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TMI Blog1993 (7) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the Tribunal is right in law in holding that in evaluating the interest of the partners in Messrs. E. K. Mathew and Bros., and with particular reference to tea estate, the loan taken by the firm from Federal Bank is not to be excluded by applying the provisions of section 2(m)(ii) of the Wealth-tax Act ? " We shall state the facts of the case so far as it is necessary to answer the questions referred. The two references arise out of assessment proceedings in respect of two assessees who are partners of a firm, Messrs. E. K. Mathew and Bros., for the assessment years 1976-77 and 1977-78. Common issues arise in both the cases. The partnership owned among other assets a tea estate called "Alampally Estate" and a rubber estate called "Glenrock Rubber Estate". The computation of the interest of partners in these two estates was in dispute. The assessees had claimed exemption under section 5(1)(iva) in respect of the interest they had in the estates. The partnership had taken a loan on the security of the property in Alampally Estate from the Federal Bank. The Wealth-tax Officer denied exemption under section 5(1)(iva) on the ground that the interest of a partner in a firm is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be computed. So far as the interest of the assessee in a partnership firm is concerned, it is provided in section 4(1)(b) which we shall quote: "4.(1) In computing the net wealth of an individual, there shall be included, as belonging to that individual- . . . . (b) where the assessee is 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. " The manner in which the value of the interest of an individual is to be determined is provided for in rule 2 of the Wealth-tax Rules and the relevant portion of the same is extracted below : " 2.(1) The value of the interest of a person in a firm of which he is a partner or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the value of the interest of a partner in the firm who alone is the assessee. On a reading of sections 3 and 4 of the Act and rule 2 of the Rules, it is clear to our mind that, in determining the net wealth of the firm, the entire assets and debts of the firm irrespective of any exemption provided for in the Act, so far as an assessee is concerned, have to be taken into account. In CWT v. Smt. Keathikamal Kumari Varma[1989] 179 ITR 543, a Full Bench of this court has held that, in valuing the net wealth of the firm, the entire properties including the properties excluded under section 5 are to be taken into account. So also, the entire debts irrespective of the question whether they are excluded under section 2(m)(ii) have to be taken into account. In other words, what is provided for under rule 2 is that the net wealth of the firm has to be determined in accordance with commercial principles and all debts owed by a firm of whatever nature and of whatever duration have to be deducted so long as the debts are enforceable against the firm. We are supported in this view by the decision of a Division Bench of the Allahabad High Court in CWT v. Padampat Singhania [1973] 90 ITR 418. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od at the relevant time, agricultural lands belonging to the assessee were exempted and that it shall not be included in the net wealth of the assessee. This provision is subject to section 5(1A) which provides that the exemption in regard to agricultural land as also certain other categories of assets mentioned in section 5(1) shall be limited to Rs. 1,50,000. It was further contended by him that agricultural land having been exempted which shall not be included in the net wealth of the assessee, the debt in question will squarely come under section 2(m)(ii) and as such cannot be taken into account. On the other hand, counsel for the assessee contended that what is excluded under section 2(m)(ii) is only a debt secured or which has been incurred in relation to any property in respect of which wealth-tax is not chargeable under the Act. According to him, agricultural land is also chargeable to wealth-tax under the provisions of the Act, but there is an exemption granted under section 5(1) read with section 5(1A) to the extent of Rs. 1,50,000. The question to be considered is as to whether agricultural land is chargeable to wealth-tax or not. On the facts of this case, whether there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s general rule knows no restrictions. In other words, depending on its relation to the asset in question, a debt is either deductible or not deductible. Section 2(m)(ii) does not contain any provision for partial abatement, or apportionment, of a debt under which part of it is deductible and part of it is not. On the words of section 2(m)(ii), once an asset which secures the debt is treated as an asset on which wealth-tax is chargeable, even though a part of the value of the asset is exempt from tax, the whole of the secured debt must be deducted." On the other hand, counsel for the assessee relied on a Division Bench decision of the Bombay High Court in CWT v. Vasantkumar Govindji Kotak [1990] 186 ITR 91, wherein the dissenting judgment of the learned single judge of the Madras High Court in the aforesaid decision was followed. We have considered the above judgments as also the relevant statutory provisions. The language of the provision contained in section 2(m)(ii) is cleat and the said provision will apply only if the debt is secured on or incurred in relation to any property in respect of which wealth-tax is not chargeable under the Act. So the question to be decided is as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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