TMI Blog1983 (12) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds and had prayed for a mandamus restraining respondents Nos. 2 and 3 from valuing the buildings. The writ petition having been dismissed, the appellants have come up in appeal to this court. Most of the material facts giving rise to this appeal are not in dispute and may briefly be stated as follows: Appellant No. 1 (M/s. Juggilal Kamlapat, Bankers) is a partnership firm. Appellant No. 2 (Padampat Singhania) was one of the partners in the firm in his capacity as the karta of an HUF up to 15-3-1972. He was being assessed to wealth-tax in the status of HUF and the assets so assessed for wealth-tax included the interest of the family in appellant No.1 firm. For the assessment years 1967-68 to 1972-73, wealth-tax returns were submitted by appellant No. 2, in the status of an HUF and therein the family's interest in appellant No. 1 firm was included. Since appellant No. 1 firm owned a number of buildings in Kanpur in the returns so submitted the book-value of those buildings had been adopted by appellant No. 2 for valuing the interest of the family in appellant No. 1-firm. Respondent No. 1 felt that the market value of those buildings was much more than such book-value. He, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or was in occupation thereof. In regard to the first contention, the High Court took the view that though it was true that a partner of a firm could not claim ownership in specific properties belonging to the partnership firm either during the continuance of the partnership or even on its dissolution but was entitled to get a share in the profits during its continuance and was further entitled, upon its dissolution or his retirement therefrom, to the value of his share in the surplus of the partnership assets left after a deduction of liabilities and prior charges on the date of dissolution or retirement, it was clear that having regard to s. 29 of the Partnership Act (which enables partner to transfer his interest in the partnership firm) and s. 2(e) and s. 4(1)(b) of the Act the interest of a partner in the partnership firm will have to be regarded as a part of his net wealth under the Act. As regards the second contention which was elaborated to the effect that even if the interest of an individual in a partnership firm could be regarded as an asset within the meaning of s. 2(e) of the Act, the interest of an HUF in the partnership firm could not be regarded as such asset and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of the net wealth of an individual and that the said provision is a deeming provision whereunder certain assets though held in reality by some others are to be treated as belonging to that individual and included in his net wealth for purposes of his wealth-tax assessment and one such deeming provision is to be found in cl. (b) thereof which provides that where the assessee is a partner in a firm the value of his interest in a firm determined in the prescribed manner shall be included in computing the net wealth of such individual and what is urged is that there is no provision to be found in the Act which provides for the inclusion of a karta's interest in a firm in the HUF's net wealth. Counsel strenuously urged that but for the deeming provision which is to be found in cl. (b) even the interest of a partner (in his individual capacity) would not have become includible in his net wealth. In other words, according to counsel, there is a lacuna in the Act as regards the inclusion of a karta's interest in the partnership firm in his HUF's net wealth and, therefore, the Department's attempt to include the interest of appellant No. 2 (as a karta) in appellant No. 1's firm in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual otherwise than under an irrevocable transfer, or (v) by the son's wife, or the son's minor child, of such individual, to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of June, 1973, otherwise than for adequate consideration, whether the assets referred to in any of the sub-clauses aforesaid are held in the form in which they were transferred or otherwise : Provided that where the transfer of such assets or any part thereof is either chargeable to gift-tax under the Gift-tax Act, 1958 (18 of 1958), or is not chargeable under section 5 of that Act, for any assessment year commencing after the 31st day of March, 1964, but before the 1st day of April 1972, the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual; (b) where the assessee is a partner in a firm or a member of an association of persons not being a co-operative housing society, the value of his interest in the firm or association determined in the prescribed manner." It is true that s. 4(1) deals with the computation of the net wealth of an individual and it is also true tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dible in his net wealth. Section 3 of the Act read with the definitions of " net wealth " as given in s. 2(m) and " assets " given in s. 2(e) clearly brings out the exigibility of a partner's interest in a firm either in his individual capacity or in his capacity as the karta of an HUF to wealth-tax under the Act. Section 3, which is the charging provision, runs thus : " 3. Charge of wealth-tax.-Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in Schedule T." Section 2(m) defines " net wealth " thus : " net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a firm) the Board shall have regard to the law for the time being in force relating to the manner in which accounts are to be settled between partners of a firm on the dissolution of a firm. The substance of the argument, in brief, has been that s. 7(1), which enables the WTO to determine the value of any asset, other than cash, at the market price thereof on the valuation date for the purposes of the Act, is inapplicable to the instant case and, therefore, s. 16A is not attracted and hence the valuation reference made by the WTO to the Valuation Officers regarding specific house properties is liable to be set aside. As we shall demonstrate presently, the contention proceeds on an entire misconception of the relevant provisions of the Act and the Rules. We have already indicated above that a partner's interest in a firm, either in his individual capacity or as the karta of an HUF, is property or asset liable to be included in the net wealth of the concerned assessee and is exigible to wealth-tax under the Act. Once that position is accepted it is clear that such asset will have to be valued for the purposes of the Act and in this behalf r. 2(1) of the W.T. Rules, 1957, prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee in such business, determine the net value of the assets of the business as whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed... (3) Notwithstanding anything contained in sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date, or, in the case of an asset being a house referred to in sub-section (4), the valuation date referred to in that sub-section. " Rules 2A and 2B run thus: " 2A. Determination of the net value of assets of business as a whole.Where the Wealth-tax Officer determines under clause (a) of sub-section (2) of section 7 the net value of the assets of the business as a whole having regard to the balance-sheet of such business, he shall make the adjustments specified in rules 2B, 2C, 2D, 2E, 2F and 2G. " " 2B. Adjustments in the value of an asset disclosed in the balance-sheet. -(1) The value of an asset disclosed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such business for such valuation and not that such balance-sheet is conclusive or binding or decisive of the values of assets appearing therein. Fourthly, the said sub-section also says that the WTO has to " make such adjustments therein as may be prescribed " and in this behalf rr. 2A and 2B already quoted above indicate what adjustments the WTO has to make while determining the net value of the business as a whole. Particularly sub-r. (2) of r. 2B clearly provides that where the market value of an asset exceeds its written down value or book value by more than 20 per cent., the value of that asset for the purposes of r. 2A shall be taken to be its market value. In other words, it is clear that even where the WTO has resorted to s. 7(2) for determining the value of assets of a business as a whole the written down values or book values of specific assets as appearing in the balance-sheet are not sacrosanct and when the market value exceeds the written down value or book value by more than 20 per cent., the WTO has to adopt the market value of such assets for the purposes of this Act. This is apart from the position that the resort to s. 7(2) itself is discretionary and optional ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
