ORDER
1. Under Section 27(6) of the Wealth Tax Act, 1957: The following question was referred to the Hon’ble High Court of Kerala: –
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 the interest in M/s. Popular Garage?
The Hon’ble High Court while declining to answer the question referred to it, observed as follows in their judgment dated 12-1-1990 in I.T.R. No. 86 of 1986:
The question as to whether M/s. 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. Berfi Devi AIR 1980 S.C. 86) at page (89 Para 10) and Federal Commissioner of Taxation v. Jack Zinader Proprietary Limited- (1949) 78 C.L.R. 336 at pp. 343 and 350 – 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 re-boring of automobile and marine engines, M/s. Popular Garage is engaged in the business of “processing of goods.
The finding of facts 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 only swayed by the decision of the Delhi High Court in Kalsi Tyre (P.) Ltd. case (131 ITR 636). 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.”
2. In obedience to the direction of the High Court, the case was posted for hearing. Sri. P. J. Jacob, the learned counsel for the assessee referred to the dictionary meaning of the word “processing”. He also referred to the following case laws :-
(i) CWT v. Radhey Mohan Narain [1982] 135 ITR 372 (All.) at p. 374;
(ii) CWT v. K. Kanakarajan [1987] 164 ITR 750 (Mad.);
(iii) CIT v. Commercial Laws of’ India (P.) Ltd. [1977] 107 ITR 822 (Mad.);
(iv) Addl. CIT v. Farrukhabad Cold Storage (P.) Ltd. [1977] 107 ITR 816 (All.) at pp. 818 and 819, 821.
(v) Union of India v. Delhi Cloth and General Mills Co. Ltd. AIR 1963 SC. 791 at p. 794.
(vi) Chowgule and Co. (P.) Ltd. v. Union of India AIR 1981 SC 1014.
(vii) Addl. CIT v. Kalsi Tyre (P.) Ltd. [1981] 131 ITR 636 (Delhi);
(viii) P. Alikunju, MA. Nazeer Cashew Industries v. CIT [1987] 166 ITR 804 (Ker.);
(ix) Shree Mulchand Co. Ltd. v. CIT [1986] 162 ITR 764 (Bom.);
(x) CWT v. Jagdish Singh Sekhar [1987] 167 ITR 558 (Pat.) and ;
(xi) CWT v. Smt. Premlatabai [1982] 137 ITR 329 (M.P.)
He further submitted that the work done by the firm M/s. Popular Garage, in which the assessee is a partner, cannot be termed as mere repairs as it involved processing of the engines in a manner akin to the manufacturing process. For this purpose, he filed a certificate from a Chartered Engineer, which is at page 3 of the paper book. Finally, he submitted that the firm was engaged in the processing of goods and can be identified as an industrial undertaking and, therefore, the assessee’s share of interest in such industrial undertaking is eligible for exemption under Section 5(1)(xxxii) of the Wealth-tax Act, 1957. Sri A.D. Menon, the learned departmental representative, on the other hand, submitted that the firm was not processing any goods for sale. It was doing only repair work in the course of which it might have done some operations, but that would not mean that it was processing any goods. In the case of retreading of tyres, such tyres are capable of being marketed and are in fact sold as such. In the case of the assessee only job work is done by the firm as re-boring is done against customer’s order and hence no processing of goods intended for sale takes place. He also relied on Star Paper Mills Ltd. v. Collector of Central Excise [1990] 185 ITR 575 SC.
3. On a consideration of rival submissions, the Bench felt that the issue should be resolved upon an inspection of the workshop and accordingly an inspection was arranged on 27-10-1990. The Bench along with assessee’s counsel and the learned departmental representative, Sri K.S. Vijayan substituting for Sri. A.D. Menon, visited the workshop and observed the activities and at the instance of the Bench the work-flow chart was also obtained which is made part of the records and is to be found at page 10 of the paper book.
4. Engines of various descriptions in worn-out condition are first received. They are assigned job numbers. They are sent to the dismantling section. Engine parts are washed. Preliminary inspection takes place. A list of spare-parts required for rejuvenation is prepared. Then the engines are sent to different locations for the work to be carried out on it. The engine block undergoes black-smithing. Then it is taken to the press for sleeve removing and fixing. Then to the metalling section for ret. seat metalling. Then to the welding section for crack portion welding or for bore pressing and for removing out the broken studs. Then to sylinder boring for the purpose of boring. Next to this is the honing process and in the mechanical section main bearing fitting operation is done. Then the engine block goes to the lathe for cap facing and line boring. Then to the surface grinder for block facing and finally to the service section for servicing of the engine block.
4.1 The crank shaft goes to the grinding section for M and C grinding. Then to the press section for bend checking and levelling. Then to the lathe for seat levelling and finally to the service section.
4.2 Conrod goes to the lathe section for sleeving, if necessary and then to the bush reaming section for reaming of conrod bush, then to the mechanic for conrod bearing filling and finally to the lathe for doing big-end grinding if necessary. After these operations both the crank and the conrod undergo bearing settings. In mechanical section piston loading, correction of conrod alignment, main boring setting etc. take place. After which they go for final service.
4.3 The engine head undergoes treatment in the mechanical section, drilling, grinding and other sections. In these sections, removing of inner caps, valve seat suiting using cast iron rod, valve seat grinding, fixing, facing and lapping are done. Then the engine head facing is done in surface grinding before it is sent for lapping and assembling.
4.4 Cam is another major part of the engine which is sent for grinding before it is pressed for hand checking and levelling. Fip is sent to calibration section for dismantling, servicing, assembling etc. with new parts calibrating. Automizer is also dismantled and put through nozzle tester for pressure testing and nozzle grinder for grinding, if necessary. Starter dynamo is sent to the electrical section for dismantling, checking and resetting. AC pump, oil pump, water pump and air compressor etc. are dismantled for checking and resetting operations. Rocker assembling is sent to blacksmith after dismantling for finger facing, bush reaming and then to the mechanical section for resetting before being assembled and tested, There are also other sub-assembly work connected with the engines such as housing, main axle, sub-axle, suspension and all types of bearings. The first former two undergo changes in press section, welding section and sometimes in the drilling section. Sub axle is handled by the fitter for bush reaming and fixing new bushes and then boring with reamer. Suspension undergoes welding and lathe treatment for cutting and sizing and finally goes to the fitter for distance bush boring with reamer. Finally all types of bearings go to the metalling section for bearing metalling with white metal using copper solder iron. Face levelling is done by the fitter before it is sent to the lathe for boring. We have also been furnished with the photographs of the materials on the machines. Thus the worn-out engine undergoes treatment in several shops before it emerges as a rebored engine with fresh lease of life. The treatment given in the several shops cannot be dismissed as mere repair. Though certain parts are rectified and serviced and in that sense repairing takes place, it cannot be gainsaid that the rebored machine nearly recaptures its original form and substance and in this manner there is rejuvenation with a fresh lease of life. Though the ultimate aim was repairing and restoring the engine to its original form, there is no denying the fact that repairing of the worn-out engine entails processing of the engine at several shops or work benches where something is added or removed or rectified.
4.5 We have also found that in the valve refacer section iron round castings are purchased from outside, if the valves are not readily available. Such round castings are turned on a lather for boring. It is then bored. Afterwards it is cut into standard size for being fitted in the cylinder heads. Cutting machine is then pressed into service to remove metal and to make a valve sit in proper size. Thus there is manufacturing activity in this operation.
4.6 In the crank shaft grinding section, where special bearing are not available, metal is poured on the cutting rod or on the boring shelf to bring it to a required size of the normal bearing and this operation done in the workshop is akin to manufacture or production activity. From a study of the work-flow chart and the operations that are conducted on the worn-out machine, we have no hesitation in holding that the goods namely, the engines undergo processing operations mostly and in some cases manufacturing or production operations. Thus, the firm can be properly described as an industrial undertaking where some manufacturing or production activity incidental to the processing of such engines also takes place. The learned departmental representative contended that the processing of goods must be for sale or resale and the firm did not purchase old and worn-out engines for processing the same nor did it sell the rebored engine. In our view there is nothing in Section 5(1)(xxxii) that in order to avail the exemption, the assessee must himself purchase the raw material to be manufactured or processed. Even in a case where only job work is done on the materials supplied by the customers, if the assessee had done processing or manufacturing operations thereon it would be entitled to be considered as an industrial undertaking for purposes of Section 5(1)(xxxi) or 5(1)(xxxii) – (See C. Kadarkarai v. CWT [1989] 176 ITR 121 (Mad.) at p. 123. If the expression “for sale” had been suffixed to the expression “in the manufacture or processing of goods” as found in the explanation to Section 5(1)(xxxii). then and then only the contention of the Revenue would be valid. Otherwise, not.
5. For the reasons stated hereto before, we hold that the assessee’s share of interest in the firm is eligible for exemption under Section 5(1)(xxxii) of the Wealth-tax Act. The learned departmental representative relied on the decision of the Supreme Court in the case of Star Paper Mills Ltd. v. Collector of Central Excise [1990] 185 ITR 575. This decision dealt with the meaning of the word “goods”, “manufacture”, “component parts” etc. as found in Central Excises and Salt Act, 1944 and thus the decision went on the particular facts of the case, vis-a-vis the Central Excises and Salt Act read with the notification Nos. 201 of 1979 dated 4-6-1979 and 105 of 1982, dated 28-2-1982 issued thereunder. Thus the facts are dissimilar and the provisions of the Central Excises and Salt Act and Wealth-tax Act are also different.
6. The case laws relied on by the learned counsel for the assessee might support his case, but then our decision is based on the finding of facts pursuant to the inspection of the several operations conducted in the workshop and in the context of 5(1)(xxxii) of WT Act and, therefore, it is not necessary for us to go into the case laws cited on both sides.
7. In the light of our discussion, we recall our order dated 30-4-1985 insofar as the assessee’s claim for the exemption under Section 5(1)(xxxii) of the WT Act, for the assessment year 1976-77 is concerned and substitute the same with this order. Since a consolidated order had been passed for both the assessment years, it has become necessary for us to clarify that the other portions of the consolidated order would remain as they are unaffected by this order.
8. In the result, the appeal for the assessment year 1976-77 is allowed in part.