Judgment:
1. This appeal is directed against the judgment and the order of the Income-tax Appellate Tribunal. The basic question for consideration in this appeal is whether the assessee-society is entitled for the benefit of deduction under Section 80P(2)(a)(ii).
2. The assessee is a co-operative society engaged in the marketing of the produce of members of primary society and to supply the members of primary society raw material for manufacturing through the primary society. By this activity, the assessee has shown gross profit of Rs. 46,28,915.
3. The Assessing Officer has negatived the claim of the assessee on the ground that the assessee-society has no direct deal with the weavers, it helps the weavers through the primary society.
4. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals), has allowed the claim of the assessee following the decision of the Kerala High Court in the case of CZT v. Kerala State Cooperative Marketing Federation Ltd. : [1992]193ITR624(Ker) .
5. In appeal before the Tribunal, the Tribunal has considered the decision of the Kerala High Court reported in CIT v. Kerala State Co-operative Marketing Federation Ltd. : [1992]193ITR624(Ker) and also the decision of the Allahabad High Court reported in Addl. CIT v. Hastkala Pital Udyog Sahkari Samiti Ltd. : [1978]114ITR723(All) . The Tribunal has also considered the decision of the Madhya Pradesh High Court in the case of CIT v. Madhya Pradesh State Hand-loom Weavers Co-operative Society Ltd. : [1998]231ITR243(MP) . Finally, the Tribunal has relied on the decision of the Supreme Court in the case of Kerala State Cooperative Marketing Federation Ltd. v. CIT : [1998]231ITR814(SC) and confirmed the view taken by the Commissioner of Income-tax (Appeals).
6. Mr. Mathur, learned counsel for the Revenue, submits that in the decision of the apex court in Kerala State Co-operative Marketing Federation Ltd. v. CIT : [1998]231ITR814(SC) , the decision was on Section 80P(2)(a)(iii) and not on Section 80P(2)(a)(ii), while the assessee has claimed a deduction under Section 80P(2)(a)(ii). Mr. Mathur placed reliance on the decision of the Allahabad High Court and also on the decision of the Supreme Court in the case of U. P. Co-operative Cane Union Federation Ltd. v. CIT : [1999]237ITR574(SC) , wherein, their Lordships held that for the assessee the meaning of the word 'members' is normally used in the sense of, members of the society and not the members of the member society. If the weavers are the members of the member society, then the apex body of the society is not entitled for benefit of deduction under Section 80P(2)(a)(ii).
7. Whether the assessee-society is entitled for benefit of the exemption under Section 80P(2)(a)(ii), we have to consider its activities and objects. The asses-see-society is a co-operative society engaged in the manufacturing of cloth under the Janta Cloth Scheme of Government of India through the conduct of primary societies carried out at grass-root level by individual weavers at their cottages for which the assessee purchases the yarn and gives it to weavers for weaving and in turn, the assessee gives weaving charges to the weavers through the primary society and the whole production process is monitored/ supervised by the assessee. After the manufacturing of the cloth, the cloth is sold by the assessee.
8. These facts are not in dispute that the assessee-society, has power to direct, supervise and control over the manufacturing of cloth through the primary societies which are the members of the assessee-society. The members of the primary society run cottage industries in their houses, in these circumstances, it cannot be said that the assessee-company is not engaged in the manufacturing activities carried on by the weavers. The weavers get the raw material, i.e., yarn, through their primary society, but thereafter weaving charges are paid by the assessee and it purchases those cloths through the primary societies.
9. When the society has full control over the manufacturing activities of weavers, the assessee-society is engaged in the cottage industry. When the assessee is engaged in the cottage industry though through the primary society, the benefit cannot be denied considering the scheme of the Act and the object of the provision to be achieved to give benefit to the weavers and to encourage such societies for the benefit of the weavers.
10. In the result, we find no force in this appeal. Consequently, the appeal is dismissed.