1987 (9) TMI 97 - AT - Wealth-tax

Tribunal denies reference applications citing failure to meet market value conditions.

COMMISSIONER OF WEALTH-TAX. Versus UMRAOMAL DHADDA.

COMMISSIONER OF WEALTH-TAX. Versus UMRAOMAL DHADDA. - TTJ 030, 179, Issues Involved:1. Applicability of Rule 2B(2) of the Wealth Tax (WT) Rules.2. Onus of proving market value of closing stock.3. Classification of a firm as an industrial undertaking under Section 5(1)(xxxii) of the WT Act, 1957.Detailed Analysis:Issue 1: Applicability of Rule 2B(2) of the WT RulesThe Tribunal was tasked with determining whether Rule 2B(2) of the WT Rules applied to the assessee's case, which would affect the addition of Rs. 1,10,119. The Tribunal upheld the finding of the Assistant Appellate Commissioner (AAC) that Rule 2B(2) was not applicable. The Department's argument was based on a Special Bench ruling, which they claimed was binding. However, the Tribunal noted that the Third Member's decision, which was subsequent to the Special Bench ruling, provided a comprehensive analysis of the facts, concluding that market value determination is a factual matter. The Third Member emphasized that the gross profit rate is just one indicator among many and that the market value of closing stock involves various factors, including fast-moving, slow-moving, and obsolete items. The Tribunal concluded that the Department's reliance on gross profit rate alone was insufficient to invoke Rule 2B(2), as it did not provide adequate evidence of market value exceeding the book value by more than 20 percent.Issue 2: Onus of Proving Market Value of Closing StockThe Tribunal found that the issue of onus was not raised in the appeal before it, and therefore, it did not arise from the Tribunal's order. The Department's argument that the onus was on the assessee to prove that the market value of the closing stock did not exceed the disclosed value by more than 20 percent was not considered by the Tribunal. The Tribunal emphasized that since the issue was not agitated in the appeal, it could not be referred to the High Court.Issue 3: Classification of a Firm as an Industrial UndertakingThe Tribunal examined whether the firm M/s Sardarmal Umraomal, Jaipur, qualified as an industrial undertaking under the Explanation to Section 5(1)(xxxii) of the WT Act, 1957. The Special Bench had previously allowed a reference in favor of the Department but did not consider the Supreme Court's ruling and the Board's Circular No. 347. The Tribunal noted that the Supreme Court defined a 'manufacturer' as someone who makes articles or materials commercially different from the basic components, either through physical labor or mechanical processes. The Board's Circular clarified that owning machinery was not necessary for being classified as a manufacturer. The Tribunal found that the firm's activities, including cutting and sizing stones under the supervision of the proprietors, met the criteria for being an industrial undertaking. Therefore, the value of the assessee's interest in the firm was exempt under Section 5(1)(xxxii) of the WT Act. The Tribunal concluded that the Special Bench's omission of the Supreme Court ruling and the Board's Circular rendered the Department's question academic and self-evident, thus rejecting the reference application.ConclusionThe Tribunal rejected the reference applications, concluding that:- Rule 2B(2) was not applicable as the Department failed to provide adequate evidence of market value exceeding the book value by more than 20 percent.- The issue of onus did not arise from the Tribunal's order.- The firm qualified as an industrial undertaking, making the assessee's interest exempt under Section 5(1)(xxxii) of the WT Act.