1986 (1) TMI 183 - AT - Wealth-tax

Summary

Issues Involved:

1. Application of Rule 2B(2) of the Wealth Tax Rules.
2. Inclusion of interest in firms in wealth tax assessments.
3. Determination of market value of closing stock.
4. Burden of proof and onus on the assessee and the WTO.
5. Valuation of partners' interest in the firm.
6. Consideration of export invoice value for determining market value.
7. Separate entity status of firms and partners for wealth tax purposes.
8. Exemption under section 5(1)(xxxii) of the Wealth Tax Act.
9. Deletion of jewelry value from wealth tax assessment.

Detailed Analysis:

1. Application of Rule 2B(2) of the Wealth Tax Rules:
The main common question in the four appeals relates to the application of Rule 2B(2) of the Wealth Tax Rules while including the value of the interest of the partners in their wealth tax assessments. Rule 2B(2) states that if the market value of an asset exceeds its written down value or its book value by more than 20 percent, the value of that asset shall be taken to be its market value for wealth tax purposes. The WTO applied this rule based on the gross profit rate disclosed by the firm, assuming that the market value of the closing stock exceeded the cost by more than 20 percent. The AAC, however, held that the rule had been wrongly applied, following a previous order in a similar case.

2. Inclusion of Interest in Firms in Wealth Tax Assessments:
The WTO included the value of the interest of the partners in the firm M/s Rawat Jewellers, Jaipur, and in two cases, also in the firm M/s Rawat Bombay. The WTO added amounts to the value of the closing stock based on the gross profit rate, which he assumed indicated a higher market value. The AAC deleted these additions, following the precedent set in the case of Gopichand Rawat.

3. Determination of Market Value of Closing Stock:
The WTO assumed that the gross profit rate indicated that the market value of the closing stock was at least 27 percent higher than the cost. The AAC and the Tribunal held that the gross profit rate alone could not be the basis for determining the market value of the closing stock. The Tribunal emphasized that the market value should be established based on specific facts and evidence, not merely on the gross profit rate.

4. Burden of Proof and Onus on the Assessee and the WTO:
The Tribunal held that the burden of proof to show that the market value of the closing stock exceeded the cost by more than 20 percent lay with the WTO. The WTO failed to provide specific evidence or material to support this claim, relying solely on the gross profit rate. The Tribunal concluded that the WTO had not discharged his burden under Rule 2B(2).

5. Valuation of Partners' Interest in the Firm:
The Tribunal rejected the plea to value the partners' interest in the firm on a yield basis, as the rules required the value to be determined based on the balance sheet and the adjustments permitted under the rules. The Tribunal upheld the AAC's deletion of the additions made by the WTO based on the gross profit rate.

6. Consideration of Export Invoice Value for Determining Market Value:
The Tribunal did not specifically address the argument regarding the use of export invoice value to determine the market value, as the WTO had not relied on this basis in his order. The Tribunal noted that the Settlement Commission had observed that the export invoice value could not be considered the market value and required a substantial discount to ascertain the market value at home.

7. Separate Entity Status of Firms and Partners for Wealth Tax Purposes:
The Tribunal did not accept the argument that the firm and the partners were separate entities for wealth tax purposes, as this issue did not arise in the present case. The Tribunal focused on the fact that the WTO had not asked the partners to provide specific details or material related to the firm.

8. Exemption under Section 5(1)(xxxii) of the Wealth Tax Act:
The Tribunal upheld the AAC's decision to grant exemption under section 5(1)(xxxii) in respect of the interest in the firm, as the business carried on by the firm involved processing of precious stones, which qualified as an industrial undertaking.

9. Deletion of Jewelry Value from Wealth Tax Assessment:
In the case of one assessee, the WTO had included the value of jewelry in the wealth tax assessment, which the AAC deleted. The Tribunal upheld the AAC's decision, noting that the deletion had been upheld by the Tribunal in earlier years.

Conclusion:
The appeals were dismissed, and the Tribunal upheld the AAC's orders, rejecting the WTO's additions based on the gross profit rate and confirming the exemptions and deletions granted by the AAC.