TMI Blog1985 (12) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... va) ought to be given effect to while working out the net wealth of the firm in accordance with rule 2 and that the agricultural lands could not be allocated directly amongst the partners to enable them to claim exemption under section 5(1)(iva), in their individual assessment ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the entire order of the Wealth-tax Officer had not merged in the order of the Appellate Assistant Commissioner and that in respect of that part of the order, with reference to which there was no appeal before the Appellate Assistant Commissioner and which the Appellate Assistant Commissioner had not considered in his order, action under section 25(2) by the Commissioner was justified ? " Smt. Ganga Devi Taparia is the assessee. She is a partner in the firm, M/s. Bichadi Agricultural Farm, Badanayageon. The partners of the firm are: (1) Shri Bhagwati Prasad Taparia; (2) Shri Laxminarayan Taparia; (3) Smt. Ganga Devi Taparia; (4) Shri Shriram Taparia; (5) Smt. Rukmani Taparia; and (6) Shri Jaiprakash Taparia. The firm owned the aforesaid farm. In respect of the wealth-tax assessment years 1970-71 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes it clear that no such fiction as is alleged by Shri Lodha had been created and the said section merely enables the Wealth-tax Officer to include in the net wealth of the partner, his interest in the partnership firm which has to be determined as per rule 2 of the Wealth-tax Rules. It is noteworthy that the words used are his interest in the firm and not his share in the assets of the firm. Thus, it is impossible to agree that section 4(1)(b) envisages that each one of the partners should be regarded as the owner of a proportionate share of each one of the assets belonging to the firm and shown in its books. In fact, the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, had laid down that the property brought in by a partner for investment in a firm, ceases to be his exclusive property and during the subsistence of the partnership firm, no partner has got any exclusive claim or right over any particular asset of the firm." The assessee appealed to the Tribunal. The Tribunal, after examining the rival submissions made on behalf of the assessee and the Revenue by its order dated January 29, 1977, found that the agricultural land belonge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 973-74 8. D.B.W.T. Ref. Jagdish Prasad 1971-72 Question No.1 No. 35/77 v. C.W.T . 1973-74 9. D.B.W.T. Ref. Bhagwati Prasad 1972-73 Question No. 1 No. 36/77 v. C.W.T. 1973-74 10. D.B.W.T. Ref. Shyam Sunder 1973-74 Question No.1 No. 37/77 v. C.W.T 11. D.B.W.T. Ref. Jagdish Prasad 1972-73 Questions No. 38/77 v. C.W.T. Nos.1 and 2 12. D.B.W.T. Ref. Bhagwati Prasad 1974-75 Question No.1 No. 39/77 v. C.W.T. -------------------------------------------------------------------------------------------------------------------------------------------------- We heard Mr. K. C. Bhandari for the assessees and Mr. J. Joshi for the Revenue. Question No. 1.-It was urged by learned counsel for the assessee that section 5 of the Act was applicable for computing the net wealth of the assessee only. It was submitted that the view taken by the Tribunal is erroneous when it held that the lands belonged to M/s. Bichadi Agriculture Farm, of which the assessee was a partner and as such the exemption under section 5(1)(iva) of the Act in respect of that land could not be available to the partners, for, they did not own any agricultural land in their individual capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in section 5 of the Act. We are concerned with section 5(1)(iva) of the Act, which is as under: " 5. Exemptions in respect of certain assets.-(1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-... (iva) agricultural land comprised in any tea, coffee, rubber or cardamom plantation belonging to the assessee. " The aforesaid provision was substituted by the Finance Act, 1974, with effect from April 1, 1975, for the following words: " (iva) agricultural land belonging to the assessee subject to a maximum of one hundred and fifty thousand rupees in value: Provided that where the assessee owns any house or part of a house situate in a place with a population exceeding ten thousand and to which the provisions of clause (iv) apply and the value of such house or part of house together with the value of the agricultural land exceeds one hundred and fifty thousand rupees, then the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred and fifty thousand rupees as reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion while challenging the finding of the Tribunal. In CWT v. Padampat Singhania [1973] 90 ITR 418 (All), the question arose whether the provisions of section 2(m) of the Act are applicable for determination of the assessee's interest in the wealth of the firm, styled as M/s. Juggilal Kamlapat Bankers, for the assessment years 1957-58 to 1963-64. The learned judges noticed section 2(m) and section 4 of the Act and rule 2 of the Rules and came to the following conclusion (at pp. 421 and 422): " In computing his net wealth any income-tax liability outstanding against him may not be deducted under this provision but the income-tax liability of a firm, of which he is a partner, cannot be left out of consideration by virtue of this provision. While determining the net wealth of the firm not for the purpose of assessment but for the purpose of finding out an assessee's share in it, sub-clauses (a) and (b) of clause (iii) of section 2(m) would not be applicable. The net wealth under rule 2 is to be determined in accordance with the commercial principles and when so done, all the debts owed by a firm of whatever nature and of whatever duration have to deducted so long as the debts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tham's case [1978] 114 ITR 270 (Kar) and CWT v. L Butchi Krishna [1979] 119 ITR 8 (Orissa). In [1984] 147 ITR (Statutes) 2, it is stated as under: " 5.3-1984: Their Lordships 0. CHINNAPPA REDDY AND M.P. THAKKAR dismissed a special leave petition by the Department against the order dated 9-6-1978 of the Karnataka High Court in TRC Nos. 45 and 46 and 57 to 66 of 1975, whereby the High Court following [1978] 114 ITR 270, answered against the Department the question whether, where property was held jointly by the assessee and his four sons, the deduction of Rs. 1,50,000 was allowable in full in respect of each of the owners or whether the WTO was entitled to assess the joint properties as a whole and deduct Rs. 1,50,000 under section 5(1)(iva) of the Wealth-tax Act and then divide the balance by five to arrive at the net wealth of each owner: CWT v. Kenneth Pinto: S.L.P. (Civil) Nos. 3574-3575 of 1981. " Learned counsel for the Revenue has placed reliance on Vasantha's case [1973] 87 ITR 17 (Mad), National Roadways v. CIT [1975] 99 ITR 97 (Mad), Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 (Mad) and CWT v. Narendra Ranjalker [1981] 129 ITR 203 (AP), Before the Tribunal, V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same proportion as income in the tea estate was to be apportioned. The view taken in Purushotham Pai's case [1978] 114 ITR 270 (Kar), was upheld by the Supreme Court inasmuch as Special Leave Petitions (Civil) Nos. 3574-3575 of 1981 were dismissed on March 5, 1954, filed by the Department against the order dated June 9, 1978, of the Karnataka High Court. The net wealth of a firm is to be computed in accordance with rule 2 of the Rules. Clause (m) of rule 1A of the rules is as under: " (m) all other words and expressions used but not defined in these rules and defined in the Act, shall have the meanings respectively assigned to them in the Act. " The term " net-wealth " has not been defined in rule 1A and, therefore, in accordance with clause (m) of rule 1A, it should be assigned the meaning which has been given under the Act by section 2(m). A reading of the definition of " net wealth " given in the aforesaid clause, in the context of rule 2, makes it clear that the net wealth of the firm would mean the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets, wherever located, belonging to the firm on the valuation date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the assessee, the contention of merger of the order of the Wealth-tax Officer into that of the Appellate Assistant Commissioner was pressed. The Tribunal repelled the aforesaid contention and held that the entire order of the Wealth-tax Officer had not merged in the order of the Appellate Assistant Commissioner and so, in respect of that part of the order regarding which there was no appeal before the Appellate Assistant Commissioner and which the Appellate Assistant Commissioner had not considered, it was open to the Commissioner of Wealth-tax to take action under section 25(2) of the Act. We may read the relevant part of section 25 of the Act, which is as follows: " 25. Powers of Commissioner to revise orders of subordinate authorities.- . . ...... (2) Without prejudice to the provisions contained in sub-section (1), the Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by Wealth-tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard, and after making or causing to be made such inquiry as he d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first part of the question is not susceptible of a straight answer, 'yes' or 'no'. Having regard to principle as well as authority, it is not possible to say that the doctrine of merger does not apply at all in income-tax proceedings. Take for example, a case like Mather Co. (P.) Ltd. v. Income-tax Officer [1969] 71 ITR 247 (Ker), where an order was made by the Income-tax Officer under section 23A and it was appealed against by the company and the Appellate Assistant Commissioner affirmed it. The order under section 23 A made by the Income-tax Officer would in such a case be replaced wholly by the order of the Appellate Assistant Commissioner: there would be complete merger or fusion of the order of the Income-tax Officer with the order of the Appellate Assistant Commissioner. " After referring to State of Madras v. Madurai Mills Co. Ltd. [1967] 19 STC 144 (SC) and following Karsandas Bhagwandas Patel v. G. V. Shah [1975]. 98 ITR 255 (Guj), it was held by the Division Bench of the Bombay High Court in CIT v. Sakseria Cotton Mills Ltd. [1980] 124 ITR 570, that if the Appellate Assistant Commissioner has not been called upon or has not actually dealt with any part of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Synthetics Ltd. v. Addl. CIT [1976] 105 ITR 344 (All), Central Indian Insurance Co. v. ITO [1963] 47 ITR 895 (MP) and Kalooram Tirasilal v. ITO [1966] 59 ITR 308 (MP) were distinguished. We respectfully follow Karsandas Bhagwandas' case [1975] 98 ITR 255 (Guj) which has been followed in the later decisions by the other High Courts. Before the Tribunal as well as before us, a decision of the Bombay High Court in CIT v. Tejaji Farasram Kharawala [1953] 23 ITR 412, was referred, wherein it was observed (pp. 418 to 420): " In our opinion that contention is entirely untenable. It is a well-established principle of law that when an appeal is provided from a decision of a tribunal and the appeal court after hearing the appeal passes an order, the order of the original court ceases to exist and is merged in the order of the appeal court, and although the appeal court may merely confirm the order of the trial court, the order that stands and is operative is not the order of the trial court but the order of the appeal court. In this case, although the Appellate Assistant Commissioner may not have disagreed with the Income-tax Officer and may have confirmed the order, the ultimate order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Supreme Court in State Of Madras case [1967] 19 STC 144 (SC) and Amritlal Bhogilal Co.'s case [1958] 34 ITR 130. We, therefore, hold that in the facts and circumstances of the case, the Commissioner of Wealth-tax had jurisdiction to act under section 25(2) of the Act in view of the fact that part of the assessment order was only the subject-matter of consideration before the Appellate Assistant Commissioner. In other words, only that part of the order of the Wealth-tax Officer which was not made the subject-matter of appeal before the Appellate Assistant Commissioner by the assessee, and which he had not examined suo motu did not get merged in the order of the Appellate Assistant Commissioner and, therefore, the Commissioner of Wealth-tax was entitled to pass an order under section 25(2) of the Act. In this connection, the decision arrived at by the Tribunal in favour of the Revenue and against the assessee, is correct. We answer this question in the affirmative, i.e., in favour of the Revenue and against the assessee. The questions referred in the reference are accordingly answered. We leave the parties to bear their own costs of these references. - - TaxTMI - TM ..... X X X X Extracts X X X X X X X X Extracts X X X X
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