1992 (8) TMI 14 - HC - Wealth-tax

Application Of Rule 2B(2) Of Wealth Tax Rules, Exemption For Partner In Industrial Undertaking, Wealth Tax

Summary

Issues Involved:
1. Applicability of Rule 2B(2) of the Wealth-tax Rules, 1957.
2. Determination of whether the firm qualifies as an industrial undertaking under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Analysis of the Judgment:

1. Applicability of Rule 2B(2) of the Wealth-tax Rules, 1957

Background:
The Wealth-tax Officer (WTO) assessed the value of the closing stock of the firm, Messrs. Maliram Pooranmal, by applying Rule 2B(2) of the Wealth-tax Rules, 1957. The assessee, a partner in the firm, argued that the market value of the closing stock did not exceed the book value by more than 20%, which the WTO contested based on the gross profit margins.

Tribunal's Findings:
The Tribunal, following its previous decisions and the Special Bench decision in the case of Shyam Mohan Rawat, held that Rule 2B(2) was not applicable for the valuation of the closing stock. The Tribunal confirmed the order of the Appellate Assistant Commissioner, who had deleted the addition made by the WTO.

Court's Analysis:
The court referred to the Division Bench decision in CWT v. Moti Chand Daga, which stated that unless the market value exceeds the book value by more than 20% based on definite material, Rule 2B(2) cannot be invoked. The court noted that the WTO did not find that the assessee maintained business accounts regularly or drew up a balance sheet. The WTO's method of valuing the closing stock by subtracting the total credit side from the debit side was flawed. Therefore, Rule 2B(2) was inapplicable as the basic conditions for its application were not met.

Conclusion:
The court concluded that the Tribunal rightly held Rule 2B(2) inapplicable, and no question of law arose from the Tribunal's order regarding this issue.

2. Determination of whether the firm qualifies as an industrial undertaking under Section 5(1)(xxxii) of the Wealth-tax Act, 1957

Background:
The assessee claimed exemption under Section 5(1)(xxxii) of the Wealth-tax Act, asserting that the firm was an industrial undertaking engaged in manufacturing and processing emeralds. The WTO disagreed, stating that no manufacturing process was carried out by the firm.

Tribunal's Findings:
The Tribunal had previously held in several cases, including the assessee's, that the firm qualified as an industrial undertaking. Consequently, the exemption under Section 5(1)(xxxii) was applicable.

Court's Analysis:
The court noted that the Tribunal's findings were based on consistent decisions that the firm was an industrial undertaking. The court found no reason to deviate from these findings.

Conclusion:
The court held that no question of law arose regarding the Tribunal's finding that the firm was an industrial undertaking, and the exemption under Section 5(1)(xxxii) was applicable.

Final Judgment:
The court dismissed all three reference applications, concluding that no questions of law arose from the Tribunal's order, and it was unnecessary to direct the Tribunal to refer the formulated questions to the court under Section 27(3) of the Wealth-tax Act, 1957.