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TMI Blog2016 (2) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ssees after adjudication of their grievances by the Income Tax Appellate Tribunal, Nagpur Bench (hereinafter referred to as 'the ITAT' for short) in eight wealth tax appeals. The assessment year with which we are concerned is 198182. The questions referred are identical in all matters and, therefore, only one/common reference has been made, which governs the eight wealth tax matters. 02] The questions referred to by the ITAT vide its order dated 18th June, 1990, are as under : (i) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the value of the interest of the partners in the firms on the basis of the value of the shares as quoted in the market as on 31/03/1981 notwithstanding the fact that the firms' previous year ended on 30/06/1981 ? (ii) Whether on the facts and in the circumstances of the case, where the assessees' valuation date did not coincide with the valuation date of the firms in which they were partners, the Tribunal was justified in upholding the revaluation of the assets of the firms as on the valuation date of the assessees ? (iii) Whether the Tribunal was right in holding that unlike section 3(1) ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their respective interest in these firms by submitting value of shares contributed by them at costs as their capital. The Wealth tax Officer while passing assessment order substituted market value of those shares as on 31/03/1981, though firms' first year of account was to end & ended only on 30/06/1981. 05] Respective assessees contended that as M/s. Anant Trading Company or M/s. Kushagra Trading Company had no previous year for the year which ended on 31/03/1981 and balancesheet of these new firms was not prepared as on 31/03/1981, the cost of shares disclosed by them as capital in said firms should be taken as its cost value. Said contention came to be rejected through out and the ITAT has on 18/04/1988 dismissed the appeals of assessees against it. Thereafter, the assessees sought reference as mentioned supra. 06] We have heard Advocate Shri Thakkar for the partners/assessees and Advocate Shri Bhattad for Commissioner of Wealth tax. 07] Shri Thakkar has submitted that after contributing shares of Bajaj Tempo Limited as their capital in respective partnership firms, the assessees/ partners no longer remain owner of shares. The valuation of interest of partners in new firms c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1/03/1981, the assessees had a share/interest in partnership firms and, therefore, it needed to be valued. The provisions of Section 7(2) are not attracted in present facts, as here assessees are not carrying on the business of firm and are not maintaining the accounts of business of firms. The authorities, therefore, have correctly appreciated the controversy and assessment order has been passed properly. The First Appellate Authority (Commissioner of Wealth-tax Appeals) has found that case falls under Section 7(1) of the Wealth-tax Act and the assessees also do not dispute this. The provisions of Section 7(1) are subject to rules and, therefore, reference to rules also becomes necessary. As per Rule 2C(d) of the Wealth-tax Rules, market value of shares on valuation date has been rightly accepted and acted upon by respondents. He relies upon provisions of Section 3(1)(d)(i) of the Income-tax Act and submits that the assessees do not dispute that their previous year expires on 31st of March. He has also made reference to various judgments to submit that as valuation date is not in dispute, the value of interest of assessees as partners in firms as on that day was required to be det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determined. That portion of net wealth of firm as is equal to the amount of its capital is to be allocated amongst the partners or members in the proportion in which capital has been contributed by them. The residue of net wealth of the firm is thereafter to be allocated amongst the partners or the members in accordance with agreement of partnership for the distribution of assets in the event of dissolution of the firm. If there is no such clause in agreement, then residue is to be distributed in the proportion in which partners are entitled to share profits. The sum total of amounts so allocated to a partner is recognized as the value of the interest of that partner in the firm. In the present matter, we are not concerned with other provisions. Rule 2 does not work after the date or depend on the date on which accounts of the firm are decided to be settled annually. It can also govern the situations in which the partner resigns or retires or the business of the firm is over, discontinued , dissolved etc. prior to such year end. Interest of the assessee partner may be required to be worked out prior to that date in such contingencies. 16] This mandate of Section 4(1)(b) read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were held by him, there was a "transfer" of the shares, though he received no consideration within the meaning of Section 48 of Incometax Act, 1961. The Hon'ble Apex Court also points out that no profit or gain accrues for the purposes of its Section 45. The said judgment does not consider the requirement of charging Wealth tax on interest of such assessee partner in the firm held by him on valuation date. The Hon'ble Apex Court has also observed that charging section and computation provisions under each head of income constitute an integrated code and when there is a case to which computation provisions cannot be applied, such a case cannot fall within the charging section. The Hon'ble Apex Court has found that for the purposes of above mentioned provisions in the Incometax Act, the interest of such an assessee partner cannot be evaluated immediately and it is subjected to operation or future transaction of the partnership. It may diminish in value depending on accumulating liabilities. Here, we are not concerned with any such contingency. Provisions of the Wealth tax Act require tax to be charged on interest of a partner in firm as on valuation date and also contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e partner's share in outstanding fees of firm of Chartered Accountants though not shown in balancesheet is includible in his net wealth even though firm was following cash system of accounting. The Division Bench of Bombay High Court has looked into the provisions of Section 2(e) of the Wealth tax Act, which defines "assets". The judgment of the Hon'ble Apex Court reported at (1985) 152 ITR 454 in Commissioner of Wealth Tax vs. Vysyaraju Badreenarayana Moorthy Raju shows that interest due on accrual basis though not realized by assessee on the outstanding of his money lending business, was liable to be included in his net wealth. The Hon'ble Apex Court in paragraph 6 observes that the system of accounting, mercantile or cash or hybrid, is of no relevance for the purposes of determining the assets of assessee. In the light of this discussions, we do not wish to go into the judgment of Hon'ble Apex Court reported at (1999) 237 ITR 61 in Commissioner of Wealth Tax vs. T.S. Sundaram, where the Hon'ble Apex Court held that in computing the net wealth of a firm for the purposes of Rule 2, the assets exempt under Section 5 needed to be included and then apportioned amongst the partners fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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