Commissioner of Wealth Tax vs Dilip Ratilal (HUF)

M.S. Shah, J.—At the instance of the Revenue, the following question of law is referred for our opinion in respect of the assessment year

1979-80.

Whether the Tribunal is right in law and on facts in holding that the assessee is entitled to exemption u/s 5(1)(xxxii) of the Wealth-tax Act, 1957, in

respect of her capital interest in the firm of Raja Textile Mill?

We have heard Mrs. Mauna Bhatt, learned standing counsel for the Revenue. Though served, nobody appears on behalf of the respondent-

assessee.

The assessee is a Hindu undivided family and during the year under consi-deration, i.e., 1979-80, it was a partner in a partnership firm, Raja

Textile Mill. The assessee claimed exemption u/s 5(1)(xxxii) of the Act in respect of her capital interest in the said partnership firm. The Wealth-tax

Officer rejected this claim. But in appeal, the learned Appellate Assistant Commissioner relying upon the ratio of the decision in the case of

Commissioner of Wealth Tax Vs. Radhey Mohan Narain, and the Board''s Circular No. 347, dated July 7, 1982, accepted the assessee''s claim

and granted exemption to her u/s 5(1)(xxxii) in respect of her capital interest in the said partnership firm. The Tribunal confirmed the order of the

learned Appellate Assistant Commissioner.

At the hearing of the reference, Mrs. Bhatt for the Revenue has pointed out that in the instant case the partnership firm was getting the goods

prepared by an outside agency and therefore was not entitled to exemption u/s 5(1)(xxxii) of the Act. Learned counsel heavily relied on the

decision of the Division Bench of this court in the case of Commissioner of Wealth Tax Vs. Mohinibai Kanaiyalal, , wherein this court has laid

down the following principle :

The court was concerned with a case where the firm was getting grey cloth converted into cloth through outside agencies. The court made the

following observations for rejecting the assessee''s claim that the firm was engaged in manufacture (headnote) :

''the finding was that the firm had got grey cloth converted into cloth through outside agencies. It was not the case that the outside agency which

was processing the grey cloth was working directly under the supervision or control of the firm, in respect of whose assets the assessee claimed

exemption, nor was it the case that the processing was done by the labour employed by the firm for a purpose of its own, though not at the factory

premises of the firm. Nor was it the case that the processing of the cloth by that outside agency was in any way connected with the carrying on of

the business of the firm. No direct involvement of the firm with any processing act had been found to exist. In that view of the matter, the assessee

could not be said to have interest in a firm which was engaged in the business of manufacture of goods or processing of goods and, therefore, she

was not entitled to claim the benefit of exemption u/s 5(1)(xxxii) in respect of her share in the value of its assets''.

Following the aforesaid decision, our answer to the question referred to us is in the negative, i.e., in favour of the Revenue and against the

assessee.

The reference is accordingly disposed of.