1977 (4) TMI 69 - AT - Income Tax

Summary

Issues:
- Claim for exemption under section 5(1)(xxxi) of the Wealth Tax Act for an individual proprietor of an industrial undertaking.
- Interpretation of the term "industrial undertaking" under the Wealth Tax Act.
- Dispute regarding whether the business qualifies as a manufacturing concern for exemption purposes.
- Determination of whether the assessee is entitled to exemption under section 5(1)(xxxi) based on the nature of the business activities.

Analysis:

The judgment by the Appellate Tribunal ITAT MADRAS-B involved two appeals by the department concerning the assessment years 1973-74 and 1974-75. The appeals were consolidated for disposal. The primary issue revolved around the assessee, an individual proprietor of M/s. Indra Agencies, claiming relief under section 5(1)(xxxi) of the Wealth Tax Act. The section provides for the exclusion of assets forming part of an industrial undertaking belonging to the assessee. The dispute arose due to a mistake in the department's grounds of appeal, incorrectly stating the assessee as a partner instead of a proprietor. The Income Tax Officer had initially denied the exemption, citing the lack of manufacturing activities in the business.

Upon appeal to the AAC, it was argued that the business qualified as an industrial undertaking as it was engaged in the manufacture and sale of lint and cotton seeds from kapas. The AAC, referencing the case law and dictionary meaning of processing, ruled in favor of the assessee, allowing the claim for exemption. The department appealed this decision, contending that the nature of the business was unclear and that the assessee was not entitled to the exemption under section 5(1)(xxxi).

In its analysis, the Appellate Tribunal noted the department's argument that the manufacturing was not done by the assessee in his own factory but outsourced to third-party ginning factories. However, the Tribunal emphasized that the provision did not require the assessee to conduct the manufacturing personally in his factory. As long as the business was engaged in the manufacture or processing of goods, it qualified as an industrial undertaking. Therefore, the Tribunal upheld the AAC's decision, dismissing the department's appeals and affirming the assessee's entitlement to the exemption under section 5(1)(xxxi) of the Wealth Tax Act.