1996 (2) TMI 67 - HC - Wealth-tax

High Court Upholds Tribunal Decision on Industrial Undertaking Exemption

Commissioner Of Wealth-Tax Versus M. Annai Jayabarathi And Others

Commissioner Of Wealth-Tax Versus M. Annai Jayabarathi And Others - [1996] 222 ITR 757, 137 CTR 480, 92 TAXMANN 386 Issues Involved:1. Whether the assessee is entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957.2. Determination of whether the firm qualifies as an industrial undertaking under section 5(1)(xxxii) of the Wealth-tax Act, 1957.Issue-wise Detailed Analysis:1. Entitlement to Exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957:The primary issue was whether the assessee was entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957. The Tribunal referred the question for the opinion of the High Court. The assessee, a partner in a firm, claimed exemption of the value of her interest in the firm, asserting that the firm was an industrial undertaking. The Wealth-tax Officer rejected this claim, arguing that the firm did not own the necessary machinery for manufacturing or processing and merely paid other firms for these services.On appeal, the Appellate Assistant Commissioner exempted the value of the assessee's interest in the firm, following a previous Tribunal order. However, conflicting Tribunal orders in similar cases led to the formation of a Special Bench to resolve the issue. The Special Bench concluded that the firm's activities, including purchasing raw materials, decorticating, crushing, testing, bottling, and marketing, constituted manufacturing and processing, qualifying it as an industrial undertaking under section 5(1)(xxxii).2. Determination of Industrial Undertaking Status:The Tribunal's analysis focused on whether the firm's operations constituted manufacturing or processing of goods, as required by the Wealth-tax Act. The Tribunal noted that the firm's engagement in various stages of production, even if some stages were outsourced, amounted to manufacturing and processing. The Tribunal emphasized that commercial expediency allows diverse forms of engagement in manufacturing or processing, including outsourcing under supervision.The Tribunal referenced the Explanation to section 5(1)(xxxii), which states that an industrial undertaking can engage in manufacturing or processing directly or through controlled outsourcing. The Tribunal held that the firm qualified as an industrial undertaking despite not owning the machinery, as it supervised the outsourced manufacturing processes.The High Court supported the Tribunal's finding, referencing previous judicial interpretations. In CWT v. K. Lakshmi, it was held that direct involvement in manufacturing is not necessary if the assessee employs laborers or supervises outsourced processes. Similarly, in CWT v. V. O. Ramalingam, it was established that involvement in any stage of processing qualifies an assessee for exemption. The Delhi High Court in Additional CIT v. Kalsi Tyre (P.) Ltd. also supported a broad interpretation of 'processing of goods.'The High Court concluded that the Tribunal's finding that the firm was engaged in both manufacturing and processing was based on factual evidence and aligned with judicial precedents. Thus, the firm was deemed an industrial undertaking entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act.Conclusion:The High Court affirmed the Tribunal's decision, holding that the firm in which the assessees are partners qualifies as an industrial undertaking under section 5(1)(xxxii) of the Wealth-tax Act, 1957. Consequently, the assessee is entitled to the claimed exemption. The question referred was answered in the affirmative and against the Department, with no costs awarded.