Wealth-tax revaluation cannot rest on gross profit alone; exemption for precious-stone processing and jewellery relief were sustained.

Rule 2B(2) of the Wealth-tax Rules, 1957 could be applied only on proof that the market value of the closing stock on the valuation date exceeded the value adopted for income-tax purposes by more than 20 per cent, and gross profit shown in the trading account was insufficient by itself to justify revaluation or enhance partners' wealth-tax liability. The assessees were also entitled to exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957 in respect of their interest in the firm engaged in processing precious stones, as the activity remained within the exempted business category on the facts. The deletion of the jewellery addition was sustained because no different factual basis was shown.

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Issues: (i) Whether Rule 2B(2) of the Wealth-tax Rules, 1957 could be invoked to revalue the firms' closing stock merely on the basis of gross profit shown in the trading account and thereby enhance the partners' wealth-tax liability; (ii) Whether the assessees were entitled to exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957 in respect of their interest in the firm carrying on processing of precious stones; (iii) Whether the addition made in respect of jewellery was rightly deleted.

Issue (i): Whether Rule 2B(2) of the Wealth-tax Rules, 1957 could be invoked to revalue the firms' closing stock merely on the basis of gross profit shown in the trading account and thereby enhance the partners' wealth-tax liability.

Analysis: Rule 2B(2) applies only when the market value of the asset exceeds the value adopted for income-tax purposes by more than 20 per cent on the valuation date. The rule requires a finding on market value, and the mere disclosure of a gross profit rate does not, by itself, establish that the closing stock on the valuation date had a market value exceeding cost by the statutory margin. The Revenue failed to bring specific material showing the actual margin in relation to the closing stock, while the assessees' business in precious stones involved varied items, slow turnover, and valuation factors that could not be inferred from gross profit alone.

Conclusion: Rule 2B(2) was not properly attracted. The addition based on revaluation of closing stock was deleted, in favour of the assessees.

Issue (ii): Whether the assessees were entitled to exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957 in respect of their interest in the firm carrying on processing of precious stones.

Analysis: The relevant business activity of the firm had already been treated in earlier years as involving processing, and the factual position remained unchanged. The undertaking was, therefore, treated as one falling within the exemption provision relied upon by the assessees.

Conclusion: The exemption under Section 5(1)(xxxii) was available, in favour of the assessees.

Issue (iii): Whether the addition made in respect of jewellery was rightly deleted.

Analysis: The jewellery issue had already been decided in the assessees' favour in earlier proceedings, and no different factual basis was shown to disturb that view.

Conclusion: The deletion of the jewellery addition was upheld, in favour of the assessees.

Final Conclusion: The departmental appeals failed. The wealth-tax assessments could not be enhanced on the basis of gross profit alone, while the exemption and jewellery-related reliefs sustained the assessees' position.

Ratio Decidendi: Rule 2B(2) of the Wealth-tax Rules, 1957 can be applied only on proof that the market value of the asset on the valuation date exceeded the value adopted for income-tax purposes by more than 20 per cent, and such proof cannot rest on gross profit figures alone without specific material showing the actual market value of the closing stock.

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