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TMI Blog1994 (11) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Wealth-tax Officer rejected the assessee's claim. The Appellate Assistant Commissioner, however, allowed the claim and the Tribunal has affirmed the appellate order. The reference before us has come at the instance of the Commissioner of Wealth-tax and the question, as framed by the Tribunal, is as follows : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the bleaching of grey yarn amounts to manufacture and processing of goods within the meaning of the Explanation to section 5(1)(xxxi) of the Wealth-tax Act, 1957, for both the years ?" During the pendency of the instant reference before this court, a Bench of this court in the case of CWT v. K Lakshmi [1983] 142 ITR 656, and other connected cases has construed section 5(1)(xxxii) of the Act. Section 5(1)(xxxii) reads as follows : "5. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a specification given to the outside agency for the preparation of textile goods will mean that the assessee had control over the quality of the goods. The expression 'engaged in manufacture', as already pointed out by us, indicates that the assessee should be directly involved in the manufacturing process and it will not include the cases where he gets the goods prepared by an outside agency. At the same time, we are not inclined to accept the argument of the Revenue that even though the assessee is responsible for a processing, the assessee would not be entitled to the benefits contemplated under the above provision. If we turn to the Explanation extracted above, the word used is 'processing of goods'. It does not predicate that it should be all the processes resulting in the end-manufacture. Further, it cannot be disputed that the end-manufacture may involve several processings. We are, therefore, of the opinion that if the assessee has done any processing, which ultimately brought about the product, he is entitled to avail of the above provision." A Bench of the Rajasthan High Court has also considered the above in CWT v. Vimal Chand Daga (HUF) [1988] 172 ITR 264. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " The meaning of the expression 'industrial undertaking' used in section 5(1)(xxxii) has to be un derstood as defined in the Explanation, to section 5(1)(xxxi) of the Act. According to this definition, the term 'industrial undertaking' for the purpose of the business activity of the assessee means an undertaking engaged in the business of manufacture or processing of goods, namely, conversion of raw material purchased by the firms into finished product or gem which is the marketable commodity. It is not disputed on behalf of the Revenue that this entire process which results in the conversion of the raw material into the finished product of gem in marketable shape is an activity satisfying the requirement of manufacture or processing of goods. The real question, therefore, is whether the whole or any part of it is done by the assessee's firms so as to attract this statutory provision for its benefit. It is in this light that we have to see whether the requisite findings of fact have been recorded by the Tribunal before giving to the assessee the benefit of this provision. Examining the matter in the above background, we find that the Tribunal has not recorded the requisite finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the work got done through the skilled labourers is not the entire manufacturing or processing activity. Without these findings of fact, it is not possible to decide the question of applicability of the statutory provision, of which the assessee has claimed the benefit." The two authorities, i.e., judgment of this court in CWT v. K. Lakshmi [1983] 142 ITR 656 and the judgment of the Rajasthan High Court in CWT v. Vimal Chand Daga (HUF) [1988] 172 ITR 264, thus postulated that for the assessee's direct involvement in the manufacture, it may not be necessary that the assessee himself should be personally engaged in the process of manufacture, but it is enough if he employs his own employees. If the goods are manufactured by an outside agency, he cannot be said to have manufactured the goods. The Explanation above extracted, which also uses the expression "processing of goods", does not predicate that it should be all the processes resulting in the end-product, in which the assessee should be found engaged, if the assessee has done any processing, i.e., if he is directly involved at any stage of the processing, resulting in the end-manufacture, he is entitled to avail of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a servant, but a servant would generally for some purposes be an implied agent, the extent of the agency depending upon the duties or position of the servant. There are several other cases, reiterating the above, one is the case of an assessee, who was appointed as a treasurer of a bank for its branches, sub-agencies and pay offices, who under the agreement had to perform the duties, liabilities and responsibilities, which by custom or contract usually devolved upon a treasurer as well as those specified in the agreement and he had to provide the staff for the cash section of the bank. He had power to suspend, transfer or dismiss any member of the staff and to appoint another person in his place and he was responsible for all the acts of the staff so appointed which resulted in loss or damage to the bank. He was also responsible for the protection of the property of the bank and for the receipt of any bad money or base money, coin or bullion or any forged or fraudulently altered currency notes. The question involved was whether the loss suffered on account of the said agreement in the performance of his duties and carried for the following year, was liable as a deduction in the sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l which is requisite to establish the relationship of employer and employee must necessarily vary from business to business and is by its very nature incapable of precise definition.... it is not necessary for holding that a person is an employee, that the employer should be proved to have exercised control over his work, that the test of control was not one of universal application and that there were many contracts in which the master could not control the manner in which the work was done.... The correct method of approach, therefore, would be to consider whether having regard to the nature of the work there was due control and supervision by the employer or to use the words of Fletcher Moulton L. J., at page 549 in Simmons v. Health Laundry Co. [1910] 1 KB 543 : " .... it is impossible to lay down any rule of law distinguishing the one from the other. It is a question of fact to be decided by all the circumstances of the case. The greater the amount of direct control exercised over the person rendering the services by the person contracting for them the stronger the grounds for holding it to be a contract of service, and similarly the greater the degree of independence of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the marginal notes to articles 309, 310 and 311. The heading and the sub-heading of Part XIV and Chapter I emphasise the element of service. There is a relation ship of master and servant between the State and a person. said to be holding a post under it. The existence of this relationship is indicated by the State's right to select and appoint the holder of the post, its right to suspend and dismiss him, its right to control the manner and method of his doing the work and the payment by it of his wages or remuneration. A relationship of master and servant may be established by the presence of all or some of these indicia, in conjunction with other circumstances and it is a question of fact in each case whether there is such a relation between the State and the alleged holder of a post. In the context of articles 309, 310 and 311, a post denotes an office. A person who holds a civil post under a State holds 'office' during the pleasure of the Governor of the State, except as expressly provided by the Constitution, see article 310. A post under the State is an office or a position to which duties in connection with the affairs of the State are attached, an office or a position to w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities. In Venkata Swamy v. Supdt. of Post, Offices, AIR 1957 Orissa 112, the Orissa High Court held, on a consideration of the relevant conditions of employment, that a temporary extra-departmental branch postmaster was not a person holding a civil post, but the observation in that case that a part-time employee cannot be the holder of a civil post outside the regularly constituted services is too wide and cannot be supported. In SherSingh v. State of Rajasthan ILR [1956] 6 Raj 335 at pages 339-340 ; AIR 1956 Raj 110 at page 111, the Rajasthan High Court held that a Chaudhari appointed under the Land Revenue Act of Bikaner is not entitled to the protection of article 311. The report of the case does not disclose the functions of the chaudhuri and the regulations governing his employment. In Bindu Nath, Chaudhury v. State of Assam, AIR 1959 Assam 118, the court found that the applicant was never appointed to the post of a Mauzadar, and no question of the protection of article 311 could arise in the circumstances. " We thus have no manner of doubt that in deciding whether the assessee had engaged himself through his employees in the manufacture or processing of goods, it will be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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