C. Kadarkarai Vs. Commissioner of Wealth-tax - Court Judgment

Venkataswami, J.

1. These two writ petitions relate to the assessments under the Wealth-tax Act for the assessment years 1974-75 and 1975-76. The assessee, viz, the petitioner herein, claimed exemption under section 5(1)(xxxi) of the Wealth-tax Act, 1957 (hereinafter called 'the Act'). That exemption was denied both by the Assessing Officer and by the first appellate authority and was ultimately confirmed by the respondent herein. Aggrieved by the orders of the authorities below, these writ petitions are filed.

2. Brief facts are the following : The petitioner is carrying on business in printing. He undertakes job works such as printing of inland letters,labels, note-books, fancy wrappers, wedding cards, etc., with his offset printing machine. In addition to that, he also purchases raw materials like paper and card-board and converts them into inland letters, note-books, labels, etc., and sells the same. The only ground on which the exemption as claimed by the petitioner was denied by the respondent was that the petitioner's turnover regarding the job works was Rs. 4,61,005 whereas the sale proceeds of his own products was only about Rs. 25,290 and that shows that the petitioner was doing only cooly printing, and that, therefore, the business which he was carrying on was not an 'industrial undertaking' entitled to exemption.

3. Mr. Raja, learned counsel appearing for the petitioner, contended that the conclusion reached by the respondent that only if the petitioner purchased raw materials and manufactured the articles, then alone he will be entitled to the exemption under-section 5(1)(xxxi) of the Act, is contrary to the spirit of the section and a plain reading of this provision would show that whether the petitioner purchases the raw materials or the customers supply the raw material, the mere fact that he manufactures the end-product by itself will entitled him to the exemption under that exemption provision.

4. Learned counsel for the petitioner cited the following decisions in support of his contention : (1) CIT v. Ajay Printery Private Ltd. : [1965]58ITR811(Guj) ; CIT v. Commercial Laws of India (P.) Ltd. : [1977]107ITR822(Mad) ; (3) CWT v. K. Lakshmi : [1983]142ITR656(Mad) CIT v. J. B. Kharwar and Sons : [1987]163ITR394(Guj) and (5) CWT v. Angadi Veeriah Chettiar : [1987]167ITR341(Mad) .

5. Mrs. Nalini Chindambaram, learned counsel appearing for the Revenue, supporting the order of the respondent, contended that, on the facts, the authorities below have come to a correct conclusion. We are unable to accept this arguments of learned counsel for the respondent.

6. On a careful perusal of the above section and considering the rival submissions, we find much force in the arguments of learned counsel appearing for the petitioner. The our view, there is nothing to suggest in that provision that the raw materials must be purchased by the petitioner himself. On the facts, we are satisfied that the assessee is eligible to exemption under section 5(1)(xxxi) of the Act either as a manufacturer or, in any event, as a processor.

7. Section 5(1)(xxxi) of the Act reads as follows :

'5. (1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by ab assessee in respect of the following assets, and such asset 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 claus of this sub-section) firming part of an industrial undertaking belonging to the assessee.

Explanation. - For the purposes of this clause (clause xxxi) and clause (xxxii), 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.'

8. In CIT v. Ajay Printery Private Limited : [1965]58ITR811(Guj) , a Division Bench of the Gujarat High Court, while considering the scope of section 23A, Explanation 2, clause (ii). of the Indian Income-tax Act, 1922, has observed 0as follows (at page 819) :

'When a piece of cloth is manufactured, its maker produces a distinct article having a distinct use as distinguished from the cotton or the yarn though cotton and yarn are still subsisting. Similarly, when a printer prints a book or a journal or a pamphlet or a balance-sheet, his basis or raw materials are paper and ink with which he, either by hand or by the aid of machinery, produces a distinct article. No one would say when he sells a book or supplies to his customers pamphlets or balance-sheets that the order which the customer had placed with him was an order for ink and paper, or that the printer, when he accepted that order, accepted the order for supplying paper and ink. The order was for the supply and sale of the pamphlet or the balance-sheet or share certificates, a commodity or an article quite different from the raw materials from which it is made and the use of which would be different from the use of the raw materials used in producing it. Even if the limited construction of the word `manufacture' were to be adopted, i.e., transformation and conversion of the materials into a different commodity the raw materials losing their identity, the article produced would still be a totally different article from the materials , namely, paper and ink, which are consumed in making it. The paper and ink which are used in the process of making pamphlets, balance-sheets or the book, by themselves would be of no value and cannot have apart from the contents a realisable value if sold as such material. when they are used, the only commodity which would have any commercial value would be the finished product, namely, the balance-sheet or the profit and loss account, the share certificate, the share certificate, the pamphlet, etc.'

9. In CIT v. Commercial Laws of India (P.) Ltd. : [1977]107ITR822(Mad) , a Division Bench of this court, while considering the scope of section 2(6)(d) of the Finance Act, 1968,has observed as follows (at page 824) :

'The Tribunal has found after a consideration of the remand report as follows :

`The appellant-company was printing the journal in its press till it was sold on July 15, 1966, to 'Techniprint', a proprietary concern. Thereafter, the printing of the journal was done in 'Techniprint' and the bills were periodically sent to the appellant. The printing charges were paid by the appellant-company. After printing, the printed sheets were handed over by 'Techniprint' to the appellant-company. Folding and stitching of those printed sheets were done by the appellant by employing some labour contractors. Thereafter, they were packed and dispatched by the appellant-company to the various subscribers.' It may be seen from this passage from the Tribunal's order that the actual printing is done by a different concern and that the assessee was engaged in folding and stitching of the printed sheets so as to be used as parts of the journal, which were later on despatched to the subscribers. The short point to be considered is whether the folding and stitching of the printed sheets would come within the scope of 'processing of goods'. The learned counsel for the Revenue submitted that this is a case where there are actually no operations of manufacture conducted by the assessee-company. The printing having been done by a different concern, the question as to whether the assessee has been carrying on the business of manufacture would not arise on the facts here. However, the expression used in section 2(6)(d) is `manufacture or processing of goods. Therefore, it is enough if the assessee, in order to get the benefit of this provision, is engaged in the `processing' of goods. The goods in the present case would be the parts or volumes of Sale Tax Cases. The `processing' engaged in by the assessee is to fold and stitch the printed sheets and convert them into parts or books, as the case may be, which were later on despatched to the subscribers. This, in our opinion, would constitute `processing of goods' so as to come within the scope of section 2(6)() of the Finance Act, 1968. Consequently, the question which we have reframed is answered in the affirmative and against the Revenue.'

10. In CWT v. K. Lakshmi : [1983]142ITR656(Mad) a Division Bench of this court, while considering the scope of section 5(1)(xxxi) of the Wealth-tax Act, followed the decision in CIT v. Commercial Laws of India (P.) Ltd. : [1977]107ITR822(Mad) , and observed as follows (at page 660) :

'No doubt, the learned judges were concerned with section 2(6)(d) of the Finance Act, 1968. But, we can take inspiration from such a reasoning of the Division Bench of this court.'

11. In CIT v. J. B. Kharwar and Sons : [1987]163ITR394(Guj) , a Division Bench of the Gujarat High Court, while considering the scope of section 80J(4)(iii) of the Income-tax Act, held as follows (at page 405) :

'In our opinion, applying the test laid down by the Supreme Court in Empire Industries Limited : [1986]162ITR846(SC) and this court in Ajay Printery Private Limited : [1965]58ITR811(Guj) and keeping in mind the dictionary meaning of the word 'manufacture', we have no hesitation in holding that when the assessee subjects grey cloth, whether belonging to itself or its customers, to the process of dyeing and printing, it manufactures and produces an article which is distinct from the grey cloth which is used as a raw material. It is immaterial whether the grey cloth which is subjected to the process of dyeing and printing belongs to the assessee or anyone else. The activity which the assessee caries on is manufacturing activity irrespective of the fact whether the grey cloth belongs to it or to its customers. We, therefore, hold that the condition laid down in clauses (iii) of section 80J(4) is also satisfied in the case of the assessee.'

12. Recently , a Division Bench of this court in CWT v. Angadi Veeriah Chettiar : [1987]167ITR341(Mad) , while considering the scope of section 5(1)(xxxii) of the Wealth-tax Act, has held as follows (headnote) :

'The assessee was a partner in two firms, O and A. The firm O purchased grey yarn and got it bleached for exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957, in respect of his interest in the two firms was disallowed by the Income-tax Officer, but accepted by the Appellate Assistant Commissioner and the Tribunal. On a reference :

Held, that on the findings recorded b the Tribunal that the bleaching process was undertaken only by the firm A and other firm O only got the grey yarn purchased by it bleached by the said firm, A, the Interest of the assessee in the assets of the firm O will not be entitled to exemption under section 5(1)(xxxii), but the assessee will be entitled to the exemption in respect of his interest in the assets of the other firm, A.'

13. From the decisions cited above, it is seen that the courts have consistently given a liberal interpretation to the expressions 'manufacture' and 'process'. We are also of the same view.

14. In the result, the writ petitions are allowed. The impugned order is quashed. The respondent is directed to issue necessary directions to the concerned authorities to grant relief to the petitioner in the light of the above order. Costs Rs. 500 one set.