TMI Blog1994 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... use, which is qualified for exemption under section 5(1)(iv) of the Wealth-tax Act, The Wealth-tax Officer, however, in his order has recorded as follows : "I have carefully considered the claim. I am unable to concede the request. Exemption under section 5(1)(iv) is available for one house or part of a house belonging to the assessee. The cinema building cannot be said to be a house to be classified as a house entitled to exemption under section 5(1)(iv). This is only a building as different from a house which is used for residential purposes." The officer assessed the tax accordingly for the subsequent years as well as disallowed the exemption claim of the assessee. The Appellate Assistant Commissioner has, however, found one more disqualification that the cinema house or house in question was property belonging to a partnership firm and no partner would claim to have any specific interest in its assets exclusively, apart from his interest as a partner in the firm as such. The Tribunal, however, has found that the case is directly covered by the decision of the Madras High Court in the case of Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608, on the question that no partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the partners to the extent of their respective shares and on such assets thus worked out as exclusively belonging to the partners concerned, he may be found eligible for such exemption. The courts who fall in line with the view of this court in the case of Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608, have, however, placed strong reliance upon the judgment of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, a judgment which has been also taken as an authority by the dissenting courts. The courts which are in agreement or in line with the judgment of this court in the case of Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 are the High Court of Andhra Pradesh in the case of CWT v. Narendra Ranjalker [1981] 129 ITR 203 and CWT v. B. Chandrasekhara Rao [1989] 175 ITR 66 and the Patna High Court in the case of CWT v. Nand Lal Jalan [1980] 122 ITR 781 and CWT v. Radha Krishna Jalan [1984] 145 ITR 217. The courts which have dissented from the Madras view in Purushothamdas Gocooldas' case [1976] 104 ITR 608 are the High Court of Karnataka in CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532, the High Court of Orissa in the case of CWT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayanappa v. Bhaskara Krishnappa, AIR 1966 SC 1300, 1304 has considered the relative rights of the partners with reference to the partnership assets and had said : " 'The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done, whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners would have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated, his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth of the assessee-partner and not of the firm, which is not an assessee. The court hence held that in computing the net wealth of an assessee, who was a partner in a firm, which owned agricultural lands, the value of the share of the assessee in agricultural lands will have to be included in his net wealth and the full deduction under section 5(1)(iv)(a) has to be given to him. How the judgment in Addanki Narayanappa's case, AIR 1966 SC 1300, of the Supreme Court has been read by the Karnataka High Court is found in the following observations in its judgment in Christine Cardoza's case [1978] 114 ITR 532, observations which have been extracted in a later judgment of the Delhi High Court in the case of CWT v. A. K. Tandon [1992] 198 ITR 26 : "Considerable emphasis has been laid by the learned counsel for the assessee on this sentence and it is contended that in the light of the clear enunciation by the Supreme Court in this case explaining the scope and effect of the decision in Addanki Narayanappa's case, AIR 1966 SC 1300, the assessee owned, and had interest in, the agricultural land and was entitled to the deduction under section 5(1)(iva) of the Act. This submission for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated. So much so that the courts which appeared to have taken a common stand with the Madras view in the case of Purushothamdas Gocooldas [1976] 104 ITR 608, have also not been happy with the view in the said judgment. In CWT v. Narendra Ranjalker [1981] 129 ITR 203, the High Court of Andhra Pradesh held that the net wealth of the firm ought to be arrived at in accordance with the provisions of the Wealth-tax Act, as if the firm were an assessee and that while computing the interest of a partner in the firm in terms of section 4(1)(b) of the Act, only the interest of the firm arrived at in accordance with the provisions of the Act, as if the firm were an assessee, should be taken into consideration. According to this judgment, thus it is the firm which is entitled to deduction on account of the exemptions granted under section 5(1A) of the Act. The firm in that case was held entitled to deduction on account of the deposits and it was held that the partner would not be entitled to exemption in regard to his share of the bank deposits held by the firm. In this judgment, it is also noted, a firm is not an assessee under the Act, but while computing the net wealth, the firm should be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is different from that under the Wealth-tax Act. The Income-tax Act contains special provisions under which a partnership is an assessable entity. There are provisions for assessment of a partnership firm to income-tax. So far as the Wealth-tax Act is concerned, a partnership is not an assessable entity. The concept of a partnership in the Income-tax Act cannot be imported into the Wealth-tax Act. A partnership having been excluded from assessment under the Wealth-tax Act and provision having been made for assessment of the properties standing in the name of the firm and in the hands of the partners, according to their respective shares, the general concept of the nature of a partnership has to be taken into account. This aspect has been highlighted by the Calcutta High Court in its judgment in the case of Birla (L. N.) v. CWT [1987] 168 ITR 86. Under the general principles of law, the name of the firm is a compendious name for all the partners and it is not an entity in law. It is on that basis that the shares of the partners in the assets of the firm have to be considered as assets or wealth in the hands of the partners liable to be assessed to wealth-tax. This view, which to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any specific shares ; nor can it be said that each partner holds all the shares in Kalinga Tubes Limited. But, this does not matter. The partners are the owners of the shares and the general principle of law cannot be abrogated and we cannot conceive of a hypothetical ownership of these shares and deny the partners, who, in law, own the property and in whom the property is vested, the benefit of section 85." In a later decision, in CWT v. N. Gnanamani [1987] 163 ITR 313 (Mad), however, in which no reference is made to the judgment of this court in Purushothamdas Gocooldas [1976] 104 ITR 608 or CIT v. K. Saraswathi Ammal [1981] 127 ITR 404 (Mad), a Bench of this court, answering the question whether partners of a firm could claim exemption under section 5(1)(iv) of the Act, when a house property, in fact, was acquired by a firm, has said as follows : "In CIT v. Dadha and Co. [1983] 142 ITR 792, this court has categorically ruled that even if the properties of a firm are treated as properties held in common by all the partners, as a firm is not a legal entity and cannot hold properties, there could not be a division of the properties purchased in the name of the firm as amongst t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) or rule 2 to suggest that a firm be deemed an assessee so as to allow the benefit of exemption under section 5(1)(iv) to it. We feel that taking the view as canvassed by the Revenue will be doing violence to the statutory provisions. The concept of a partnership firm and partnership property as contained in the Partnership Act also compels us to take this view. A firm has no legal existence and as such it cannot hold any property. It is the partners who own the partnership property or assets. Therefore, it is only fair that they alone should have the benefit of the exemption under section 5(1)(iv) when their individual assessments are taken up which will include their respective shares in the net wealth of the partnership firm. We find preponderance of judicial opinion in favour of this view that we have taken. On behalf of the Revenue, reliance has been placed on the decision of the Madras, Patna and Andhra Pradesh High Courts. We have already noted the said judgments and found that the Andhra Pradesh and the Patna views treat the firm as an assessee. With utmost respect, we feel that this view is not consistent with the plain statutory provisions or the Rules. So far as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w taken above has found statutory force. The case in hand relates to a period much prior to the said amendment coming into force. The submission on behalf of the assessee is that subsequent legislation may be looked into to see what ought to be the proper interpretation of the relevant provisions prior to the subsequent legislation. Counsel cites CIT v. Deepchand Kishanlal [1990] 183 ITR 299, which is a judgment of the Karnataka High Court and page 559 of the same volume which is a judgment of the Supreme Court in CIT v. Doraiswamy Chetty (P.) [1990] 183 ITR 559 in support of this submission. It was held in the Supreme Court judgment that though Explanation 2 was inserted in section 64 of the Income-tax Act with effect from April 1, 1980, and it did not have retrospective effect, it serves as a legislative exposition of the import of section 64(1) and (i)." What is held in Purushothamdas Gocooldas [1976] 104 ITR 608 (Mad) is substantially diluted by the judgment of this court in the case of K. Saraswathi Ammal [1981] 127 ITR 404 and the judgment in the case of N. Gnanamani [1987] 163 ITR 313 (Mad), in our view, is not exactly to the point. It has, in fact, considered the case in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liged to follow the law which has been sanctioned by the Supreme Court. We are supported in our view not only by a number of authorities coming from the judgments of the Kerala High Court (Full Bench), Karnataka, Orissa, Calcutta and Madhya Pradesh High Courts, but also by the delineations which give great support to our view in the case of K. Saraswathi Ammal [1981] 127 ITR 404 (Mad). The answer to the question whether the basic exemption is available to the assessee has thus naturally to be against the Revenue. This, however will not give any substantial benefit to the assessee in the instant case, because the answer to the first question, whether the word "house" mentioned in section 5(1)(iv) of the Wealth-tax Act includes "cinema theatre", in our view, must go against the assessee. A house, in general perception, is a building for human habitation. It can also be a building for a special purpose and that is why we get expressions like House of Commons, House of Lords, House of Representatives, etc. Extension of this, as found in several dictionaries, may also extend to any opera house or a theatre or cinema. Black's Law Dictionary, 6th Edition, has suggested house in the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition on the valuation dates. While we do not agree with the assessee's counsel that habitability is not the test, we are of the view that the Tribunal would do well in recording a finding as to the substantial position of the con struction on the two relevant dates. If it reaches the conclusion that the construction had reached a habitable stage, that would amount to a house and the exemption would be available. If, however, it is found that the incomplete house was not in a habitable condition during either of the years, it would follow that the exemption would not be extended and the assessee's claim would not be admissible. Since the matter has not been examined from the proper perspective, the finding is not clear. The question, as referred on the footing that an incomplete house has the meaning of a house not fit for habitation should ordinarily be answered against the assessee, but as in our opinion such an answer in the facts of the case would prejudice the assessee, we think it appropriate to suggest to the Appellate Tribunal while giving effect to our opinion to hear the parties and come to a definite conclusion as to whether, on the relevant dates, the construction had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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