1991 (2) TMI 57 - HC - Wealth-tax

Summary

Issues: Interpretation of exemption under clause (xxxi) of sub-section (1) of section 5 of the Wealth-tax Act, 1957 for assets forming part of an industrial undertaking belonging to the assessee.

Analysis:
The judgment pertains to a case where the assessee, an individual who owned an oil mill but had rented it out to another person, claimed exemption for the value of machinery in the oil mill under clause (xxxi) of section 5(1) of the Wealth-tax Act, 1957. The issue revolved around whether the assessee was entitled to exemption even though the oil mill was not run by the assessee but by a lessee. The Tribunal had to determine if the requirements of being an industrial undertaking as defined in the Explanation to the clause and belonging to the assessee were met, without the additional condition that the assessee must be running or managing the undertaking.

The court examined the relevant provisions of section 5 of the Wealth-tax Act, which specify exemptions for certain assets not to be included in the net wealth of the assessee. Clause (xxxi) provides exemption for assets forming part of an industrial undertaking belonging to the assessee. The court highlighted that the clause does not necessitate the assessee to be actively involved in running or managing the industrial undertaking, as long as the two requirements of being an industrial undertaking and belonging to the assessee are fulfilled. This interpretation aligned with a previous decision of the Andhra Pradesh High Court in C WT v. C. S. Rao [1988] 174 ITR 612, which the court agreed with.

Contrary to the Revenue's argument relying on a Madras High Court judgment in CWT v. P. T. N. Shenbagamoorthy [1983] 144 ITR 724, the court disagreed with the interpretation that mere ownership of an asset is insufficient for claiming the exemption under section 5(1)(xxxi). The Madras High Court's decision emphasized the activity of manufacture as a prerequisite for claiming the deduction, which the present court found to be an unjustified addition to the statutory provision. The court reasoned that such an interpretation would introduce requirements not explicitly stated in the clause and would not align with the legislative intent of the Wealth-tax Act, which focuses on taxing assets owned by the assessee.

In conclusion, the court answered the question in favor of the assessee, affirming that the exemption under clause (xxxi) of section 5(1) of the Wealth-tax Act applied to the assets forming part of the industrial undertaking owned by the assessee, even if the undertaking was not directly managed or operated by the assessee.