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TMI Blog1986 (2) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... ght districts of Vidarbha. The members of this society are the primary weavers' co-operative societies and the State Government. In the year ended 30-6-1981, the National Co-operative Development Corpn. has also become a shareholder. The authorised capital is Rs. 1 crore. The assessee has thus become an apex society. The assessee claimed exemption under section 80P(2)(a)(ii), that is, profits and gains from cottage industry. The ITO disallowed the exemption claimed by the assessee following the decision of the Delhi High Court in the case of Addl. CIT v. Indian Co-operative Union Ltd. [1982] 134 ITR 108. According to the ITO, the test to be applied is whether the assessee-society is engaged in the manufacture of any articles through its members either in the dwelling houses of the members or in the premises of the society. The emphasis is on the manufacture by the members. Applying this test to the assessee-society, the following facts are revealed : (i) from the beginning till the relevant previous year the society's members are co-operative societies and the Maharashtra Government and the test required that the production must be by the families of the members cannot be fulfilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e labour was put in by the weaver members of the primary societies and not by the members of the assessee-society as such. After hearing the learned counsel for the assessee and the ITO, the Commissioner (Appeals) confirmed the order of the ITO for the reasons stated by him in his order. As against this order of the Commissioner (Appeals), the assessee is in appeal before us. 5. The learned counsel for the assessee contended that the two questions which require determination are (1) whether the exemption is available to the apex society in which the members are the Primary Weavers' Co-operative Societies; and (2) whether the activities of the assessee constitute cottage industry. He relied upon the decision of the Madras High Court in the case of Tamil Nadu Co-operative Marketing Federation Ltd. The counsel contended that in the case decided by the Madras High Court the assessee was a federation of primary co-operative societies. It purchased fertilisers and sold them to those primary societies who were its members. The assessee claimed benefit of sub-clause (iv) of section 80P(2)(a). The department rejected the claim on the ground that the supply was not to the members who carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MP) and Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 (SC). 6. The learned departmental representative, on the other hand, supported the order of the Commissioner (Appeals). He contended that what is to be proved in this case is whether the assessee is engaged in the cottage industry. Since the members of the primary societies alone are engaged in the cottage industry, the assessee-society cannot claim exemption as those members who are actually involved in the manufacture are not the members of the assessee-society. Taking support from the decision of the Madhya Pradesh High Court in the case of Chichli Brass Metal Workers Co-operative Society Ltd., the learned departmental representative contended before us that the cottage industry cannot be limited to industry carried on by families in their cottages, but it implies an industry carried on by a society with the co-operation of its members in the premises of the society. According to him, only members who are able to assemble under the aegis of societies alone are eligible to exemption under section 80P(2)(a)(ii). In this case, since it is impracticable for all the primary societies to come together being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is from outsiders and secondly though some of the suppliers were co-operative societies we do not know whether these societies are the members of the assessee-society. In the same case mentioned supra, their Lordships have further held that, however, the manufacture and sale of its own products are the products of its members will qualify for exemption. This finding of their Lordships has not been considered by the Commissioner (Appeals). In the case under consideration before us, the assessee-society purchases raw materials for production of handloom goods and gets the cloth manufactured by weavers working on looms, in their cottages and the goods so manufactured are marketed by the assessee. It reaches and deals with weavers for this purpose through its member primary societies. Since what was purchased by the apex society from the members of the primary societies is through the primary societies who are its members, the assessee, in our opinion, is entitled for exemption. From the object clauses of the society it is very clear that it is the apex society that is mainly responsible for organising the primary societies in weaving centres of persons carrying on the profession ..... X X X X Extracts X X X X X X X X Extracts X X X X
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