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2009 (2) TMI 134

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..... D. B. Wealth-tax Appeals Nos. 3, 4, 6, 7, 9, 10 and 11 of 2000 and D. B. Wealth-tax Reference Applications Nos. 20, 26, 27, 118, 156, 140, 144 and 125 of 1988 and 7 and 28 of 1995. R. B. Mathur, J. K Singhi and Anuroop Singhi for the Commissioner. J. K. Ranka for the assessee. JUDGMENT The following questions of law have been referred by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, at the instance of the Revenue in the following reference petitions (1) D. B. Wealth-tax Reference No. 4 of 1988: "(1) 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. Rawat Jewellers, Jaipur, exceeded the value as shown in the firm's accounts by more than 20 per cent ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the findings of the Appellate Assistant Commissioner that the firm M/s. Rawat Jewellers, Jaipur, is an industrial undertaking within the meaning of the Explanation to section 5(1) (xxxi) and consequently in .....

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..... 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 and M/s. Rawat Jewellers, Jaipur, exceeded the value as shown in the firms' accounts by more than 20 per cent. ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the findings of the Appellate Assistant Commissioner that the firm M/s. Rawats Bombay and M/s. Rawat Jewellers, Jaipur, are an industrial undertaking within the meaning of 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 ?" (6) D. B. Wealth-tax Reference No. 49 of 1988: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the firm M/s. Maliram Puranmal is an industrial undertaking within the meaning of 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) Whether, on the facts and in the c .....

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..... g stock of M/s. Hazarimal Milapchand Surana, Jaipur, did not exceed by more than 20 per cent. than the value disclosed by him and whether the assessee could be said to have discharged that onus ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the findings of the Appellate Assistant Commissioner that the firm M/s. Hazarimal Milapchand Surana, of Jaipur 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 Wealth-tax Act, 1957 ?" (11) D. B. Wealth-tax Reference No. 16 of 1990: "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that gross profit cannot be the only basis for invoking the provisions of rule 2B(2) of the Wealth-tax Rules ?" (12) D. B. Wealth-tax Reference No. 32 of 1990: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that rule 2B(2) of the Wealth-tax Rules cannot be invoked in the case of the assessee for valuing the closing stock only on the .....

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..... he balance-sheet of the firm was on the Revenue, and the same not having been proved, rule 2B(2) of the Wealth-tax Rules was not attracted? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee's interest in the firm is exempt under section 5(1) (xxxii) read with the Explanation to section 5(1)(xxxi) of the Wealth-tax Act, 1957 ?" (17) D. B. Wealth-tax Reference No. 28 of 1995: "Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in upholding the decision of the Commissioner of Wealth-tax (Appeals) wherein it was held that the share capital investment of the assessee is exempt under section 5(1)(xxxii) of the Wealth-tax Act, 1957, despite the fact that the firm M/s. Nissar Brothers is not an industrial undertaking ?" (18) D. B. Wealth-tax Reference No. 8 of 2003: "Whether, on the facts and circumstances of the case, the learned Income-tax Appellate Tribunal was right in holding that the firm M/s. Kotawala is an industrial undertaking within the meaning of Explanation to section 5(1)(xxxi) of the Wealth-tax Act, 1957, and consequently in holding that the valu .....

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..... tion 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 ?" (5) D. B. Wealth-tax Reference Application No. 156 of 1988: "(1) Whether, on the facts and in the circumstances of the case does the gross profit rate taken in the case of the firm, constitute adequate material to the conclusion that market value of the closing stock of the firm exceeds the cost price as adopted by the firm by more than 20 per cent. and whether on that basis rule 2B(2) of the Wealth-tax Rules, 1957, could be invoked ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of rule 2B (2) were not applicable in the assessee's case and consequently in deleting the addition made by the Wealth-tax Officer ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in not holding that the assessee is not entitled to exemption under section 5(1) (xxxii) of the Wealth-tax Act, 1957, in respect of investment in the firm M/s. Cosmopolitan Trading Corporation, Jaipur ?" (6) D. B. Wealth-tax Reference Applicati .....

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..... was justified in upholding the order of the Com missioner of Income-tax (Appeals) in directing the Wealth-tax Officer to allow the assessee's claim in respect of deduction under section 5(1)(xxxii) of the Wealth-tax Act, 1957 ?" 3. Wealth-tax Appeals Nos. 3, 4, 6, 7, 9, 10 and 11 of 2000 have been preferred by the Revenue for opinion of the court on the following substantial question of law which is common in the aforesaid appeals and is reproduced hereunder: "Whether manufacture of jewellery is an industrial undertaking within the meaning of section 5(1)(xxxi) of the Wealth Tax Act, 1957 ?" 4. For convenience, we are taking the facts of Wealth-tax Reference No. 4 of 1988 for disposal of all the aforesaid cases. The assessee is carrying on the business in gold jewellery and precious and semi-precious stones. The Wealth-tax Officer on examination of the returns filed by the assessee found that the firm has declared gross profit above 20 per cent. in the accounts relating to the precious and semi-precious stones. The Wealth-tax Officer was of the view that rule 2B(2) of the Wealth-tax Rules, 1957, was applicable and the value of the closing stock would exceed the book value .....

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..... llate court following certain earlier orders of the Tribunal held that processing of goods was involved, therefore, the undertaking of the assessee is entitled to the benefit of section 5(1) (xxxii) of the Wealth-tax Act. On these controversies, the aforesaid references have been made. 6. We have heard learned counsel for the parties and perused the record. 7. Learned counsel for the respondents has brought to our notice that a similar proposition of law was contained in some wealth-tax reference applications which have been decided by the Full Bench of this court vide judgment dated February 2, 2005 ( CWT v. Smt. Kusum Bader [2005] 276 ITR 569 (Raj) [FB]). We have examined the judgment delivered by the Full Bench. 8. Mr. R. B. Mathur, learned counsel for the Revenue has submitted that the Full Bench of this court has dealt with these references and an observation has been made that the references can be decided in terms of the mandate contained in the judgment delivered by the Supreme Court in the case title Juggilal Kamlapat Bankers v. WTO reported in [1984] 145 ITR 485 (SC); [1984] 1 SCC 571. We have examined the reference applications dealt with by the Full B .....

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..... v. WTO reported in [1984] 145 ITR 485 (SC) has been considered by the Division Bench. So far as the question pertaining for the reference and application of rule 2B(2) of the Wealth-tax Rules and the onus on the Revenue to prove the market value of the stock of the firm is concerned, the Division Bench held as under (page 388): "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 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 st .....

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..... r 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 under taking 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 st .....

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..... acture 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, 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 asses .....

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