Commissioner of Wealth Tax vs Smt. Panna Devi Dalmia

Nazir Ahmad, J.—This is a reference u/s 27(1) of the Wealth-tax Act 1957 (''the Act''). The question referred to for our opinion is whether a cold storage is ''an industrial undertaking'' and reads as follows: Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that cold storage is also a plant and comes under ''an industrial undertaking'' and is entitled to statutory exemption as provided u/s 5(1)(xxxii) of the Wealth-tax Act, 1957?

In this reference we are concerned with the assessment year 1973-74. The assessee is an individual. She (for the assessee is a lady) had invested large amount in a firm Vishnu Cold Storage. The value of her holdings was to the tune of Rs. 1,50,000. The WTO intended to include the value of her holdings in the cold storage for the purpose of reckoning her liability under the Act. The assessee contended that her interest in the cold storage was not liable to be included in terms of section 5(1)(xxxii). The WTO rejected her claim. She, however, succeeded before the AAC and the Tribunal. Hence, the reference at the instance of the revenue. 2. Section 3 of the Act is the charging section providing that tax shall be charged in respect of net wealth of every individual, HUF and company on the valuation date. Section 4 of the Act provides the assets to be included in computing the net wealth of an individual. As a corollary to section 4, in section 5 it is provided what assets shall not be included. It provides that subject to the provisions of sub-section (1A) wealth-tax shall not be payable by the assessee in respect of certain assets and those assets shall not be included in the net wealth of the assessee. Then follows several clauses. We are concerned in this case with clause (xxxii) which reads as under:

(xxxii) the value, as determined 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;

This clause was inserted by the Finance Act, 1972, and came into force with effect from 1-4-1973. Along with clause (xxxii) was also inserted clause (mi). The said clause carried an Explanation which reads as follows:

Explanation: For the purposes 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;

The command of the law in terms of clauses (xxxi) and (xxxii) is that ''industrial undertaking'' means an undertaking engaged in the business processing of goods besides other matters. In this case, we are not concerned with ''the business of generation or distribution of electricity nor with the construction of ships or in the manufacture of goods or mining''. It is patent that the expression ''industrial undertaking'' in clause (xxxi) must include processing of goods. The cold storage is engaged in storing potatoes. It has, therefore, to be seen whether by virtue of storing potatoes a cold storage falls within the ambit of the expression ''industrial undertaking''.

P. Ramanatha Aiyar in his Law Lexicon has stated at page 1023 that ''process'' is a word which may be applied either to methods of action such as legal proceedings, or to the treatment of substance in trans forming and reducing it to a different state and the means of such treatment. Later it is stated ''process is a mode of treatment of certain materials to produce a given result; it is an act or a species of acts performed upon the subject matter to be transformed and reduced to a definite state of things''.

The very question which has fallen before us fell for consideration before a Bench of the Allahabad High Court in Addl. Commissioner of Income Tax Vs. Farrukhabad Cold Storage (P.) Ltd., . The precise question raised there was whether a cold storage was an ''industrial company''. In that connection, the provisions of section 2(7)(d) of the Finance Acts, 1966 and 1967, according to which the words ''industrial company'' mean a company which is mainly 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 fell for consideration. The expense of the word ''processing'', thus, had to be considered. In that concession, their Lordships referred to the observations of Lord Camaron in the case of Kilmarnock Equitable Co-operative Society Ltd. v. IRC [1966] 42 TC 675 (Court of Session) where it had observed:

The word ''process'' in its ordinary connotation seems to me to mean no more than the application of a method of manufacture or adaptation of goods or materials towards a particular use, propose or end, while ''to subject'' means no more than to treat in some manner or other." [Emphasis supplied] (p. 685)

Their Lordships of the Allahabad High Court emphasised that the expression ''processing'' was different in content that the word ''manufacture''. After referring to authoritative excerpts from Webster''s New International Dictionary, Words and Phrases Legally Denned, Vol. 4, 1967 edn. In Encyclopaedia Britanica Vol. 9, pp. 543 and 545. Agricultural Engineers Handbook at page 641 by C.B. Richey and Fruit Culture in India published by the Indian Council of Agriculture Research, New Delhi, their Lordships observed as follows:

Review of all these authorities clearly indicates that when articles like potatoes, as in the present case, are kept under refrigeration their decay is prevented. The temperature in the cold storages, admittedly, is regulated by use of machinery. Thus, the mere fact that the potatoes themselves, which are kept in the cold storage, do not undergo any transformation and remain static, does not by itself means that they are not subjected to any process at all during the period of storage. We have already held that the processing of goods need not lead to manufacture of new article. Preservation by refrigeration is a well known method for keeping edible things in good condition for temporary periods............." (p. 821)

On that basis their Lordships held that cold storage was an ''industrial company''.

The same question fell for consideration is also before the Calcutta High Court in Commissioner of Income Tax Vs. Radha Nagar Cold Storage (P.) Ltd., . Sabyasachi Mukharji, J. referred to approved decision of the Allahabad High Court in Farrukhabad Cold Storage (P.) Ltd.''s case (supra). Their Lordships in agreement with the Allahabad High Court held that processing of goods need not mean to manufacture of new article. We have no desire to encumber this judgment by quoting the literature referred to by C.S.P. Singh, J. and Sabyasachi Mukharji, J. in the cases referred to above.

The learned counsel for the revenue relied upon CST v. Haribilas Rai & Sons [1968] 21 STC 17 (SC) and contended that a cold storage is not involved in processing of goods. We regret, the reliance placed upon this case is misplaced. That was a case where the meaning and expense of word ''manufacture'' fell for consideration. As to the expense of the word ''processing'' did not fall for consideration in that case. In that case their Lordships were considering the impact of section 2(h) of the UP Sales Tax Act, 1948 which had Explanation II to it. In that Explanation it was stated that notwithstanding anything in the Indian Sale of Goods Act, 1930, the sale of any goods which are produced or manufactured in Uttar Pradesh, by the producer or manufacturer thereof, shall be taken for the purposes of the Act to have taken place in Uttar Pradesh. That being the provision, their Lordships had to consider whether plucking of pig bristles from pigs and selling them to the assessee and the assessee thereafter boiling them and washing them with soap and other chemicals amounted to manufacture or not. In that background, their Lordships of the Supreme Court held that it did not constitute ''manufacture''. In our view, the case of Haribilas Rai (supra) has no application to the instant case.

Our attention was also drawn by the learned counsel for the revenue towards the case of Commissioner of Income Tax Vs. Yamuna Cold Storage, . The question falling for consideration there was whether the cold storage fell within the description of ''factory building'' qualifying for depreciation allowance. Their Lordships held that ''cold storage'' was a plant. The question before us is slightly different. We are not concerned with the meaning of the expression ''factory building'' nor we are concerned with the provision or expression used in the income tax Act, 1961. In the instant case, we are concerned only with the content of the words ''industrial undertaking''. Whether an institution engaged in processing of goods is an ''industrial undertaking'' or not. For this purpose we need not trouble ourselves with the provisions of the income tax Act. In our view, a cold storage is an ''industrial undertaking''. It has, therefore, to be excluded from the computation of net wealth of an assessee. It was not necessary for the Tribunal to have mentioned in the question referred to us whether cold storage was a plant, but since that word has been mentioned in the question referred to us, we are of the view that a cold storage is a plant and comes under no industrial undertaking:. As such it is entitled to statutory exemption as provided u/s 5(1)(xxxii) of the Wealth-tax Act.

For the reasons, stated above, the question referred to us is answered in the affirmative, in favour of the assessee and against the revenue. The reference is, thus, answered with costs payable to the assessee. Hearing fee Rs. 250. Let a copy of this order be transmitted to the Tribunal in terms of section 27(6).