Commissioner of Wealth-tax Vs. Mrs. Daisy Paul - Court Judgment

K.S. Paripoornan, J.

1. At the instance of the Revenue, the Income-tax Appellate Tribunal has referred the following question of law for the decision of this court :

'Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the work of reconditioning automobile and marine engines is processing of goods and, therefore, the assessee is entitled to exemption under Section 5(1)(xxxii) of her interest in Messrs. Popular Garage ?'

2. The matter arises under the Wealth-tax Act. The respondent is an assessee to wealth-tax. In the return of net wealth for the assessment year 1976-77, the assessee claimed deduction under Section 5(1)(xxxii) of the Wealth-tax Act of her interest in the firm, Messrs. Popular Garage. The value of the interest was calculated by the assessee at Rs. 1,00,566. The entire amount was claimed as exempt under Section 5(1)(xxxii) of the Act. Originally, the said amount was not included as assets in the wealth-tax assessment. However, the Commissioner of Wealth-tax, by order dated March 18, 1983, directed revision of the assessment by withdrawing the exemption granted by the Wealth-tax Officer. He held that the work carried out by the firm was only repairing of engines and engine parts and did not constitute any manufacture or processing of goods. In the appeal filed by the assessee, the Income-tax Appellate Tribunal held that though the activity carried on by the firm of repairing of engines and engine parts did not constitute any manufacture or production of articles, it amounted to processing of goods. In taking the said view, the Appellate Tribunal largely relied upon the decision of the Delhi High Court in Addl. CIT v. Kalsi Tyre (P.) Ltd. : [1981]131ITR636(Delhi) . It is, thereafter, at the instance of the Revenue that the question of law, formulated hereinabove, has been referred for the decision of this court.

3. We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the respondent/assessee, Mr. M. C. Sen. Both sides brought to our notice a number of decisions to highlight their respective pleas. To adjudicate the controversy, it is useful to quote Section 5(1)(xxxii) of the Wealth-tax Act as also the Explanation to Section 5(1)(xxxii) of the Act, Sections 5(1), 5(1)(xxxii) and the Explanation to Section 5(1)(xxxii) of the Wealth-tax Act read as follows :

'5. Exemptions in respect of certain assets.--(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 ...

(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 ;'

'(xxxi) 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 ;'

4. The short question that arises for consideration is whether the interest of assessee in the firm, Messrs. Popular Garage, Ernakulam (the asset), forms part of an 'industrial undertaking', and whether Messrs. Popular Garage, Ernakulam, can be said to be an undertaking engaged in the business of processing of goods within the meaning of the Explanation to Section 5(1)(xxxii) of the Act, as held by the Tribunal The Appellate Tribunal held that Messrs. Popular Garage is doing the work of reboring automobiles and marine engines and the work of reboring consists of inserting sleeves into the bore and then reboring the same to the required size and the work has to be done with great skill and with costly machinery. The engine which has become useless is given a new life and the activity is identical with that of retreading of tyres in the sense that an article which had become worn out and had become useless is restored to a useful article but without bringing into existence a new article. In the light of the decisions referred to by the Tribunal, it was held that the activity of Messrs. Popular Garage clearly amounts to 'processing' of the engine as a result of which an engine which had become unusable becomes usable and gets a new lease of life, that it is entirely different from the repairing activities carried on in a workshop and the work required a high degree of skill and precision. It was finally held that the work cannot be equated with the replacement of worn out parts of an automobile or repairing of the same. It was concluded that when an old engine which had become unusable is restored to its original condition, it will get a new lease of life. It clearly amounts to processing of goods and the claim of exemption by the assessee under Section 5(1)(xxxii) is sustainable.

5. In coming to the above conclusion, the Appellate Tribunal was largely influenced by the decision of the Delhi High Court in Kalsi Tyre (P.) Ltd. 's case : [1981]131ITR636(Delhi) . The Appellate Tribunal held that the activity carried on by Messrs. Popular Garage is identical with that of retreading of tyres in the sense that an article which had worn out and had become useless is restored to a useful article but without bringing into existence a new article. We are of the view that the decision, which was heavily relied on by the Appellate Tribunal is distinguishable. In Kalsi Tyre (P.) Ltd.'s case : [1981]131ITR636(Delhi) , the question arose, whether the activity of retreading of tyres amounts to 'processing of goods', so as to say that the assessee is an 'industrial company' entitled to concessional rate of tax as enjoined in Section 2(6)(d) of the Finance Act, 1968. The court was concerned with regard to the meaning to be given to the words contained in the Finance Act. After referring to the dictionary meaning and certain decisions, the court held that the Appellate Tribunal had pointed out in that case that, for all practical purposes and in the commercial sense of the term, the retreaded tyre is almost a new article and indeed it is well known that retreaded tyres are also separately sold in the market in the same way as newly manufactured tyres. In this context, the court held that the activity of retreading of tyres amounts to processing of goods. It is doubtful, whether it can be said that, by reboring the engine, it could be said that a new commercial article or marketable goods as such is brought into existence so as to say that the ratio of Kalsi Tyre (P.) Ltd.'s case : [1981]131ITR636(Delhi) is fully applicable in the instant case.

6. Counsel for the Revenue pleaded that, in order to say that there is processing of goods, it should result in the doing of something to the goods to change or alter their form. There should be transformation. The processing of the origi-nal commodity should bring into existence a commercially different or distinct commodity. The commodity should undergo a change as a result of some operation performed on it or in regard to it. Reliance was placed on the decisions in Chowgule and Co. P. Ltd. v. Union of India : 1985ECR263(SC) ; CIT v. Casino (Pvt.) Ltd. : [1973]91ITR289(Ker) ; C/T v. Commercial Laws of India Pvt. Ltd. : [1977]107ITR822(Mad) . Counsel for the Revenue also stressed the fact that we are concerned with an exemption in a taxing statute, unlike the question involved in : [1981]131ITR636(Delhi) , etc. It was submitted that in view of the decision of this court in Deputy Commissioner v. Carmel Book Stall [1989] 1 KLT 701, the provision in a taxing statute dealing with exemption should be strictly construed.

7. On the other hand, counsel for the assessee invited our attention to the dictionary meanings of the word 'processing' and highlighted the reasoning contained in the decision in CIT v. Radha Nagar Cold Storage (P.) Ltd. : [1980]126ITR66(Cal) , to contend that the word 'processing' occurring in Section 5(1)(xxxii) of the Wealth-tax Act should be looked into from a broad point of view, that in the context it is used in contradistinction or differently from the expression 'manufacture' and this is a case where something is done to the goods or materials, some treatment has been effected and in the result, it enables a worn out engine to be transformed into a useful engine. That is sufficient to say that, in the matter of reboring the engine, the firm, Messrs. Popular Garage, was engaged in the business of 'processing of goods'. A different entity, with a new identity, has been brought forth. That is sufficient to satisfy the requirements of law.

8. As stated earlier, the Tribunal was largely swayed by the decision of the Delhi High Court in Kalsi Tyre (P.) Ltd.'s case : [1981]131ITR636(Delhi) . The decision of the Delhi High Court turned on the particular facts as explained above. The question as to whether Messrs. Popular Garage is engaged in the business of 'processing goods'--the vital issue in this case--is largely a question of fact. (See P. C. Cheriyan v. Barfi Devi, : 1979(4)ELT593(SC) and Federal Commissioner of Taxation v. Jack Zinader Proprietary Ltd. [1948] 78 CLR 336--Per Dixon J. and Williams J.). As a final fact-finding authority, it is for the Income-tax Appellate Tribunal to find whether, by doing the work of reboring of automobile and marine engines, Messrs. Popular Garage is engaged in the business of 'processing of goods'. The finding of fact on that question should be arrived at by bearing in mind the connotation of the word 'processing' that occurs in Section 5(1)(xxxii) of the Wealth-tax Act and the context in which it occurs. The Appellate Tribunal has not entered such a finding of fact, bearing in mind the correct perspective with which the matter should be viewed. But, it was swayed by the decision of the Delhi High Court in Kalsi Tyre P. Ltd.'s case : [1981]131ITR636(Delhi) . Placed in such circumstances, we decline to answer the question referred to us. But, at the same time, we direct the Income-tax Appellate Tribunal to restore the appeal to file and proceed to decide the above aspect regarding the availability of exemption under Section 5(1)(xxxii) of the Act from a proper angle and perspective.

9. The income-tax referred case is answered as above.

10. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.