Commissioner of Wealth Tax vs Smt. Kanchan Devi Golecha

Gopal Krishna Sharma, J.—The Commissioner has filed this reference application u/s 27(3) of the Wealth-tax Act, 1957 (''the Act''), in respect of the assessment year 1977-78. The assessee, Smt. Kanchan Devi, filed a return of wealth-tax, on 30-8-1977, showing total wealth at Rs. 5,11,960. The assessee claimed exemption u/s 5(1)(xxxii) of the Act, in respect of the capital of the assessee in the firm, Ratnalaya. Inquiries were made from the assessee as to whether the firm, Ratnalaya, was an industrial under taking. The assessee filed a reply stating that no registration of Ratnalaya, being an industrial undertaking, was necessary with the Industries Department, Jaipur. The assessee was then asked to give bifurcation of the assets that were employed for the purpose of processing, as laid down in rule 2H of the Wealth-tax Rules, 1957 (''the Rules''). No bifurcation was given by the assessee. The WTO, after examining the case of the assessee, did not accept her claim for exemption u/s 5(1)(xxxii).

Against the order of the WTO the assessee-petitioner filed an appeal before the AAC. The said appeal was accepted and the order of the WTO was set aside; and also a direction was given to determine the quantum of exemption to which the assessee was entitled in respect of her investment to the firm Ratnalaya, in which she was a partner during the relevant assessment year. Against the order of the appellate Court, the WTO filed an appeal before the income tax Appellate Tribunal. The said Tribunal opined that the order of the assessment officer was based on no material on record, and that the estimate was made on conjectures and surmises, which did not stand to reason. It further opined that the order of the AAC was very well-reasoned and, hence, no interference was called for. The income tax Appellate Tribunal ultimately opined that the facts of the assessee''s case warranted conclusion that Ratnalaya was an industrial undertaking within the meaning of section 5(1)(xxxi), and that, the AAC was justified on facts and in law in directing the WTO to allow exemption to the assessee u/s 5(1)(xxxi), in respect of the assessee''s capital employed in Ratnalaya. With these observations, the appeal of the revenue was dismissed.

The revenue then moved an application for reference under sub-section (1) of section 27 and required the income tax Appellate Tribunal to draw up a statement of the case and refer it to the High Court, for its opinion, on the question framed by the revenue which is as under:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the findings of the AAC that Ratnalaya is an industrial undertaking and, therefore, the assessee is entitled to exemption u/s 5(1)(xxxi) of the Wealth-tax Act, 1957, in respect of her capital employed in Ratnalaya?

The income tax Appellate Tribunal did not agree with the revenue and rejected the reference application u/s 27(3).

Mr. Surolia, the Learned Counsel for the petitioner, argued that Ratnalaya is not registered with the Industries Department. According to him, the firm Ratnalaya does not employ any labour, machinery, tools or implements for getting work done, and people used to take raw material from the firm to their houses, and after completing the work, they used to return the material to the firm, for which the labourers used to be paid. This, according to Mr. Surolia, means that those per sons are not regularly employed by the firm. He also argued that no working hours are prescribed for this work, and that, the persons who take raw material to their houses, work at their houses as and when and as long as they please. So, according to him, no working hours are fixed for their work by the firm, Ratanalaya. He also argued that there is no supervision of working of those persons, because they take raw material to their houses. Apart from this, every time, persons working are different. Sometimes, somebody takes raw material and return it after completion of work to the firm, and sometimes, some other person comes and takes raw material. So, Mr. Surolia argued, that it cannot be said that some persons were employed by the firm Ratnalaya. Thus, it cannot be said that Ratnalaya is an industrial undertaking/department, he submitted.

Mr. Surolia also argued that the reasons given by the income tax Appellate Tribunal, are not correct, which has based its order on the basis of the assessment of the assessee in the year 1966-67. According to him, while passing the assessment order for the year 1976-77, the AAC followed his earlier order which was not appealed against by the revenue before the Tribunal, and in that order, Ratnalaya was held to be an industrial undertaking. Similarly, following the same order for the assessment year 1976-77, the AAC, while passing order for the assessment year 1977-78, held that Ratnalaya was an industrial undertaking, and the Tribunal upheld the order of the AAC. So, while passing order on the application filed u/s 27(1), the Tribunal has opined that the order of the Tribunal cannot be said to give rise to any question much less the question as suggested by the revenue in the present reference application.

Mr. Surolia also argued that the principle of res judicata does not apply in such cases, and that, every assessment order involves separate question, which has to be assessed on its merit.

Mr. N.M. Ranka, the Learned Counsel appearing on behalf of the assessee non-petitioner, on the other hand, argued that while assessing for the assessment year 1976-77, it was held that Ratnalaya was an industrial undertaking, and that, no appeal was filed against that order by the revenue. Even the appellate authority as well as the Tribunal have upheld the order of the WTO. The facts of every assessment, according to Mr. Ranka, are identical, and so, it is now not open to the revenue to contest that Ratnalaya is not an industrial undertaking. It was also argued by Mr. Ranka that section 5(1)(xxxi) is clear, which defines the term ''industrial undertaking''. The Explanation to this sub-section reads as under:

Explanation: For the purpose of [clause (xxxa), ] this clause [clause (xxxii) and clause (xxxiv)], the term ''industrial undertaking'' means an undertaking engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining;

It was also contended by Mr. Ranka that the employer does not engage any labourer. The labourers take goods for processing to their houses. They get money for the work done by them. So, the goods are taken by the persons for sorting out goods which are worth processing and seeing which part is worth further processing, for giving better shape, and thirdly, they used to take the goods for polishing them at their houses. Therefore, the work done by the firm, Ratnalaya, is covered by the term ''industrial undertaking'', argued Mr. Ranka.

Mr. Ranka has fairly conceded that, no doubt, the question as to whether Ratnalaya is an industrial undertaking or not, is certainly a question of law. But, according to him, every question of law is not referable to this Court. So, he argued, this question, which has been decided by both the lower Courts, has been finally decided. There is concurrent finding of both the Courts below that Ratnalaya is an ''industrial undertaking'', and this conclusion has not been challenged by the revenue, submitted Mr. Ranka. Therefore, according to Mr. Ranka, it is not a fit case for making reference to this Court, and that, the Tribunal has, therefore, correctly rejected the reference application moved by the revenue.

We have considered the arguments of both the sides, and also given our anxious consideration to the matter. ''Industrial undertaking'' has been clearly explained in the Explanation to section 5(1)(xxxi), the term ''industrial undertaking'' means an undertaking either engaged in business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or mining. Thus, it is very important to note that an undertaking which is engaged in processing of goods, is covered under the definition of ''industrial undertaking''. In the present case, goods used to be taken by the working persons for processing, to their houses, in the sense that the labourers sort out the raw material which is worth further processing, i.e., cutting and polishing. If the material is found to be fit for further processing, they used to be taken by the workers to their houses for giving better shape and after cutting, they used to be polished by them, which is further a process. So, the work done by the firm, Ratnalaya, is certainly processing. However, as conceded by Mr. Ranka, this is certainly a question of law as to whether the firm, Ratnalaya, is an ''industrial undertaking'' on the facts and in the circumstances of the case, and whether the assessee is entitled to exemption u/s 5(1)(xxxi), in respect of her capital invested in the firm, Ratnalaya, which needs further consideration.

We, therefore, find that the order of the income tax Appellate Tribunal raises the following question of law:

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the findings of the AAC that Ratnalaya is an ''industrial undertaking'', and, therefore, the assessee is entitled to exemption u/s 5(1)(xxxi) of the Wealth-tax Act, 1957, in respect of her capital employed in Ratnalaya?

In the result, the reference application is allowed and the Income- tax Appellate Tribunal is directed to draw a statement of the case and refer the above question of law to this Court, for its opinion, within a period of three months from the receipt of this order. In the circum stances of the case, the parties are left to bear their own costs.