1985 (4) TMI 150 - AT - Wealth-tax

A Partner, Immovable Property, In Part, Movable Property, Net Wealth, Partnership Firm, Wealth Tax

Summary

Issues:
- Conflict regarding the allowance of exemption under section 5(1)(iv) of the Wealth-tax Act, 1957 in the computation of net wealth of a firm or in the hands of the partner.
- Interpretation of statutory provisions and relevant case laws to determine the stage at which exemption should be considered and allowed.

Analysis:
1. The judgment deals with a conflict of decisions regarding the allowance of exemption under section 5(1)(iv) of the Wealth-tax Act, 1957. The main issue is whether the exemption should be allowed at the stage of computing the net wealth of the firm or in the hands of the partner from his interest in the partnership. Various decisions by different High Courts and the Special Bench of the Tribunal have resulted in conflicting views on this matter.

2. The Tribunal considered previous decisions by the Pune Bench, including cases like Kantilal H. Doshi v. ITO and Pandurang D. Timblo v. WTO, which led to divergent opinions. The conflict escalated to the Inani group of cases, where it was reiterated that the deduction under section 5(1)(iv) should be allowed in determining the net wealth of the firm. This view differed from the Special Bench decision in L. Gulabchand Jhabakh v. WTO, where the deduction was held to be admissible in the hands of the partners.

3. The appeals before the Tribunal involved partners of a firm claiming deduction under section 5(1)(iv) in their individual assessments. The WTO disallowed the claim, which was upheld by the AAC in each year. The AAC relied on decisions of various High Courts, leading to conflicting opinions on the matter.

4. During the proceedings, the counsel for the assessee cited decisions of the Karnataka and Orissa High Courts, along with the Bombay High Court's ruling in CWT v. Vasudeva V. Dempo, to support the allowance of the deduction in the hands of individual partners. On the other hand, the departmental representative referenced decisions of the Madras and Andhra Pradesh High Courts, arguing against the allowance of the deduction.

5. The Tribunal, sitting in Pune, analyzed the statutory provisions and the Bombay High Court's decision in Vasudeva V. Dempo's case. It concluded that the exemption under section 5(1) should be considered in the hands of the partners based on the interpretation of the relevant laws and precedents cited, including those from the Karnataka and Orissa High Courts.

6. The Tribunal addressed the contention raised by the departmental representative that no deduction could be allowed for immovable property held by a firm in the hands of the partner. Referring to the Special Bench decision in L. Gulabchand Jhabakh's case, and relevant Supreme Court judgments, the Tribunal affirmed that partners are entitled to the deduction in their individual capacity.

7. Consequently, the Tribunal set aside the AAC's decision in the appeals by the assessees and directed the allowance of the deduction under section 5(1)(iv) in the hands of each partner for the respective assessment years. In the departmental appeal, the Tribunal upheld the AAC's order.

8. In the final outcome, the appeals by the assessees were allowed, and the revenue's appeal was dismissed, based on the Tribunal's interpretation of the applicable laws and precedents, specifically emphasizing the allowance of the deduction in the hands of individual partners.