1986 (1) TMI 182 - AT - Wealth-tax

Summary

Issues Involved:
1. Allowance under Section 5(1)(xxxii) regarding the partner's interest in the firm.
2. Deletion of Rs. 3,06,280 added by the WTO under Rule 2B(2) of the WT Rules.
3. Exemption under Section 5(1)(iv) concerning the assessee's share of immovable property owned by the firm.

Issue-wise Detailed Analysis:

1. Allowance under Section 5(1)(xxxii):
The first issue pertains to the allowance by the AAC of the assessee's claim under Section 5(1)(xxxii) in respect of the partner's interest in the firm Maliram Puranmal. The Tribunal considered this matter in related appeals and followed earlier orders, concluding that the business of Maliram Puranmal satisfied the conditions of an industrial undertaking under Section 5(1)(xxxii) of the Act. Therefore, the AAC's decision to allow the claim was upheld.

2. Deletion of Rs. 3,06,280 under Rule 2B(2):
The second issue involves the deletion of Rs. 3,06,280, which had been added by the WTO under Rule 2B(2) by valuing the closing stock of the firm Maliram Puranmal at market value. The WTO had determined that the gross profit rate of 22% indicated that the market value of the closing stock exceeded its book value by more than 20%. The assessee objected, arguing that the gross profit rate alone could not determine the fair market value of the closing stock. The AAC followed a Third Member's order from a previous year, which held that the gross profit alone could not be the basis for applying Rule 2B(2). The Tribunal agreed with the AAC, noting that the WTO had not discharged the burden of proving that the market value exceeded the book value by more than 20%. The WTO was required to gather specific facts and analyze them before concluding that the market value was in excess by the stipulated margin. Thus, the Tribunal upheld the AAC's order deleting the addition made by the WTO.

3. Exemption under Section 5(1)(iv):
The final issue concerns the exemption under Section 5(1)(iv) regarding the assessee's share of immovable property owned by the firm Maliram Puranmal. The AAC allowed the exemption, noting that the firm had shown the property's value at Rs. 1,04,829, while the WTO had determined it at Rs. 1,54,000 based on a valuation officer's report. The AAC found the firm's value reasonable and allowed the exemption, consistent with previous years where the exemption was granted to the partners. The Department argued that the exemption could not be allowed to the partners as the property belonged to the firm, suggesting that only Rs. 1 lakh could be deducted while working out the net wealth of the firm, with the balance divided among the partners. The Tribunal noted conflicting views among various High Courts on whether the exemption could be allowed to partners in their separate WT assessments. The Tribunal preferred the view that a partner can claim exemption under Section 5(1)(iv) in respect of the property belonging to the firm, referencing decisions from the Karnataka, M.P., Calcutta, and Patna High Courts. The Tribunal upheld the AAC's order, allowing the exemption to the partners.

Separate Judgment by H.S. Ahluwalia:
H.S. Ahluwalia, J.M., expressed a differing opinion, suggesting that the contrary view would be more appropriate according to the language and spirit of the law. He argued that the rules for determining the value of the interest of the assessee in the firms should be applied, and no further deduction under Section 5(1)(iv) should be allowed in respect of the value of any immovable property owned by the firm. He emphasized that the computation of this exemption could create difficulties and that the intention of the legislature was clear that no separate exemption was allowable to the assessee in respect of immovable assets held by the firms or AOP of which they were partners or members. However, he concurred with the ultimate order proposed by his learned brethren due to the majority opinion.

Conclusion:
In conclusion, the Departmental appeal was dismissed. The Tribunal upheld the AAC's decisions on all three issues, maintaining the allowance under Section 5(1)(xxxii), the deletion of Rs. 3,06,280 under Rule 2B(2), and the exemption under Section 5(1)(iv).