Commissioner of Wealth-tax vs V.O. Angadi Veeriah Chettiar

Chandurkar, C.J.—The question, which is referred to this court u/s 27(3) of the Wealth-tax Act, 1957, reads as follows :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the bleaching of grey yarn amounts to

processing work of an industrial undertaking, when the basic work of bleaching itself was done by others for cooly, within the meaning of the

Explanation to section 5(1)(xxxi) of the Wealth-tax Act, 1957"".

It is necessary to point out that when the Tribunal was directed to refer the above question, this court also required the Tribunal to point out the

extent of the work done by the assessee and work which it had got done by other agencies so as to enable the question be decided. When the

Tribunal submitted the statement of the case, the Tribunal pointed out that the assessee was a partner in two firms, namely, M/s. Onni Chettiar and

Sons and M/s. Ajantha Bleaching and Dyeing Works and that Messrs. Onni Chettiar and Sons only purchased grey yarn and got it bleached for

cooly by M/s. Ajantha Bleaching & Dyeing Works.

The Wealth-tax Officer in the assessment proceedings under the Wealth-tax Act had taken the view that so far as the firm of M/s. Onni Chettiar

and Sons were concerned, they had only purchased grey yarn and got it bleached and, therefore, the business carried on by the above firm cannot

be considered as either manufacturing or processing within the meaning of section 5(1)(xxxii) of the Wealth-tax Act (hereinafter referred to as the

Act). In so far as M/s. Ajantha Bleaching & Dyeing Works was concerned, the Wealth-tax Officer held that the firm did the work of bleaching of

grey yarn for the other firm, M/s. Onni Chettiar and Sons, and, therefore, that firm also could not be considered as either manufacturing or

processing the goods. The assessee was, therefore, held not entitled to the exemption u/s 5(1)(xxxii) of the Act. The Appellate Assistant

Commissioner, however, took a contrary view and held that the two firms which were engaged in bleaching of grey yarn were industrial under-

takings within the meaning of the Explanation to section 5(1)(xxxi) of the Act as they were engaged in the processing of goods. Accordingly, he

directed the Wealth-tax Officer to allow exemption in respect of the interest of the assessee in the said two firms in the manner provided in section

5(1)(xxxii) of the Act. The order of the Appellate Assistant Commissioner was upheld by the Income Tax Appellate Tribunal. As already pointed

out, at the instance of the Revenue, the above question has been referred to this court.

Section 5 of the Act deals with exemption in respect of certain assets and in sub-section (1) thereof, ""assets"" which are not to be included in the

net wealth of the assessee and in respect of which no wealth-tax is payable by the assessee have been enumerated. Clauses (xxxi) and (xxxii) of

sub-section (1) of section 5 of the Act read as follows :

(xxxi) the value, as determined in the prescribed manner, of assets (not being any land or building or any rights in any land or building or any asset

referred to in any other clause of this sub-section) forming part of an industrial undertaking belonging to the assessee.

Explanation. - For the purposes of this clause and clause (xxxii), 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;

(xxxii) the value, as determinated in the prescribed manner, of the interest of the assessee in the assets (not being any land or building or any rights

in any land or building or any asset referred to in any other clause of this sub-section) forming part of an industrial undertaking belonging to a firm

or an association of persons of which the assessee is a partner or, as the case may be, a member.

We are concerned with clause (xxxii) which refers to an industrial undertaking. The definition of ""industrial undertaking"" in the Explanation to

clause (xxxi) is also to be taken into account for the purposes of clause (xxxii). The effect of clause (xxxii), therefore, is that the value as

determined in the prescribed manner of the interest of the assessee in the assets forming part of an industrial undertaking belonging to a firm or an

association of persons of which the assessee is a partner or, as the case may be,a member, has to be excluded for the purposes of computation of

the net wealth. The assessee in the instant case is a partner of two firms. On the finding recorded by the Tribunal, the bleaching process is

undertaken only by Messrs. Ajantha Bleaching and Dyeing Works and the other firm, Messrs. Onni Chettiar and Sons, only got the grey yarn

purchased by it bleached by the said firm, Messrs. Ajantha Bleaching and Dyeing Works. The question as to whether the share of the assessee in

both the partnership firms is exempted or whether the share in Messrs. Ajantha Bleaching and Dyeing Works will alone be exempted appears to

stand concluded by the decision of this court in Commissioner of Wealth-tax, Tamil Nadu-II Vs. K. Lakshmi, . In that decision, this court has

taken the view that in cases where the assessee gets the goods manufactured by an outside agency, he cannot be said to manufacture the goods,

merely because the assessee pays for the manufacture or feeds the expenses incurred in the manufacture and in respect of ""processing"", it will not

be correct to state that all the processes resulting in the end product must be carried out by the assessee himself. The court further held that if the

assessee had done some process which ultimately has brought about the end product, such an assessee will be entitled to the benefit of the

exemption. In accordance with this view, it appears clear to us that the share in the assets of Messrs. Onni Chettiar and Sons will not be entitled to

the exemption u/s 5(1)(xxxii) of the Act and the assessee will be entitled to the exemption in respect of his share in the assets of Messrs. Ajantha

Bleaching and Dyeing Works. Messrs. Ajantha Bleaching and Dyeing Works alone will satisfy the test of clause (xxxii) of section 5(1) of the Act.

The reference is answered accordingly, The assessee is not represented. There will be no order as to costs.