1977 (5) TMI 42 - AT - Wealth-tax

Partnership Firm Qualifies as Industrial Undertaking for Wealth Tax Exemption

The Tribunal held that the partnership firm, engaged in trading activities related to manufacturing cloth, qualified as an industrial undertaking under ... - Issues:- Appeal against the order of the AAC of WT Salem modifying assessments under the WT Act for the assessment years 1974-75 and 1975-76.- Claim for exemption under section 5(1)(xxxii) of the WT Act for the interest in assets of an industrial undertaking belonging to a partnership firm.- Interpretation of the term 'industrial undertaking' under section 5(1)(xxxii) of the WT Act.- Valuation of the interest of a partner in assets of an industrial undertaking as per Rule 2-I of the WT Rules.Analysis:The appeals were filed against the order of the AAC of WT Salem modifying the assessments made on the assessee by the 3rd WTO, Cir. I, Salem, under section 16(8) of the WT Act for the assessment years 1974-75 and 1975-76. The assessee, a partner in a firm engaged in the business of cloth, claimed exemption under section 5(1)(xxxii) of the WT Act for his share in the firm. The WTO rejected the claim, leading to the appeals (paragraphs 1-4).The key issue in consideration was whether the assessee was entitled to exemption under section 5(1)(xxxii) of the WT Act. Section 5(1)(xxxii) provides exemption for the interest of the assessee in assets of an industrial undertaking belonging to a firm of which the assessee is a partner. The term 'industrial undertaking' was crucial in this context, as it determines the eligibility for exemption. The Tribunal analyzed the definition of an industrial undertaking and emphasized that being engaged in the business of manufacturing or processing of goods is essential, rather than actual involvement in manufacturing or processing activities (paragraphs 5-7).The Tribunal held that the partnership firm, in which the appellant was a partner, qualified as an industrial undertaking as it systematically engaged in trading activities related to manufacturing of cloth. The Tribunal cited the broad interpretation of the term 'business' in fiscal statutes and concluded that the firm's activities constituted a business of manufacturing, making the appellant eligible for exemption under section 5(1)(xxxii) of the WT Act. Similar views were supported by previous Tribunal orders (paragraphs 7-8).Regarding the valuation of the interest of the partner in the assets of the industrial undertaking, the Tribunal directed the WTO to calculate the value as per Rule 2-I of the WT Rules, after allowing the exemption under section 5(1)(xxxii) of the WT Act. Consequently, the appeals were treated as allowed, overturning the AAC's order and granting the exemption to the assessee (paragraphs 9-10).