IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.9485 OF 2003

Commissioner of Income Tax, Jaipur            ...Appellant(s)

Versus

Rajasthan Rajya Bunkar S. Samiti Limited     ...Respondent(s)

With Civil Appeal No.332 of 2005

O  R  D  E  R

Heard learned counsel on both sides.

Assessee-Society is an Apex Society.  It carries on  

the  activity  of  manufacturing  of  cloth  by  supplying  raw-

material, i.e., yarn, to the weavers, who are the members of  

the primary societies, which, in turn, are the members of the  

Assessee-Society.   The  weavers  produce  cloth  strictly  in  

accordance with the directions given and under the control of  

the  assessee.   The  assessee  pays  weaving  charges  to  the  

weavers and thereafter markets and sells goods so produced.  

During the relevant assessment years, cloth was manufactured  

and  sold  under  Janata  Cloth  Scheme  of  the  Government  of  

India.

...2/-

- 2 -  

For  the  relevant  assessment  years,  the  assessee  

claimed  a  deduction  of  Rs.30,87,212/-  under  Section  

80P(2)(a)(ii)  and  Section  80P(2)(a)(vi)  of  the  Income  Tax  

Act, 1961 [`Act', for short].   

The narrow question which arises for determination in  

these cases is – whether the assessee-Society could be said  

to  be  engaged  in  a  Cottage  Industry  under  Section  

80P(2)(a)(ii) of the Act or whether it could be said to be  

engaged in the collective disposal of labour of its members  

under Section 80P(2)(a)(vi) of the Act?

It  is  the  contention  of  the  Department  that  the  

weavers are not the members of the Apex Society.  They are  

the  members  of  the  primary  Societies.   Therefore,  the  

assessee is not entitled to claim benefit of deduction under  

Section 80P(2)(a)(vi) of the Act.

In  our  opinion,  on  both  these  questions,  the  

Assessing Officer ought to have called for the Bye-laws. It  

appears that Bye-laws were not produced before the Assessing  

Officer.  It appears that the Bye-laws have not been examined  

by the Assessing Officer.  Further, it is not clear as to  

whether a weaver could or could have become a member of the  

Apex Society under the Bye-laws.  Even to answer the question  

whether  the  assessee-Society  is  engaged  in  the  Cottage  

Industry, the Department ought to have called for the Bye-

laws.   This  exercise  has  not  been  done.   In  the  

circumstances, for the relevant assessment years, we do not  

wish  to  interfere  with  the  findings  given  by  the  Courts  

below.  However, we make it clear that this Order will not  

come in the  way of Department  in making  assessment for the

...3/-

- 3 -  

future assessment years.  However, in such an event, the  

Department will decide the applicability of Section 80P of  

the Act [including the proviso to Section 80P(2)] keeping in  

mind the provisions of the Bye-laws.  The said provisions of  

the Bye-laws will point to the nature of the business of the  

assessee as also entitlement of the weavers to become members  

of the Apex Society.  The Department will examine the Janata  

Scheme of the Central Government to decide whether payments  

made thereunder would be entitled to deduction under Section  

80P(2)(a)(ii) and Section 80P(2)(a)(vi) of the Act.

Accordingly, the civil appeals are disposed of with  

no order as to costs.

......................J.               [S.H. KAPADIA]

......................J.               [AFTAB ALAM]

New Delhi, February 16, 2010.