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TMI Blog2007 (4) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the value of the assessee's interest in that firm is exempt under section 5(1)(xxxii) of the Wealth-tax Act, 1957?" 2. The aforesaid two questions of law arise from the facts and circumstances that have been stated by the Income-tax Appellate Tribunal in the statement of the case thus: 3. Shyam Mohan Rawat-assessee is a partner in the firm M/s. Rawats Bombay. The said firm has been carrying on the business in gold jewellery, precious and semi-precious stones. The firm declared gross profit of 20.1 per cent. in the accounts relating to precious and semi-precious stones. As the firm had shown the closing stock in its accounts at cost, the Wealth-tax Officer was of the view that rule 2B(2) of the Wealth-tax Rules, 1957 (for short "the Rules") was applicable and the value of the closing stock would exceed the book value by a margin of more than 25 per cent. The assessee contended before the Wealth-tax Officer that the rate of gross profit did not establish the value of the closing stock and, therefore, rule 2B(2) could not be applied by making reference to the rate of gross profit only. The assessee also contended before the Wealth-tax Officer that the business in the preciou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit rate and there is no positive material to indicate the extent of deduction which has to be made therefrom for the purpose of arriving at a figure which alone can be added to the cost price for determining the market value, there is no definite evidence to determine the market value on the sole basis of gross profit rate. This conclusion flows even from the reasoning adopted by the Wealth-tax Officer and the principle indicated in the Wealth-tax Officer's order. It is, therefore, clear that unless there be any positive material or discernible principle justifying computation of the percentage of deduction at the figure applied, it has to be held that there is no positive material to hold that the market value exceeds by more than 20 per cent. the value of the closing stock disclosed in the balance-sheet even though the gross profit rate appears to exceed the figure of 20 per cent. ... It is obvious from the above conclusion that the condition precedent for the applicability of rule 2B(2) is not satisfied and that the Tribunal was, therefore, justified in holding that rule 2B(2) could not be invoked. In short, the burden was on the Revenue to prove that the valuation of the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... self but the rough (kharad) was given to various karigars for the aforesaid jobs and that these karigars would return the finished precious stones to the firm; that these karigars were not the employees of the firm; that they were only paid the wages for the work done by them and they did not receive any regular salary from the firm, the assessee was not entitled to claim deduction/exemption under section 5(1) (xxxii) from the capital employed with the firm, the firm cannot be held to be an "industrial undertaking" within the meaning of the Explanation to section 5(1) (xxxi) of the Act and consequently under section 5(1) of the Act. 10. On the other hand, Mr. J. K. Ranka, counsel for the assessee supported the finding of the Tribunal that the firm was an "industrial undertaking" and that the assessee was entitled to exemption to the extent of the value of interest in the firm under section 5(1)(xxxii) of the Act. 11. Section 5 of the Act provides for exemption in respect of the assessee referred therein. Accordingly, the assets mentioned in sub-section (1) of section 5 shall not be included in the net wealth of the assessee. 12. For our purpose, the relevant clauses are clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5 of the Act. When the order of the Wealth-tax Officer was carried in appeal, the Appellate Assistant Commissioner specifically held that the business of the processing of rough stones by the firm has to be treated as an industrial undertaking for the purposes of section 5(1) (xxxi) of the Act and, accordingly, the assessee being a partner was entitled to deduction under section 5(1)(xxxii) of the Act. The Tribunal upheld the said finding. 15. As a matter of fact, it transpires form the order of the Tribunal that the firms carrying on the business of processing of the precious stones have been consistently held by the Tribunal as "industrial undertaking" for the purposes of clauses (xxxi) and (xxxii) of section 5(1) of the Act. 16. The counsel for the Revenue relied upon two judgments of this court, namely: (i) CWT v. Vimal Chand Daga (HUF) [1988] 172 ITR 264 (Raj) and (ii) CIT v. Dhandia Gems Corporation [1994] 208 ITR 923 (Raj). 17. In Vimal Chand Daga (HUF) [1988] 172 ITR 264 (Raj), the Division Bench of this court held thus (page 267): "Examining the matter in the above background, we find that the Tribunal has not recorded the requisite findings of fact on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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." 18. In Dhandia Gems Corporation [1994] 208 ITR 923 (Raj), the Division Bench referred to the decision in Vimal Chand Daga's case [1988] 172 ITR 264 (Raj) and held thus (page 927): "The Tribunal has not recorded any finding to the effect that the industrial undertaking is owned by the assessee. It has referred to the order of the commissioner of Income-tax (Appeals) wherein he has observed that the assessee was engaged in manufacturing and, therefore, it was a small scale exporter exporting its own manufactured goods. An assessee who has got the goods manufactured from any other industrial undertaking or from any other person may be a manufacturer but the condition which is contemplated in the Explanation to section 35B(1A) is that such small scale industrial undertaking must be owned by the exporter. The decision in the case of Vimal Chand Daga [1988] 172 ITR 264 (Raj) relied on by the Commissioner of Income-tax (Appeals) has already bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 415 (Raj), the Division Bench held "so far as the findings on the question whether the firm was an industrial undertaking in several cases and also in the case of the assessee, are concerned, it had been held that it was an industrial undertaking and the exemption under section 5(1) (xxxii) shall apply". Third and more importantly, the Income-tax Appellate Tribunal in a bunch of appeals being WTO v. Smt. Rajkumari Jain [2001] (26) Tax World 1 involving the identical issue on similar facts after taking into consideration a large number of decisions including the decision of this court in the case of Vimal Chand Daga [1988] 172 ITR 264 (Raj) held thus: "From all these judgments, only ratio that emerges for determining whether a person is an employee or not is that whether the employer exercises 'due control and supervision' over the other person who is doing the work and in each such case, the question of control and supervision is a question of fact. We accordingly after looking into the material before us find that the employer in these cases carried out a strict supervision over the commodity having regard to the value thereof. He is vigilant in respect to the commodity alone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arigars alone. But some of it is also done by the assessee's firms themselves dominant of which is marking and removal of deposits from various edges of the stone. This results into change in physical characteristics of the commodity. The effect of each operation on the commodity is material, which makes it a marketable commodity as cut stone or gem. Thus, the stages through which the rough stone undergoes so and to end up as a marketable commodity involves the activity of processing. We also find that in some of these cases the Government of Rajasthan has issued registration certificates as industry. Also in some cases the Assessing Officer has himself treated the assessee's firm as engaged in manufacturing where we have been given to understand and is accepted position by the rival parties also that the activity being similar, same arguments can be adopted. The provisions of the Wealth-tax Act also do not require the entire activity to be carried out by the assessee himself nor is there any requirement that the activity of processing should be dominant where the assessee carries a trading as well as processing of goods for becoming eligible for exemption. The only requirement is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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