SENGUPTA, J. - (1.) IN this reference under s. 27(1) of the WT Act, 1957 ('the Act') the following question of law has been referred to this Court for the asst. yr. 1981-82: "Whether, on the facts and in the circumstances of the case the assessee is entitled to exemption under s. 5(1)(xxxiii) of the WT Act, 1957 in spite of not running the business by the firm and giving undertaking with its assets on leave and licence basis to another?"
(2.) THE facts relating to this reference shortly stated that the assessee is a partner in the firm of Kanudia Bros. The said partnership firm owned a flour mill styled as Dhanbad Flour Mill. The firm of Kanudia Bros. carried on business of flour mill up to 30th July, 1975. The income was assessed in the hands of Kanudia Bros. as business income. Kanudia Bros. gave the said flour mill on leave and licence basis under an agreement dt. 21st April, 1976 including its assets to run for a period of three years. Kanudia Bros. received licence fee from its licensee. According to the assessee-firm, the assessee's licence fee was assessed in the hands of the partnership firm as business for the asst. yrs. 1976-77 to 1980-81. Subsequently, such income was assessed in the hands of the partnership firm as income from other sources and in appeal, the said firm succeeded to get the income assessed as income from business from the CIT (A). The assessee, as partners in the firm of Kanudia Bros., claimed exemption under s. 5(1)(xxxii) of the Act and the WTO allowed the same in the assessment order. The CIT scrutinised the assessment order and found that allowing exemption in the hands of the assessee was erroneous and prejudicial to the interests of the Revenue. Therefore, he initiated proceedings under s. 25(2) of the Act by giving a show cause notice to the assessee as to why the assessment made by the WTO should not be set aside and why the exemption allowed by the WTO under s. 5(1)(xxxii) should not bed withdrawn. It was submitted before the CIT that to claim exemption under s. 5(1) (xxxii) certain conditions were required to be satisfied. Firstly, the partnership firm must be the industrial undertaking and the assets must belong to the firm. It was argued that the assets belonged to and were owned by Kanudia Bros. The assets of the industrial undertaking were shown in the balance sheet of the firm. According to the assessee, the ownership of the assets was not transferred to the licensee to whom the flour mill was given to run on leave and licence basis though the assets were given on lease to lessee. It was also contended that an industrial undertaking merely because of income from such industrial undertaking has not been assessed under the head 'Business'. It was urged that the WTO was right in allowing exemption as claimed by the assessee.
(3.) THE CIT relied on the decision of the Madras High Court in the case of CWT vs. P.T.N. Shenbagamoorthy (1983) 35 CTR (Mad) 144 : (1983) 144 ITR 724 and held that the assessee was not entitled to relief under s. 5(1)(xxxii). He directed the WTO to; disallow relief as caliamed. The assessee being aggrieved by the order of the CIT brought the dispute before the Tribunal. It was urged that the conditions laid down for the claim of exemption under s. 5(1)(xxxii) were satisfied. It was also urged that the assets were owned by the firm and the leave and licence agreement dt. 21st April, 1976 was only to run the business of the firm for certain period. It was also contended that it was not necessary for the firm to carry on its business of manufacturing and processing of goods. The industrial undertaking belonged to the firm. The decision of the Cochin Bench of the Tribunal in the case of Smt S. Fathimabi vs. WTO (1986) 15 ITD 374 was relied upon. The Tribunal relied on the decision of the Madras High Court not to allow the exemption.;