1996 (6) TMI 9 - HC - Wealth-tax

Summary

Issues Involved:

1. Whether the assessee is entitled to exemption under Section 5(1)(xxxii) of the Wealth Tax Act, 1957.
2. Whether the Tribunal was correct in remitting the issue back to the Wealth Tax Officer (WTO) for further examination.

Issue-Wise Detailed Analysis:

1. Entitlement to Exemption under Section 5(1)(xxxii) of the Wealth Tax Act, 1957:

The primary issue is whether the assessee is entitled to exemption under Section 5(1)(xxxii) of the Wealth Tax Act, 1957, for investments made in M/s Asia Engineering Company. The assessee invested Rs. 79,680 in the firm, which is engaged in large-scale building activities, including construction involving reinforced concrete works and fabrication of steel for windows and door frames. The assessee claimed that these activities constituted manufacturing activities, thus qualifying for exemption under Section 5(1)(xxxii) of the Act.

The Wealth Tax Officer (WTO) disallowed the claim, stating that construction activities did not qualify the firm as an industrial undertaking. The Appellate Assistant Commissioner (AAC) upheld this decision, stating that the firm's activities did not fall under the categories specified in Section 5(1)(xxxii), such as the generation or distribution of power, construction of ships, manufacture or processing of goods, or mining.

The Tribunal, however, considered the possibility that the firm's activities might include fabrication work, which could qualify it as an industrial undertaking. The Tribunal set aside the assessment and directed the WTO to examine whether the firm's activities included fabrication work, referencing the Orissa High Court's decision in CIT vs. N.C. Budharaja & Co. (1980).

2. Tribunal's Decision to Remit the Issue Back to the WTO:

The Department argued that the Tribunal erred in remitting the issue back to the WTO based on the Orissa High Court's decision, which had been reversed by the Supreme Court in CIT vs. N.C. Budharaja & Co. (1993). The Supreme Court held that the construction of a dam did not constitute the manufacture or production of articles under Section 80HH of the Income Tax Act, 1961. The Department contended that the assessee's construction activities, including intermediary activities like fabrication work, were integral to the main business of construction and did not qualify for exemption under Section 5(1)(xxxii).

The assessee argued that even if the main activity was construction, the intermediary activities like fabrication work, making doors and windows, and reinforced concrete works were done independently and should qualify for exemption under Section 5(1)(xxxii).

The Tribunal's decision to remit the issue back to the WTO was based on the need to ascertain whether the intermediary activities were conducted independently. The Tribunal's direction was influenced by the Orissa High Court's interpretation that an industrial undertaking need not be confined to manufacturing and production of articles.

Court's Analysis and Conclusion:

The Court considered the rival submissions and the relevant legal provisions. Section 5(1)(xxxii) of the Wealth Tax Act exempts the value of the assessee's interest in the assets of an industrial undertaking, provided it is not land or building. The term "industrial undertaking" includes businesses engaged in the generation or distribution of power, construction of ships, manufacture or processing of goods, or mining.

The Court noted that the Supreme Court, in CIT vs. N.C. Budharaja & Co., did not express an opinion on whether intermediary activities that go into construction work could qualify for exemption. The Court also referenced decisions from other High Courts, which held that intermediary activities integral to the main business of construction did not qualify for exemption.

The Court concluded that the entitlement to exemption under Section 5(1)(xxxii) depends on whether the intermediary activities are conducted independently or as an integral part of the main business of construction. The Tribunal's decision to remit the issue back to the WTO was to ascertain this fact. The Court found no infirmity in the Tribunal's direction and reframed the question to reflect the true issue.

Final Judgment:

The Court answered the reframed question in the affirmative, holding that the Tribunal was correct in remitting the issue back to the WTO for further examination. The decision was against the Department, and no costs were awarded.