1. R. BALIA, J.---The Income-tax Appellate Tribunal, Ahmedabad Bench "A", has referred the following question of law arising out of its appellate order in W.T.A. No.671/Ahd. Of 1980. For the assessment year 1975-76, dated May 30, 1981. Though the order by itself does not record more than referring to the decision in W.T.As. Nos.274, 275 and 276/Ahd. Of 1980, the order made in those wealth tax applications have been made part of the statement of the case.
2. "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been right in law in holding that the assessee is entitled to deduction under section 5(1)(xxxii) of the Wealth Tax Act, 1957, in respect of capital employed with Goklesh Silk Industries and as such the total wealth should be reduced by Rs.81,815 as claimed?"
3. The facts and circumstances in which this question had arisen are that the assessee is a partner in Goklesh Silk Industries. The business activities of the said firm are to purchase grey cloth, its conversion to cloth through outside agencies and sale of the finished products. The assessee in her wealth tax assessm ent proceedings claimed her share in the firm, Goklesh Silk Industries, exempt under section 5(1)(xxxii) on the ground that the firm is an industrial undertaking of which the assessee is a partner and the value of the assessee's share in the assets of the said firm are exempt under 16, section 5(1)(xxxii), which reads as under: "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 subsection) 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 word "industrial undertaking", for the purposes of clauses (xxxa), (xxxi) (xxxii) and (xxxiv) of section 5(1), has been defined in the Explanation to section 5(1)(xxxi) which reads as under: "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."
5. A plain reading of the Explanation suggests that in order that the assessee's share in the value of assets forming part of an industrial undertaking belonging to a firm can be exempt from inclusion in his taxable wealth, the pre-requirement is that the firm must be engaged in the business of (1) generation of electricity or any other form of power, or distribution of electricity or any other form of power, (2) construction of ships, or (3) manufacture of goods, (4) or processing of goods or (5) in mining. As the assessee's claim is to the firm being engaged in the processing of grey cloth into cloth ready for sale, we are to examine whether the assessee satisfies the condition of being a partner in the firm which is engaged in the business of processing cloth.
6. As we have noticed, the finding is that the assessee has got grey cloth converted into cloth through outside agency. It is not the case that outside agency which was processing the grey cloth was working directly under the supervision or control of the firm, in respect of whose assets the assessee claims exemption, nor is it the case that the processing was done by the labour employed by the assessee for that purpose for his own though not at the factory- premises of the firm. Nor is it a case that the processing of the cloth by that outside agency was in any way connected with the carrying on of the business by the assessee as such. Can such an act of processing by a third agency help reaching a finding that a firm selling the end product in the market without any involvement of the firm in any part of the processing is a firm engaged in the business of processing goods?
7. Our conclusion, on a plain reading of the provision, is in the negative. What is required of an industrial undertaking belonging to a firm or an association of persons of which the assessee is a partner is that the firm or an association of persons must be engaged in the business of manufacture of goods or processing of goods. I do suggest that whether it is a manufacturing activity or processing activity in some way there must be direct involvement of such firm or association of persons in the manufacturing activity or the processing activity applied to the goods. We may notice that though the definition is of an industrial undertaking but no definition has been given of the words "manufacture" or "processing". According to the ordinary dictionary meaning, the term "manufacture" means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In contrast to this, the activity contemplated by the word "process" in its, ordinary meaning means anything done requiring only continuous and regular action or succession of actions leading to the accomplishment of some result but one of the requirements is that the activity should involve some operation on some material for conversion into some other stuff. What is necessary in order to characterize an operation as processing is that the commodity must, as a result of the operation, experience any change, With this requirement of an activity of manufacture or process in mind, if one considers the further requirement that a person in order to take benefit of section 5(1)(xxxii), by pointing out that certain assets belong to an industrial undertaking the requirement is, it. Must be engaged in the business of manufacture or processing of goods, that is to say, it must be engaged in carrying out such activity which resulted in bringing out a new product or engaged in carrying out such activity by which the goods have experienced some change. If the firm or association of persons is not carrying out any such activity of manufacturing of the goods or processing of the goods, it cannot be said that it is carrying on the business of processing or manufacturing of goods.
8. It may not be necessary that the manufacturing activity or the processing activity is carried on by the assessee or the firm or association of persons personally. It is only if the activity of processing or manufacturing is carried on under its supervision and control or by employing its own labour but certainly it cannot include where such manufacturing activity or processing activity is carried on by an independent person as its own business and the person who is engaged in selling of the end-product is only, concerned with paying the processing charges or manufacturing charges and then sell the goods. By paying the price of raw material and manufacturing or processing charges separately, it cannot be said that the person concerned is engaged in the business of carrying on the processing or manufacturing of goods. If that be so, it will be sufficient that goods sold by a person is manufactured or processed as per specific order and nothing more will be required.
9. The Tribunal has relied on, for the purpose of upholding the contention of the assessee, on a decision of the Allahabad High Court in CWT v. Mubarak A.I Khan (1980) 123 ITR 101. We are unable to find any support from that decision for the conclusion to which the Tribunal was reached. It was a case where the assessee was engaged in the business of manufacture and sale of biris. The Court found that the method of manufacture of biris involved the following process. The firms purchased tendu leaves and tobacco and these were given to local contractors for getting the biris manufactured. The labourers cut the useless portion of tendu leaves from all sides and then cut the leaves to small pieces of required size. These pieces were then rolled in the shape of biris.
10. Tobacco was filled and the top portion was closed and the bidis were tied up with a thread. The biris were then brought to the factory of the firms and were hated for a short time. They were then packed in bundles of 25 each, wrapped in specially designed paper bearing trade mark and label of the firms. Therefore, from the tendu leaves and the tobacco, a new and different article, viz., the biris emerge as a result of various processes to which the tendu leaves and the tobacco were subjected. It may be noticed that not the entire activity of manufacture and the processing before the goods were ready for marketing was carried out by the third agency. Some part of the processing of the biris was carried on within the factory of the firm of which the assessee was a partner, viz., heating of the bidis which ultimately made it marketable.
11. CIT (Addl.) v. A. Mukherjee & Co.(P.) Ltd. (1978) 113 ITR 718 (Cal.), was again case of a publisher and printer of books. The assessee which was a publisher of books established the facts that it was to get the manuscript for publication, hit upon a suitable format for the book, get it printed as per its requirements under its supervision, get the book bound after suitable charges and then put out the publication for sale. In all these activities the assessee had to play an active role by coordinating its activities in a businesslike manner. All these activities dovetailed into one another and the stage from the acquisition of the manuscript right up to the publication was one integrated activity which tantamounted to a manufacturing be processing activity. That. The assessee did not own a printing press was not found to be a relevant consideration. The Court held that the assessee was engaged in the business of manufacturing or processing some of the activity was carried on by the assessee or the entire activity is carried on under the supervision and control of the assessee who was responsible for carrying out the entire process which was one integrated whole. The direct involvement of the assessee in the process of manufacturing was held to be an essential part and not the personal involvement or actual owning of the machines.
12. " ....The words 'engaged in the manufacture' in the said Explanation postulate the assessee's direct involvement in the manufacture. However, it may not be necessary that the assessee should be personally engaged in the manufacture, but it is sufficient if he employs his own labourers. In cases where the assessee gets the goods manufactured by an outside agency, he cannot be said to manufacture the goods, merely because the assessee pays for the manufacture or feeds the expenses incurred in -the manufacture. In respect of 'processing' it will not be correct to state that all the process resulting in the end manufacture must be carried out by the assessee himself.
13. Accordingly, if the assessee has done some process which ultimately has brought about the end- product, such an assessee will be entitled to the benefit of the exemption."
14. CWT v. Angadi Veeriah Chettiar (V. O.) 1987) 167 ITR 341 (Mad.), the facts .Of which are more close to the case at hand, may be noticed. In the said case, the assessee was a partner in two firms O and A. The firm O purchased grey yarn and got it bleached for charges by the other firm A. The claim of the assessee for exemption under section 5(1)(xxxii) of the Wealth Tax Act 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. The Court held that on the findings recorded by the Tribunal that the bleaching process is undertaken only by the firm A and the 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.
15. Thus, the principles of law are settled by a catena of decision of various High Courts, none of which has opined contrary to what we have stated earlier. If we look at the facts found by the Revenue Authorities, they go to show that no direct involvement of the assessee with any processing act has been found to exist. In that view of the matter, the assessee cannot be said to have interest in a firm which is engaged in the business of manufacture of goods or processing of goods and, therefore, she is not entitled to claim the benefit of exemption under section 5(1)(xxxii), in respect of her share in the value of its assets.
16. Accordingly, we answer the question referred to us in the negative, that is to say, in favour of the Revenue and against the assessee. The assessee has not appeared in spite of service. No order as to costs.