High Court Of Kerala
CIT vs. Taj Textile Industries Cooperative Society Ltd.
K.S. Paripoornan & K. Sreedharan, JJ.
IT Ref. No. 107 of 1982
16th July, 1987
N.R.K. Nair, for the Revenue : C.M. Devan, for the Assessee
K.S. PARIPOORNAN, J.:
At the instance of the Revenue, the following question of law has been referred by the Tribunal for the decision of this Court : ” Whether, on the facts and in the circumstances of the case, the assessee is engaged in ‘a cottage industry’ and is entitled to the relief under s. 80P(2)(a)(ii) of the IT Act, 1961 ? “
2. 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 s. 80P(2)(a) (ii) of the IT Act and is entitled to deduction. The plea was put forward before the AAC for the first time. It was negatived. On appeal, the Tribunal held that the respondent/assessee is entitled to the relief under s. 80P(2)(a)(ii) of the IT Act on the basis that ” it is a co-operative society engaged in a cottage industry “. The Revenue filed an application under s. 256(1) of the IT Act for referring the question of law which, according to it, arose out of the appellate order of the Tribunal and that is how the question extracted hereinabove has been referred by the Tribunal for our decision.
3. We heard counsel for the Revenue, Mr. N. R. K. Nair, as also counsel for the assessee, Mr. C. M. Devan. Mr. Nair Kontended that the work is carried on by the weavers not in their respective homes but in a thatched shed provided by the society. It is also stated that the operation is carried on by the society in a large and organised manner. So, it is not a ” cottage industry “. Reliance was placed on the decision of the Bombay High Court in Co- operative Typewriter Services Ltd. vs. CIT (1979) 118 ITR 512 (Bom).
4. There is no substance in the above plea. In Webster’s Third New International Dictionary the word ” cottage industry ” has been specified thus: ” An industry based upon the family unit as a labour force in which workers using their own equipment at home process goods usually belonging to a merchant-employer and supplement their income from small agricultural holdings.”
5. Briefly stated, the cottage industry is one carried on by persons in their homes. But, we have to understand the said phrase in the context of the IT Act and in the background of s. 80P of the Act. Sec. 80P(1) provides that in computing the taxable income of a co-operative society, there shall be deducted the sums specified in sub-s. (2). Sub-s. (2)(a)(ii) specifies that the sums referred to in sub-s. (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 vs. Hastkala Pital Udyog Sahkari Samiti Ltd. 1978 CTR (All) 187 : (1978) 114 ITR 723 (All), 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 industry’ is applied to a co-operative society, the idea of a family does not fit in. A co-operative society can in a way be likened to a family constituted by its members; so, where the members of a co- operative society are engaged in the manufacture of goods in their cottages or dwelling houses, it can be said that a family constituted by its members is engaged in a cottage industry. “
6. As stated by Sampath Iyengar’s Law of Income Tax, vol. 3, page 2852: ” In the context in which the exemption is granted by this provision, the concept of ‘cottage industry’ cannot be limited to industry carried on by families in their cottages and Parliament must be taken to have widened the concept to bring within it any industry carried on by a society with the co-operation of its members in the premises of the society. A co-operative society can be regarded as a family consisting of its members and the premises belonging to the society can be regarded as its home or cottage. “
7. In Addl. CIT vs. Chichli Brass Metal Workers Co-operative Society Ltd. 1978 CTR (MP) 205 : (1978) 114 ITR 720 (MP), it was held that in a case where a co-operative society did not engage any outside labour but engaged only its own members for the manufacture of goods in the premises of the society by using wooden hammers, it was a ” cottage industry ” within the meaning of s. 80P of the IT Act. In this case, it has been found by the Tribunal that the society is engaging 80 artisans who are members of the society themselves and were working only in the thatched shed belonging to the society.
8. In the light of the above, we are of the view that the 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 s. 80P(2)(a)(ii) of the IT Act.
9. It remains to consider the decision of the Bombay High Court in the case of Co-operative Typewriter Services Ltd. vs. CIT 1978 CTR (Bom) 649 : (1979) 118 ITR 512 (Bom), 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 cooperative society. The facts of the case showed that substantial servicing was done at the premises of the customers also. It was further found that no activity was being carried on at or near the homes of the members comprising the assessee-society. In the said background, the Bombay High Court held that the society was not engaged in a ” cottage industry ” and that the income of the society was not entitled to exemption. The facts in the said case are entirely different and are distinguishable. We are of the view that the said decision cannot be of any help to the Revenue to deny the exemption pleaded for by the assessee.
10. In the result, we hold that the decision of the Tribunal is justified in law. We answer the question referred to us in the affirmative, in favour of the assessee and against the Revenue.
11. Initially, the Revenue had formulated two questions in the application filed under s. 256(1) of the IT Act. The Tribunal has referred only question No. 2 for the decision of this Court. Question No. 1 centred round the plea of the Revenue that the claim made by the assessee under s. 80P(2) (a)(ii) was raised for the first time only before the AAC and hence it should not and could not have been entertained. This question was based on the decision of the Supreme Court in Addl. CIT vs. Gurjargravures P. Ltd. 1978 CTR (SC) 1 : (1978) 111 ITR 1. Since this question was not referred by the Tribunal, the Revenue filed O.P. No. 7014 of 1982-S. Subsequently, the said O.P. was withdrawn. That is why we are concerned with the only question that has been referred to us by the Tribunal for our decision.
12. The income-tax referred case is disposed of as above.
[Citation : 170 ITR 465]