INCOME TAX
INSTRUCTION NO. 5052/1991
Dated: May 8, 1991
References have been received requesting the Board to clarify the term "cottage industry" as used in section 80P(2)(a)(ii) of the Income-tax Act. In this connection, I am directed to say that vide our F. No. 198/8/70-IT(A1) dated 7th February, 1973, certain guidelines for the definition of "cottage industry", for the purposes of the aforesaid section of the Income-tax Act, were laid down. For the sake of convenience, the relevant extract from the aforesaid letter is re-produced below:-
"It is customary to refer to industries which are not required to be registered under the Factory Act as cottage and small-scale industries. There is no accepted line of distinction between cottage and small-scale industries and different definitions are adopted according to the object in view. The distinction frequently made between establishments which employ power and those which do not become less useful as electricity becomes more generally available. The number of workers employed in an establishment has only a limited value as a criterion for distinguishing large-scale and small-scale establishments. In addition to the test of numbers employed and the use of power, a further test may be whether a unit which may otherwise be regarded as small is owned by the worker himself or by a co-operative group."
2. The above guidelines may be broadly followed for deciding in each case whether the industry in question is a cottage industry or not.
[Board's F. No. 178/193/90-IT(A1)