A.N.VARMA, J. - (1.) AT the instance of the Commissioner of Wealth-tax, the following questions have been referred for our opinion : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that additional wealth-tax is not chargeable on the value of the interest of the assessee partner in the firms, New Cawnpore Flour Mills and Nagarmal & Co., the assets of which include urban assets ? 2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in setting aside the order under section 24(2) of the Wealth-tax Act, 1957, passed by the Commissioner of Wealth-tax ?"
(2.) THE facts lie within a narrow compass and may be briefly stated thus. THE assessee before us is a co-owner of the property situate at 24/73 Birhana Road, Kanpur. Besides, he is a partner in two firms which, in their turn, also owned immovable properties comprising business premises situate in an urban area. In respect of the assessment year 1976-7, the Wealth-tax Officer made an assessment of the net wealth of the assessee on March 30, 1981, at Rs. 19,03,120. This included the assessees one-third share in the firm, Nagarmal & Co., taken at Rs. 26,812. The Commissioner of Wealth-tax was of the opinion that the order passed by the Wealth-tax Officer was erroneous in so far as it was prejudicial to the interests of the Revenue. He, consequently, initiated proceedings under section 25(2) of the Wealth-tax Act, 1957. In the notice issued by him, the Commissioner pointed out two errors in the order of the Wealth-tax Officer. First, that in regard to the property belonging to M/s. Nagarmal and Co. in which the assessee had a share, there was an appreciation and if taken into account, the assessees share would work out to Rs. 1,35,724 as against Rs. 26,812 and, therefore, there was an undervaluation of the assessees share in the aforesaid firm to the extent of Rs. 108,912. This observation of the Commissioner was stated to be based on the value of the property as worked out by the departmental valuer. Second, that the assessee had been undercharged additional wealth-tax leviable on urban assets. When the matter was taken up before the Commissioner of Wealth-tax in pursuance of the notice mentioned above, it was urged on behalf of the assessee that the assessee had not been provided with any valuation report indicating the value of the property belonging to M/s. Nagarmal & Co. However, if there was any report of the departmental valuer stating that the value of the property belonging to M/s. Nagarmal & Co. was Rs. 1,57,000, the assessee would have no objection to the acceptance of the same. The Commissioner did not give any finding on this plea of the assessee nor deal with the same in his order. With regard to the second error pertaining to the inclusion of the urban assets belonging to the two firms, New Cawnpore Flour Mills and Nagarmal & Co., it was urged on behalf of the assessee that no additional wealth tax was chargeable on the business premises owned by the firms The Commissioner rejected this contention and held against the assessee. It may be mentioned that the assessee had also filed an appeal against the assessment order made by the Wealth-tax Officer before the Commissioner of Wealth-tax (Appeals). The commissioner, however, treated that appeal as having become infructuous in view of his findings and the order setting aside the entire assessment made by the Wealth-tax Officer. The net result of the findings of the Commissioner was that in determining the net wealth of the assessee in respect of his share in the two partnership firms mentioned above, the urban assets comprising the firms business premises were also included.
(3.) THE assessee challenged the orders of the Commissioner of Wealth-tax by way of appeals before the Income-tax Appellate Tribunal. THE Tribunal allowed both the appeals, setting aside the order passed by the Commissioner of Wealth-tax. THE Tribunal came to the conclusion that on a true and proper interpretation of the rules mentioned in Part I of the Schedule to the Wealth-tax Act, properties belonging to New Cawnpore Flour Mills and Nagarmal & Co. were liable to be excluded from the charge of additional tax in computing the net wealth of the assessee. In regard to the first error pointed out in the notice issued by the Commissioner under section 25(2) of the Act, the Tribunal observed that in the absence of any report of the Valuation Officer, it could not be legitimately inferred that there was any appreciation in the value of the property belonging to the firm, Nagarmal & Co. THEre was no other material on record to sustain that conclusion and, consequently, it was not proper for the Commissioner to set aside the order passed by the Wealth-tax Officer and to adopt a new valuation. It is from this decision of the Tribunal that the reference has been made to us at the instance of the Commissioner. In order to appreciate the contentions of the parties, it would be convenient to have a look at the relevant statutory provisions, comprised in Part I of the Schedule to the Wealth-tax Act, the material parts of which are being extracted here : "Part I Paragraph A (2) In addition, in the case of every individual and Hindu undivided family, where the net wealth of the individual or Hindu undivided family includes the value of any asset, being building or land (other than business premises) or any right in such building or land, situated in an urban area (such asset being hereafter in this Part referred to as urban asset) :- ..... Paragraph B Rule 1. - In this Part, - (i) business premises means any building or land or part of such building or land, or any right in building or land or part thereof, owned by the assessee and used throughout the previous year for the purposes of his business or profession, and includes any building used for the purpose of residence of persons employed in the business or any building used for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room, but does not include any premises in the nature of a guest house; ... Rule 3. - Where the net wealth of the-assessee includes the value of his interest as a partner in a firm or as a member of an association of persons and the assets of such firm or association include any urban assets, then, notwithstanding anything contained in the Indian partnership Act, 1932(9 of 1932), or in any other law for the time being in force, the interest of the assessee in such firm or association, to the extent specified in the Explanation below, shall be deemed to be an urban asset and the provisions of item (2) of Paragraph A shall apply accordingly. Explanation. - The extent of the interest of the assessee in a firm or association deemed to be an urban asset as aforesaid shall be a sum which bears to the value of the whole of the interest of the assessee in the firm or association the same. proportion which the net value of the urban assets of the firm or association (determined under rule 2 as if they were urban assets belonging to an individual or a Hindu undivided family) bears to the net wealth of the firm or, as the case may be, the association, computed as if such firm or association were an individual ...." ;