2014 (9) TMI 753 - HC - Income Tax

Assessee society eligible for deduction u/s 80P(2)(a)(ii) or not - Assessee society is a cottage industry or not - criteria laid down in the Board circular No.722 dated 19.9.95 for availing benefits under Section 80 P (2) (a) (ii) or not by assessee Overriding effect of Statue over circular - Held that - The Tribunal has given a finding that all the assessees are producing handloom bed sheets and other handloom goods, which are sold through outlets of Co-optex, an apex marketing society formed by the Government of Tamil Nadu - recognition is available to the assessee under the Industrial Development and Regulation Act as cottage industry, which is also relevant for the purpose of Income Tax Act as well - the benefit of deduction u/s 80P(2)(a)(ii) is available to all the assessees - so long as recognition is available to the respondents/assessees as cottage industry under the provisions of the Industrial Development and Regulation Act, which is relevant for the purpose of Income Tax Act, in the absence of specific definition of cottage industry in the Income Tax Act, the Tribunal was fully justified in accepting the recognition of the assessee as cottage industry by the Central as well as the State Governments - no further document is required to be submitted by the assessees to prove that they are cottage industries. Section 80-P does not speak about any particular type of cottage industry. It is an inclusive definition - There is no sub-classification - what the statute provides u/s 80-P, cannot be taken away by means of an administrative circular relying upon Commissioner of Central Excise, Bolpur Vs - M/s. Ratan Melting & Wire Industries 2008 (10) TMI 5 - SUPREME COURT OF INDIA - what is provided under the statute cannot be denied by means of a circular and, thereby, deny the benefit to the assessees. The mere reason that the size of the industry is big and there are large number of workers employed, is no reason to deny the assessees the benefit available to them u/s 80-P of the Act, when there is no specific embargo imposed under the Act - as long as the assessees are cottage industries, they would be entitled to the benefit of Section 80-P of the Act - No further fetters, as is done by the Department, can be imposed on such a claim, by means of circulars, to the detriment of the assessees thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues Involved:
1. Eligibility of the assessee society for deduction under Section 80 P (2) (a) (ii) of the Income Tax Act.
2. Classification of the assessee society as a cottage industry.
3. Compliance with criteria laid down in Circular No.722 dated 19.9.1995 for availing benefits under Section 80 P (2) (a) (ii).

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80 P (2) (a) (ii):
The primary issue was whether the assessee societies, which are co-operative societies engaged in the production of textile goods, are eligible for claiming deduction under Section 80 P (2) (a) (ii) of the Income Tax Act. The Tribunal and the Commissioner of Income Tax (Appeals) both upheld that the assessees are eligible for such deductions. The Tribunal noted that the term "cottage industry" is not defined in the Income Tax Act but found that the assessee societies are recognized as cottage industries under the Industrial Development and Regulation Act. This recognition was deemed relevant for the purpose of the Income Tax Act as well.

2. Classification as Cottage Industry:
The Tribunal held that the assessees are recognized as cottage industries by competent authorities and are receiving various concessions from both Central and State Governments. The Tribunal referenced previous decisions, such as ITA No.422/Mds/2011 and ITA Nos.2004, 2005 & 2006/Mds/2011, which consistently recognized the assessees' status as cottage industries. The Tribunal dismissed the Revenue's argument that the size and turnover of the assessees' operations disqualified them from being considered cottage industries. The Tribunal emphasized that the recognition under the Industrial Development and Regulation Act is relevant for the Income Tax Act.

3. Compliance with Circular No.722:
The Revenue argued that the assessees did not meet the criteria laid down in Circular No.722 dated 19.9.1995, which outlines the conditions for a co-operative society to be considered a cottage industry. The Tribunal, however, found that the assessees fulfilled the necessary conditions, as they were engaged in the production of handloom goods, employed traditional workers, and received various government concessions. The Tribunal also noted that the circular cannot override the provisions of the Income Tax Act. The Court upheld this view, stating that administrative circulars cannot impose additional restrictions not found in the statute itself.

Conclusion:
The High Court upheld the Tribunal's decision, dismissing the Revenue's appeals. It concluded that the assessees are entitled to the benefits of Section 80 P (2) (a) (ii) as cottage industries. The Court emphasized that the size of the industry or the number of workers employed cannot disqualify the assessees from being considered cottage industries, as long as they are recognized as such under relevant laws. The Court also reiterated that statutory provisions cannot be overridden by administrative circulars. Consequently, all appeals filed by the Revenue were dismissed, and the orders of the Commissioner of Income Tax (Appeals) were upheld.