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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 ..... questions: "(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of applying rule 2B(2) of the Wealth-tax Rules, the onus was on the Revenue to prove that the market value of the closing stock of M/s. Rawats Bombay exceeded the value as shown in the firm's accounts by more than 20 per cent.? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the finding of the Appellate Assistant Commissioner that the firm M/s. Rawats of Bombay is an industrial undertaking within the meaning of the Explanation to section 5(1) (xxxi) and consequently in holding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking' within the meaning of the aforesaid section. Re: Question (i) The Division Bench of this court in the case of CWT v. Moti Chand Daga [1988] 174 ITR 379, while dealing with the identical question, on consideration of the statutory provisions contained in sections 2(m), 7 of the Act and rules 2, 2A and 2B of the Rules and also the few judgments, namely : (i) Juggilal Kamlapat Bankers v. WTO [1984] 145 ITR 485 (SC), (ii) CWT v. Tungabhadra Industries Ltd. [1970] 75 ITR 196 (SC), and (iii) CWT v. Hindustan Motors Ltd. [1976] 104 ITR 430 (SC), held thus (page 388 of 174 ITR): "It is, therefore, obvious that where the only material available is the gross profit 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 unle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeded the value as shown in the firm's account more than 20 per cent. 8. We deem it unnecessary to elaborately discuss the matter. We adopt the reasoning given in the case of Moti Chand Daga [1988] 174 ITR 379 (Raj) and hold that the onus was on the Revenue to prove by positive material that the market value exceeded by more than 20 per cent. the value of the closing stock disclosed in the balance-sheet even though the gross profit rate seems to exceed the figure of 20 per cent. Re : Question (ii) 9. Mr. Anuroop Singhi, counsel for the Revenue vehemently submitted that in view of the categorical finding recorded by the Wealth-tax Officer that cutting, grinding, polishing and processing was not being done by the firm itself 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the matter from the point of view as to whether cutting emerald from rough emerald was an activity of manufacture. The Wealth-tax Officer held that since the end product after cutting grinding and polishing was the same as starting product, the activity was not "manufacture". While holding so, he also held that the manufacturing activity was not carried by the firm as it was got done through karigars who though were paid wages for the work done by them, they were not employed by the firm and they did not receive any regular salary from the firm. What the Wealth-tax Officer missed to notice was that the assessee engaged in processing of the goods is also covered by the term industrial undertaking for the purposes of clauses (xxxi) and (xxxii) of section 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obvious reason that the case was not put up by the parties in the correct perspective. Reference was made before us to a book Indian Gemmology by Raj Roof Tank which is stated to be an authoritative book on the subject in order to show the various stages of the manufacturing or processing activity of the gems beginning with the raw material known as 'kharad' and ending up with the gems in the marketing form. A perusal of the same indicates that there are several stages in between these two end points which together constitute the manufacture or processing of these goods. There is no finding by the Tribunal as to which, if any, of these several steps in the manufacture or processing of the goods is carried on by the assessee's firms directly and whether 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." 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r produced were thus goods which were from a small scale industrial undertaking owned by the assessee." 19. We, at the first blush, thought of restoring this question to the Tribunal for a fresh look to the aspect of exemption under section 5(1) (xxxii) claimed by the assessee in the light of the decision in the case of Vimal Chand Daga [1988] 172 ITR 264 (Raj). However, on a deep thought, we found this exercise unnecessary. First, the Tribunal proceeded to rely on its earlier decisions that in the activity of the nature in which the firm is involved has been held to be "industrial undertaking" in similar cases. Second, in the case of the assessee's brother who is also a partner of the firm, for the assessment year 1981-82, in the matter that reached this court in CWT v. Gopi Chand Rawat [1994] 206 ITR 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessees, however, claimed to be an industrial undertaking within the meaning of the Explanation to clause (xxxi) of sub-section (1) of section 5 of Wealth-tax Act, 1957, and on this basis it claimed the exemption as per clause (xxxii) of sub-section (1) of section 5 of the Act. This provision reads as under: Explanation to clause (xxxi) of sub-section (1) of section 5 of the Act ' Explanation. —.......... Section 5(1)(xxxii).—. ………… The meaning of the expression 'industrial undertaking used in section 5(1) (xxxii) has to be understood as defined in the Explanation to section 5(1) (xxxi) of the Act and accordingly the term 'industrial undertaking' means an undertaking engaged in the business of manufacture or processing of goods. From the above findings, it is evident that the whole activity is not done by the karigars 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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