2016 (2) TMI 260 - HC - Wealth-tax

Determination of value of the interest of the partners in the firms on the basis of the value of the shares - it was contended that, there was no similar specific provision in the Wealth tax Act or in the Rules that while ascertaining the partner s interest - Held that - The contention of applicant/assessee partner that value of his interest in a firm cannot be worked out on 31/03/1981 is totally erroneous in the background of scheme of the Wealth tax Act and Rules looked into by us supra. The ending of previous year of the firms on 30/06/1981 has got no relevance as it may show valuation of his interest in firm as on 30/06/1981 and not on 31/03/1981. The computation provisions in the Wealth tax Act and Rules enable and empower the department to assess his interest as partner in the firm even on 31/03/1981 and there is no requirement in law to wait till 30/06/1981 for that purpose. The fact that value of partner s interest as on 31.3.1981 needed determination as per charging provision is not in dispute. Only stand of respective assessee is in absence of a provision to compute it as on 31.3.1981, the charging section can not be invoked. We have not found any lacuna in the Act which allows such an interest of the partner to go unassessed for the period from his valuation date till the end of previous year of his firm. There is complete scheme which enables the Assessing Officer under Wealth Tax Act to proceed to ascertain such valuation of partner s interest on any valuation date ignoring the date on which previous year of his firm comes to an end. - Decided in favor of revenue.

Issues Involved:

1. Justification of the Tribunal in upholding the value of the interest of the partners in the firms based on the market value of shares as on 31/03/1981.
2. Justification of the Tribunal in upholding the revaluation of the firms' assets as on the valuation date of the assessees.
3. Interpretation of the Wealth Tax Act and Rules regarding the valuation date for partners' interest in firms.

Detailed Analysis:

Issue 1: Justification of the Tribunal in upholding the value of the interest of the partners in the firms based on the market value of shares as on 31/03/1981

The Tribunal upheld the value of the partners' interest in the firms based on the market value of shares as on 31/03/1981, despite the firms' previous year ending on 30/06/1981. The assessees argued that the valuation should only be done at the end of the firms' accounting year, i.e., 30/06/1981, as profits do not accrue daily but are determined at the end of the accounting year. However, the Tribunal rejected this argument, stating that the valuation date for the assessees was 31/03/1981, and the market value of the shares on that date was correctly considered for assessing the partners' interest.

Issue 2: Justification of the Tribunal in upholding the revaluation of the firms' assets as on the valuation date of the assessees

The assessees contended that as the firms had no previous year ending on 31/03/1981 and no balance sheet was prepared on that date, the cost value of shares should be considered. The Tribunal dismissed this contention, emphasizing that the valuation date for the assessees was 31/03/1981, and the market value on that date was relevant. The Tribunal's decision was based on the provisions of Section 7(1) of the Wealth Tax Act and Rule 2 of the Wealth Tax Rules, which require the assets to be valued at the market price on the valuation date.

Issue 3: Interpretation of the Wealth Tax Act and Rules regarding the valuation date for partners' interest in firms

The Tribunal's interpretation of the Wealth Tax Act and Rules was that the valuation date of the assessees (31/03/1981) is crucial, irrespective of the firms' accounting year ending on 30/06/1981. Section 2(q) of the Wealth Tax Act defines the valuation date with reference to the previous year as defined in Section 3 of the Income Tax Act. Section 7(1) of the Wealth Tax Act, subject to the rules, mandates that assets be valued at the market price on the valuation date. Rule 2 of the Wealth Tax Rules outlines the procedure for determining the net wealth of a firm and allocating it among partners based on their capital contributions and profit-sharing ratios. The Tribunal concluded that the valuation of partners' interest could be done on the valuation date of the assessees without waiting for the firms' accounts to be settled at the end of their accounting year.

Conclusion:

The Tribunal's decision was upheld, affirming that the valuation of the partners' interest in the firms based on the market value of shares as on 31/03/1981 was justified. The Tribunal correctly interpreted the Wealth Tax Act and Rules, emphasizing the importance of the valuation date of the assessees over the firms' accounting year-end. The reference was answered in favor of the Wealth Tax Department, and the proceedings were disposed of without costs.

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