction. In Addl. CIT v. Hastkala Pital Udyog Sahkari Samiti Ltd. [1978] 114 ITR 723 at p. 726, the Allahabad High Court stated thus: " Primarily, a cottage industry is carried on by families in their own dwelling houses, but when the term 'cottage indust....

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....emselves and were working only in the thatched shed belonging to the society. In the light of the above, we are of the view that the Appellate Tribunal was justified in holding that the respondent/assessee, a co-operative society, is engaged in a cottage industry and is entitled to the benefit of section 80P(2)(a)(ii) of the Income-tax Act. It remains to consider the decision of the Bombay High Court in the case of Co-operative Typewriter Services Ltd. v. CIT [1979] 118 ITR 512, on which heavy reliance was placed by counsel for the Revenue. In that case, some retrenched employees of a company carried on servicing typewriting machines and other activities by forming a co-operative society. The facts of the case showed that substantial ....