R.C. Mankad, J.
1. The assessee was a partner in two partnership firms ('firms' for short) running in the name and style of Messrs. United Builders and Messrs. Chinubhai Manilal and Co. Both the firms in which the assessee was a partner were carrying on business as building contractors. In the course of his wealth-tax assessment for the assessment year 1973-74, the assessee claimed that amounts invested in the aforesaid two firms were part of the assets of an industrial undertaking belonging to these firms and, therefore, the amounts invested were exempt under section 5(1)(xxxii) of the Wealth-tax Act, 1957 (the 'Act' for short). It was contended that the firms in which the assessee was partner owned an industrial undertaking as defined in the Explanation to clause (xxxi) of section 5(1) of the Act which is made applicable to clause (xxxii) also, because the firms, as building contractors, processed goods and constructed buildings. The Wealth-tax Officer, however, rejected the claim of the assessee and refused to exempt an amount of Rs. 1,50,000 under section 5(1)(xxxii) of the Act. An identical claim made by the assessee for the assessment years 1974-75 to 1977-78 was also rejected by the Wealth-tax Officer. Being aggrieved by the orders of the Wealth-tax Officer, the assessee preferred appeals before the Appellate Assistant Commissioner of Wealth-tax. The appeals for the assessment years 1973-74 to 1977-78 were disposed of by the Appellate Assistant Commissioner by a common order dated August 1, 1980. The Appellate Assistant Commissioner, relying on the decision of the Income-tax Appellate Tribunal ('the Tribunal' for short), held that the firms in which the assessee was a partner were 'industrial undertakings' within the meaning of the Explanation to section 5(1)(xxxi) of the Act and, therefore, the appellant was entitled to exemption under section 5(1)(xxxi) of the Act, in respect of his share in the assets of the aforesaid firms in which he was partner. In the result, the Appellate Assistant Commissioner allowed the appeals of the assessee. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue preferred appeals before the Tribunal. There was a difference of opinion between the members of the Bench of the Tribunal and, therefore, the matter was referred to a third member. The third member of the Tribunal, relying on the decision of the Bombay High Court in CIT v. N. U. C. Pvt. Ltd. : [1980]126ITR377(Bom) , held that (i) the definition of the expression 'industrial undertaking' clearly makes a distinction between the activities of 'construction' and 'manufacture or processing' and (ii) the construction activity is confined to construction of ships and, therefore, by necessary implication, any other construction activity is excluded. It was further held to the effect that the mere fact that some ancillary articles were manufactured for the construction of buildings, the activity of the firms could not be considered to be manufacturing activity. The Tribunal, therefore, held that the activity of the firms in constructing buildings did not fall within the meaning of 'industrial undertaking' as defined in the Explanation to section 5(1)(xxxi) of the Act. In the result, the Tribunal allowed the appeals of the Revenue and set aside the order of the Appellate Assistant Commissioner.
2. A common question of law for the assessment years 1973-74 to 1977-78 which has been referred to us for opinion, at the instance of the assessee, is as follows :
'Whether, on the facts and in the circumstances of the case, the assessee's share in two partnership firms of Messrs. United Builders and Messrs. Chunibhai Manilal and Co. is exempted under section 5(1)(xxxi) of the Wealth-tax Act ?'
3. Section 5 of the Act provides for exemption in respect of certain assets. The Explanation to clause (xxxi) and clause (xxxii) of sub-section (1) of section 5 is relevant for our purpose. Section 5(1), in so far as relevant, reads as follows :
'5. (1) Subject to the provisions of sub-section (1A), 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 -..
(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 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;
(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.'
4. The assessee claimed exemption under the aforesaid provisions contending that the firms in which he was a partner are 'industrial undertakings' within the meaning of the Explanation, as they were engaged in the manufacture or processing of goods. It was urged on behalf of the assessee that, for the purpose of construction of a building, it is necessary to prepare cement concrete and this activity of preparing cement concrete being a manufacturing activity, the firms in which the assessee was a partner which were building contractors were covered by the definition of 'industrial undertaking'. We may make it clear that though other grounds were advanced on behalf of the assessee in support of his claim before the Tribunal and the taxing authorities, those arguments were not advanced before us and the only ground on which the firms were claimed to be industrial undertakings was that, in the course of construction of buildings, they were manufacturing cement concrete and, therefore, they were industrial undertakings.
5. It is clear from clause (xxxii) read with the Explanation that the exemption would be available to a partner of a firm under that provision only if the following conditions are satisfied :
(i) That there are assets forming part of an industrial undertaking belonging to the firm in which he is a partner; and
(ii) That the industrial undertaking belonging to the firm in which the assessee is partner is engaged in -
(a) the business of generation or distribution of electricity or any other form of power; or
(b) the construction of ships; or
(c) the manufacture or processing of goods; or
(d) mining.
6. It is not the case of the assessee that the industrial undertakings of the firms in which he was partner were engaged in the business of generation or distribution of electricity or any other form of power or construction of ships or mining. According to the assessee, the industrial undertakings of the firms were engaged in manufacture of goods, namely, cement concrete. It is not disputed that there is no separate or independent undertaking for the manufacture of cement concrete. It is in the process of construction of buildings that cement concrete is prepared or manufactured. In other words, preparation of cement concrete is incidental to the construction of building. It was, however, urged that it was necessary to prepare or manufacture cement concrete for the purpose of construction of buildings and, therefore, it should be held that the firms in which the assessee was a partner were engaged in the manufacture of goods.
7. The question is whether the firms in which the assessee was a partner which were building contractors engaged in the construction of buildings could be said to be engaged in the manufacture of goods merely because in the course of construction of buildings, they prepare or manufacture cement concrete. We are unable to see any force in the argument which is advance on behalf of the assessee. The activity in which the firms were engaged was construction of buildings and merely because they, in the course of construction of buildings, prepared or manufactured cement concrete, they could not be said to be engaged in the activity of manufacturing or processing of goods. Preparation or manufacture of cement concrete is only ancillary or incidental to their business in construction of buildings.
8. Mr. J. P. Shah, learned counsel for the assessee, however, strongly relied on the decision of the Delhi High Court in National Projects Construction Corporation Ltd. v. CWT : [1969]74ITR465(Delhi) , in support of his contention that the firms in which the assessee was a partner were industrial undertakings within the meaning of the Explanation referred to above. That was a case in which section 45(d) of the Act came up for consideration before the Delhi High Court. This provision reads as follows (at page 466) :
'The provisions of this Act shall not apply to -....
(d) any company established with the object of carrying on an industrial undertaking in India in any case where the company is not formed by the splitting up, or the reconstruction, of a business already in existence or by the transfer to a new business of any building, machinery or plant used in a business which was being previously carried on;....
Explanation. - For the purpose of clause (d) 'industrial undertaking' means an undertaking engaged in the manufacture, production or processing of goods or articles or in mining or in the generation or distribution of electricity or any other form of power...'
9. The assessee in that case, a wholly Government owned company, was engaged in the construction of dams, barrages etc. It had large workshops at work-sites for processing of steel, crushing stone and manufacturing lime and surkhi, for the purpose of utilizing the products in the construction of the various river valley projects undertaken by it. These products were not sold to the public. The Tribunal held that the assessee was not entitle to exemption from wealth-tax under section 45(d) of the Act on the ground that the company was really engaged in the construction of dams and barrages and engaged itself in the activity of manufacturing, producing and processing of goods and articles and quarrying stones incidentally for the purposes of carrying out its main work and the latter activity was not the main or principal activity. On a reference, the High Court held that the assessee was engaged in the manufacture, production or processing of goods or articles within the meaning of Explanation to section 45(d) and was, therefore, qualified for exemption. It was, however, observed that from a business point of view, it could not be said that the assessee was engaged in manufacturing or processing of goods. It is pertinent to note that the Tribunal had recorded a finding to the effect that the manufacture and processing work undertaken by the assessee was of considerable magnitude. It was, having regard to the magnitude of the manufacture and processing undertaken by the assessee, that the court held that the assessee was engaged in the manufacture and production or processing of goods or articles. The activity of manufacture, production or processing of goods or articles undertaken by the assessee was not merely incidental or ancillary. It would, therefore, appear that the decision of the court turned on the facts of the case. In the instant case, the preparation or manufacture of cement concrete was part of the activity in which the firms as building contractors were engaged. The construction of buildings which was the business or occupation of the firms involved performance of several acts, including preparation of cement concrete. In other words, preparation of cement concrete was an integral part of the construction of the building, the occupation or business in which the firms were engaged. It is not correct to say that the firms were engaged in each of the acts which were required to be performed for the purpose of construction of buildings. It is the cumulative effect of all the acts put together that the building is erected. In our opinion, therefore, the aforesaid decision of the Delhi High Court cannot be of any assistance to the assessee.
10. The next decision on which Mr. Shah relied was the decision of the Orissa High Court in CIT v. N. C. Budharaja and Co. : [1980]121ITR212(Orissa) . That was a case in which the court was concerned with the interpretation of section 80HH of the Income-tax Act, 1961, which, among other things gives benefit to the assessee whose income includes any profits and gains derived from an industrial undertaking. The assessees, in the above case, were firms which were engaged in the construction of irrigation projects including dams. They claimed relief under section 80HH of the Income-tax Act on the ground that they were industrial undertakings. The Income-tax Officer allowed the relief claimed by the assessee. But the Commissioner of Income-tax, in exercise of his powers under section 263 of the Income-tax Act, directed the Income-tax Officer to withdraw the relief and modify the assessment of the assessee-firm accordingly. In appeal, the Tribunal held that the assessee firms were engaged in the construction of dams which is an irrigation project of considerable magnitude. It was further held that, for the purpose of building the dam, the assessee-firms had to excavate, bring big boulders, break them into small ones and engage in a variety of engineering activities. In other words, they displaced certain materials from the site of the dam and brought other materials, and performed various engineering processes. Thus, according to the Tribunal, the activities undertaken by the assessee-firms included processing and manufacturing activities. The Tribunal, therefore, held that the assessee-firms were industrial undertakings. In the reference at the instance of the Revenue, the court held that the Tribunal had recorded a clear finding of fact that the assessee-firms had undertaken manufacture of such materials which they ultimately utilized in the construction of the dam and the said materials worked for the ultimate production of the dam. The court further held that the dam was an article since the meaning of 'article' need not be confined to movable property. The court, therefore, upheld the view of the Tribunal that the assessee-firms were entitled to the benefit of section 80HH of the Act. It would appear that the above decision of the Orissa High Court also turned on its facts and it was on the basis of the findings recorded by the Tribunal that the court held that the firms in question derived profit from industrial undertakings and were entitled to the benefit under section 80HH of the Income-tax Act. Section 80HH does not define 'industrial undertaking'. It only requires certain conditions to be fulfilled before benefit can be given under that section in respect of profits and gains derived from an industrial undertaking. In the instant case, we are concerned with the question whether the firms in which the assessee was a partner were industrial undertakings as defined in the Explanation referred to above. If an industrial undertaking, as defined under the Explanation, belongs to the firms, then only the exemption under that provision is available to the assessee who was a partner in those firms. In our opinion, therefore, the aforesaid decision of the Orissa High Court also does not advance the case of the assessee any further.
11. In CIT v. N. U. C. Private Ltd. : [1980]126ITR377(Bom) , a question similar to the question which arises before us had come up for the consideration of the Bombay High Court, though, in that case, the question before the court was whether the assessee before it was an industrial company within the meaning of section 2(7) (d) of the Finance Act, 1966. The only business of the assessee company in that case was the construction and repair of buildings and, for the purposes of construction and repairs, it manufactured windows and door frames, and concrete beams and slabs. It claimed that it was an industrial company within the meaning of section 2(7) (d) of the Finance Act, 1966. The Income-tax Officer held that the assessee-company was not an industrial company and, therefore, could not claim exemption from the levy of super-tax provided under section 104 of the Income-tax Act, 1961. In the appeal, however, the Appellate Assistant Commissioner held that the activity of construction of building was in the nature of manufacturing or processing of goods and, therefore, the assessee was an industrial company, and directed the Income-tax Officer to levy tax accordingly. The Revenue, being aggrieved by the decision of the Tribunal, at its instance, the following question was referred for the opinion of the Bombay High Court (at page 378) :
'Whether, the assessee-company is an 'industrial company' within the meaning of clause (d) of sub-section (7) of section (2) of Chapter II of the Finance Act, 1966 ?'
12. Section 2(7) (d) of the Finance Act, 1966, defined an 'industrial company' to mean a company which was 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. It will be seen that the above definition is more or less similar to the definition of 'industrial undertaking' given in the Explanation to clause (xxxi) of section 5(1) of the Act. After referring to the above definition of 'industrial company' in the Finance Act, 1966, the Division Bench of Bombay High Court observed that two things were clear from this definition. Firstly, it makes a distinction between the activities of 'construction' and of 'manufacturing or processing'. Secondly, it covers only that construction company which is engaged in the construction of ships and, by necessary implication, omits all other construction companies. The Division Bench further held that making of doors or window frames and of concrete beams and slabs was, admittedly, in the process of the construction and repair of the buildings themselves. There was, therefore, no scope for dividing the business of the company into the said two parts for, neither the frames nor the slabs nor the beams were manufactured or prepared independently of the buildings or sold as such in the market. The Tribunal, it was held, therefore, erred in its conclusion that the assessee-company fell within the definition of 'industrial company' given in section 2(7) (d) of the Finance Act, 1966. This decision was followed by another Division Bench of the Bombay High Court in CIT v. Oricon Pvt. Ltd. : [1989]176ITR407(Bom) . We do not consider it necessary to go into the question whether, by mentioning only construction of ships, the Legislature has, by necessary implication, excluded construction of everything other than ships. We, however, with respect, fully agree with the view taken by the Division Bench of the Bombay High Court that making of doors and window frames and of concrete beams and slabs is in the process of construction and repair of buildings and there is no scope for dividing the business into two parts. In the instant case also, arguments similar to the one which was advanced before the Bombay High Court were advanced, namely, that preparation or making of cement concrete was a manufacturing activity in which the firms in which the assessee was a partner were engaged. The business of the firms could not be divided into two parts, namely making or preparation of cement concrete and the construction of buildings. The making or preparation of cement concrete is part of the building activity in which the firms were engaged. The view which we are inclined to take derives support from the above decision of the Bombay High Court on which reliance was placed by the Tribunal.
13. A question similar to the one which arose before the Bombay High Court in CIT v. N. U. C. Pvt. Ltd. : [1980]126ITR377(Bom) arose before the Delhi High Court in CIT V Minocha Brothers Pvt. Ltd. : [1986]160ITR134(Delhi) . In that case, the assessee, a private limited company engaged in the business of construction of buildings, claimed that it should be charged at the concessional rate of tax of 55 per cent. instead of 65 per cent. on the ground that it was an 'industrial company' as defined in section 2(6) (c) of the Finance Act (No. 2) Act, 1971, and the Finance Act, 1972. The Division Bench of the Delhi High Court, negativing the claim of the assessee, held that the assessee-company did building work as a contractor and, in the process of that work, some manufacture had to be done like the manufacture of doors which could not be said to result in the manufacture of goods, but it was really part of the construction work. The assessee consumed the doors, windows and bricks in making buildings; it could not be described as a manufacturer or processor in respect of that activity. The real activity of the assessee was to construct buildings which was not in the nature of processing or manufacturing of goods. With respect, we fully agree with the view taken by the Delhi High Court.
14. In the light of the above discussion, it is clear that unless the firms in which the assessee was a partner owned the industrial undertaking which was engaged in the manufacture or processing of goods, the assessee could not claim exemption in respect of the assets forming part of such industrial undertaking. Therefore, the question which one has to ask oneself is, did any undertaking which was engaged in the manufacture or processing of goods belong to the firm in which the assessee was a partner If the answer to this question is in the negative, the assessee would not be entitled to claim exemption as provided under clause (xxxii) of section 5(1) of the Act. In the instant case, there is no doubt that the firms in which the assessee was a partner did not have or own any undertaking which was engaged in the manufacture or processing of goods. The making or preparation of cement concrete or other such articles was not an activity in which the firms in which the assessee was a partner were engaged, but such activity was an integral part of the activity of construction buildings in which the firms were engaged. In our opinion, therefore, the assessee did not qualify for the exemption as provided under clause (xxxii) of section 5(1) of the Act.
15. In the result, we answer the question which has been referred to us for our opinion in each of these references in the negative and against the assessee. References shall stand disposed of, accordingly, with no order as to costs.