1977 (10) TMI 15 - HC - Wealth-tax

Summary

Issues Involved:
1. Reference to Valuation Officers for valuing buildings belonging to the petitioner-1 firm.
2. Notices issued by Valuation Officers to petitioner-2.
3. Jurisdiction of the Valuation Officers.
4. Whether the interest of a HUF in a partnership firm is exigible to wealth-tax.
5. Applicability of Rule 2 of the Wealth-tax Rules, 1957, versus Section 16A of the Wealth-tax Act, 1957.
6. Whether the value of buildings should be determined under commercial principles.

Issue-wise Detailed Analysis:

1. Reference to Valuation Officers for valuing buildings belonging to the petitioner-1 firm:
The petitioners challenged the reference made by the WTO to the Valuation Officers for valuing certain buildings belonging to petitioner-1 firm. The court held that a partner of a firm is not the owner of the property belonging to the firm but has an interest in them. The Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa explained that a partner has an interest in the trading assets of the partnership. The court concluded that the interest of a partner in a firm is capable of being transferred and should be regarded as property. The definition of "asset" in Section 2(e) of the Act includes property of every description, and Section 4(1)(b) of the Act includes the value of a partner's interest in a firm in computing net wealth.

2. Notices issued by Valuation Officers to petitioner-2:
The petitioners contended that the notices issued by the Valuation Officers to petitioner-2 were invalid as the properties did not belong to him. The court held that under Section 38A(1) of the Act, the Valuation Officer can require any person in charge of, or in occupation or possession of, the buildings to afford necessary facilities for inspection. Since petitioner-2 was a partner of petitioner-1 firm, he could be regarded as an agent of the firm, and the Valuation Officer could issue notices to him.

3. Jurisdiction of the Valuation Officers:
The petitioners argued that the Valuation Officers had no jurisdiction to value the buildings as they did not belong to petitioner-2. The court held that the WTO has the power under Section 16A to refer the valuation of any asset to the Valuation Officer if he considers it necessary. The court found that the WTO had the authority to refer the valuation of the buildings owned by petitioner-1 firm to the Valuation Officer.

4. Whether the interest of a HUF in a partnership firm is exigible to wealth-tax:
The petitioners contended that the interest of a HUF in a partnership firm is not exigible to wealth-tax. The court referred to the Supreme Court's explanation in CIT v. Bagyalakshmi & Co., which stated that a partnership is a creature of contract, and a HUF can have a share in the profits and assets of a partnership firm. The court concluded that the interest of a HUF in a partnership firm is a part of the net wealth of the family and is subject to wealth-tax under Section 3 of the Act.

5. Applicability of Rule 2 of the Wealth-tax Rules, 1957, versus Section 16A of the Wealth-tax Act, 1957:
The petitioners argued that Rule 2 of the Wealth-tax Rules, 1957, should apply for valuing the interest of a partner in a partnership firm, and not Section 16A of the Act. The court held that Rule 2 and Sections 7 and 16A are complementary and can be read harmoniously. Rule 2 refers to the manner of computing the value of a partner's interest after ascertaining the net wealth of the firm. Section 7 provides that the value of any asset shall be the estimated price it would fetch if sold in the open market. Section 16A allows the WTO to refer the valuation of any asset to the Valuation Officer.

6. Whether the value of buildings should be determined under commercial principles:
The petitioners contended that the value of the buildings should be determined under commercial principles as per Section 7(2)(a) and not separately. The court held that Section 7(2) is an enabling provision giving discretion to the WTO to value the assets of a business as a whole or separately. The WTO has the power to refer the valuation of individual assets to the Valuation Officer under Section 16A.

Conclusion:
The court dismissed the petition with costs, holding that all the contentions urged on behalf of the petitioners failed. The interim order made on January 10, 1975, was vacated.