An undertaking which is engaged in processing of goods, is covered under the definition of "industrial undertaking".

1. - The Commissioner of Wealth-tax, Jaipur, has filed this reference application under section 27(3) of the Wealth-tax Act, 1957 (for short, hereinafter, "the Act"), in respect of the assessment year 1977-78.

2. The assessee, Smt. Kanchan Devi, filed a return of wealth on August 30, 1977, showing a total wealth at Rs. 5,11,960. The assessee claimed exemption under Section 5(1) (xxxii) of the Act in respect of the capital of the assessee in the firm, M/s. Ratnalaya. Inquiries were made from the assessee as to whether the firm, M/s. Ratnalaya, was an industrial undertaking. The assessee filed a reply stating that no registration of M/s. Ratnalaya, being an industrial undertaking, was necessary with the Industries Department, Jaipur. The assessee was then asked to give bifurcation of the assets that were employed for the purpose of processing, as laid down in rule 2H of the Wealth-tax Rules, 1957. No bifurcation was given by the assessee. The Wealth-tax Officer, after examining the case of the assessee, did not accept her claim for exemption under section 5(1)(xxxii) of the Act.

3. Against the order of the Wealth-tax Officer, the assessee-non-petitioner filed an appeal before the Appellate Assistant Commissioner of Wealth-tax. The said appeal was accepted and the order of the Wealth-tax Officer was set aside; and also a direction was given to determine the quantum of exemption to which the assessee was entitled in respect of her investment in the firm, M/s. Ratnalaya, in which she was a partner during the relevant assessment year. Against the order of the appellate court, the Wealth-tax officer filed an appeal before the Income-tax Appellate Tribunal. The Income-tax Appellate Tribunal opined that the order of the assessment officer was not based on material on record, and that the estimate was made on conjectures and surmises, which did not stand to reason. It further opined that the order of the Appellate Assistant Commissioner of Wealth tax was very well reasoned and hence, no interference was called for. The Income-tax Appellate Tribunal ultimately opined that the facts of the assessee's case warranted the conclusion that M/s. Ratnalaya was an industrial undertaking within the meaning of section 5(1)(xxxi) of the Act and that the Appellate Assistant Commissioner of Wealth-tax was justified on facts and in law in directing the Wealth-tax Officer to allow exemption to the assessee under section 5(1)(xxxii) of the Act in respect of the assessee's capital employed in M/s. Ratnalaya. With these observations, the appeal of the Revenue was dismissed.

4. The Revenue then moved an application for reference under sub-section (1) of section 27 of the Act and required the Income-tax Appellate Tribunal to draw up a statement of the case and refer it to the High Court, for its opinion, on the question framed by the Revenue, which is as under :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the findings of the Appellate Assistant Commissioner that M/s. Ratnalaya is an industrial undertaking and, therefore, the assessee is entitled to exemption under section 5(1)(xxxii) of the Wealth-tax Act, 1957, in respect of her capital employed in M/s. Ratnalaya."

5. The Income-tax Appellate Tribunal did not agree with the Revenue and rejected the reference application under section 27(3) of the Act.

6. Mr. Surolia, learned counsel for the petitioner, argued that M/s. Ratnalaya is not registered with the industries department. According to him, the firm, M/s. Ratnalaya, does not employ any labour, machinery, tools or implements for getting work done, and people used to take raw material from the firm to their houses, and after completing the work, they used to return the material to the firm for which the labourers used to be paid. This, according to Mr. Surolia, means that those persons are not regularly employed by the firm. He also argued that no hours of work are prescribed for this work, and