LODHA, J. - (1.) THIS order shall dispose of the reference made by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur for our answer to the following two questions: (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that for the purpose of applying Rule 2b (2) of the Wealth Tax Rules, the onus was on the revenue to prove that the market value of the closing stock of M/s. Rawats Bombay exceeded the value as shown in the firm's accounts by more than 20%? (ii ). Whether on the facts and in the circumstances of the case, the Tribunal was right in up-holding the finding of Appellate Assistant Commissioner that the firm M/s. Rawats of Bombay is an industrial undertaking within the meaning of Explanation to Section 5 (1) (xxxi) and consequently in holding that the value of assessee's interest in that firm is exempt under Section 5 (1) (xxxii) of the Wealth Tax Act, 1957?
(2.) THE aforesaid two questions of law arise from the facts and circumstances that have been stated by the Income Tax Appellate Tribunal in the statement of the case thus: Shyam Mohan Rawat- assessee is a partner in the firm M/s. Rawats Bombay. THE said firm has been carrying on business in gold jewelery, precious and semi-precious stones. THE firm declared gross profit of 20. 1% in the accounts relating to precious and semi-precious stones. As the firm had shown the closing stock in its accounts at cost, the Wealth Tax Officer was of the view that Rule 2b (2) of the Wealth Tax Rules, 1957 (for short `the Rules'), was applicable and the value of the closing stock would exceed the book value by a margin of more than 25%. THE assessee contended before the Wealth Tax Officer that the rate of gross profit did not establish the value of the closing stock and, therefore, Rule 2b (2) could not be applied by making reference to the rate of gross profit only. THE assessee also contended before the Wealth Tax Officer that the business in the precious and semi-precious stones was of a peculiar type and a part of the stock may not at all be saleable. THE Wealth Tax Officer negatived the aforesaid contentions and applied Rule 2b (2) of the Rules and made an addition proportionate to the assessee's share in the firm. THE Wealth Tax officer in respect of the interest of the assessee in the firm where he was a partner held that the assessee was not entitled to deduction under Section 5 (1) (xxxii) of the Wealth Tax Act, 1957 (for short, `the Act') from the capital employed with M/s. Rawats Bombay as according to him that firm was not an `industrial undertaking' as no manufacturing process at all was being carried on by the firm. THE Wealth Tax Officer, accordingly held that the assessee was not entitled to exemption under Section 5 (1) (xxxii) of the Act and disallowed the deduction claimed by the assessee. In the appeal carried by the assessee to the Appellate Assistant Commissioner, the assessee succeeded on both counts. THE Appellate Assistant Commissioner held that Rule 2b (2) of the Rules was not applicable. THE Appellate Assistant Commissioner also held that the firm was an `industrial undertaking' in view of the processing of the rough stones. THE Appellate Assistant Commissioner accordingly granted exemption under Section 5 (1) (xxxii) of the Wealth Tax Act, 1957 to the assessee. THE Tribunal by its detailed order upheld the order of the Appellate Assistant Commissioner and held that Rule 2b (2) of the Wealth Tax Rules was not applicable and that the assessee was entitled to exemption under Section 5 (1) (xxxii) of the Wealth Tax Act as the business carried on by the firm in processing of the precious stones has to be considered as `industrial undertaking' within the meaning of the aforesaid section. Re: Question (i ). The Division Bench of this Court in the case of Commissioner of Wealth Tax vs. Moti Chand Daga (1988) 174 ITR 379, while dealing with the identical question, on consideration of the statutory provisions contained in Sections 2 (m) 7 of the Act and Rules 2, 2a and 2b of the Rules and also the few judgments, namely: (i) Juggilal Kamlapat Bankers vs. WTO (1984) 145 ITR 485, (ii) CWT vs. Tungabhadra Industries Ltd. (1970 75 ITR 196 and (iii) CWT vs. Hindustan Motors Ltd. (1976) 104 ITR 430, held thus: " It is, therefore, obvious that where the only material available is the gross profit rate and there is no positive material to indicate the extent of deduction which has to be made therefrom for the purpose of arriving at a figure which alone can be added to the cost price for determining the market value, there is no definite evidence to determine the market value on the sole basis of gross profit rate. This conclusion flows even from the reasoning adopted by the Wealth-tax Officer and the principle indicated in the Wealth-tax Officer's order. It is, therefore, clear that unless there be any positive material or discernible principle justifying computation of the percentage of deduction at the figure applied, it has to be held that there is no positive material to hold that the market value exceeds by more than 20% the value of the closing stock disclosed in the balance-sheet even though the gross profit rate appears to exceed the figure of 20 per cent. . . . . . . . . . . . . . . . . . . . . . It is obvious from the above conclusion that the condition precedent for the applicability of rule 2b (2) is not satisfied and that the Tribunal was, therefore, justified in holding that rule 2b (2) could not be invoked. In short, the burden was on the Revenue to prove that the valuation of the closing stock given in the balance-sheet was not the true value and that the market value of the closing stock exceeded the valuation disclosed by more than 20%. It is only after this burden had been discharged by the Revenue by determining the market value under Section 7 (2) (a) at an amount exceeding the valuation disclosed in the balance-sheet by more than 20% on the basis of positive or relevant material that rule 2b (2) could be invoked. Since even the very first step had been reached in the present case, the question of attracting rule 2b (2) did not arise. The Tribunal's conclusion to this effect was, therefore, justified. " That the view of the Division Bench in the case of Moti Chand Daga squarely answers the question under consideration by us is not even disputed by the counsel for the revenue. As a matter of fact, this court has taken the same view in the long line of cases being: (one) Commissioner of Wealth Tax vs. Manmohan Lal (1990 186 ITR 603; (two) Commissioner of Wealth Tax vs. Umraomal Dhadda (1990) 85 CTR 91; (three) Commissioner of Wealth Tax vs. Gopi Chand Rawat and others (1994) 206 ITR 415; (four) Commissioner of Wealth Tax vs. Gulab Dev (1999) 22 Tax World 433; (five) Commissioner of Wealth Tax vs. S. K. Bader and others (1987) 167 ITR 890; and (six) Commissioner of Wealth Tax vs. Smt. Kanchan Bai Bader (Decd.) and others (1994) 206 ITR 285. We appreciate the fair stance of the counsel for revenue that in the light of the consistent view of this Court in series of cases referred to hereinabove, Rule 2b (2) of the Wealth Tax Rules, 1957 could not have been invoked as the onus was on the revenue to prove that the market value of the closing stock of M/s. Rawat's Bombay exceeded the value as shown in the firm's account more than 20%.
(3.) WE deem it unnecessary to elaborately discuss the matter. WE adopt the reasoning given in the case of Moti Chand Daga and hold that the onus was on the revenue to prove by positive material that the market value exceeded by more than 20% the value of the closing stock disclosed in the balance-sheet even though the gross profit rate seems to exceed the figure of 20%. Re : Question (ii): Mr. Anuroop Singhi, counsel for the Revenue vehemently submitted that in view of the categorical finding recorded by the Wealth Tax Officer that cutting, grinding, polishing and processing was not being done by the firm itself but the rough (kharad) was given to various karigars for the aforesaid jobs and that these karigars would return the finished precious stones to the firm; that these karigars were not the employees of the firm; that they were only paid the wages for the work done by them and they did not receive any regular salary from the firm, the assessee was not entitled to claim deduction/exemption under Section 5 (1) (xxxii) from the capital employed with the firm, the firm can not be held to be an `industrial undertaking' within the meaning of Explanation to Section 5 (1) (xxxi) of the Act and consequently under Section 5 (1) (xxxii) of the Act. On the other hand, Mr. J. K. Ranka, counsel for the assessee supported the finding of the Tribunal that the firm was an `industrial undertaking' and that the assessee was entitled to exemption to the extent of the value of interest in the firm under Section 5 (1) (xxxi) of the Act. ;