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TMI Blog1981 (2) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... 1977 and the assessee had a half share in the firm and, consequently, in the deposit. Subsequently, one-fourth share of deposit (Rs. 25,000) was renewed in the assessee's individual name with the bank, i.e., to the extent of Rs. 25,000 and the present exemption as claimed related to the said deposit was held in the individual's name for a period of the deposit less than 6 months and, hence, the assessee is asked to file objections against the proposal to reject the claim of exemption. To which the assessee replied that there was no distinction between the firm and partners under the Partnership Act, and even the provisions of the Transfer of Property Act does not envisage any such distinction. No doubt the argument is valid as far as the Partnership Act is concerned but the position under Income-tax Act is quite different inasmuch as the Income-tax Act recognises a clear distinction between the firm and its partners as they are two distinct and separate assessable entities for purpose of income-tax and the same position holds good in regard to wealth-tax also. In the above circumstances, as there was change of ownership of the deposit in individual and the fresh deposit being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and from that date to 31-3-1977 the period of 6 months had not elapsed. He then referred to the Explanation to section 5(3) and he submitted that the period for which the firm had held the fixed deposit could not be taken into consideration because at that time the firm was the owner of the deposit and not the assessee as the requirement of the Explanation was that the assessee should have been the owner of the converted exempt asset, even earlier and then alone could the benefit under the Explanation be had (sic). In support of the proposition that the property of the firm was different from the property of each individual partner, the learned departmental representative relied on the judgment of the Madras High Court in the case of Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608, wherein it was held that, when partners were residing in a property owned by the firm, exemption under section 5(1)(iv) could not be had by the partners because they were not the owners of the property. He, in particular, submitted that in the aforesaid decision the Madras High Court had referred to the decision of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa [1966] 3 SCR 400. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esh deposit of Rs. 30,000, by adding Rs. 5,000 to the proceeds received from the firm of Rs. 25,000 in each case, i.e., one-half share of the amount drawn out of Rs. 50,000. The new fixed deposit was stated to have been made on 24-11-1977, from out of the proceeds received on 23-11-1977, i.e., on the maturity of the earlier deposit. One thing is clear. The earlier fixed deposit of Rs. 1,00,000 was made according to the earlier records on 19-6-1976 by the firm. It is not the case of the revenue that there was any delay by the assessee in making a deposit after the maturity of the earlier fixed deposit. It is also not in dispute that the fixed deposits were such as would have enjoyed the exemption under section 5(1)(xxvi), provided they were held for the requisite period as required by section 5(3), and it did not exceed the exemption limit as provided in section 5(1A). The provisions of section 5(3) read as under: "(3) Notwithstanding anything contained in sub-section (1), wealth-tax shall be payable by an assessee in respect of the assets referred to in clauses (xv), (xvi), (xix), (xxa), (xxii), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii) and (xxix) of sub-section (1) or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t exempt from wealth-tax under sub-section (1) or sub-section (2), there shall be included, if the assessee acquired the relevant asset within thirty days after he ceased to own such other asset, so much of the period for which the assessee has owned such other asset as falls within the period of twelve months ending with the relevant valuation date." It refers to assets exempt from wealth-tax under sub-section (1) or sub-section (2) of section 5. Bank deposits are exempt under section 5(1)(xxvi). Such is the nature of an asset and it is exempt under section 5(1). Merely because there is a ceiling prescribed for the extent of exemption under section 5(1A), it does not make the asset, one which was not exempt under section 5(1). The fixed deposit of Rs. 1,00,000 held by the firm was an asset which fell within the meaning of section 5(1)(xxvi). There is the decision of the Madras High Court in CWT v. Vasantha [1973] 87 ITR 17, which clearly states that in construing rule 2(1) of the Wealth-tax Rules, 1958 which deals with the computation of interest of a partner in a firm and which requires as a starting point, the ascertainment of the net wealth of the firm, the expression 'net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istence as well as upon the dissolution of a firm: 'No doubt since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the property as his own. Nor can he assign his interest in a specific item of the partnership property to any one. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48.' Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinct legal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest...." The ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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