2011 (8) TMI 1084 - AT - Income Tax

Deduction under section 80-P(2)(a)(ii) - reason pointed out by AO to deny the benefit of cottage industry to the assessee is that the size of the assessee s establishment is too big that it employed more than 2000 workers; its turnover are crores and crores of rupees and it is a very big co-operate society engaged in producing handloom goods etc. - Held that - These objections raised by the Assessing Officer on the size and extent of the operation of the assessee-society are legally valid to disqualify the assessee from the category of cottage industry for the purpose of the Income-tax Act, 1961. The Industrial Development and Regulation Act has classified the para meters necessary to qualify something as a cottage industry. The assessee is having the recognized status as a cottage industry under that Act. In normal sense, one should take the said recognition as the conclusive proof that the assessee is a cottage industry. This conclusive statutory proof is further strengthened by the fact that the assessee is working under the umbrella of the Commissioner of Handloom and Textiles, Government of Tamilnadu and obtaining various concessions like subsidies, rebates etc. in promoting the sale of its products. These concessions and facilities are given both by the State and Central Governments to protect the employment and interest of traditional workers and artisans in different fields of cottage industries. Handloom is a traditional industry in India deploying a large number of workers.As a matter of fact, it is to be stated that the Central and State Governments are promoting such societies to develop and expand the area of operation of cottage industries. When the assessee has grown itself into a big institution, it shows that the assessee is in fact, following the policies declared by the State and Central Governments. Since the society is performing well, it is able to expand and provide more and more employment to traditional handloom workers. We agree with the Commissioner of Income-tax (Appeals) that the assessee-society is entitled for the benefit of exemption under sec.80P(2)(a)(ii) of the Income-tax Act, 1961

Summary

Issues:
- Exemption under sec.80P(2)(a)(ii) of the Income-tax Act, 1961 for a Handloom Weavers Cooperative Society (HWCS) classified as a cottage industry.

Analysis:
The appeal before the Appellate Tribunal ITAT Chennai involved the issue of exemption under sec.80P(2)(a)(ii) of the Income-tax Act, 1961 for a Handloom Weavers Cooperative Society (HWCS) classified as a cottage industry. The assessee-society had been enjoying this exemption since its inception, but the Assessing Officer withdrew it for the relevant assessment year. The Commissioner of Income-tax (Appeals) allowed the deduction under sec.80P(2)(a)(ii), leading to the Revenue's appeal before the Tribunal.

The grounds raised by the Revenue in the appeal primarily questioned the classification of the assessee as a cottage industry. The Revenue argued that the size of the assessee's establishment, with over 2000 workers and high turnover, did not align with the characteristics of a cottage industry. The Revenue cited a circular defining a cottage industry as small-scale with limited capital, workers, and turnover. However, the Tribunal noted that while the term "cottage industry" is not defined in the Income-tax Act, the classification is available under the Industrial Development and Regulation Act. The assessee-society enjoyed the status of a cottage industry under this Act and received various concessions from both Central and State Governments to promote the handloom industry.

The Tribunal emphasized that the recognition of the assessee as a cottage industry under the Industrial Development and Regulation Act should be considered conclusive proof. The Tribunal highlighted that the assessee's operations, including high turnover and employment of many workers, were in line with the policies of the Central and State Governments to promote and expand cottage industries. The Tribunal concluded that the objections raised by the Assessing Officer regarding the size and extent of the operation of the assessee-society were not legally valid to disqualify it from the category of a cottage industry for the purpose of the Income-tax Act, 1961.

Therefore, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the Revenue, affirming that the assessee-society was entitled to the benefit of exemption under sec.80P(2)(a)(ii) of the Income-tax Act, 1961.