COMMISSIONER OF WEALTH TAX Vs. RAO C S

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has made this reference under section 27(1) of the Wealth-tax Act, 1957, at the instance of the Commissioner of Wealth-tax. THE question referred for the consideration of this court is :

(2.) THE assessee filed his wealth-tax return for the assessment year 1974-75 declaring his net wealth which included interest in a partnership firm known as Venugopal Rice Mills. THE partnership interest was assessed at Rs. 9,029 and exemption was claimed in respect of the same under section 5(1) (xxxii) of the Act. THE Wealth-tax Officer rejected the claim for exemption on the ground that the firm was defunct and no business was carried on during the previous year relevant to the assessment year 1974-75. THE matter was carried in appeal to the Appellate Assistant Commissioner of Wealth-tax, but without success. THE assessee then appealed to the Income-tax Appellate Tribunal. THE Tribunal came to the conclusion that the assessee is entitled to claim exemption in respect of his aforesaid interest in the partnership firm and, accordingly, allowed the appeal. Aggrieved by the order of the Tribunal, the Commissioner of Wealth-tax sought and obtained reference of the above question of law for the consideration of this court.

(3.) LOOKING into the terms of the exemption as per clause (xxxii) read with the definition of the term "industrial undertaking", it is clear that the only requirement is that a firm must own an industrial undertaking which is engaged in the manufacture or processing of goods. Undoubtedly, the operation of converting paddy into rice amounts to "manufacture" and also processing of goods Therefore, the rice mill satisfies the requirement of being an industrial undertaking for purposes of clause (xxxii). The only question is whether this industrial undertaking was engaged on the valuation date in the manufacture or processing of goods. Learned standing counsel claims that the partnership was not so engaged because of the fact that the rice mill was leased out to others. We do not see how a partnership firm can be said to be not engaged in the manufacture or processing of goods merely because the industrial undertaking (rice mill in the present case) was leased out. There is no finding to the effect that the partnership firm has abandoned permanently the carrying on of the business and that the assets employed in the manufacture or processing of goods ceased to be commercial assets. It is conceivable that the partnership firm might have stopped carrying on the business for a temporary period by leasing out the rice mill to outsiders and may resume the business in course of time. Unless it can be said that there is a permanent abandonment of the partnership firm carrying on business, it cannot be said that the terms of clause (xxxii) are not satisfied. As we have already pointed out, it is not possible to support the inference that the partnership firm ceased to carry on business, or that it became defunct, merely from the fact that it had leased out the rice mill to outsiders during the previous year. It must be said that in the previous year relevant to the assessment year 1974-75, and, therefore, on the valuation date corresponding to the assessment year 1974-75, the partnership firm was an "industrial undertaking" engaged in the manufacture or processing of goods, so that the exemption under clause (xxxii) is available. In our opinion, the Tribunal was justified in granting exemption to the assessee in respect of his interest in-the partnership firm.