1995 (4) TMI 127 - AT - Income Tax

A Partner, Charge Of Wealth Tax, Closely Held Company, Net Wealth, Partnership Firm, Reversionary Value, Share In Partnership

Summary

Issues Involved:
1. Application of section 40(3) of the Finance Act, 1983.
2. Application of section 4(1)(b) of the Wealth-tax Act to companies.
3. Liability of assets used for business purposes to wealth-tax.
4. Correct measurement of land for valuation.
5. Inclusion of reversionary value of land in valuation.
6. Definition of 'motor cars' under section 40(3)(vii) of the Finance Act, 1983.

Issue-wise Detailed Analysis:

1. Application of section 40(3) of the Finance Act, 1983:
The assessee argued that the provisions of section 40(3) of the Finance Act, 1983, should not apply to its share in the firm. The Assessing Officer included the value of land, building, and motor cars in the net wealth of the assessee company based on the firm's balance sheet. The learned CWT(A) upheld this inclusion, citing various court decisions, concluding that the company's share in the partnership firm's assets was liable for wealth-tax under section 40 of the Finance Act, 1983. The Tribunal agreed with the department, emphasizing that the assets of a firm belong to its partners and are thus taxable under section 40.

2. Application of section 4(1)(b) of the Wealth-tax Act to companies:
The assessee contended that section 4(1)(b) of the Wealth-tax Act applies only to individuals and not companies. The learned CWT(A) disagreed, stating that the deeming provision of section 4(1)(b) is equally applicable to companies. The Tribunal supported this view, referencing the Supreme Court's decision in Juggilal Kamlapat Bankers' case, which clarified that a partner's interest in a firm belongs to them and is includible in their net wealth.

3. Liability of assets used for business purposes to wealth-tax:
The assessee claimed that assets used for business purposes, such as the hotel premises, should not be included in the net wealth. The Tribunal noted that only buildings or parts used directly by the assessee for business purposes are excluded from wealth-tax. Since the rented premises were not used by the assessee but by tenants, their value was rightly included in the net wealth.

4. Correct measurement of land for valuation:
The assessee argued that the revenue authorities incorrectly measured the total land area as 102,924 sq. ft. instead of 48,069 sq. ft. The Tribunal directed the Assessing Officer to re-examine this issue and pass a fresh order after giving the assessee an opportunity to be heard.

5. Inclusion of reversionary value of land in valuation:
The assessee contended that the reversionary value of the land should not be included when the property is valued on a yield basis. The Tribunal agreed, referencing the Calcutta High Court's decision in Smt. Ashima Sinha's case, and directed that the valuation should exclude the reversionary value of the land.

6. Definition of 'motor cars' under section 40(3)(vii) of the Finance Act, 1983:
The assessee argued that jeeps do not fall within the definition of 'motor cars' and should not be included in the net wealth. The Tribunal disagreed, citing its earlier decision in the case of Dempo Mining Corpn. Ltd, where it was held that jeeps are considered motor cars under section 40(3)(vii) of the Finance Act, 1983.

Conclusion:
The Tribunal partly allowed the appeals, directing re-examination of the land measurement issue and exclusion of the reversionary value of the land from the valuation, while upholding the inclusion of the firm's assets and jeeps in the net wealth of the assessee company.