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District Co-operative Federation Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 9 of 1968
Judge
Reported in[1973]87ITR639(All)
ActsIncome Tax Act, 1922 - Sections 10(2) and 14(3)
AppellantDistrict Co-operative Federation Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateA.B. Saran, Adv.
Respondent AdvocateB.L. Gupta and ;R.R. Misra, Advs.
Excerpt:
- - 3. in our opinion, t'he tribunal is right in holding that the assessee is not entitled to exemption under section 14(3)(i)(b). the assessee cannot be said to be engaged in a 'cottage industry'.the expression 'cottage industry 'contemplates an industrial activity of which a well-recognised feature is that it is commonly located in the cottages or homes of the artisans. we are not satisfied that theactivity in question can be described as 'a cottage industry 'the claimto deduction has been rightly rejected......of this court:' (i) whether, on the facts and in the circumstances of the case, the business of brick-kilns is not a cottage industry and, hence, income therefrom is not exempt from tax and (ii) whether, on the facts and in the circumstances of the case, the claim for depreciation on the amount incurred for the purchase of land has been rightly rejected ' 2. the assessee is a co-operative society registered under the co-operative societies act, 1912. it has brick-kilns at different places. in the assessment proceedings for the assessment year 1960-61, the assessee claimed exemption from income-tax in respect of income from brick-kilns under section 14(3)(i)(b) of the indian income-tax act, 1922. it was contended that the manufacture of bricks in the brick-kilns was a ' cottage.....
Judgment:

Pathak, J.

1. The Income-tax Appellate Tribunal has referred the following questions for the opinion of this court:

' (i) Whether, on the facts and in the circumstances of the case, the business of brick-kilns is not a cottage industry and, hence, income therefrom is not exempt from tax and

(ii) Whether, on the facts and in the circumstances of the case, the claim for depreciation on the amount incurred for the purchase of land has been rightly rejected '

2. The assessee is a co-operative society registered under the Co-operative Societies Act, 1912. It has brick-kilns at different places. In the assessment proceedings for the assessment year 1960-61, the assessee claimed exemption from income-tax in respect of income from brick-kilns under Section 14(3)(i)(b) of the Indian Income-tax Act, 1922. It was contended that the manufacture of bricks in the brick-kilns was a ' cottage industry '. The Income-tax Officer rejected the claim. He referred to the definition of 'cottage industry' contained in the reports of the U.P. Industrial Organisation Committee, the Indian Central Banking Enquiry Committee, the Bombay Economic and Industrial Survey Committee and the Indian Fiscal Commission. According to those reports, a 'cottage industry' was ojie carried on wholly and primarily in the homes of artisans and occasionally in small factories where not more than nine workers were employed. The assessee preferred an appeal, but the appeal was dismissed by the Appellate Assistant Commissioner, A second appeal by the asssssee was dismissed by the Income-tax Appellate Tribunal. The Tribunal affirmed the finding that the manufacture of bricks in a brick-kiln could not be described as a ' cottage industry '. The Tribunal referred to the reports of the several committees upon which reliance had been placed by the Income-tax Officer, and held that in the absence of any specific definition of the expression 'cottage industry' it should be taken as one in which work was done, generally speaking, in the homes of the artisans as a subsidiary occupation provided to agriculturists and where the scale of operation was small. The Tribunal pointed out that the assessee had as many as 182 brick-kilns with a very large turn-over and that a large number of people were employed there. Besides, the brick-kilns were being worked by others on the basis of agreements. In the opinion of the Tribunal, therefore, it could not be said that any ' cottage industry ' was being carried on.

3. In our opinion, t'he Tribunal is right in holding that the assessee is not entitled to exemption under Section 14(3)(i)(b). The assessee cannot be said to be engaged in a ' cottage industry'. The expression 'cottage industry ' contemplates an industrial activity of which a well-recognised feature is that it is commonly located in the cottages or homes of the artisans. It is carried out on a smill scale, with a small amount of capital and a small number of workers, and has a turn-over which is correspondingly limited. Those are its distinctive features. The activity in which the assessee is engaged does not possess those distinctive features. There are as many as 182 brick-kilns. The turn-over is very large. A large number ofpeople arc employed. Moreover, the Tribunal has also found that thebrick-kilns are worked not by the asscssee, but by others on the basis ofagreement between the asscssee and them. We are not satisfied that theactivity in question can be described as ' a cottage industry '. The claimto deduction has been rightly rejected.

4. The assessee had also claimed depreciation on the amount incurred in the purchase of land. The claim was rejected by the Income-tax Officer and, thereafter, by the Appellate Assistant Commissioner. The Tribunal pointed out that the depreciation claimed was in respect of open land appurtenant to the building. It declined to allow depreciation as it was not sanctioned under the Income-tax Act. Before us, learned counsel for the assessee has been unable to refer to any provision under which depreciation can be claimed. In Commissioner of Income-tax v. Alps Theatre, [1967] 67 I.T.R. 377; [1967] 3 S.C.R. 181 (S.C.) the Supreme Court has held that depreciation under Section 10(2)(vi) of the Income-tax Act, 1922, is not allowable on the cost of land on which a building is erected, but only on the cost of the superstructure. Accordingly, the Tribunal was right in rejecting the claim to depreciation.

5. We answer both the questions referred in the affirmative, in favour of the Commissioner of Income-tax and against the assessee.

6. The Commissioner of Income-tax is entitled to his costs, which we assess at Rs. 200. Counsel's fee is assessed at the same figure.


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