1978 (7) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee-society qualifies as a society engaged in a "cottage industry" under section 81(i)(b) of the Income-tax Act, 1961.

Detailed Analysis:

Qualification as a Cottage Industry:
The primary issue is whether the assessee-society qualifies as a "cottage industry" under section 81(i)(b) of the Income-tax Act, 1961. The assessee-society, formed by retrenched employees of a typewriter department, engaged in overhauling, repairing, and servicing typewriters, claimed exemption under section 81(i)(b).

Legal Definitions and Interpretations:
The term "cottage industry" is not defined in the Income-tax Act, 1961. The assessee relied on the definition provided in the Maharashtra State Aid to Industries Act, 1960, and the Maharashtra State Aid to Industries Rules, 1961. The AAC and Tribunal, however, did not find these definitions conclusive for determining the exemption under the Income-tax Act. They emphasized that the business activities of the assessee did not fit the general or well-accepted connotation of "cottage industry."

Tribunal's Findings:
The Tribunal confirmed the AAC's order, stating that the assessee's activities did not equate to an artisan carrying on an industry in or near his home. The Tribunal concluded that the assessee was not engaged in a "cottage industry" and thus not entitled to the exemption under section 81(i)(b).

Assessee's Arguments:
The assessee argued that since the Income-tax Act does not define "cottage industry," the definition in the Maharashtra State Aid to Industries Act should be accepted. The assessee also presented a certificate from the joint Registrar for Industrial Co-operatives, Maharashtra State, supporting their claim.

Revenue's Arguments:
The revenue contended that definitions under different State Acts and Rules, which vary, should not influence the general concept of "cottage industry" for exemption under the Income-tax Act. They argued that the certificate from the joint Registrar was not conclusive and that the assessee did not meet the essential criteria of a "cottage industry" as per the Maharashtra Act's definition.

Judicial Precedents:
The court referred to the definition of "cottage industry" in Webster's Dictionary and a precedent from the Allahabad High Court in Addl. CIT v. Hastkala Pital Udyog Sahakari Samiti Ltd., which emphasized that a "cottage industry" is typically carried on at the home of the artisan. The court found that the assessee's activities, conducted at rented premises, did not align with this concept.

Conclusion:
The court concluded that the assessee-society did not qualify as a "cottage industry" under section 81(i)(b) of the Income-tax Act, 1961. The Tribunal's view, considering the totality of facts and circumstances, was upheld. The question referred to the court was answered in the affirmative and against the assessee.

Costs:
The parties were directed to bear their own costs of the reference.