TMI Blog1980 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed. On appeal, the AAC observed that under r. 2(1) of the W.T. Rules, 1957, the first step that the WTO was to take was to determine the net wealth of the assessee-firm. In computing the net wealth of that firm certain assets were exempt and one such exemption was under s. 5(1)(xxvi) and this was restricted to Rs. 1.5 lakhs under s. 5(1A) of the Act. He, therefore, held that in computing the net wealth of the firm, the firm was entitled to a deduction of Rs. 1.5 lakhs. As the assessee was having a half share in the firm, he was entitled to an exemption of Rs. 75,000 as the net wealth of the firm had to be first computed after allowing deductions. The assessee preferred an appeal to the Appellate Tribunal against the said order. The Tribunal held that under r. 2, the first step was to work out the wealth of the firm treating it as if it were the net wealth of an individual. In working out the net wealth of an individual exemption under s. 5(1)(xxvi) had to be given. Straightaway, therefore, from the net assets of the firm, bank deposits to the extent of Rs. 1.5 lakhs have to be deducted as not taxable. It further held that further deduction of Rs. 1.5 lakhs has to be given in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits with the banks of the firm should be excluded in computing the net wealth of the firm under r. 2 of the W.T. Rules. The AAC further held that what was included in the wealth was only the interest of the assessee in the firm and the fact that she had already availed of the benefit under s. 5(1A) in respect of certain assets owned by her, had no relevance while computing the net wealth of the firm for the purpose of determining the assessee's interest therein. On further appeal by the department, the Appellate Tribunal upheld the order of the AAC. Aggrieved by the order of the Appellate Tribunal, the department preferred an application to refer the following question of law to the High Court for its opinion: " Whether, on the facts and in the circumstances of the case, the sum of Rs. 75,000 is liable to be excluded from the computation of the net wealth for the assessment year 1973-74 by invoking the provisions of section 5(1) of the Wealth-tax Act to a firm? " The Appellate Tribunal refused to refer the question of law. Thereafter, on an application made to this court, this court directed the Tribunal to refer the question stated above for the opinion of this court. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act deals with exemption in respect of certain assets and enumerates the assets in respect of which tax shall not be payable by an assessee and such assets shall not be included in the net wealth of the assessee. One class of assets referred to in s. 5(1)(xxvi) is deposits with banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in s. 51 of the Act. Section 5(1A) provides that nothing contained in sub-s. (1) shall operate to exclude from the net wealth of the assessee any assets referred to in cls. (xv), (xvi), (xxii), (xxiii), (xxiv), (xiv), (xxvi), (xxvii), (xxviii) and (xxix) not being deposits under the Post Office Savings Bank (Cumulative Time Deposits) Rules, 1959, to the extent the value thereof exceeds in the aggregate a sum of one hundred and fifty thousand rupees. It is, therefore, seen from a combined operation of s. 5(1)(xxvi) read with s. 5(1A) that the assessee is entitled to an exemption in respect of bank deposits, etc., not exceeding the sum of Rs. 1,50,000. The question for consideration is what is the procedure to be adopted in a case where an individual has share in a firm which holds depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than the debts and certain other amounts mentioned in the said provision. The learned counsel for the revenue, therefore, submitted that the computation of net wealth is only in regard to an assessee who under the W.T. Act can be only an individual or a member of an HUF or a company. The provisions, therefore, for the computation of net wealth include the provisions relating to deduction of certain assets which cannot be applied to a firm. On a proper interpretation of the provisions of the Act read with r. 2 of the W.T. Rules, he argued that the share of the individual in the entire assets of the partnership has to be ascertained with reference to r. 2 without making any deduction and after the share is ascertained and added to his individual assets, the deductions or exemptions including the exemption under s. 5(1)(xxvi) have to be made in the individual wealth to arrive at his net wealth. Though this submission appears to us on the face of it to be logical, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequences and incidence which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs: it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. " The expression " net wealth " has been deliberately used in r. 2 in connection with the assets of a firm. That expression must be understood in the light of the definition in s. 2(m) of the Act, as if the firm is an assessee though the firm is not an assessee under the Act. Otherwise there was no purpose in the Legislature using the expression " net wealth " in the Rules. If the argument of the learned counsel for revenue is accepted, that in computing the share of an individual in the firm the exemption contained in s. 5(1)(xxvi) should not be applied, then the share would be the share in the assets of the firm and not in its net wealth as provided in the Rules. We are, therefore, of the view that the first of the procedures referred to earlier i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be understood in the same sense as in the W.T. Act both by reason of the specific r. 1A(m) of the W.T. Rules, 1957, as well as by reason of the well established rules of interpretation. Hence, under r. 2(1) in ascertaining the net wealth there should be an aggregation of the value of all the assets, but excluding the agricultural lands as they have been specifically excluded from the definition of " assets " in s. 2(3). The learned counsel for the revenue drew our attention to CWT v. I. Butchi Krishna [1979] 119 ITR 8 (Orissa), where the Orissa High Court took the view that deduction has to be made from out of the share of the individual in the deposits held by the firm ; whereas the WTO in that case held that the exemption should be effected in the hands of the firm and the net wealth of the firm should thereafter be calculated. In coming to this conclusion they were influenced by the submission that if the procedure adopted by the WTO in that case is accepted, the partner of a firm would get double benefit, in the sense that, first, in the determination of the net wealth of the firm, the benefit of s. 5(1A) of the Act should be given and, secondly, in the hands of the partner, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debts owed by a firm of whatever nature and whatever duration have to be deducted so long as the debts are legally enforceable against the firm. We express our respectful dissent from this decision. As we have stated already, the expression " net wealth " has, been advisedly used in r. 2 and carries the same meaning as in the Act. Therefore, in computing the net wealth, the firm should be deemed to be an assessee and all the provisions of the Act dealing with the computation of the assets of an assessee should be applied to the firm as if it were an assessee, though in fact it is not an assessee under the Act. In CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532 (Kar), it was held that where agricultural land is owned by a, partnership, in computing the net wealth of a partner, the method of deducting the sum of Rs. 1,50,000 in the computation of the net wealth of the firm under rule 2 of the W.T. Rules is not warranted by the terms of s. 5(1)(iv)(a) of the W.T. Act. The deduction contemplated by that provision is in the computation of the net wealth of an assessee-partner and not the firm which is not an assessee. Hence, in computing the net wealth of an assessee, who was a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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