COMMISSIONER OF WEALTH TAX Vs. PARSURAM CHOUTHMAL HUF
LAWS(GAU)-1994-3-10
HIGH COURT OF GAUHATI
Decided on March 31,1994

COMMISSIONER OF WEALTH TAX Appellant
VERSUS
PARSURAM CHOUTHMAL (HUF) Respondents


Cited Judgements :-

COMMISSIONER OF WEALTH TAX VS. MOHAN LAL KAPUR [LAWS(P&H)-2006-9-195] [REFERRED TO]


JUDGEMENT

A.K.PATNAIK, J. - (1.)THIS is a reference by the Tribunal, Gauhati Bench, Guwahati, under S. 27(1) of the WT Act, 1957, for the opinion of this Court on the following question of law arising out of the order of the Tribunal dt. 27th July, 1988, in WTA No. 317/Gau/1987 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in directing the WTO to allow exemption under S. 5(1)(iv) of the WT Act in the hands of the assessee in determining the share of interest in the property standing in the name of the firm in which the assessee was a partner while making fresh order as per the Tribunal's direction ?"

(2.)THE brief facts of the case as stated in the statement of the case drawn up by the Tribunal are that in the course of assessment for the asst. year 1980 -81, the respondent -assessee claimed exemption under S. 5(1)(iv) of the WT Act, 1957 (for short, "the Act"), in respect of the house properties owned by a partnership firm of which the respondent -assessee was a partner. The WTO rejected the said claim for the reasons mentioned in the assessment order in relation to the respondent -assessee for the asst. year 1979 -80. On appeal by the assessee, the AAC allowed the said claim of the assessee and held that while determining the interest of the assessee in the partnership firm, exemption under S. 5(1)(iv) will be available for deduction from the total assets of the firm and directed the WTO to recompute the assessee's interest in the firm and allow the exemption. Against the said order of the AAC, the Revenue went up in appeal before the Tribunal and the Tribunal found that the orders of the authorities below were short and basic facts were not available and in the circumstances set aside the said orders of the authorities below and directed that the WTO (should) pass fresh orders after bringing relevant facts on record and after taking into account the decisions of the Tribunal in other cases in which it was held that exemption should be allowed in the hands of the partner.
After the statement of the case was received by this Court, on 21st Feb., 1993, notices were issued to the parties for hearing pursuant to which the CWT, North -Eastern Region, Shillong, has appeared through learned standing counsel for the IT Department but none appeared on behalf of the assessee when the case was heard on 7th March, 1994. Mr. Talukdar, learned counsel for the Department, cited before us the decision of the Madras High Court in the case of Purushothamdas Gocooldas vs. CWT 1976 CTR (Mad) 361 : (1976) 104 ITR 608 (Mad) to persuade us to take a view in favour of the Revenue. But we find that a Division Bench of this Court in the case of CWT vs. Tarachand Agarwalla (1990) 81 CTR (Gau) 79 : (1989) 180 ITR 234 (Gau) : (1989) 2 GLR 129 has not agreed with the said decision of the Madras High Court. In the said decision of this Court, the Division Bench of this Court has held :

"For these reasons, the net wealth of the firm should be determined including the value of the building and then it should be allocated amongst the partners indicating the nature of assets and liabilities allotted to the share of the partner and net wealth of the partner is to be determined by including the share so allotted, and only thereafter, the deduction under S. 5(1)(iv) should be allowed, i.e., deduction should be allowed under S. 5(1)(iv) in the hands of assessee -partner and not in the hands of the firm."
While agreeing with the aforesaid conclusion of the Division Bench of this Court in the case of Tarachand Agarwalla (supra), we would like to add a few more reasons in support of the aforesaid conclusion.
(3.)THE opening words of sub -s. (1) of S. 5 of the Act, make it clear that in respect of the assets mentioned in the said sub -section, wealth -tax shall not be payable by an "assessee" and that the said assets shall not be included in the net wealth of the "assessee". The word "assessee" has been defined in S. 2(c) of the Act to mean a person by whom wealth -tax or any other sum of money is payable under the Act. The persons by whom wealth -tax is payable under the Act have been named in S. 3 of the Act which is the charging section. As per the said section, wealth -tax is payable only in respect of the net wealth of every individual, HUF and company. Accordingly, no wealth -tax is payable under the Act by a firm and a firm is not an assessee as defined in S. 2(c) of the Act. Since the exemption under sub -s. (1) of S. 5 of the Act is available only to an "assessee" and as per the express language of the said sub -section the assets specified therein are not to be included in the net wealth of the "assessee", in our opinion, the exemption under sub -s. (1) of S. 5 in respect of the assets mentioned therein has to be worked out in the hands of the partners of the firm who are assessees under the Act and not while determining the net wealth of the firm, which is not an assessee under the Act. This view is further reinforced and fortified by the provisions in the Act and the WT Rules, 1957 (for short, "the Rules"), for determination of the interest of the individual assessee in a firm. According to S. 4(1)(b) of the Act, where an individual is a partner of a firm the value of his interest in the firm is to be determined in the manner prescribed in r. 2 of the Rules and included in computing the net wealth of the individual as belonging to that individual. Rule 2 prescribes that for determining the value of interest of a partner of a firm, the "net wealth" of the firm on the valuation date shall first be determined. The expression "net wealth" has not been defined in the Rules but in r. 1A(m), it has been stated that words and expressions used but not defined in the Rules and defined in the Act, shall have the meanings respectively assigned to them in the Act. In s. 2(m) of the Act, the expression "net wealth" has been defined to mean the amount by which the aggregate value of all assets on the valuation date to be computed in accordance with the provisions of the Act is in excess of the aggregate value of all the debts on the valuation date other than the debts mentioned therein. Thus, the net wealth of a firm has to be determined in accordance with the provisions of the Act, and since under sub -s. (1) of S. 5 of the Act the assets mentioned therein are to be excluded from the net wealth of an individual assessee who is a partner of a firm and not from the net wealth of a firm which is not an assessee, the assets specified in sub -s. (1) of S. 5 of the Act have to be included in the net wealth of the firm while determining the interest of a partner in the firm under r. 2.


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