Industrial undertaking exemption under wealth-tax extends to a firm that manufactures through hired handloom weavers.

A partnership firm engaged in purchasing raw materials, having cloth produced through handloom weavers on wage basis, and selling the finished cloth was treated as carrying on manufacturing or processing for wealth-tax purposes. The exemption for an assessee's interest in the assets of an industrial undertaking under section 5(1)(xxxii) of the Wealth-tax Act applied because the decisive factor was organised and systematic manufacture or processing, not direct ownership of looms or personal execution of the work by the firm. The assessee's share in the firm's assets therefore qualified for exemption, and valuation was to be recomputed after allowing the relief.

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Issues: Whether the assessee's interest in a partnership firm engaged in purchasing raw materials, employing handloom weavers to convert them into cloth, and selling the cloth was exempt under section 5(1)(xxxii) of the Wealth-tax Act, 1957 as an interest in an industrial undertaking.

Analysis: The relevant statutory exemption covers the value of an assessee's interest in the assets of an industrial undertaking belonging to a firm in which the assessee is a partner. An industrial undertaking includes an undertaking engaged in the business of manufacture or processing of goods. The determining factor is engagement in the business of manufacturing or processing, not necessarily direct ownership of looms or the physical act of manufacture by the firm itself. The firm's organised and continuous activity of purchasing materials, getting cloth produced through weavers on wage basis, and selling the finished cloth constituted a business of manufacturing.

Conclusion: The assessee's share in the firm's assets qualified for exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Final Conclusion: The assessments were set aside to the extent necessary and the Wealth-tax Officer was directed to recompute the value of the assessee's interest after granting the exemption and applying the prescribed method of valuation.

Ratio Decidendi: For the purpose of the wealth-tax exemption, a partnership firm is an industrial undertaking if it carries on an organised and systematic business of manufacturing or processing goods, even though the actual production is carried out through hired workers.

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