1998 (12) TMI 126 - AT - Income Tax

Summary

Issues:
Whether income derived by the assessee-society can be attributed to cottage industry for claiming deduction under s. 80P(2)(a)(ii).

Analysis:
The Appellate Tribunal considered the issue of whether the income of the assessee-society could be attributed to a cottage industry to claim exemption under s. 80P(2)(a)(ii). The assessee-society, formed under the Maharashtra Co-operative Society Act, facilitated weavers in procuring raw materials and marketing goods. The AO rejected the claim under s. 80P(2)(a)(ii) on the grounds that the society was not engaged in a cottage industry. The CIT(A) upheld this decision, citing various factors such as the object clauses, ownership of powerlooms by some members, and transactions with non-member societies.

The counsel for the assessee argued that the society's activities were integrated with the weavers' work, constituting a cottage industry. They referenced precedents where similar claims were allowed. The Tribunal noted that cottage industry involves small-scale operations primarily run by family members or a group. It observed that the weavers, primary society, and the apex society were interlinked, supporting the view that the income derived was attributable to a cottage industry.

The Tribunal agreed with the Departmental Representative that income from transactions with non-member societies could not be considered part of the cottage industry income. It emphasized that cottage industry income involves activities like procuring raw materials and processing. The Tribunal also addressed objections raised by the CIT(A), clarifying that the object clauses and investments did not disqualify the society from claiming the exemption. It stressed that the actual activities of the society aligned with the concept of a cottage industry.

In conclusion, the Tribunal partially allowed the appeals, holding that income from commission and dyeing charges from members was attributable to a cottage industry, while income from transactions with non-member societies did not qualify. The decision highlighted the integrated nature of the society's activities with the weavers' work, supporting the claim for exemption under s. 80P(2)(a)(ii).