1980 (7) TMI 150 - AT - Wealth-tax

Summary

Issues Involved:
1. Treatment of the value of interest in partnership firms for the levy of wealth-tax.
2. Definition and qualification of "industrial undertaking" under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Detailed Analysis:

1. Treatment of the Value of Interest in Partnership Firms for the Levy of Wealth-Tax:
The primary issue in these consolidated appeals is the treatment of the value of the interest that the assessees have in certain partnership firms for the levy of wealth-tax. The contention revolves around whether such partnerships can be classified as "industrial undertakings" under Section 5(1)(xxxii) of the Wealth-tax Act, 1957, and its Explanation. If they qualify, the value of such interest would be exempt from wealth-tax.

2. Definition and Qualification of "Industrial Undertaking" under Section 5(1)(xxxii):
The core of the dispute lies in the interpretation of what constitutes an "industrial undertaking." The Tribunal had conflicting opinions in previous cases. One view held that a partnership must own machinery to be considered an industrial undertaking, while another view allowed for partnerships that get raw materials processed in mills owned by others to qualify as industrial undertakings.

Relevant Facts and Legal Provisions:
- The AAC had exempted the value of the interest of the assessee based on the Tribunal's view in WTA Nos. 20 & 21/Mds/76-77, which was favorable to the assessees.
- The contrary view, expressed in WTA No. 305/Mds/1975-76, favored the Revenue and was also considered by the AAC in some cases, leading to decisions against the assessees.

Analysis of Section 5(1)(xxxii) and Explanation:
- Section 5(1)(xxxii) of the Wealth-tax Act provides an exemption for the value of the interest of the assessee in the assets of an industrial undertaking belonging to a firm.
- The Explanation to the section defines "industrial undertaking" as an entity engaged in the business of generation or distribution of electricity, construction of ships, manufacture or processing of goods, or mining.

Tribunal's Interpretation:
- The Tribunal analyzed the term "industrial undertaking" and concluded that the engagement in the manufacture or processing of goods includes getting goods manufactured or processed under the supervision or control of the firm, even if the actual work is done in mills owned by others.
- The Tribunal emphasized that the commercial expediencies and economic efficiencies justify such arrangements. The firm's involvement in supervision and control over the manufacturing process qualifies it as an industrial undertaking.

Case Examples and Precedents:
- The Tribunal referred to the case of Hindustan Motors, where components are manufactured by ancillary units but still considered part of the manufacturing process of Hindustan Motors.
- The Tribunal also considered a decision of the Bombay Bench-D of the Tribunal in Smt. Kancanbai Champalal vs. 4th WTO, which supported the view that a firm need not manufacture goods by itself to qualify for the exemption.
- The Supreme Court's decision in CST vs. Dr. Sukh Deo was cited, where it was held that a manufacturer includes a person under whose direction or control goods are manufactured.

Conclusion:
- The Tribunal concluded that partnerships that buy raw materials and get them processed into finished products, such as oil or gold ornaments, by paying conversion charges, qualify as industrial undertakings.
- Consequently, the value of the interest of the assessees in such firms is eligible for exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.

Judgment:
- The departmental appeals were dismissed, and the assessees' appeals were allowed, affirming that the value of the interest in the partnership firms is exempt from wealth-tax under the specified provision.