TMI Blog1980 (10) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... partner when the relevant property is a partnership asset ? " The questions of law referred in the references relating to the year 1974-75 are the same except as to the amount of deduction and they read as follows : " (1) Whether, on the facts and in the circumstances of the case, the assessment made by the Wealth-tax Officer was erroneous and prejudicial to the interests of revenue in so far as a deduction of Rs. 1,20,000 was allowed under section 5(1)(xxvi) ? (2) Whether a partner is entitled to exemption under section 5(1)(xxvi) in proportion to his share in the firm in which he is a partner when the relevant property is a partnership asset ? " The four assessees in these references are partners in a partnership firm carrying on business in the name of M/s. P.D. Company. The partnership consists of five partners, each having 20% share in the partnership. The firm had certain bank deposits. The assessees claimed exemption under s. 5(1)(xxvi) in their wealth-tax assessments to the extent of their respective share in the bank deposits. For the assessment year 1973-74, each partner's share (20%) in the bank deposits worked out to Rs. 1,00,000 and for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r immovable, but does not include,-... (2) in relation to the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year (i) animals; (ii) a right to any annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee) in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant; (iii) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee : ........ Section 4 of the Act supplements the definition of " net wealth " by specifying what further has to be included in the net wealth of an assessee who is an individual. We are here concerned with s. 4(1)(b) and s. 4(2), which read as follows: " 4. (1) In computing the net wealth of an individual, there shall be included, as belonging to that 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 determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the firm or association. (2) Where the net wealth of a firm or association computed in accordance with sub-rule (1) includes the value of any assets located outside India, the value of the interest of any partner or member in the assets located in India shall be determined having regard to the proportion which the value of the assets located in India diminished by the debts relating to those assets bears to the net wealth of the firm or association. (3) Where the net wealth of a firm or association computed in accordance with sub-rule (1) includes the value of any assets referred to in section 5(2) of the Act, the value of the interest of a partner or member shall be deemed to include the value of his proportionate share i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no definition of the expression " net wealth " in the Rules and, therefore, the definition contained in s. 2(m) has to be applied. A perusal of the definition in s. 2(m) will go to show that it does not bring in the exemption contained in s. 5. The determination of the net wealth of the firm for purposes of r. 2 will, therefore, not take into account the exemptions contained in s. 5. It has to be noticed that s. 5 in terms applies to an assessee. A firm is not an assessee and, in the absence of a provision in r. 2 that in calculating the net wealth of a firm exemptions under s. 5 have to be granted treating it as an assessee, these exemptions cannot be taken notice of in determining the net wealth of a firm. Thus, at the stage when the net wealth of a firm is determined for being allocated to the partners constituting it, exemptions contained in s. 5(1) do not enter the computation. After the net wealth of a firm is proportionately allocated to its partners and the net wealth of each partner is determined in accordance with s. 4(1)(b), there seems no valid reason why each partner cannot claim the benefit of the exemption contained in s. 5(1)(xxvi) when, as earlier seen, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after dissolution of the firm to get the value of his share in the net partnership assets as on the date of dissolution. These are restrictions over the right of ownership of partners and they do not militate against the legal position that the partners collectively own the partnership property. As already stated, a partnership or firm is not a legal person and so it cannot hold property. But the property brought in by the partners for the partnership business cannot be without any owner. Such a property really vests in the partners collectively in proportion to their share although the right of ownership of each partner in respect of that property is restricted by the contract of partnership and the very nature and character of the collective business called the partnership business for which the property is to be utilised. We, therefore, find no difficulty in holding that deposits made by a partnership in a bank are in law held by partners in proportion to their shares in the partnership and that the partners are entitled to the benefit of the exemption contained in s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion. The learned standing counsel for the department relied upon a decision of the Madras High Court in Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608. In this case, it was held that an assessee-partner cannot claim the benefit of the exemption contained in s. 5(1)(iv) which at the relevant time provided that one house or part of a house belonging to the assessee and exclusively used by him for residential purposes will not be included in the net wealth of the assessee. The house in the Madras case did not belong to the assessee exclusively but to a partnership firm of which he was a partner and the exemption under s. 5(1)(iv) was not allowed to the assessee-partner. The language of s. 5(1)(iv) is materially different from that of s. 5(1)(xxvi) and, therefore, Purushothamdas Gocooldas's case [1976] 104 ITR 608 (Mad) cannot be applied here. The learned standing counsel also referred us to another case of the Madras High Court in CWT v. Vasantha [1973] 87 ITR 17. In this case, it was held that the expression it net wealth " contained in r. 2(1) has to be understood in the light of the definitions contained in ss. 2(e) and 2(m) of the Act and that the value of the agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X
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