Commissioner of Wealth-tax Vs. Syed Amjad Ali - Court Judgment

1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Delhi Bench 'B', New Delhi, has referred the following question for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the firm, Messrs. Amjad Ali and Company, in which the assessee was a partner was an industrial undertaking within the meaning of the Explanation to Section 5(1)(xxxii) of the Wealth-tax Act, 1957, and as such in confirming the order of the Appellate Assistant Commissioner whereby he held that the assessee was entitled to exemption under Section 5(1)(xxxii) of the Act in respect of his interest in the said firm ?'

2. List is revised. None appears for the assessee. We have, therefore, heard only learned standing counsel for the Department.

3. The opposite party is a partner in the firm, Messrs. Amjad Ali and Co., Meerut, which is said to be engaged in the manufacture and processing of tobacco. The Tribunal relying on the order of the Appellate Assistant Commissioner found :

'The process which the raw tobacco has to undergo till it reaches the final stage of sale to beeri merchants has been mentioned by the assessee in his submission to the Appellate Assistant Commissioner. In our opinion, the Appellate Assistant Commissioner was correct in giving the Wealth-tax Officer necessary directions to give the assessee relief under Section 5(1)(xxxii) of the Wealth-tax Act, 1957.'

4. It is, therefore, necessary to advert to the finding of the Appellate Assistant Commissioner, who dearly found that the firm was engaged in the processing of tobacco. He reached this conclusion on the basis of the following observations :

'There is no doubt whatsoever that the appellant after purchasing tobacco leaves, subjected the same to various processes of crushing, removal of stems and dust therefrom and taking out a mixture of tobacco which was ultimately sold to the intending manufacturers of beeris.'

5. The question for consideration is whether the Appellate Tribunal was right in affirming the view taken by the Appellate Assistant Commissioner. The word 'processing' has not been defined under the Wealth-tax Act, 1957 (briefly, 'the Act'), and, therefore, it is necessary to see what is the true meaning and connotation of the word 'processing' within the meaning of Section 5(1)(xxxii) of the Act. The question of what is 'processing', came up before the Supreme Court in Chowgule and Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124. In this authority, the question before the Supreme Court was as to what is the correct meaning and connotation of the word 'processing' in Section 8(3)(b) of the Central Sales Tax Act and Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957, which too did not define the word 'processing'. The Supreme Court then adverted to Webster's Dictionary, which gives the following meaning of the word 'process' (at page 130 ):

'To subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development or preparation for the market, etc., to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurising, fruits and vegetables by sorting and repacking.'

6. Considering the said definition, the Supreme Court held (at page 131) :

'Where, therefore, any commodity is subjected to a process or treatment with a view to its ' development or preparation for the market', as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and Rule 13. The nature and extent of processing may vary from case to case ; in one case the processing may be slight and in another it may be extensive ; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material.'

7. From the above reproduced material, the principle that can be deduced is that if a commodity is subjected to an operation with a view to developing or making it marketable and if by such operation the commodity experiences a change and brings about the result sought to be achieved from the operation carried on that or in regard to that, then such operation would amount to processing. Let us apply this principle to the facts of the case in hand. From the facts found by the Appellate Assistant Commissioner which have been affirmed by the Appellate Tribunal, it is clear that the instant assessee purchases tobacco leaves which suffer operation of crushing and separating of stems and dust therefrom to make them marketable and fit for the use of beeri manufacturers to whom it is sold. Surely, the tobacco leaves experience a change after they are subjected to the operation of crushing and separating stems and dust therefrom. Applying the principle enunciated by the Supreme Court, we hold that such operation carried on by the assessee would amount to processing within the meaning of Section 5(1)(xxxii) of the Act. In Nilgiri Ceylon Tea Supplying Co. v. State of Bombay [1959] 10 STC 500, the Bombay High Court held that the different brands of tea purchased by the assessee could not be regarded as 'processed' within the meaning of the proviso to Clause (a) of Section 8, because there was 'not even application of mechanical force so as to subject the commodity to a process, manufacture, development or preparation 'and the commodity remained in the same condition. The Supreme Court in Chowgule and Co. P. Ltd. [1981] 47 STC 124, disapprovingly on page 132 observed that the decision of the Bombay High Court in the case Nilgiri Ceylon Tea Supplying Co. [1959] 10 STC 500, did not lay down the correct law. The Supreme Court further observed (at page 132 ) : When different brands of tea were mixed by the assessee in the Nilgiri Tea Company's case : (1959)61BOMLR1383 , for the purpose of producing a tea mixture of a different kind and quality according to a formula evolved by them, there was plainly and indubitably processing of the different brands of tea, because these brands of tea experienced, as a result of mixing, qualitative change, in that the tea mixture which came into existence was of different quality and flavour than the different brands of tea which went into the mixture. The Supreme Court also pointed out on page 132 that the question is not whether there is manual application of energy or there is application of mechanical force. Whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes 'processing'. Having given the above-mentioned guidelines, the Supreme Court held in the case of Chowgule [1981] 47 STC 124, that the assessee carried on the business of mining iron ore and selling it in the export market after dressing, washing, screening and blending it and that the blending of ore whilst loading it in ship by means of the mechanical ore handling plant, constituted processing of ore for sale within the meaning of Section 8(3)(b) and Rule 13.

8. A similar view was taken by the Calcutta High Court in Mahabirprasad Birhiwala v. State of West Bengal [1973] 31 STC 628, in which it held that the transformation into powdered form of 'whole' black pepper and turmeric purchased from the market on payment of tax does not amount to manufacture but involves an act of processing within the meaning of Section 2(b) of the West Bengal Sales Tax Act, 1954. Following Chowgule's case : 1985ECR263(SC) , the Gujarat High Court in CIT v. Lakhtar Cotton Press Co. (P.) Ltd. : [1983]142ITR503(Guj) , held that the loose cotton in bulk quantity with higher density was, as a result of pressing, converted into cotton bales and, to that extent it underwent a change and, therefore, the assessee-company was involved in processing cotton into cotton bales.

9. For the above reasons, we hold that the Tribunal was right in holding that the operation carried on by the assessee for converting the tobacco leaves into marketable commodity, amounts to processing.

10. We quite agree with the view taken by the Appellate Assistant Commissioner which has been confirmed by the Tribunal that the activity of crushing of the tobacco leaves and separating the stems and dust therefrom and then passing on the same to the beeri manufacturers amounts to processing and, therefore, the aforesaid firm being an industrial undertaking within the meaning of the Explanation to Section 5(1)(xxxii) of the Act, the assessee is entitled to exemption in respect of his interest in the said firm.

11. We, therefore, answer the question in the affirmative, that is, against the Revenue and in favour of the assessee. No order as to costs.