1983 (12) TMI 1 - SC - Wealth-tax

Whether the WTO was justified in making a reference of the question of valuation of those buildings to the valuation officers under section 16A and the notices issued to the assessee under section 38A(1)(b) by the valuation officers in pursuance of that reference were also valid- Held, yes

Summary

Issues Involved:
1. Reference by WTO to Valuation Officers for valuing buildings.
2. Inclusion of HUF's interest in a partnership firm for wealth-tax purposes.
3. Applicability of Rule 2 of W.T. Rules, 1957, and Section 16A of the Act.
4. Valuation of assets under Section 7(2)(a) versus Section 7(1) of the Act.
5. Validity of notices issued by Valuation Officers to appellant No. 2.

Detailed Analysis:

1. Reference by WTO to Valuation Officers for Valuing Buildings:
The appellants challenged the reference made by the Wealth Tax Officer (WTO) to the Valuation Officers for valuing certain buildings owned by the appellant No. 1 firm. The High Court upheld the WTO's reference and the subsequent notices issued by the Valuation Officers. The appellants argued that the buildings did not belong to appellant No. 2, but to appellant No. 1 firm, thus the reference was unauthorized. The High Court, however, found that the interest of a partner in a firm, as per Section 29 of the Partnership Act and Sections 2(e) and 4(1)(b) of the Wealth Tax Act, is part of the partner's net wealth and hence could be referred for valuation.

2. Inclusion of HUF's Interest in a Partnership Firm for Wealth-Tax Purposes:
The appellants contended that the interest of a Hindu Undivided Family (HUF) in a partnership firm was not exigible to wealth-tax. The High Court rejected this argument, stating that Section 3 of the Wealth Tax Act levies wealth-tax on the net wealth of every HUF, and the interest of an HUF in a partnership firm is part of its net wealth and thus liable to wealth-tax. The High Court emphasized that the absence of a specific provision for HUF's interest in a partnership firm, similar to Section 4(4)(b) for individuals, does not exempt it from being included in the net wealth for tax purposes.

3. Applicability of Rule 2 of W.T. Rules, 1957, and Section 16A of the Act:
The appellants argued that the valuation of appellant No. 2's interest in appellant No. 1 firm should be governed by Rule 2 of the W.T. Rules, 1957, and not by Section 16A of the Act. The High Court held that Rule 2, Section 7, and Section 16A(1)(b)(ii) must be read harmoniously, and Rule 2 does not exclude the application of Sections 7 and 16A for valuing an asset of a partner in a partnership firm. The WTO has the discretion to refer the valuation to the Valuation Officer under Section 16A.

4. Valuation of Assets under Section 7(2)(a) versus Section 7(1) of the Act:
The appellants contended that the valuation of the buildings should be determined under Section 7(2)(a) and not under Section 7(1) of the Act. The High Court observed that Section 7(2)(a) is an enabling provision that gives the WTO discretion to value the assets of the business as a whole or each asset separately. The WTO's decision to refer the valuation to the Valuation Officer under Section 16A was within his discretion, especially given that the market value of the buildings was significantly higher than their book value.

5. Validity of Notices Issued by Valuation Officers to Appellant No. 2:
The appellants argued that the notices issued by the Valuation Officers to appellant No. 2 were invalid since he was neither the owner nor in occupation of the buildings. The High Court rejected this contention, stating that appellant No. 2, as a partner, could be regarded as an agent of appellant No. 1 firm, and the Valuation Officers were justified in issuing notices to him for inspection and production of records necessary for valuation.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's judgment. The Court held that the WTO was justified in referring the valuation of the buildings to the Valuation Officers under Section 16A, and the interest of an HUF in a partnership firm is exigible to wealth-tax. The valuation of the assets could be done under Section 7(1) or Section 7(2)(a), at the WTO's discretion, and the notices issued by the Valuation Officers were valid. The appeal was dismissed with costs.