Industrial undertaking exemption for partner upheld where firm's manufacturing activity was accepted as final

Where a firm is found to be engaged in manufacture, that finding governs the partner's entitlement to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957. The assessment order describing the firm's business as manufacture and sale of handloom sarees was treated as final, so the nature of the firm's activity was not reopened. On that basis, the partner was held entitled to exemption in respect of his interest in the industrial undertaking, and his net wealth had to be recomputed after excluding the exempt assets.

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Issues: Whether the firm in which the assessee was a partner was an industrial undertaking engaged in manufacture, and whether the assessee was entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957 in respect of his interest in the firm.

Analysis: The assessment order of the firm for the relevant year described its business as manufacture and sale of handloom sarees. That finding was treated as final and it was held that no further re-examination of the nature of the firm's business was warranted. Since Tribunal decisions had recognised that a partner in such a firm can claim the statutory exemption, the assessee's interest in the partnership had to be computed after excluding the assets covered by the exemption.

Conclusion: The exemption was held to be available to the assessee as a partner in the industrial undertaking, and the Wealth-tax Officer was directed to recompute his net wealth accordingly.

Final Conclusion: The appeal succeeded and the assessee obtained relief on the claim for exemption in respect of his partnership interest.

Ratio Decidendi: Where a firm is found to be engaged in manufacture, that finding governs the partner's entitlement to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957, and the partner's wealth is to be computed by excluding the assets covered by the exemption.

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