1994 (12) TMI 8 - HC - Wealth-tax

Summary

Issues Involved:
1. Entitlement to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957.
2. Determination of the value of interest in the properties of an association of persons.
3. Application of the decision in Addanki Narayanappa v. Bhashara Krishnappa.
4. Consistency in the interpretation of the Wealth-tax Act and other related statutes.

Detailed Analysis:

1. Entitlement to Exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957
The primary issue was whether the assessee, a Hindu undivided family (HUF), was entitled to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of its interest in the properties of Mohatta Bros. Property Co. as a co-owner. The Tribunal held that the exemption under section 5(1)(iv) should be allowed to the assessee in respect of its share in the property. The High Court affirmed this view, stating that the assessee-HUF was entitled to the exemption, and the value of the house property should be included in the net wealth of the assessee for the purpose of exemption under section 5(1)(iv).

2. Determination of the Value of Interest in the Properties of an Association of Persons
The Wealth-tax Officer initially rejected the assessee's claim for exemption on the grounds that the interest of the assessee as a co-owner was a movable property and not eligible for exemption. The Appellate Assistant Commissioner and the Tribunal both held that the value of the assessee's interest should be determined first, and then the exemption under section 5(1)(iv) should be applied. The High Court agreed with this approach, emphasizing that the value of the interest of the assessee in the firm or association should be determined in the prescribed manner under rule 2 of the Wealth-tax Rules, 1957.

3. Application of the Decision in Addanki Narayanappa v. Bhashara Krishnappa
The Madras High Court had previously held that a partner is not entitled to exemption in respect of a house owned by the firm, based on the Supreme Court's decision in Addanki Narayanappa v. Bhashara Krishnappa. However, the High Court in this case disagreed with this interpretation, stating that the Supreme Court's decision was not applicable in the context of the Wealth-tax Act. The High Court noted that the interest of a partner in a firm is determined by the Wealth-tax Act and not by the Partnership Act, and thus, the assessee is deemed to have a specific interest in each of the assets of the firm.

4. Consistency in the Interpretation of the Wealth-tax Act and Other Related Statutes
The High Court pointed out that the Revenue had previously accepted that a partner has an interest in the property of the partnership, as evidenced by a circular from the Board dated March 6, 1982. The High Court criticized the Revenue for taking an inconsistent stance in this case. The Court emphasized that the value of the house included in the net wealth of the firm retains its character as house property in the hands of the partner or member, and thus, the partner or member is entitled to exemption under section 5(1)(iv).

Conclusion
The High Court concluded that the assessee-HUF was entitled to exemption under section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the house properties of Mohatta Bros. Property Co. as a co-owner. The question referred to the Court was answered in the affirmative and in favor of the assessee. No order as to costs was made.