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TMI Blog1997 (8) TMI 36X X X X Extracts X X X X X X X X Extracts X X X X ..... on 5 of the Act on the ground that the firm, in which they were partners, was engaged in the business of manufacturing groundnut oil and was, therefore, an industrial undertaking. Since the assessees were its partners, they were entitled not to include the value of their respective interests in the assets of the firm. The plea of the assessees was that under sub-section (1) of section 5 of the Act, wealth-tax was not payable by an assessee in respect of the assets specified in the clauses of sub-section (1). Clause (xxxii) was inserted in section 5(1) of the Act by the Finance Act, 1972, with effect from April 1, 1973, and it laid down as under : "5. Exemption in respect of certain assets.---(1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee---... (xxxii) the value, as determined in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights in any land or building or any asset referred to in any other clause of this sub-section) forming part of an industrial undertaking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees' firm was, in fact, a mere trader. The benefit of clause (xxxii), read with the Explanation under clause (xxxi), would be available to an assessee after the entire activity or the various steps or stages in the manufacture or processing of the goods beginning with the point where the same was purchased and ending with the point where it was made marketable and sold by the assessees' firm, are examined in detail. It has to be seen as to which, if any, of the various steps or stages of the manufacturing or processing activities between these two end-points is performed by the assessees' firm directly so as to be treated as being done by the firm itself. It would be also material to find whether the activity got done through skilled labourers, who are paid on the basis of work done, is an activity of the firm itself and not of an outside agency. For this purpose, the jural relationship between the assessees' firm and the skilled labourers has to be determined. It will have to be decided whether the employer-employee relationship exists between them. This view finds support from the decision of the Rajasthan High Court in CWT v. Vimal Chand Daga (HUF) [1988] 172 ITR 264. A ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various raw materials and supplied the various articles after getting them manufactured by contract labour. It was held that the activity of getting leather boots manufactured on job basis by the firm thus qualified the firm to claim it as an industrial undertaking. A question, whether a company publishing a fortnightly journal, was an industrial undertaking within the meaning of section 2(6)(d) of the Finance Act, 1968, has been examined by the Madras High Court in CIT v. Commercial Laws of India Pvt. Ltd. [1977] 107 ITR 822. The assessee-company, in that case, acted as the printer and publisher of a journal. It entrusted the printing of the journal to another concern and, on receipt of the printed sheets, engaged the labour contractors who folded and stitched the printed sheets and, thereafter, packed and despatched the parts to the subscribers. The Income-tax Officer refused the claim of the assessee-company for the lower rate of income-tax at 55 per cent. of its total income as an industrial company. It was held that the expression used in the definition of "industrial company" in section 2(6)(d) of the Finance Act, 1968, is "manufacture or processing of goods". Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly involved in any of the processing, he will be said to have been engaged in processing of goods. In the case of yet another assessee in the same case, it was noticed by the High Court that the business of the assessee consisted of purchasing art silk yarn, dyes, lace, etc., and giving them to the handloom weavers who made cloth for wages and the firm sold such cloth as finished products. It was held that the assessee could not be said to be engaged in the manufacture or, at least processing of goods. It would be thus clear that the facts of each case are to be examined so as to ascertain whether the firm in question was engaged in some activity of manufacture or processing of goods. In Addl. CIT v. Chillies Export House Ltd. [1978] 115 ITR 73, the Madras High Court was examining the assessee's claim that it was an industrial company within the meaning of section 2(6)(c) of the Finance (No. 2) Act, 1971. It was noticed that the assessee, an exporter of chillies, purchased the chillies, sorted them, graded them, clipped and stemmed them and subjected them to fumigation under expert technical hands. The assessee claimed that it was entitled to be taxed at the concessional rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnaments only. Since the firm was not involved directly in manufacturing and processing of the gold ornaments, it was held that the firm was not an industrial undertaking. In the case of the assessees before us, no activity, during the course of the manufacture or the processing, has been shown to have been done by the firm in which they are partners. The activity is confined to the purchase of groundnuts and sale of the groundnut oil and oil cakes. The purchase and sale are trading activities. Nothing has been shown to indicate that the firm did any other activity except the purchase of groundnuts and sale of oil and oil cakes. In the absence of any material on record to show that the firm did engage itself in any part of the manufacture or processing, it may not be held that the firm was engaged in the manufacture or processing of goods. There is also no doubt on the finding that the crushing of groundnuts, namely, the manufacture of oil and oil-cakes, was done by an outside agency. It is not a case where the firm got the work done through labourers on contract basis and that the employer-employee relationship existed between them. Here is a case where the activity of the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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