Wealth tax---

----Exemption---Industrial undertaking---Construction of roads and buildings does not amount to manufacture or processing of goods---Manufacture of bricks merely incidental---Firm engaged in construction of roads and buildings is not an industrial undertaking---Partner of firm is not entitled to exemption-- Indian Wealth Tax Act, 1957, S.5(1)(xxxii).

The assessee was a partner of a firm. The said firm acted as a civil contractor engaged in construction of roads, buildings and drains. The assessee claimed exemption under section 5(1)(xxxii) of the Wealth Tax Act, 1957, of the value of his interest in the assets of the firm on the ground that the entire assets of the firm formed part of an industrial undertaking belonging to the firm. The Wealth Tax Officer rejected the assessee's contention but the Tribunal accepted it. On a reference:

Held, that construction of immovable properties like buildings, roads, drains, etc., cannot, either in the legal sense or in common parlance amount to manufacture or processing of goods.

The manufacturing of bricks for execution of the works contract was wholly inconsequential for determination of the issue involved because it was merely an ancillary or incidental activity. The firm in which the assessee was a partner was not an industrial undertaking within the meaning of section 5(1)(xxxii) and the assessee was not entitled to exemption.

Shantaben Chinubhai (Smt.) v. CWT (1992) 196 ITR 44 (Guj.) fol.

CTT v. Minocha Brothers P. Ltd. (1986) 160 TTR 134 (Delhi); National Projects Construction Corporation Ltd. v. CWT (1969) 74 ITR 465 (Delbj); State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. (1958) AIR 1958 SC 560; (1958) 9 STC 353 (SC) ref.

B.P. Rajgarhia and S.K Sharan for the Commissioner.

K.N. Jain, S.K. Narayan and Shambhu Sharan for the Assessee.

JUDGMENT

GOPICHAND BHARUKA, J.---In this reference made under section 27(1) of the Wealth Tax Act, 1957 (in short, "the Act" hereinafter), relating to the assessment year 1y75-76, the following question of law has been referred by the Tribunal 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 Agiwal and Company, in which the assessee was a partner was an industrial undertaking within the meaning of section 5(1)(xxxii) of the Wealth Tax Act, 1957?"

The assessee is a partner in a firm, Messrs Agiwal and Company. The said firm acts as a civil contractor engaged in construction of roads, buildings and drains. The assessee claimed exemption under section 5(1)(xxxii) of the Act of the value of interest in the assets of the firm on the ground that the entire assets of the firm formed part of an industrial undertaking belonging to the firm. The value of the assessee's interest in the assets of the firm was Rs.1,40,000. The Wealth Tax Officer being not satisfied with the claim, refused to grant exemption. The assessee's appeal to the Appellate Assistant Commissioner failed. But on second appeal, the Tribunal accepted the claim by relying on a decision of the Delhi High Court in the case of National Projects Construction Corporation Limited v. CWT (1969) 74 ITR 465.

We have heard Mr. Vidyarthi, for the Revenue, and Mr. Jain, learned counsel appearing on behalf of the assessee. Their submissions are primarily based on the interpretation of the Explanation appended to clause (xxxi) and clause (xxxii) of section 5(1) of the Act, which reads as under:

"Section 5 (1). Subject to the provisions of subsection (1-A), 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 assets referred to in any other clause of this subsection) forming part of an industrial undertaking belonging to the assessee.

Explanation.---For the purposes of clause (xxxa), this clause, clause (xxxu) 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 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;"

From clause (xxxii) quoted above, it is clear that an assessee being a partner in the firm can successfully claim exemption under the said clause only if the assets of the firm form part of an industrial undertaking belonging to the firm. "Industrial undertaking" as defined under the Explanation quoted above, means an undertaking engaged in the business of (i) generation or distribution of electricity or any other form of power, or (ii) in the construction of ships, or (iii) in the manufacture or processing of goods, or (iv) in mining.

In the present case, the business of the firm is that of constructing buildings, roads, drains, etc. and in that process it also manufactures bricks for consumption in the execution of works contracts. Though the exact value of the bricks manufactured has not been brought on record, it has been noticed in the order of the Appellate Assistant Commissioner that it forms a negligible part of the total turnover of the firm of the assessee.

Be that as it may, it cannot be doubted that construction of immovable properties like buildings, roads, drains, etc., cannot either in the legal sense or in common parlance amount to manufacture or processing of goods. "Goods", in the legal sense as defined in the Sale of Goods Act, inter alia, means every kind of movable property other than actionable claims and money.

In the case of State of Madras v. Gannon Dunkerley and Co. (Madras) Ltd., AIR 1958 SC 560, para 33, at page 573, it has been held that:

"If the words `sale of goods' have to be interpreted in their legal sense, that sense can only be what it has in the law relating to sale of goods. The ratio of the rule of interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense, and that, accordingly, the Legislature must be taken to have intended that they should be understood in that sense."

Therefore, the construction of buildings, roads, drains etc., being immovable properties is on the face of it not embraced by the expression "manufacture or processing of goods". As such, the business activities of the firm cannot be said to be those of an industrial undertaking within the meaning of the statutory definition. The manufacturing of bricks for execution of the works contract is wholly inconsequential for determination of the issue involved because it is merely an ancillary or incidental activity. The same view has been taken by the Gujarat High Court in a recent case reported in Smt. Shantaben Chinubhai v. CWT (1992) 196 ITR 44 by placing reliance on the decision of the Delhi High Court in the case of CIT v. Minocha Brothers P. Ltd. (1986) 160 ITR 134. The Delhi High Court itself has distinguished its earlier judgment in the case of National Projects Construction Corporation Limited (1969) 74 1TR 465 (Delhi), while considering a question identical to the one at hand.

In view of the discussion made above, the question involved is answered in the negative and against the assessee. There will be no order as to costs.

Let a copy of this order be sent to the Income Tax Tribunal, Patna Bench, Patna, for passing consequential orders.

S.K. CHATTOPADHYAYA, J.---I agree.

M.B.A./22.4/T.F. Reference answered.