1991 (5) TMI 9 - HC - Wealth-tax

Summary

Issues Involved:

1. Justification of the Tribunal in vacating the orders under section 25(2) of the Wealth-tax Act, 1957.
2. Entitlement of the partners of the firm to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957.
3. Tribunal's decision to ignore their own previous decision for the assessment year 1981-82 and rely on the Andhra Pradesh High Court's decision.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in Vacating the Orders under Section 25(2) of the Wealth-tax Act, 1957:

The Tribunal vacated the orders passed by the Commissioner of Wealth-tax under section 25(2) of the Wealth-tax Act, 1957. The Commissioner had initiated proceedings under section 25(2) on the grounds that the assessment order was erroneous and prejudicial to the interests of the Revenue. The Tribunal held that the Commissioner's order was not justified as there was no material evidence to show that the assessee had permanently stopped the manufacturing or processing of goods and had become a defunct firm. The Tribunal concluded that the decision of the Andhra Pradesh High Court in the case of CWT v. C. S. Rao [1988] 174 ITR 612 was applicable and thus vacated the Commissioner's order.

2. Entitlement of the Partners of the Firm to Exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957:

The Tribunal held that the partners of the firm were entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957. The firm had given the flour mill on leave and licence basis to a third party, M/s. Govardhandas Viswanath, but there was no evidence to show that the firm had stopped its business permanently. The Tribunal noted that the firm had served a notice to terminate the leave and licence agreement and had asked for the possession of the mill to be handed back. The Tribunal relied on the Andhra Pradesh High Court's decision, which stated that the operation of converting paddy into rice amounts to "manufacture" and "processing" of goods, and thus the rice mill satisfied the requirements of being an industrial undertaking for purposes of clause (xxxii) of section 5(1). The Tribunal concluded that the assessee was entitled to the exemption as the firm continued to be an industrial undertaking engaged in the manufacture or processing of goods.

3. Tribunal's Decision to Ignore Their Own Previous Decision for the Assessment Year 1981-82 and Rely on the Andhra Pradesh High Court's Decision:

The Tribunal considered the order dated October 10, 1988, for the assessment year 1981-82, wherein similar relief under section 5(1)(xxxii) was denied to the assessee. However, the Tribunal pointed out that when the matter for the assessment year 1981-82 was decided, the decision of the Andhra Pradesh High Court was not available. The Tribunal noted that there was a material change in facts and, in view of the Andhra Pradesh High Court's decision, held that the assessee was entitled to exemption under section 5(1)(xxxii) of the Act. The Tribunal thus vacated the Commissioner's order under section 25(2) of the Act.

Conclusion:

The High Court agreed with the Tribunal's decision and held that the assessee was entitled to claim exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957, in respect of investment in M/s. Kanudia Brothers. The High Court found no reason to deny the benefit of the exemption to the assessee and confirmed that the Tribunal was justified in vacating the order of the Commissioner under section 25(2) of the Act. The question was answered in the affirmative and in favor of the assessee. There was no order as to costs.