Law:

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Section 5(1)(xxxii) of the Wealth-tax Act, 1957 - Exemption - Partner's interest in firm - Whether exemption under section 5(xxxii) would be available to partner in respect of his interest in a partnership firm even if industrial undertaking owned by firm was leased out during relevant previous year, (but there was no evidence of permanent abandonment of business by firm) - Held, yes Facts The assessee was partner in a firm which carried on the business of running a rice mill. For the assessment year 1974-75, the assessee claimed deduction in respect of the value of his interest in the firm under section 5(1)(xxxii). The WTO rejected the claim for exemption on the ground that the firm was defunct and no business was carried on during the relevant previous year as the firm had leased out the rice mill during that period. The AAC upheld the WTO's order on appeal. On second appeal, the Tribunal allowed the assessee's claim. On reference : Held Looking into terms of the exemption as per clause (xxxii) of section 5(1), read with the definition of the term 'industrial undertaking', given in the Explanation to clause (xxxi), it is clear that the only requirement is that a firm must own an industrial undertaking which is engaged in the manufacture or processing of goods. Undoubtedly, the operation of converting paddy into rice amounted to 'manufacture' and also processing of goods. Therefore, the rice mill satisfied the requirement of being an industrial undertaking for purposes of clause (xxxii). A partnership firm cannot be said to be not engaged in the manufacture or processing of goods merely because the industrial undertaking (rice mill in the present case) was leased out. There was no finding to the effect that the partnership firm had permanently abandoned carrying on of business and the assets employed in the manufacture or processing of goods had ceased to be commercial assets. It was conceivable that the partnership firm might have stopped carrying on business for a temporary period by leasing out the rice mill to outsiders, and might resume the business in course of time. Unless it can be said that there is a permanent abandonment of the partnership firm…

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