1984 (4) TMI 81 - AT - Income Tax

Interest In Property, Partnership At Will, Partnership Firm, Share In Partnership, Wealth Tax

Summary

Issues:
1. Exemption claim under section 2(e)(1)(v) of the Wealth-tax Act, 1957 for the value of share in a partnership.
2. Interpretation of provisions related to the valuation of interest in a partnership for wealth-tax purposes.

Analysis:

1. The judgment revolves around the exemption claim made by the assessee regarding her share in a partnership firm under section 2(e)(1)(v) of the Wealth-tax Act, 1957. The assessee contended that since the partnership was at will and could be terminated at any time, the property acquired by her should be exempt as it had not exceeded six years. However, the WTO and AAC included the value of her share in the firm in her net wealth. The Tribunal analyzed the relevant provisions and held that section 2(e)(1)(v) does not apply to interest in a partnership. The Tribunal emphasized that the value of the partner's interest in a firm is determined under section 4(1)(b) and is includible in the net wealth. The Tribunal rejected the contention that the interest in partnership should be considered available for a period not exceeding six years due to the partnership being at will.

2. The Tribunal referred to a decision of the Bombay High Court and the Supreme Court to support its interpretation. The Bombay High Court decision highlighted that section 2(e)(1)(v) applies only when it is established that the assessee is not entitled to enjoy the beneficial interest for a period exceeding six years. The Supreme Court's decision in Juggilal Kamlapat Bankers v. WTO affirmed that a partner's interest in a firm is an asset liable for wealth-tax. The Tribunal further cited Addanki Narayanappa v. Bhaskara Krishnappa and Malabar Fisheries Co. v. CIT to establish that partnership property vests in all partners and every partner has an interest in it. Additionally, a Karnataka High Court decision emphasized that deductions under wealth-tax provisions are allowable in the hands of the partner, not the firm.

3. Based on the principles derived from the cited decisions, the Tribunal concluded that section 4(1)(b) is applicable to determine the value of a partner's interest in a firm for wealth-tax purposes. The Tribunal reiterated that section 2(e)(1)(v) does not apply to partnership interests. By applying the provisions of the Wealth-tax Act and relevant definitions, the Tribunal upheld the lower authorities' decision to include the value of the assessee's share in the partnership in her net wealth. Consequently, the appeals were dismissed, affirming the order of the AAC.