1983 (7) TMI 78 - AT - Wealth-tax

Summary

Issues:
1. Whether the firm owning dredgers and barges is entitled to exemption under section 5(1)(xxxii) of the Wealth Tax Act, 1957.
2. Whether the activities of the firm constitute processing for the purpose of claiming the exemption.

Analysis:

Issue 1:
The appeals before the Appellate Tribunal ITAT BOMBAY-D involved the question of whether the firm of M/s Y. A. C. Sand Dredging Co., owning dredgers and barges, is eligible for exemption under section 5(1)(xxxii) of the Wealth Tax Act, 1957. The contention of the assessee was that the spoil extracted from the sea, processed to separate sand, becomes a marketable commodity, justifying the exemption.

Issue 2:
The main point of contention revolved around whether the activities of the firm constituted processing as required for claiming the exemption. The authorities initially held that no processing was involved as the sand extracted remained unchanged. However, the assessee argued that the process of extracting spoil from the sea, separating sand, and selling it constituted processing. The Tribunal considered various definitions and legal precedents related to processing of goods to determine if the firm's activities qualified as processing under the law.

Key Legal Precedents:
1. The Supreme Court in the case of Chowgule & Co. Pvt. Ltd. vs. Union of India interpreted the term "processing" in the context of the CST Act, emphasizing that any treatment or operation leading to the development or preparation of a commodity for the market amounts to processing.
2. The decision in CIT vs. Radha Nagar Cold Storage (P) Ltd. by the Calcutta High Court highlighted that preservation of goods to prevent natural decay could constitute processing under the Finance Act.
3. The Tribunal also referenced the decision of Addl. CIT, Kanpur vs. Farrukhabad Cold Storage (P) Ltd., where the Allahabad High Court clarified that processing need not result in the manufacture of a new article, but rather adaptation of goods for a specific purpose.

Conclusion:
After considering the arguments and legal principles, the Tribunal concluded that the activities of the firm, involving the extraction and processing of spoil to separate sand, qualified as processing under the Wealth Tax Act. Therefore, the firm was deemed an industrial undertaking eligible for exemption under section 5(1)(xxxii). Additionally, the Tribunal ruled in favor of the appellant partners' claim for exemption in another firm engaged in manufacturing bricks and tiles, based on the presence of manufacturing and processing activities. As a result, all the appeals were allowed in favor of the appellants.