TMI Blog1979 (9) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... sits and since the firm was not entitled to get the exemption as it was not the assessee for WT purposes, the benefit, had to go to the partner who was the assessee. He accordingly directed the WTO to allow the deduction of Rs. 75,000 from the net wealth of the assessee. 4. In the appeal before us, the Revenue has raised the question whether the exemptions available under s. 5(1) are to be given in the hands of the firm or in the hands of a partner, where the exempted assets from part of the property of the firm in which the assessee is a partner. This gives rise to the consideration of four combinations in which the claim for exemption can be viewed. 5.The first case will be the claim for the exemption both by the firm and the assessee. This claim will be on the basis that the deduction should be given in computing the net wealth of the firm in accordance to Rule 2 and again deduction should be given in the net wealth of the partner, the assessee, in accordance to the provisions of the Act. Obviously such a claim involves a double deduction which is not authorised either in the Act or the Rules nor is it the claim of the assessee in the present case. 6. The second case will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the firm in which he had an interest. This manner of treating the claim of exemption appears to be the basis of the rules framed under the Act in this regard. 8. The manner in which the value of the interest of a person in a firm is to be valued, has been laid down in r. 2 of the WT Rules. According to this rule, the net wealth of the firm shall first be determined and thereafter allocated among the partners. The first question that arises is about the meaning of the expression "net wealth" in this rule. Rule 1A(m) of the WT Rules states that all other words and expressions not defined in the rules shall have the same meaning assigned to them in the Act. Since "net wealth" has not been defined in the Rules, we have to refer to s. 2(m) for its meaning. It has been held by the Madras High Court in the case of Vasantha (1973) 87 ITR 17(Mad) also that the expression "net wealth" in r. 2 of the WT Rules is to be understood according to the definition given in s. 2(m) of the Act. Sec. 2(m) states that "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets belonging to the assessee on the valuation d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts should be deducted from the aggregate of all assets and that the expression "net Wealth" would include all the assets whether exempt or not. This is because of the difference between the concept of exemption from tax and non-liability to tax. In the case of A.U. Fernandiz vs. State of Kerala AIR 1957 SC 657 it was held that there was a broad distinction between provisions contained in statute in regard to the exemption of or from tax on one hand and in regard to the non- liability to tax on the other. That case related to sales-tax and it was pointed out that where certain sales are not liable to tax they have to be excluded both from the calculation of the gross turnover as well as the net turnover whereas if the sales are only exempt from tax they will first be included in the gross turnover and later deducted to arrive at the net turnover. Applying the same principle we find that s. 5 grants only exemptions in respect of assets which are otherwise taxable and, therefore, those exemptions have to be deducted from the net wealth. This in our opinion the net wealth to be determined under r. 2 being an aggregation of the assets and liabilities of the firm will include all assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e net wealth. This was because when a liability so secured was incurred in relation to a particular property, it could not be generally deducted from the totality of the assets itself to the particular asset on which it was charged. The result of a liability attaching to a particular asset was that the value of that asset was reduced. Since the asset itself was not liable to wealth-tax even that net value after setting off the liability against the value of the asset had to be ignored in aggregating the value of the assets. But at present the entire value of the assets is not exempt in certain cases such as agricultural lands, for instance, where the exemption is only to a limit of Rs. 1,50,000. It would follow that the net value of the asset after setting off the liability against the gross value of the asset will not be liable to tax if it exceeds the exemption limit and, therefore, such net value will have to be aggregated with the value of other assets in determining the net wealth. Thus the net wealth is to be computed by aggregating all assets including the net value of the assets which may be entitled to exemption under s. 5(1) and thereafter deducting from that total the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of s. 5(2) of the Act shall be applied accordingly. From the asst. yr. 1969-70, additional wealth-tax on urban properties was introduced and in the schedule to the WT Act, certain rules were introduced to clarify that where such urban property is held by a firm the extent of the interest of the partner in the net wealth of the firm shall be deemed to include a proportionate share of such urban property for the purpose of imposing the additional tax on the individual partner. These provisions in the Act and Rules make it clear that while a firm was not a legal entity, that there was no question of joint tenancy among the partners and that a partner cannot predicate during the continuance of the partnership his specific interests in the assets of the firm, a method should be designed to ascertain, the exact nature of his interest in the firm on the valuation date as if there were a dissolution on that date and the assets and liabilities allotted to his share on that date for the purpose of assessments to WT, as otherwise the general treatment of the share of a partner as movable property would lead to the unjust result of taxing assets exempt from the tax net. Thus even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the valuation date, taking into account any agreement among the partners for such a situation. Thus while the interest of a partner in any asset of the firm may not be ascertainable during the continuance of the partnership, his interest in the liability and assets of the firm can be ascertained on dissolution either in accordance with the agreement among the partners or inaccordance with the Partnership Act, by which it can be presumed that there being nothing to the contrary every partner has an interest in the assets and liability of the firm to the extent of his share in the firm. This is because while it is never in doubt that it is only the partners who are co-owners of every property held be a firm, which itself is not a legal entity, the extent of a partner's show in any particular asset of the firm can be ascertained only on dissolution. It is on this basis that the rules have provided for allocating the assets of the firm in the hands of the partner which can thereafter be clubbed with his own assets for the purpose of computing the taxable wealth. 14. The revenue relied on the decision in the case of Purushothamdass Gocooldass Others 1976 CTR (Mad) 361 : (1976) 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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