Tca/67/2014 Of Commissioner Of Income Tax v. M/S Aa 399 The Chennimalai

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE : 04.09.2014 CORAMTHE HONOURABLE MR. JUSTICE R.SUDHAKARANDTHE HONOURABLE MR. JUSTICE G.M.AKBAR ALI The Commissioner of Income TaxCoimbatore. M/s.AA 399, The Chennimalai Industrial WCS Ltd.AA 399, ChennimalaiErode 638 051. M/s.Pallakattu Pudur WCS Ltd.AA 128, ChennimalaiErode 638 051. M/s. The Chennimalai Metro WCS Ltd.CH 7, Chennimalai, Erode 638 051. M/s.The Chennimalai WCS Ltd.K885, PB No.32, ChennimalaiErode 638 051. M/s.Periyar Primary Industrial WCS Ltd.EH 67, P.Mettupalayam, ChennimalaiErode. M/s.The Chennimalai Kongu WCS Ltd.EH 113, Chennimalai, Erode. M/s.The Kalikkavalasu PrimaryIndustrial WCS Ltd.Murungatholuvu, ChennimalaiErode 638 051. M/s.The Chennimalai Siragiri Murugan WCS Ltd.CH 2, PB No.50, ChennimalaiErode. https://hcservices.ecourts.gov.in/hcservices/ Appeals filed under Section 260-A of the Income Tax Act againstthe judgment dated 2.5.13 passed by the Income Tax AppellateTribunal, Madras Á' Bench, in ITA Nos.1553/Mds/2012 to 1559 &1561/Mds/2012 and appeals against the circle of the Commissioner ofIncome Tax (Appeals)-I, Coimbatore dated 7/5/2012 in ITA Nos.157,155, 159, 156, 161, 154, 160, 162/11-12 respectively and appealsagainst the Assessment circle of the Income Tax Officer ward-II(2)Erode under Section 143(3) of the Income Tax Act for the Assessmentyear 2009-10 dated 27/9/2011 & 26/9/11 in PAN/GIR No. AAAA T6085F,AAAA P2222 N, AAAA C 1224 D, AAAA C 1223 E, AAAA P 3022 A, AAAA J5140K, AAAA T3540 P, AAAA T6076 E respectively. For Appellant: Mr. M.Swaminathan COMMON JUDGMENT (DELIVERED BY R.SUDHAKAR, J.) These appeals have been filed by the Revenue against the orderdated 2.5.13 passed by the Income Tax Appellate Tribunal, Madras 'A'Bench, in ITA Nos.1553/Mds/2012 to 1561/Mds/2012. 2. Though a batch of ten appeals were filed by the Revenue,unsuccessfully, before the Tribunal, they are before this Court onappeal in respect of eight matters alone, contending that for therest of the two matters, the Department thought it fit not to pursueappeals on account of lesser monetary limits involved in thosematters. Hence, the above eight appeals are filed in respect ofeight different assessees, but the assessment year in respect of allthe assessees is one and the same, i.e., 2009-2010. 3. The following questions of law have been framed forconsideration in all these appeals :- a) Whether under the facts and circumstances of thecase, the Income Tax Appellate Tribunal was right inholding that the assessee society eligible foravailing the benefits of deduction under Section 80 P(2) (a) (ii) of the Income Tax Act? b) Whether under the facts and circumstances of thecase the Income Tax Appellate Tribunal is right in lawin holding that the assessee society is a cottageindustry and therefore is eligible for deduction underSection 80 P (2) (a) (ii)? c) b) Whether under the facts and circumstances ofthe case the Income Tax Appellate Tribunal is right inlaw in holding that the assessee society has satisfiedall the criteria laid down in the Board circularNo.722 dated 19.9.95 for availing benefits underSection 80 P (2) (a) (ii)? https://hcservices.ecourts.gov.in/hcservices/ 4. The respondents/assessees in all these cases are Co-operativeSocieties, engaged in production of textile goods and are registeredunder the Industrial Co-operative Societies Act of Tamil Nadu. Theassessees have claimed deduction of income under Section 80 P (2) (a)(ii). The claim for deduction, made by the respective assessees, wasrejected by the Assessing Officer. The appeals, filed before theCommissioner of Income Tax (Appeals), was allowed holding that theassessees are eligible to claim deduction. https://hcservices.ecourts.gov.in/hcservices/ 4. The respondents/assessees in all these cases are Co-operativeSocieties, engaged in production of textile goods and are registeredunder the Industrial Co-operative Societies Act of Tamil Nadu. Theassessees have claimed deduction of income under Section 80 P (2) (a)(ii). The claim for deduction, made by the respective assessees, wasrejected by the Assessing Officer. The appeals, filed before theCommissioner of Income Tax (Appeals), was allowed holding that theassessees are eligible to claim deduction. 5. The Revenue, aggrieved by the said order of the Commissionerof Income Tax (Appeals), preferred appeals before the Tribunal. TheTribunal held that the assessees are duly recognised as cottageindustries by the competent authorities under the various provisionsof the relevant Act and also taking note of the earlier decisions ofthe Tribunal in ITA No.422/Mds/2011 dated 26.8.2011 for theassessment year 2007-2008 and ITA Nos.2004, 2005 & 2006/Mds/2011dated 12.6.12 for the assessment year 2008-2009, came to theconclusion that the assessees have clearly made out a case that theyare co-operative societies and, consequently, entitled to the benefitof Section 80 P (2) (a) (ii) of the Income Tax Act. While coming tothe above conclusion, the Tribunal held that the term “cottageindustry” is not defined anywhere in the Income Tax Act and the saidclassification is available only under the Industrial Development andRegulation Act and further held that the assessee is getting allother favours and concessions both from the Central and StateGovernments and in view of their recognition under the IndustrialDevelopment Regulation Act, their status as cottage industry isrelevant for the purpose of the Income Tax as well. For betterclarity, it is pertinent to extract the reasoning given by theTribunal in its order, as hereunder :- ”5. The very same issue was considered by theIncome-Tax Appellate Tribunal, Chennai 'C' Bench inthe case of AA-399, The Chennimalai Industrial WCSLtd., through their order dated 26.8.2011 passed inITA No.422/Mds/2011 for the assessment year 2007-08.The Tribunal in the said order found that the term“cottage industry” is not defined anywhere in theIncome-Tax Act, 1961, but the classification of acottage industry is available under the IndustrialDevelopment and Regulation Act. The assessee-societyenjoys the status of a cottage industry under the saidAct. The assessee is also getting all other favoursand concessions from both Central and StateGovernments to promote the hand loom industry in itsstatus as a cottage industry. The Tribunal furtherobserved that the assessee is mainly producing handloom bed sheets which sold through the outlets of co-optex hand loom, an apex marketing society formed bythe Government of Tamil Nadu. In that case also, themain reason pointed out by the Assessing Officer todeny the benefit of cottage industry to the assesseewas that the size of the assessee's establishment washttps://hcservices.ecourts.gov.in/hcservices/ too big, where it employed more than 2000 workers.Its turnover is crores and crores of rupees and it isa very big co-operative society engaged in producinghand loom goods. On this point, the Tribunal observedthat the objections raised by the Assessing Officer onthe size and extent of the operation of the assessee-society are not valid to disqualify the assessee fromthe category of cottage industry for the purpose ofthe Income Tax Act, 1961. The Tribunal held that therecognition available to the assessee-society underthe Industrial Development and Regulation Act as acottage industry is relevant for the purpose of IncomeTax Act, 1961, as well. It was also observed that theassessee is working under the umbrella of theCommissioner of hand loom and Textiles, Government ofTamil Nadu and obtaining various concessions likesubsidies, rebates, etc., in promoting the sale of itsproducts. These concessions and facilities are givenboth by the State and Central Governments to protectthe employment and interest of traditional workers andartisans in different fields of cottage industries.Hand loom is a traditional industry in India deployinga large number of workers. The hand loom providessubstantial amount of employment to rural populationand hand loom is a great contributor to the ruraleconomy. After examining all these aspects of thecase, the Tribunal held that the Commissioner ofIncome-Tax (Appeals) in that case was justified ingranting benefit of exemption under Sec. 80P (2) (a)(ii). The above view of the Tribunal has beenfollowed in another set of appeals disposed off by theIncome Tax Appellate Tribunal, Chennai 'D' Bench forthe assessment year 2008-09 through their order dated12.6.2012 in ITA Nos.2004, 2005 & 2006/Mds/2011. 6. Therefore, it is seen that the issue has beendecided in favour of the assessee-societies for theearlier assessment years in a consistent manner. Inthese circumstances, we find that the Commissioner ofIncome-Tax (Appeals) is justified in accepting theclaim of deduction made by the assessees in all thesecases. Accordingly, the orders of the Commissioner ofIncome-Tax (Appeals) are upheld. 7. In result, these appeals filed by the Revenue aredismissed.”The Tribunal, accordingly, dismissed the appeals preferred by theRevenue. Aggrieved by the said dismissal, the Revenue is before thisCourt by filing the above appeals. 6. Mr.M.Swaminathan, learned standing counsel appearing for theappellant laid stress on Circular No.722 dated 19.9.1995, which haslaid down certain criteria for a co-operative society engaged incottage industry to claim deduction under Section 80 P (2) (a) (ii)https://hcservices.ecourts.gov.in/hcservices/ of the Income Tax Act and submitted that based on the abovesaidcircular, the Assessing Officer has rejected the claim of theassessee, for deduction under Section 80 P (2) (a) (ii), as theassessees do not fulfill any of the criteria as laid down in theabove circular and, therefore, the impugned order of the Tribunal hasto be set aside. 7. Heard Mr.Swaminathan, the learned standing counsel appearingfor the appellant and perused the materials available on record asalso the orders passed by the Tribunal. 8. The assessees have claimed deduction of income under Section80 P (2) (a) (ii). The said Section deals with deduction of incomeof co-operative societies. Sub-clause (a) (ii) of Clause (2) refersto 'cottage industry', which is entitled for deduction under the saidSection. Since the issue revolves around the claim of deductionunder Section 80 P (2) (a) (ii), the same is extracted hereunder forbetter clarity :- Deduction in respect of income of co-operativesocieties. 7. Heard Mr.Swaminathan, the learned standing counsel appearingfor the appellant and perused the materials available on record asalso the orders passed by the Tribunal. 8. The assessees have claimed deduction of income under Section80 P (2) (a) (ii). The said Section deals with deduction of incomeof co-operative societies. Sub-clause (a) (ii) of Clause (2) refersto 'cottage industry', which is entitled for deduction under the saidSection. Since the issue revolves around the claim of deductionunder Section 80 P (2) (a) (ii), the same is extracted hereunder forbetter clarity :- Deduction in respect of income of co-operativesocieties. 80P. (1) Where, in the case of an assessee being aco-operative society, the gross total income includesany income referred to in sub-section (2), there shallbe deducted, in accordance with and subject to theprovisions of this section, the sums specified in sub-section (2), in computing the total income of theassessee.(2) The sums referred to in sub-section (1) shall bethe following, namely :— (a) in the case of a co-operative society engaged in—(i) carrying on the business of banking or providingcredit facilities to its members, or(ii) a cottage industry, or*********” 9. On the other hand, reliance was placed on Circular No.722dated 19.09.1995 by the learned standing counsel for the Department,wherein certain criteria was fixed for a co-operative society toclaim deduction under Section 80 P (2) (a) (ii). For betterclarity, clause-3 of the abovesaid circular, is extracted hereinbelowfor easy reference :- “3. What constitutes a 'cottage industry' has beenthe subject-matter of discussion in a number of casesdecided by various Courts. Based on the ratio ofthese decisions, a co-operative society engaged incottage industry is required to satisfy followingcriteria for availing benefits under Section 80P (2)(a) (ii) of the Income-Tax Act, 1961 :-(a) a cottage industry is one which is carried outhttps://hcservices.ecourts.gov.in/hcservices/ on small scale with a small amount of capital and asmall number of workers and has a turnover which iscorrespondingly limited;(b) it should not be required to be registered underthe Factories Act;(c) it should be owned and managed by the co-operative society;(d) the activities should be carried on by themembers of the society and their families. For thispurpose, a family would include self, spouse, parents,children, spouses of the children and any otherrelative who customarily lives with such a member.Outsiders (i.e., persons other than members and theirfamilies) should not work for the society. In otherwords, the co-operative society should not engageoutside hired labour;(e) a member of co-operative society means ashareholder of the society. (f) the place of work could be an artisanshareholder's residence or it could be a common placeprovided by the co-operative society; (g) the cottage industry must carry on activity ofmanufacture, production or processing; it should notbe engaged merely in trade, i.e., purchase and sale ofthe same commodity.” (f) the place of work could be an artisanshareholder's residence or it could be a common placeprovided by the co-operative society; (g) the cottage industry must carry on activity ofmanufacture, production or processing; it should notbe engaged merely in trade, i.e., purchase and sale ofthe same commodity.” 10. On a perusal of the order passed by the Tribunal, it isevident that the Tribunal has given a finding that all the assesseesare producing handloom bedsheets and other handloom goods, which aresold through outlets of Co-optex, an apex marketing society formed bythe Government of Tamil Nadu. The Tribunal was of the further viewthat recognition is available to the assessee under the IndustrialDevelopment and Regulation Act as cottage industry, which is alsorelevant for the purpose of Income Tax Act as well. The assesseesare working under the umbrella of the Commissioner of Handloom andTextiles of the Government of Tamil Nadu and obtaining variousconcessions like subsidies, rebates, etc., for promoting the sale ofits products. The purport of granting deduction in respect of incomeof co-operative societies in terms of Section 80-P is to provideemployment and protect the interest of the traditional workers andartisans in different fields of cottage industry. The Tribunal,therefore, taking note of avowed object behind the grant of suchbenefit to cottage industry, held that the benefit of deduction underSection 80 P (2) (a) (ii) is available to all the assessees inquestion. The Tribunal further held similar stand has been taken inITA No.422/Mds/2011 dated 26.8.2011 for the assessment year 2007-2008and ITA Nos.2004, 2005 & 2006/Mds/2011 dated 12.6.12 for theassessment year 2008-2009, which has been its consistent stand inmatter of relief under Section 80 P (2) (a) (ii). 11. The Commissioner of Income Tax (Appeals) as well as theTribunal rejected the plea of the Department that the size of theestablishment was too big as it employed several hundreds of workershttps://hcservices.ecourts.gov.in/hcservices/ and the turnover is also huge and, therefore, it is not a co-operative society. The reasoning of the Tribunal is primarily onthe ground that so long as recognition is available to therespondents/assessees as cottage industry under the provisions of theIndustrial Development and Regulation Act, which is relevant for thepurpose of Income Tax Act, in the absence of specific definition of'cottage industry' in the Income Tax Act, the Tribunal was fullyjustified in accepting the recognition of the assessee as cottageindustry by the Central as well as the State Governments. In view ofthe above position, this Court is of the considered view that nofurther document is required to be submitted by the assessees toprove that they are cottage industries. and the turnover is also huge and, therefore, it is not a co-operative society. The reasoning of the Tribunal is primarily onthe ground that so long as recognition is available to therespondents/assessees as cottage industry under the provisions of theIndustrial Development and Regulation Act, which is relevant for thepurpose of Income Tax Act, in the absence of specific definition of'cottage industry' in the Income Tax Act, the Tribunal was fullyjustified in accepting the recognition of the assessee as cottageindustry by the Central as well as the State Governments. In view ofthe above position, this Court is of the considered view that nofurther document is required to be submitted by the assessees toprove that they are cottage industries. 12. Section 80-P provides for deduction in respect of income ofco-operative societies and the said section has not laid down anyspecific conditions or imputations to qualify as such. However, byvirtue of a circular, which learned standing counsel for theappellant has relied upon, the Department is trying to importsomething, which is not found in the main provision. Further, fromthe circular produced by the appellant, we find that the same is inrespect of Weavers' Co-operative Society. Section 80-P does notspeak about any particular type of cottage industry. It is aninclusive definition. There is no sub-classification. In any event,as held by the Supreme Court as well as the High Courts in catena ofdecisions, what the statute provides under Section 80-P, cannot betaken away by means of an administrative circular. In this regard,useful reference can be made to one such judgment of the SupremeCourt in Commissioner of Central Excise, Bolpur – Vs - M/s. RatanMelting & Wire Industries (2008 (13) SCC 1), wherein the SupremeCourt has dealt with the circulars issued by the Department vis-a-visthe decisions of the Courts and their binding nature upon the Court.It is useful to extract the said portion of the judgment of theSupreme Court, which is extracted hereunder :- “6. Circulars and instructions issued by the Boardare no doubt binding in law on the authorities underthe respective statutes, but when the Supreme Court orthe High Court declares the law on the questionarising for consideration, it would not be appropriatefor the Court to direct that the circular should be,given effect to and not the view expressed in adecision of this Court or the High Court. So far asthe clarifications/circulars issued by the CentralGovernment and of the State Government are concernedthey represent merely their understanding of thestatutory provisions. They are not binding upon thecourt. It is for the Court to declare what theparticular provision of statute says and it is not forthe Executive. Looked at from another angle, acircular which is contrary to the statutory provisionshas really no existence in law.” (Emphasis supplied) under the statute cannot be denied by means of a circular and,thereby, deny the benefit to the assessees. 14. The further objection of the department that the size of thecottage industries of the assessees with number of workers would goto show that the assessees are not co-operative societies cannot atall be sustained. The mere reason that the size of the industry isbig and there are large number of workers employed, is no reason todeny the assessees the benefit available to them under Section 80-Pof the Act, when there is no specific embargo imposed under the Act.Accordingly, this Court holds that as long as the assessees arecottage industries, they would be entitled to the benefit of Section80-P of the Act. No further fetters, as is done by the Department,can be imposed on such a claim, by means of circulars, to thedetriment of the assessees. Hence, the order passed by the Tribunalwarrants no interference at the hands of this Court. 15. For all the reasons stated above, we find no questions oflaw, much less substantial questions of law that arise forconsideration in these appeals. Accordingly, there being no merit,all these appeals are dismissed. Consequently, connectedmiscellaneous petitions are closed. Sd/-Assistant Registrar /True Copy/ Sub Assistant Registrar GLN To 1 The Commissioner of Income Tax Coimbatore. Coimbatore. 2 The Commissioner of Income Tax (Appeals)-I, Coimbatore 3 The Income Tax Appellate Tribunal, Madras 'A' Bench, Chennai. 4 The Income Tax Officer, Ward-II(2), Erode. KJ1(CO)DRL : 30/09/2014 https://hcservices.ecourts.gov.in/hcservices/