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TMI Blog1994 (12) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of wealth under the Wealth-tax Act, 1957 ( " the Act " ), for the assessment year 1977-78 on May 15, 1979, showing a net wealth of Rs. 5,53,400. In the above return, it also claimed exemption under section 5(1)(iv) of the Act in respect of its interest in the properties of Mohatta Bros. which was valued at Rs. 82,256. The Wealth-tax Officer rejected the above claim of the assessee on the ground that the assessee was not the owner of the properties which was vested in the association of persons, Mohatta Bros., of which the assessee was a co-owner. According to the Wealth-tax Officer, the interest of the assessee as a co-owner in the association of persons was a movable property and hence, no exemption was available to it under section 5(1)(iv) of the Act in respect thereof. The assessee appealed to the Appellate Assistant Commissioner. It was submitted by the assessee before the Appellate Assistant Commissioner that it was entitled to exemption under section 5(1)(iv) of the Act in respect of its share in the properties of the association of persons. The Appellate Assistant Commissioner did not accept the above contention of the assessee and held that it was not entitled to exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... movable or immovable, except those specifically excluded. Section 4 provides for inclusion of certain assets in the net wealth of an individual. Clause (b) of sub-section (1) thereof deals with the case of an assessee who is a partner in a firm or a member of an association of persons. Section 4(1)(b), so far as relevant, as it stood at the material time reads : " 4. Net wealth to include certain assets. -- (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 determined in the prescribed manner. " (emphasis supplied) The manner of determination of the value of the interest of the individual in the partnership or association of persons was prescribed in rule 2 of the Wealth-tax Rules, 1957 ( " the Rules " ). This rule remained operative till April 1, 1989. In view of the important bearing it has on the determination of the controversy before us, it is set out below : " Rule 2. Valuation of interest in partnership or association of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wealth-tax was discontinued in respect of the net wealth of companies for and from the assessment year 1960-61, (see section of the Finance Act, 1960). Consequently, wealth-tax is now leviable only in respect of the net wealth of individuals and Hindu undivided families. (iii) Net wealth, for the purpose of levy of wealth-tax, means the aggregate value of the assets, belonging to the assessee, completed in accordance with the provisions of the Act including assets required to be included in his net wealth under the Act minus the value of all the debts owed by the assessee. (iv) The value of the interest of the assessee, who is a partner in a firm or a member of an association of persons, has to be included in the net wealth of such assessee. (vide section 4(1)(b)). For this purpose, the value of his interest in the firm or association, has to be determined in the prescribed manner. The manner of valuation of such interest has been prescribed by rule 2. (v) In computing the net wealth of the assessee, one house or a part thereof is not to be included in the net wealth of the assessee (subject, however, to the monetary ceiling in regard to its value) specified in the proviso t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question for determination before the Supreme Court was whether a particular document by which the interest of a partner in partnership assets comprising immovable properties was also relinquished, was compulsorily registrable under section 17(1)(c) of the Registration Act, and it was in that context that the Supreme Court held that the interest of a partner was not immovable property as such but was movable property and hence section 17(1)(c) of the Registration Act was not attracted. Other High Courts, however, felt that reliance on the above decision of the Supreme Court, without having due regard to the provisions of the Wealth-tax Act, was not justified. The opinion of these courts appears to be that in the context of the Wealth-tax Act, the assessee is deemed to have a specific interest in each of the assets of the firm and, as such, he is entitled to claim exemption under section 5(1)(iv) in respect of his interest in the house held by the firm which is included in his net wealth by virtue of section 4 of the Act. On a careful consideration of the various decisions referred to above, we find ourselves in agreement with all those High Courts which have taken the view that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th. This position has been very aptly summed up by this court in CWT v. Smt. Shanti R. Sharma by saying that the stage at which exemption under section 5(1)(iv) has to be given effect to in such a case, is the stage of computation of the net wealth of the assessee. In the words of Mohta J. (as his Lordship then was), the correct approach would be--- (a) To determine the net wealth of the firm. (b) To allocate amongst the partners the net wealth of the firm indicating the nature of assets and liabilities. (c) To determine the net wealth of the partner by including the said share. (d) To determine the quantum of deductions under section 5(1) of the Act at that stage. The deduction, therefore, has to be allowed in the case of the assessee partner and not in the case of the firm. Though the above decision was rendered while dealing with the entitlement of a partner of a firm to exemption under section 5(1)(iv) in respect of a house forming part of the partnership assets, the ratio of the same would apply proprio vigore to a member of an association. We are also supported in our above conclusion by the ratio of the decision of the Supreme Court in Malabar Fisheries Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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