JUDGMENT
1. This is an application under Section 256(1) of the Income-tax Act, 1961, at the instance of the Revenue and the following question of law has been referred by the Tribunal for answer to this court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the activities of the society are in the nature of cottage industry as contemplated in Section 80F(2)(a)(ii) of the Income-tax Act, 1961, and thus, entitled for exemption ?”
2. The brief facts giving rise to this reference are thus : The assessee is a co-operative society acting as the apex society for the primary societies of weavers. It supplies raw material and machinery to the primary societies to be supplied to weavers and then purchases the manufactured goods from them to be sold at fair price in the market. In response to a notice issued under Section 148 of the Income-tax Act, the assessee filed its return at nil after claiming exemption under Section 80P of the Act. It was submitted that since the society was engaged in the activities covered by Clause (a)(ii) of Section 80P(2) of the Act, therefore, the assessee is entitled to deductions admissible in the profits and gains of business of a cooperative society engaged in cottage industry. The Income-tax Officer did not accept such contention of the assessee and disallowed the deductions under Section 80P(2)(a)(ii) of the Act. Hence, an appeal was preferred before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner decided the appeal in favour of the assessee.
3. Aggrieved against the order of the Appellate Assistant Commissioner, the Revenue preferred an appeal before the Tribunal and the Tribunal affirmed the order of the Appellate Assistant Commissioner and con-
firmed the finding that the assessee is entitled to exemption under Section 80P(2)(a)(ii) of the Act. Hence, the aforesaid question has been referred by the Tribunal at the instance of the Revenue to this court for answer.
4. We have heard learned counsel for the parties and perused the records.
5. It is an admitted fact that the apex society has produced its bye-laws and it has been pointed out that the primary co-operative societies are working as connecting link and all the machines and materials are provided to the primary co-operative societies and they after preparing the finished goods, passed on these goods to the apex society and the apex society sold it at fair price in the market. There cannot be two opinions of the matter that this industry prepares goods as cottage industry because these goods are prepared at the grass roots level. Primarily, the job of these societies is done at their own personal level or at the grass roots level. Therefore, the benefit has been given treating the apex society which ultimately purchased their goods from the primary society and they are the subsidiary of the apex society. Therefore, there is no hesitation in holding that these primary co-operative societies are engaged in a cottage industry and they are entitled to the benefits as given under Section 80P(2)(a)(ii) of the Act. A similar question came up for consideration before this court in Addl. CIT v. Chichli Brass Metal Workers Co-operative Society Ltd. [1978] 114 ITR 720 and there also, their Lordships after considering the question, have taken the view that such society will be entitled to the benefits, and in that context, it was held (headnote) :
“The assessee, a co-operative society, which was assessed as an association of persons, did not engage any outside labour and the members themselves manufactured brass utensils in the premises of the society by using wooden hammers. There was no material to hold that the members could be said to be employed as ‘workers’ under the Factories Act, 1948. So the premises of the society cannot be held to be a ‘factory’. Even if an activity engaged in by a society was a cottage industry it would not cease to be so simply because the premises in which it was carried on was a ‘factory’ as defined by the Factories Act. Therefore, the assessee-society was engaged in ‘cottage industry’ and the income from the manufacture and sale of brass utensils was exempt under Section 81(i)(b) of the Act (now incorporated in Section 80P of the Act).”
6. A similar question also came up for consideration before the Madras High Court in CIT v. Tamil Nadu Co-operative Marketing Federation Ltd.
[1983] 144 ITR 74 and in that case, the assessee-co-operative society, a federation of primary co-operative societies, purchased fertilisers and sold them to various member societies and not to the actual agriculturists who carried on agricultural operations. The claim of the assessee for exemption from income-tax was negatived by the Income-tax Officer but upheld by the Appellate Assistant Commissioner and the Tribunal. The application of the Revenue for reference of certain questions of law for the opinion of the High Court having been rejected, the Department filed an application to the High Court for directing the Tribunal to state the case and refer the questions of law. The court held that the Tribunal was justified in its view that the benefit of Section 80P of the Act would be available to the assessee and hence no question of law had arisen out of the order of the Tribunal.
7. Learned counsel for the Revenue has invited our attention to the decision given by the Allahabad High Court in District Co-operative Development Federation Ltd. v. CIT[1973] 88 ITR 330, and in that case, the question was of a brick kiln and large number of workers were employed in manufacture of bricks and a question arose whether such an industry was a cottage industry or not. In that context, their Lordships held that a cottage industry is one which is carried on by the artisan himself using his own equipment with the help of the members of the family. It is the family unit which provides the labour force. The idea of cottage industry is alien to the idea of industry where hired labour is engaged and the relationship of employer and employees exists. It was also held that the assessee was not entitled to the benefits. But, in the present case as pointed out above, the apex society supplied the material to the primary cooperative societies and those primary co-operative societies at the grass roots level, prepared the goods and then passed them on to the apex society. Therefore, there is a link between the primary co-operative societies and the apex society. As a matter of fact, the apex society works as an out-let for getting the better marketability of the goods of the primary societies. As such, this case stands on different footing than that case i.e., District Co-operative Development Federation Ltd. [1973] 88 ITR 330 (All). In this view of the matter, we are of the opinion that the view taken by the Tribunal is well justified and we answer the aforesaid question in favour of the assessee and against the Revenue.
