The order of the Bench was delivered by
Vikas Awasthy, Judicial Member - The bunch of 8 appeals have been filed by the Revenue impugning the order of the Commissioner of Income-tax (Appeals)-I, Coimbatore, for the assessment year 2010-11 in case of various assessees. All the impugned orders are dated April 17, 2014.
2. The common issue raised in all the appeals by the Revenue is allowing of deduction under section 80P(2)(a)(ii) of the Income-tax Act, 1961. The stand of the Revenue is that despite huge capital outlay, high turnover and large number of workers, the Commissioner of Income-tax (Appeals) has erred in allowing deduction under section 80P(2)(a)(ii) of the Act. The assessees are not cottage industry, and therefore, are not eligible for availing of the benefits under the Act. The Revenue placed reliance on the Central Board of Direct Tax Circular No. 722 dated September 19, 1995 ([1995] 215 ITR (St.) 115) wherein it has been clarified that the cottage industry is one which is carried on a small scale with a small amount of capital and a small number of workers and has a limited turnover.
3. The assessees are handloom weavers co-operative societies functioning under the administrative control of the Commissioner of Handloom and Textiles, Government of Tamil Nadu, who is also functional Registrar of such co-operative societies. The assessees are enjoying exemption under section 80P(2)(a)(ii) of the Act since their inception.
4. Shri G. Baskar, advocate, appearing on behalf of the assessees, submitted that the issue in appeals filed by the Revenue has already been adjudicated by the co-ordinate Bench of the Tribunal in I. T. A. Nos. 1552 to 1561/Mds/2012, for the assessment year 2009-10, decided on May 2, 2013 (CIT v. Vengamedu WCS Ltd. The order of the Tribunal has been upheld by the hon'ble Madras High Court vide judgment dated September 4, 2014. Learned counsel for the assessees placed on record a copy of the judgment of the hon'ble jurisdictional High Court in T. C. A. Nos. 67 to 74 of 2014 in the case of CIT v. AA 399, Chennimalai Industrial WCS Ltd., etc. and a copy of the order of co-ordinate Bench of this Tribunal in I. T. A. Nos. 1552 to 1561/Mds/2012.
5. Both sides heard. Orders of the authorities below, the judgment of the hon'ble jurisdictional High Court dated September 4, 2014 (supra) and the order of the co-ordinate Bench of this Tribunal in I. T. A. Nos. 1552 to 1561/Mds/2012 (supra) perused. We find that the issue raised by the Revenue in present set of appeals is identical to the one already adjudicated by the co-ordinate Bench of this Tribunal, which has been upheld by the hon'ble Madras High Court. The relevant extract of the order of the Tribunal dated May 2, 2013 Vengamedu WCS Ltd. (supra) reads as under (page 54) :
"4. We heard both sides and considered the issue before us.
5. The very same issue was considered by the Income-tax Appellate Tribunal, Chennai 'C' Bench in the case of AA-399, The Chennimalai Industrial WCS Ltd. through their order dated August 26, 2011 passed in I. T. A. 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 the Income-tax Act, 1961, but the classification of a cottage industry is available under the Industrial Development and Regulation Act. The assessee-society enjoys the status of a cottage industry under the said Act. The assessee is also getting all other favours and concessions from both Central and State Governments to promote the handloom industry in its status as a cottage industry. The Tribunal further observed that the assessee is mainly producing handloom bed sheets which are sold through the outlets of co-optex handloom, an apex marketing society formed by the Government of Tamil Nadu. In that case also, the main reason pointed out by the Assessing Officer to deny the benefit of cottage industry to the assessee was that the size of the assessee's establishment was too big, where it employed more than 2000 workers. Its turnover is crores and crores of rupees and it is a very big co-operative society engaged in producing handloom goods. On this point, the Tribunal observed that the objections raised by the Assessing Officer on the size and extent of the operation of the assessee-society are not valid to disqualify the assessee from the category of cottage industry for the purpose of the Income-tax Act, 1961. The Tribunal held that the recognition available to the assessee-society under the Industrial Development and Regulation Act as a cottage industry is relevant for the purpose of the Income-tax Act, 1961, as well. It was also observed that the assessee is working under the umbrella of the Commissioner of Handloom and Textiles, Government of Tamilnadu and obtaining various concessions like subsidies, rebates etc. in promoting the sale of its products. (These concessions and facilities are given both by the State and Central Governments to protect the employment and interest of traditional workers and artisans in different fields of cottage industries). Handloom is a traditional industry in India deploying a large number of workers. The handloom provides substantial amount of employment to rural population and handloom is a great contributor to the rural economy. After examining all these aspects of the case, the Tribunal held that the Commissioner of Income-tax (Appeals) in that case was justified in granting benefit of exemption under section 80P(2)(a)(ii). The above view of the Tribunal has been followed in another set of appeals disposed of by the Income-tax Appellate Tribunal, Chennai 'D' Bench for the assessment year 2008-09 through their order dated June 12, 2012 in I. T. A. Nos.2004, 2005 and 2006/Mds/2011.
6. Therefore, it is seen that the issue has been decided in favour of the assessee-societies for the earlier assessment years in a consistent manner. In these circumstances, we find that the Commissioner of Income-tax (Appeals) is justified in accepting the claim of deduction made by the assessees in all these cases. Accordingly, the orders of the Commissioner of Income-tax (Appeals) are upheld.
7. In the result, these appeals filed by the Revenue are dismissed."
6. The hon'ble High Court while upholding the findings of the Tribunal held as under :
"12. Section 80P provides for deduction in respect of income of cooperative societies and the said section has not laid down any specific conditions or imputations to qualify as such. However, by virtue of a circular, which learned standing counsel for the appellant has relied upon, the Department is trying to import something, which is not found in the main provision. Further, from the circular produced by the appellant, we find that the same is in respect of Weavers' Co-operative Society. Section 80P does not speak about any particular type of cottage industry. It is an inclusive definition. There is no sub-classification. In any event, as held by the Supreme Court as well as the High Courts in catena of decisions, what the statute provides under section 80P, cannot be taken away by means of an administrative circular. In this regard, useful reference can be made to one such judgment of the Supreme Court in CCE v. Ratan Melting and Wire Industries [2008] 13 SCC 1 wherein the Supreme Court has dealt with the circulars issued by the Department vis-a-vis the decisions of the courts and their binding nature upon the court. It is useful to extract the said portion of the judgment of the Supreme Court, which is extracted hereunder :
7. Circulars and instructions issued by the Board are no doubt binding in law on the authorities under the respective statutes, but when the Supreme Court or the High Court declares the law on the question arising for consideration, it would not be appropriate for the court to direct that the circular should be, given effect to and not the view expressed in a decision of this court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the State Government are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the court. It is for the court to declare what the particular provision of the statute says and it is not for the executive. Looked at from another angle, a circular which is contrary to the statutory provisions has really no existence in law.
13. This court is of the considered view that what is provided 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 the cottage industries of the assessees with number of workers would go to show that the assessees are not co-operative societies cannot at all be sustained. The mere reason that the size of the industry is big and there are large number of workers employed, is no reason to deny the assessees the benefit available to them under section 80P of the Act, when there is no specific embargo imposed under the Act. Accordingly, this court holds that as long as the assessees are cottage industries, they would be entitled to the benefit of section 80P of the Act. Nofurther fetters, as is done by the Department, can be imposed on such a claim, by means of circulars, to the detriment of the assessees. Hence, the order passed by the Tribunal warrants no interference at the hands of this court."
7. In view of the above judgment of the hon'ble High Court in favour of the assessees, the appeals filed by the Revenue are dismissed.