SHANTABEN CHINUBHAI Vs. COMMISSIONER OF WEALTH TAX

JUDGEMENT

(1.) THE assessee was a partner in two partnership firms ("firms" for short) running in the names and style of United Builders and Chinubhai Manilal & Co. Both the firms in which the assessee was a partner were carrying on business as building contractors. In the course of his wealth tax assessment for the asst. year 1973 74, the assessee claimed that amounts invested in the aforesaid two firms were part of the assets of an industrial undertaking belonging to these firms and, therefore, the amounts invested were exempt under S. 5(1)(xxxii) of the WT Act, 1957 (the "Act" for short). It was contended that the firms in which the assessee was a partner owned an industrial undertaking as defined in the Explanation to cl. (xxxi) of S. 5(1) of the Act which is made applicable to cl. (xxxii) also, because the firms, as building contractors, processed goods and constructed buildings. The WTO, however, rejected the claim of the assessee and refused to exempt an amount of Rs. 1,50,000 under S. 5(1)(xxxii) of the Act. An identical claim made by the assessee for the asst. yrs. 1974 75 to 1977 78 was also rejected by the WTO. Being aggrieved by the orders of the WTO, the assessee preferred appeals before the AAC of WT. The appeals for the asst. yrs. 1973 74 to 1977 78 were disposed of by the AAC by a common order dt. 1st Aug., 1980. The AAC, relying on the decision of the Tribunal ("the Tribunal" for short), held that the firms in which the assessee was a partner were "industrial undertakings" within the meaning of the Explanation to S. 5(1)(xxxi) of the Act and, therefore, the appellant was entitled to exemption under S. 5(1)(xxxii) of the Act, in respect of his share in the assets of the aforesaid firms in which he was partner. In the result, the AAC allowed the appeals of the assessee. Being aggrieved by the order of the AAC, the Revenue preferred appeals before the Tribunal. There was a difference of opinion between the members of the Bench of the Tribunal and, therefore, the matter was referred to a third member. The third member of the Tribunal, relying on the decision of the Bombay High Court in CIT vs. N. U. C. (P) Ltd. (1980) 126 ITR 377 (Bom), held that, (i) the definition of the expression "industrial undertaking" clearly makes a distinction between the activities of "construction" and "manufacture or processing" and (ii) the construction activity is confined to construction of ships and, therefore, by necessary implication, any other construction activity is excluded. It was further held to the effect that the mere fact that some ancillary articles were manufactured for the construction of buildings, the activity of the firms could not be considered to be manufacturing activity. The Tribunal, therefore, held that the activity of the firms in constructing buildings did not fall within the meaning of "industrial undertaking" as defined in the Explanation to S. 5(1)(xxxi) of the Act. In the result, the Tribunal allowed the appeals of the Revenue and set aside the order of the AAC.

(2.) A common question of law for the asst. yrs. 1973 74 to 1977 78 which has been referred to us for our opinion, at the instance of the assessee, is as follows:

(3.) THE assessee claimed exemption under the aforesaid provisions contending that the firms in which he was a partner are "industrial under takings" within the meaning of the Explanation, as they were engaged in the manufacture or processing of goods. It was urged on behalf of the assessee that, for the purpose of construction of a building, it is necessary to prepare cement concrete and this activity of preparing cement concrete being a manufacturing activity, the firms in which the assessee was a partner which were building contractors were covered by the definition of "industrial undertaking". We may make it clear that though other grounds were advanced on behalf of the assessee in support of his claim before the Tribunal and the taxing authorities, those arguments were not advanced before us and the only ground on which the firms were claimed to be industrial undertakings was that, in the course of the construction of buildings, they were manufacturing cement concrete and, therefore, they were industrial undertakings.