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2016 (2) TMI 260

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..... e is no requirement in law to wait till 30/06/1981 for that purpose. The fact that value of partner's interest as on 31.3.1981 needed determination as per charging provision is not in dispute. Only stand of respective assessee is in absence of a provision to compute it as on 31.3.1981, the charging section can not be invoked. We have not found any lacuna in the Act which allows such an interest of the partner to go unassessed for the period from his valuation date till the end of previous year of his firm. There is complete scheme which enables the Assessing Officer under Wealth Tax Act to proceed to ascertain such valuation of partner's interest on any valuation date ignoring the date on which previous year of his firm comes to an end. - Decided in favor of revenue. - Wealth Tax Reference Nos. 52 OF 1990 - - - Dated:- 29-1-2016 - B.P. DHARMADHIKARI V.M. DESHPANDE, JJ. For the Petitioner : Shri C.J. Thakkar, Advocate For the Respondent : Shri S.N. Bhatthad, Advocate JUDGMENT : PER B.P. DHARMADHIKARI, J. Sr. No. R.A. No. Arising Out of WTA No. Assessment Year .....

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..... t, the valuation date would be the last date of the accounting year of the partner ? 03] However, during arguments, Shri Thakkar, learned Advocate appearing for the respective assessees has submitted that answer to question No.1 is sufficient to decide the entire controversy. He further stated that method of valuation of interest of partners in the firms on the basis of value of shares as quoted in market as on 31/03/1981 or validity of its use, is not in dispute and, hence, the only issue to be gone into is Whether on 31/03/1981, when previous year of respective firms had not ended and was scheduled to end on 30/06/1981, interest of partners in such firms could have been subjected to valuation in terms of Section 7(1) of the Wealth tax Act read with Rule 2 of the Wealth tax Rules ? Answer to this issue answers first two questions mentioned supra. We are mentioning this at the threshold, because in compilation handed over by Advocate Shri Thakkar for the applicants for consideration, if written submissions are seen, at Step1, the challenge to correctness of valuation procedure also appears to have been raised. However, the learned Advocate has not argued it and has submitted t .....

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..... ealth tax Act, 1957, which defines valuation date and stated that it adopts definition of previous year as in Section 3 of the Incometax Act, 1961. Our attention is also drawn to Section 3(1)(f) of the Incometax Act to urge that where the assessee is a partner in a firm, and the firm has been assessed as such, while finding out assessees shares in the income of the firm, the period determined as previous year for assessment of the income of the firm is relevant. Hence, for respective assessees, as their interest in partnership firms is to be found out, the relevant valuation date would be 30/06/1981 only. He emphasizes on the fact that there was no year ending of these new firms prior to 31/03/1981 and hence, the profits could not have been computed before said date. 08] As net wealth means the excess of assets over liabilities, he points out how Section 7 of the Wealth tax Act prescribes a procedure therefor. The rules have been framed for that purpose and the relevant rule is Rule 2 of the Wealth tax Rules, 1957. As per said rule, wealth of the firm can be determined only after its accounts are settled at the close of accounting year. Unless and until profit or loss is determ .....

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..... h tax Act defines valuation date with reference to any year for which an assessment is to be made under the Wealth tax Act, to mean the last date of the previous year as defined in Section 3 of the Incometax Act, if an assessment was to be made under the Incometax Act for that year. The perusal of Section 3 of the Incometax Act shows that financial year immediately preceding the assessment year qualifies as previous year. We need not go into these details in present matter, because of the fact that 31/03/1981 is the valuation date of assesses/partners for the purpose of Wealth tax Act is not in dispute. Advocate Shri Thakkar had not submitted that qua the contribution as their capital in firms made by respective assessees partners on 18/03/1981, the valuation date changes. 13] The respective assessees partners have shown their contribution in the new firm, which came into existence on 18/03/1981 at cost value and not at market value. The market value as on 31/03/1981 is more by 2.5 times to 3.5 times of this cost value. 14] Section 3 of the Wealth tax Act, 1957 stipulates that subject to the other provisions of the Wealth tax Act for every assessment year, a wealth tax in res .....

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..... and the Wealth tax Rules framed thereunder for finding out net wealth of the assessee, who is a partner in a firm. The Wealth tax Act or the Wealth tax Rules prescribe a procedure to work it out with a reference to valuation date of the assessee. There is no reference to any other date and, hence, the fact that the previous year of firm was to end on 30/06/1981 has got no relevance in this scheme. An importance is given to valuation date of the assessees and here that valuation date is 31/03/1981. 17] The accounts of new firm, which came into existence on 18/03/1981 may be settled and closed on 30/06/1981, but that has got no bearing on valuation date of assessees and that does not mean that assessees cease to hold an interest in the firm on valuation date i.e. 31/03/1981. Precisely, this situation is envisaged and answered in above mentioned provisions of the Wealth tax Act and Wealth tax Rules. It is the Assessing Authority, which has to find out the market value of the assets in the mode and manner laid down in Rule 2 of the Wealth tax Rules. Such Assessing Authority has to first determine net wealth of the firm and then its portion which can be said to be equal to the amount .....

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..... ted here. The valuation date of respective assessee is just within thirteen days of formation of firm and assessees have not pointed out any transactions affecting their contribution in the capital of firms within this short duration. 20] The judgment of the Hon'ble Apex Court reported at (1965) 56 ITR 42 in Commissioner of IncomeTax, Gujarat vs. Ashokbhai Chimanbhai is relied upon to urge that profits do not accrue from day to day. It is settled proposition that unless the right to profits comes into existence, there is no accrual of profits and the destination of profits is to be determined by the title thereto on the day on which they arise. Here, the value of interest of assessee as a partner in the firm on valuation date is being subjected to wealth tax and we are not concerned with the profits of the firm as on that day. We have already at the beginning of this judgment taken into consideration the fact that propriety of exercise of determining such value only on the basis of market value of shares, as undertaken by the Wealth tax Authorities, is not in dispute before us. 21] Learned Counsel Shri Thakkar has also relied upon a judgment reported at (1981)128 ITR 29 .....

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..... ckground of discussions supra, we find that the ITAT was justified in holding that the provisions of Rule 2 of the Wealth tax Rules and Section 4(b) of the Wealth tax Act were relevant in the present matter. We find that the efforts of assessee to show that there was no balancesheet of the firm is not decisive. The ITAT has correctly appreciated the position in paragraph 6.1 and onwards where it has looked into relevance of Section 7(1) of the Wealth tax Act and Scheme of Rule 2 of the Wealth tax Rules and deeming provisions contained in Section 4(1)(b) of the Wealth tax Act. 24] The contention of applicant/assessee partner that value of his interest in a firm cannot be worked out on 31/03/1981 is totally erroneous in the background of scheme of the Wealth tax Act and Rules looked into by us supra. The ending of previous year of the firms on 30/06/1981 has got no relevance as it may show valuation of his interest in firm as on 30/06/1981 and not on 31/03/1981. The computation provisions in the Wealth tax Act and Rules enable and empower the department to assess his interest as partner in the firm even on 31/03/1981 and there is no requirement in law to wait till 30/06/1981 for t .....

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