G.P. Singh, J.
1. This judgment shall dispose of Misc. Civil Case No. 225 of 19.72 and Misc. Civil Case No. 233 of 1973.
2. These are references under section 256(1) of the Income-tax Act, 1961, made by the Income-tax Appellate Tribunal at the instance of the department. Misc. Civil Case No. 225 of 1972 is a consolidated reference relating to assessment years 1962-63, 1963-64, 1964-65 and 1965-66. Misc. Civil Case No. 233 of 1973 relates to the assessment year 1966-67. The question of law referred to the High Court in both the references is identical. It is as follows :
'Whether, on the facts and in the circumstances of the case, it can be said that the assessee-society was engaged in 'cottage industry' and that the income from manufacture and sale of brass utensils was exempt under section 81(i)(b) of the Income-tax Act, 1961 '
3. The facts found are that the assessee is a co-operative society registered under the Madhya Pradesh Co-operative Societies Act, 1960. The society is assessed in the status of an 'association of persons'. The business of the society is manufacturing brass vessels. The membership of the society varied from year to year between 90 to 150. AH persons participating in the manufacture of brass vessels are members of the society. The society does not employ any outside labour and no motive power is used. The utensils are manufactured only by using wooden hammers. The members work under one common roof in a building of the society. The capital of the society does not exceed Rs. 15,000. The profits of the society have accumulated to more than Rs. 1 lakh essentially because there is a restriction under the Co-operative Societies Act on the distribution of dividend.
4. Section 81(i)(b) of the Income-tax Act, in so far as relevant, provides that income-tax shall not be payable by a co-operative society in respect of the profits and gains of business carried on by it if it is 'a society engaged in a cottage industry'. The dictionary definition of cottage industry is ; 'An industry based upon the family unit as a labour force in which workers using their own equipment process goods...' (Webster's New International Dictionary). Ordinarily, the idea of a cottage industry is that it is carried on by families in their homes or cottages. We have, however, to apply the meaning of 'cottage industry' in the context of Section 81 of the Act. The exemption therein is granted by Parliament not to individuals or families but to co-operative societies. The object of a co-operative society is to encourage thrift, self-help and co-operation among its members who are generally persons of limited means. In the context in which the exemption is granted by Section 81 of the Act, the concept of' cottage industry' cannot be limited to industries carried on by families in their cottages and Parliament must be taken to have widened the concept to bring within it an industry carried on by a society with the co-operation of its members in the premises of the society. A co-operative society can be regarded as a family consisting of its members and the premises belonging to the society can be regarded as its home or cottage. The society with which we are concerned here does not engage any outside labour. The members themselves manufacture the utensils in the premises of the society by using wooden hammers. In our opinion, the society is engagedin a cottage industry within the meaning of Section 81 of the Act. The conclusion reached by us is strongly supported by the decision of the Allahabad High Court in the case of Addl. Commissioner of Income-tax v. Hastkala Pital Udyog Sahkari Samiti Ltd. : 114ITR723(All) (Appendix) (infra). The learned counsel for the department points out that in that case the members of the society manufactured the utensils in their houses and did not work together in the premises of the society. In our opinion, this is not a material distinction, once it is held that in the context of Section 81 a society has to be likened to a family consisting of its members. The learned counsel argues that premises where more than twenty workers work together in a manufacturing process becomes a 'factory' and hence the industry carried on there cannot be held to be a cottage industry. We have earlier stated that in the case of the society before us no outside labour is employed. It is only the members who work in the premises of the society. There is no material to hold that these members can be said to be employed by the society within the definition of 'worker' in the Factories Act, 1948. So the premises of the society cannot be held to be a 'factory'. However, even assuming that the premises of the society is a factory within the Factories Act, we are of opinion that it is an irrelevant fact for the application of Section 81 of the Income-tax Act. If the activity engaged in by the society is a cottage industry, it does not cease to be so simply because the premises in which it is carried on is a 'factory' as defined by the Factories Act. The learned counsel places reliance on Dist. Co-operative Development Federation Ltd. v. Commissioner of Income-tax : 88ITR330(All) and District Co-operative Federation Ltd. v. Commissioner of Income-tax : 87ITR639(All) . The societies concerned in these cases were engaged in manufacture of bricks by engaging a large number of workmen who were not members of the societies. These cases are, therefore, distinguishable on facts.
5. For the reasons given above, we answer the question referred to us inthe affirmative in favour of the society and against the department. Theassessee shall be entitled to its costs which we assess at Rs. 150 in eachcase.