NARENDRA RANJALKER COMMISSIONER OF WEALTH TAX ANDHRA PRADESH Vs. LILLIAN RODRIGUES

JUDGEMENT

(1.) These three cases are heard together as a common question arises for consideration.

(2.) R. C. No. 203/76 :

(3.) The assessee is an individual and a partner in the firm, M/s. Swadeshi Cloth Stores, in which he has 50 per cent. shares. The firm had deposited Rs. 4,09,704 with the Central Bank of India and Rs. 4,654 with the Bank of Maharashtra. In the wealth-tax assessment proceedings for the assessment year 1971-72 (valuation date 29/10/1970) the assessee, inter alia, claimed a deduction to the extent of Rs. 1,50,000 in the aforesaid bank balances in which he had a half share. The claim was made under s. 5(1)(xxvi) of the W. T. Act, referred to in this judgment as "the Act". The WTO rejected the claim on the ground that s. 5(1)(xxvi) did not cover deposits of the firm wherein the assessee was a partner. He, therefore, disallowed the deduction claimed. On appeal, the AAC observed that under r. 2(1) of the W. T. Rules, 1957, the first step that the WTO was to take was to determine the net wealth of the assessee-firm. In computing the net wealth of that firm certain assets were exempt and one such exemption was under s. 5(1)(xxvi) and this was restricted to Rs. 1.5 lakhs under s. 5(1A) of the Act. He, therefore, held that in computing the net wealth of the firm, the firm was entitled to a deduction of Rs. 1.5 lakhs. As the assessee was having a half share in the firm, he was entitled to an exemption Rs. 75,000 as the net wealth of the firm had to be first computed after allowing deductions. The assessee preferred an appeal to the Appellate Tribunal against the said order. The Tribunal held that under r. 2, the first step was to work out the wealth of the firm treating it as if it were the net wealth of an in individual. In working out the net wealth of an individual exemption under s. 5(1)(xxvi) had to be given. Straightaway, therefore from the net assets of the firm, bank deposits to the extent of Rs. 1.5 lakhs have to be deducted as not taxable. It further held that a further deduction of Rs. 1.5 lakhs has to be given in the individuals case. In other words, after deducting the sum of Rs. 1.5 lakhs under r. 2 from the net assets of the firm if the firm still continues to held deposits in the bank covered by s. 5(1)(xxvi) in respect of individual partners such exemption should be given up to the extent of Rs. 1,50,000. In the present case, the firm has cash deposits with the bank to the extent of Rs. 4,14,358. Deducting the exemption under sub-s. (1A) of Rs. 1,50,000 there is a balance of Rs. 2,64,358. Since the assessee has a half share in the firm, a deduction of this amount up to a maximum of Rs. 1,50,000 should also be given. That is, there should be a further deduction of Rs. 1,32,179. But as the assessee had claimed only an overall exemption of Rs. 1,50,000 though he would be entitled to reduce his net wealth by Rs. 2,07,179 (Rs. 75,000 plus Rs, 1,32, 179), and as the assessee had not claimed this further exemption, the Tribunal restricted the claim to Rs. 1,50,000 which he claimed and allowed the assessees appeal.