1981 (2) TMI 128 - AT - Wealth-tax

Summary

Issues Involved:
1. Exemption of fixed deposit under Wealth-tax Act.
2. Ownership and conversion of assets for exemption purposes.
3. Interpretation of the term 'owned' in the context of partnership assets.

Issue-wise Detailed Analysis:

1. Exemption of Fixed Deposit under Wealth-tax Act:
The primary issue was whether the fixed deposit of Rs. 25,000 made by the assessee on 23-11-1977 was eligible for exemption under section 5(1)(xxvi) of the Wealth-tax Act, 1957. The Wealth Tax Officer (WTO) rejected the exemption claim, stating that the deposit was held for less than six months in the assessee's individual name, as required by section 5(3) of the Act. The Appellate Assistant Commissioner (AAC) upheld this decision, emphasizing that the period during which the deposit was owned by the firm could not be included in the period of ownership by the assessee.

2. Ownership and Conversion of Assets for Exemption Purposes:
The assessee contended that the fixed deposit of Rs. 25,000 was a conversion of the earlier deposit of Rs. 1,00,000 held by the firm, in which the assessee had a half share. The firm had renewed Rs. 50,000 of the deposit, and the remaining Rs. 50,000 was divided between the partners, who then made fresh deposits. The AAC and departmental representative argued that the firm and individual partners are distinct entities under the Wealth-tax Act, and the period of ownership by the firm could not be attributed to the individual partners.

3. Interpretation of the Term 'Owned' in the Context of Partnership Assets:
The Tribunal examined whether the assessee could be considered an owner of the fixed deposit held by the firm under the Explanation to section 5(3). The Tribunal referred to the Supreme Court's judgment in Malabar Fisheries Co. v. CIT, which clarified that a partnership firm is not a distinct legal entity, and the partnership property belongs jointly to all partners. Therefore, the assessee, as a partner, had a joint interest in the firm's property, including the fixed deposit of Rs. 1,00,000.

Conclusion:
The Tribunal concluded that the fixed deposit of Rs. 1,00,000 held by the firm was an exempt asset under section 5(1)(xxvi) of the Wealth-tax Act. Since the assessee acquired the new fixed deposit of Rs. 25,000 within 30 days of the maturity of the earlier deposit, the period of ownership by the firm could be included for the purpose of the six-month requirement under section 5(3). Consequently, the assessee's fixed deposit of Rs. 25,000 qualified for exemption, and the appeals were allowed.