1. This appeal filed by the assessee is against the order of the AAC dated 5-4-1983 for the assessment year 1979-80, for which the valuation date was 30-4-1978.
2. In the wealth-tax return filed for the assessment year 1979-80, the assessee gave the details of immovable properties of Rs. 1,49,960, claimed exemption of Rs. 1,03,910 under Section 5(1)(xxxii) of the Wealth-tax Act, 1957 ('the Act') and offered the balance of Rs. 46,050 as assessable to wealth-tax as under : Building leased out to Perinthalmanna Rice & Oil Rs. Mills, Perinthalmanna 40,000.00 State Warehousing Corporation 35,000.00 Value of building & machinery at Premier In the assessment made on 20-12-1979, the WTO accepted the assessee's claim and taxed the immovable property of Rs. 46,050. As the WTO noticed that the assets in the rice and oil mills at Perinthalmanna and Premier Oil Mills, Pollachi were leased out to two firms by name Perinthalmanna Rice & Oil Mills and Iqbal & Co., respectively, and as the assessee was not a partner in the said two firms, the WTO felt that the exemption under Section 5(1)(xxxii) was not admissible to the assessee. In order to rectify this mistake, a notice under Section 35 of the Act was issued to the assessee. In the reply dated 21-10-1980, the assessee stated that the exemption under Section 5(1)(xxxii) was claimed in the original assessment by mistake and that exemption was admissible under Section 5(1)(xxxi) as both the properties were industrial assets belonging to the assessee. The WTO did not accept the assessee's contention on the ground that even for the purpose of exemption under Section 5(1)(xxxi) the industrial undertakings should not only belong to the assessee but also the business of the industrial undertaking must be carried on by the assessee. Since the business was not carried on by the assessee, but the assets were only leased out, the WTO rejected the assessee's claim and rectified the assessment under Section 35 by denying the exemption originally allowed.
3. In the appeal filed before the AAC, the assessee argued that there was no mistake apparent from the record to be rectified and that the assessee's claim should have been allowed under Section 5(1)(xxxi) since the industrial undertakings belonged to the assessee. The AAC held that the WTO's action in seeking recourse to the provisions of Section 35 was justified. He also upheld the action of the WTO in denying exemption under Section 5(1)(xxxi) to the assessee. Aggrieved by the order of the AAC the assessee preferred the present appeal.
4. At the time of hearing, the assessee's counsel urged that the WTO was not justified in resorting to Section 35 as there was no mistake apparent from the record. He further pointed out that wealth-tax is levied under the power derived under entry 86 of the Union List of the Constitution of India and that the entry authorised tax on capital value of the assets of individuals and companies and as per Section 5(1)(xxxi) the exemption is with reference to the value of the assets forming part of an industrial undertaking belonging to the assessee.
From the entry 86 it is clear that the criterion for levying wealth-tax is the ownership of the capital assets. From Section 5(1)(xxxi) it is clear that the criterion for exempting the assets forming part of an industrial undertaking is their ownership by the assessee and not the industrial activity of the assessee using the said assets. In support of his argument, he relied on the decision of the Bombay Bench of the Tribunal in the case of International Computers Indian Mfr. Ltd. v. ITO [1983] 5 ITD 60 wherein it is stated that Section 33 of the Income-tax Act, 1961 laid down that in order to be entitled for a higher rate of development rebate the machinery should be installed for the purpose of business of production of the articles specified in the Fifth Schedule of the 1961 Act and that no further condition that the assessee itself should own the business of producing the specified articles has been stipulated. It was held in that case that the higher development rebate could not, therefore, be denied as the assets were, in fact, used for the production of articles specified in the Fifth Schedule. Similarly, in the present case the ownership of the assets forming part of the industrial undertakings is the condition precedent for granting exemption and not the industrial activity of the assessee using those assets. The assessee's counsel was fair enough to bring to our notice the decision of the Madras High Court in the case of CWT v. P.T.N.Shenbagamoorthy [1983] 144 ITR 724 wherein it was held that the assessee, who owned the salt pans but who had leased out the same to a third party, could not be held to be actually engaged in the manufacture of salt and, consequently, could not get exemption under Section 5(1)(xxxi). He further submitted that in view of the above arguments advanced the decision of the Madras High Court need not be followed.
5. The departmental representative submitted that the WTO was justified in invoking Section 35 as the assessee claimed exemption under Section 5(1)(xxxii) and the WTO granted the exemption under Section 5(1)(xxxii). Section 5(1)(xxxii) comes into play only when the assets forming part of an industrial undertaking belonged to a firm or an AOP of which the assessee is a partner or a member as the case may be. In this case, as the assessee is the owner of the assets, Section 5(1)(xxxii) is not applicable and the WTO is fully justified in resorting to Section 35 for denying the exemption originally granted under Section 5(1)(xxxii). He also referred to the decision of the Madras High Court in the case or CWT v. K. Lakshmi [1983] 142 ITR 656.
6.1 We have considered the rival submissions. The assessee claimed the exemption under Section 5(1)(xxxii) and the WTO granted the exemption under Section 5(1)(xxxii) in the original assessment. The very fact that the assessee claimed exemption before the WTO in the rectification proceedings as well as before the AA C and before us under Section 5(1)(xxxi) clearly shows that there is a mistake apparent from the record. Further the assessee herself in her reply dated 21-10-1980 admitted that her claim under Section 5(1)(xxxii) was by mistake. In the circumstances we upheld the validity of the rectification.
6.2 We may now consider the merits of the case. The Supreme Court in the case of Sudhir Chandra Nawn v. WTO [1968] 69 ITR 897 stated as under: The Wealth-tax Act, 1957, is within the legislative competence of Parliament under entry 86 of List I of the Seventh Schedule to the Constitution of India. The tax which is contemplated by entry 86 of List I of Schedule VII to the Constitution of India is not directly a tax on lands and buildings. It is a tax on the capital value of the assets of individuals and companies on the valuation date. The wealth-tax is not imposed on the components of the assets of the assessee ; it is imposed on the total assets which the assessee owns, . . .
Section 2(m) of the Act defines net wealth as the amount by which the aggregate value of all the assets belonging to the assessee in excess of the aggregate value of debts owed by the assessee. Thus, it is clear that wealth-tax is levied on the total assets owned by the assessee and that ownership of the assets is the criterion for the levy or exemption as the case may be. The heading of Section 5(1) refers to 'Exemptions in respect of certain assets'. Section 5(1) says that wealth-tax shall not be payable by an assessee in respect of the following 'assets' and such 'assets' shall not be included in the net wealth of the assessee.
Section 5(1)(xxxi) speaks of the value of assets forming part of an industrial undertaking belonging to the assessee. The expression 'belonging to the assessee' qualifies the word 'assets' and not the words 'industrial undertaking'. This view is fortified by the fact that Section 5(1)(xxxi) refers to 'assets'. In our view, the two conditions required are the 'assets' should belong to the assessee and further the 'assets' should form part of an industrial undertaking. It is nowhere laid down in the said section that the assessee should carry on the industrial activity of manufacturing or processing of goods by using those assets besides being their owner. Had the Legislature intended that the assessee should also carry on the industrial undertaking, they would have provided so as has been done in Clause (xxi) of Sub-section (1) of Section 5 which exempts 'that portion of the net wealth of a company established with the object of carrying on an industrial undertaking in India within the meaning of Explanation to Clause (d) of Section 45, as is employed by it in a new and separate unit set up after the commencement of this Act by way of substantial expansion of its undertaking' or in Clauses (ix) and (x) of Sub-section (1) of Section 5 which speak of 'the tools, implements and equipment used by the assessee for cultivation' and 'tools and instruments necessary to enable the assessee to carry on his profession or vocation'. Since we have taken the above view, with due respect we beg to differ from the view taken by their Lordships of the Madras High Court in the case of P. T.N. Sheribagamoorthy (supra). We, therefore, direct the WTO to allow the assessee exemption under Section 5(1)(xxxi).