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TMI Blog2004 (10) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... 74-75 and 1975-76 are involved in W.T.R. No. 2 of 1986. Since a common question of law is involved in respect of different assessment years, all these matters were heard together and are being disposed of by a common judgment. The facts giving rise to the present references are that the respondent, J.K. Srivastava, hereinafter referred as the assessee was assessed as an individual during the assessment years in question. Sri J.P. Srivastava, the father of the assessee, made gifts of Rs. 1,38,933, Rs. 1,09,798 and Rs. 35 during his lifetime to the assessee jointly with his son, Sri V.K. Srivastava. These amounts were invested and the income arising out of these amounts was held by the Appellate Assistant Commissioner (Appeals) for the assessment years 1954-55 and 1956-57 to belong to the association of persons, where the share of the members being indeterminate and therefore, liable to tax at the maximum rate and for the subsequent assessment year both according to income-tax return and the income-tax assessment, the income from this source was assessed in the status of association of persons, where share of members of association of persons were not determinate. The Wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son has not been brought within the ambit of the charging section by clear words, he cannot be taxed at all. The apex court in the case of CWT v. Ellis Bridge Gymkhana reported in [1998] 229 ITR 1, has come to the conclusion that an association of persons cannot be charged under the Act. Section 3 of the Act does not mention association of persons as a taxable unit of assessment. The position has been placed beyond doubt by insertion of section 21AA in the Wealth-tax Act, which came into effect from April 1, 1981. No wealth-tax can be charged in respect of wealth of an association of persons for the assessment year prior to April 1, 1981. The assessment years involved in the present references are all prior to April 1, 1981. Therefore, the references are not to be decided in the light of the provision of section 21AA of the Act. The question which falls for determination in the present references is about computation of the net wealth of the assessee in the light of section 4(1)(b) of the Act, which regard to the gifts of moneys gifted by the father of the assessee to the assessee jointly with his son. In other words whether the interest of the assessee could be valued, under rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted lease of her half share of the said property to another person. The son brought a suit challenging the authority of the lady (his mother) to execute the lease deed in question in respect of her half share. Before the Privy Council an argument was raised that the lady and her son became the joint tenant in bequeathed property and, as such the lady alone cannot execute the lease deed in respect of half share. This argument was repelled by the following observations: "In his argument for the appellant, Mr. Branson raised a new point which is not indicated in the plaint, and was not submitted to either of the courts below. He maintained upon the authority of Vydinada v. Nagammal [1888] ILR 11 Mad 258, that, by the terms of the will, the Rani and the appellant became, in the sense of English law, joint tenants of the 4 annas share of Silda and not tenants-in-common; and that her alienation of her share before it was severed and, without the consent of the other joint tenant, was, ineffectual. The circumstances of that case appear to be on all fours with the circumstances which occur here and, if well decided, it would be a precedent exactly in point. There are two substantial rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship" or "joint tenancy" as understood under English law, is unknown to Hindu law in India except in the case of Hindu coparcenary. To put it differently the assessee and his son both will be co-sharers in the gifted property and their heirs will take the property per stirpes and not per capita. The argument of learned counsel for the assessee that under the Act only three entities, namely, "individual", "HUF" and "company" are recognised, cannot possibly be disputed by the Department. But in the case in hand, it is not the question of taxing association of persons. The assets are being taxed in the status of individual. Section 4 of the Act provides for inclusion of certain assets in the net wealth of an individual as belonging to that individual. It is a machinery provision to compute the net wealth. Section 4(1) (b) of the Act, as it stood at the relevant time, reads as follows: "4.(1) In computing the net wealth of an individual there shall be included, as belonging to that individual- ... (b) where the assessee is a partner in a firm or a member of an association of persons (not being a co-operative housing society); the value of his interest in the firm or association d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h reads as follows: "(1) The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the manner provided herein. The net wealth of the firm or the association on the valuation date shall first be determined. That portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them. The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the firm or association." On an analysis of rule 2(1) the following steps are required to be taken for determining the value of the interest of a person in a firm of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entitled to share equal profits with his son. The Tribunal ignored the following clause of rule 2 which reads as follows: "2 ... in absence of such agreement, in the proportion in which the partners or members are entitled to share profits." The words "entitled to" are of some significance and they refer to entitlement as per general law of the land applicable to the assessee. The word "entitle" means "to give a claim, right, or title to; to give a right to demand or receive, to furnish with grounds for claiming". The Law Lexicon P. Ramanath Aiyar, second edition, page 642, referred to by the apex court in Asgar S. Patel v. Union of India [2000] 244 ITR 713 in connection with the provisions under Chapter XX-C of the Income-tax Act. Indisputably there is no agreement on record with regard to the manner of distribution of assets in the event of dissolution of the association of persons. In view of the above clause of rule 2(1) the general law of succession will come into play. The Tribunal has omitted to consider the aforesaid clause and its effect. Therefore, we are of the considered opinion that the Appellate Tribunal has committed an error in holding that the value of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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