1977 (9) TMI 42 - AT - Wealth-tax

Tribunal: Tanning Businesses Qualify as Industrial Undertakings under Wealth Tax Act

The Tribunal determined that the tanning businesses of the two firms qualified as industrial undertakings under the Wealth Tax Act, 1957. The processing ... - Issues:Determining if firms were industrial undertakings under WT Act, 1957 for exemption from inclusion in net wealth based on tanning business.Analysis:The judgment involves two Departmental appeals against the combined order of the AAC for the assessment years 1974-75 and 1975-76. The main issue under consideration is whether the firms, South India Star Tannery and East India Goat & Sheep Tannery, in which the assessee was a partner, qualified as industrial undertakings as per s. 5(1)(xxxii) of the WT Act, 1957. The assessee claimed exemption for his capital in these firms' assets. The ITO initially denied the claim stating that the assessee was not involved in manufacturing skins. However, the AAC, on appeal, accepted the assessee's claim, deeming the tanning business of the firms as industrial undertakings.During the proceedings, the question arose whether the tanning business of the two firms constituted them as industrial undertakings as defined in the Act. The explanation to the Act states that an undertaking engaged in the processing of goods qualifies as an industrial undertaking. The assessee provided details of the tanning process involved in the firms, demonstrating various stages such as washing, soaking, unhairing, liming, pickling, and tanning. The Tribunal concluded that the tanning process involved in the firms constituted processing of goods, thus categorizing them as industrial undertakings. Additionally, certificates from the Directorate of Industries, Maharashtra, confirming the firms as small-scale industrial units supported this view.Referring to a previous case, CIT vs. Damodar Padmanath Rao, where the Bombay High Court held that activities involving the processing of goods do not require the use of mechanical force, further supported the Tribunal's decision. The Departmental Representative argued that no change occurred in the end product of the firms' tanning process, and no mechanical process was used, challenging the classification of the firms as industrial undertakings. However, the Tribunal disagreed, stating that the tanning of raw skin involved processing, resulting in a different end product from the raw material.Ultimately, the Tribunal directed a reassessment of the value of the assessee's interest in the assets of the two firms to determine the exemption under s. 5(1)(xxxii) of the Act. The Tribunal set aside the AAC's order and remanded the matter for a proper valuation of the assessee's interest in the firms' assets, allowing exemption only based on the determined amounts. The appeals were allowed for statistical purposes.