COMMISSIONER OF WEALTH TAX Vs. V O RAMALINGAM

JUDGEMENT

(1.) THIS reference under section 27(1) of the Wealth-tax Act, 1957, is in respect of the claim of the assessee for exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"). In the proceedings before the Wealth-tax Officer, the Appellate Assistant Commissioner and the Tribunal as well as before us, his (assessee's) interests in the assets of the two industrial undertakings, i.e., Ajantha Ble aching and Dyeing Works and Onni Chettiar and Sons, are involved. The assessee claimed exemption in the assessment years 1975-76 and 1976 77, the corresponding valuation dates being March 31, 1975, and March 31, 1976, on the ground that the interest of the assessee in the assets of the said firms was to be excluded as the two firms were engaged in manufacturing and processing of yarn. The Wealth-tax Officer rejected the assessee's claim.

(2.) THE Appellate Assistant Commissioner, however, allowed the claim and the Tribunal has affirmed the appellate order. THE reference before us has come at the instance of the Commissioner of Wealth-tax and the question, as framed by the Tribunal, is as follows "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the bleaching of grey yarn amounts to manufacture and processing of goods within the meaning of the Explanation to section 5(1)(xxxi) of the Wealth-tax Act, 1957, for both the years ?"* During the pendency of the instant reference before this court, a Bench of this court in the case of CWT v. K Lakshmi, and other connected cases has construed section 5(1)(xxxii) of the ActSection 5(1)(xxxii) reads as follows".5. (1) Subject to the provisions of sub-section (1A) wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--(xxxii) the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in any land or building or any asset referred to in any other clause of this sub-section) forming part of an industrial undertaking belonging to a firm or an association of persons of which the assessee is a partner or, as the case may be, a member."THE Explanation, which has defined an" industrial undertaking"* and is found incorporated in the Act, as a part of clause (xxxi) of section 5(1) reads as follows"For the purposes of clause (xxxa), this clause, clause (xxxii) and clause (xxxiv), the term 'industrial undertaking' means an undertaking engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining."THE court, in the said case, has held that the expression" in the business"* occurring in the Explanation to section 5(1)(xxxi), is attributable only to "generation or distribution of electricity or any other form of power" but not to the subsequent clauses referred to in the section, i.e., in the construction of ships or in the manufacture or processing of goods or in mining. In the cases thus covered by clauses other than an undertaking engaged in the business of generation or distribution of electricity or any other form of power unless it is found that the undertaking is engaged in the manufacture or processing of goods, the assessee will not be entitled to the exemption. Proceeding further to consider what is meant by "engaged in manufacturing or processing of goods", the court in the said judgment has saidIn out considered opinion, 'engaged in manufacturing' postulates the assessee's direct involvement in the manufacture. It may not be necessary that the assessee himself should be personally engaged but it is enough that he employs his own labourers. We are not prepared to accept the contention advanced by the assessee that though the goods are got manufactured by an outside agency, the assessee can be said to manufacture the goods on the contention that the assessee pays for the manufacture or feeds the expenses incurred in the maintenance of the looms. So also the mere fact that the assessee had given instructions or specifications to the weavers indicating the quality of goods will not in any way better the case of the assessee. It is also contended on behalf of the assessee that such a specification given to the outside agency for the preparation of textile goods will mean that the assessee had control over the quality of the goods.

(3.) THE triple tests indicated the existence which show prima facie that there is an 'industry' in that enterprise would also be helpful for this purpose. THE matter has not been decided by the Tribunal or any of the authorities below it in this perspective for the obvious reason that the case was not put up by the parties in the correct perspective. Reference was made before us to a book 'Indian Gemmology' by Raj Roof Tank which is stated to be an authoritative book on the subject in order to show the various stages of the manufacturing or processing activity of the gems beginning with the raw material known as 'kharad' and ending up with the gems in the market ing form. A perusal of the same indicates that there are several stages in between these two end points which together constitute the manufacture or processing of these goods.