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TMI Blog1986 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... licable ? " Assessment years 1960-61 to 1965-66 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the income-tax liabilities of Rs. 15,01,200 arising on the basis of the disclosure made by the firm of Aminchand Pyarelal, of which the assessee is a partner, under section 68 of the Finance Act, 1965, and under section 24 of the Finance (No. 2) Act, 1965, have to be deducted from the net wealth of the said firm in respect of the assessment years 1960-61 to 1965-66 for the purpose of determining the value of the partnership interest of the assessee ? " Assessment years 1963-64 to 1966-67 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the personal income-tax liabilities of Rs. 90,000 arising from the disclosure made by the assessee under section 68 of the Finance Act, 1965, would be deductible in computing the net wealth of the assessee in respect of the assessment years 1963-64 to 1966-67 ? " So far as the common question referred for the assessment years 1960-61 to 1965-66 is concerned, the controversy raised therein is covered by a decision of this cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the firm. Being aggrieved, the Revenue preferred appeals from the order of the Appellate Assistant Commissioner before the Income-tax Appellate Tribunal. It was contended on behalf of the Revenue before the Tribunal that for the purpose of determining its net wealth, a firm should also be deemed to be an assessee and for computation of the net wealth of the firm, section 7(2)(a) and rules 2A to 2G should have been applied. The Tribunal followed its earlier decision in a connected case of Jit Paul, another partner of the firm, in Wealth-tax Appeals Nos. 1.52 to 164. It was held in that case by the Tribunal that on a proper and harmonious reading of the provisions of the Wealth-tax Act, it was clear that the provisions of rules 2A to 2G would be attracted only if it was held that the provisions of section 7(2)(a) of the Wealth-tax Act were applicable in determining the value of the interest of the assessee in a firm. The Tribunal noted the said section 7(2)(a) of the Act and held that it applied where an assessee carried on business of which accounts were maintained by him regularly. The Tribunal also noted section 2(c) which defines an assessee as a person by whom wealth-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderstood in the same sense as in the Wealth-tax Act in view of rule 1A(m) of the Rules as also under the well-established rules of interpretation. It was held that in ascertaining the net wealth of a firm under section 2(m) of the Wealth-tax Act, there should be an aggregation of the value of all assets but excluding agricultural lands as they have been specifically excluded from the definition of assets in section 2A. Therefore, in computing the value of the net wealth of an assessee who was a partner in a firm which owned agricultural land, the value of agricultural land would have to be excluded. Learned advocate for the assessee contended to the contrary. He submitted that in view of rule 2 of the Wealth-tax Rules which was specific rule providing for valuation of the interest of a partner in a firm, it was not open to the Revenue to invoke the provisions of section 7 of the Wealth-tax Act or rules 2A to 2G of the Rules which applied in cases only where the valuation of the assets of an assessee was being made. He submitted that in computing the net wealth of a firm under rule 2, there being no specific provisions as in rules 2A to 2G of the Wealth-tax Rules, the commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uently, the assessment was reopened on the ground that the valuation of the share should have been made in accordance with rule ID. The proceedings were challenged successfully by a writ petition before the High Court. It was held that the net wealth of a firm had to be calculated under rule 2 of the Wealth-tax Rules, in accordance with the commercial principles, and the special provisions in the Act for the computation of net wealth of an assessee could not be applied for computing the net wealth of a firm under rule 2. Earlier decisions in Padampat Singhania's case [1973] 90 ITR 418 and Laxmipat Singhania's case [1974] 97 ITR 188 were followed. At this stage, it is convenient to refer to the relevant sections of the Wealth-tax Act, 1957, and the relevant rules framed under the Wealth-tax Rules. The same are set out as follows: "Section 2.-In this Act, unless the context otherwise requires,-... (c) 'assessee' means a person by whom wealth-tax or any other sum of money is payable under this Act, and includes (i) every person in respect of whom any proceeding under this Act has been taken for the determination of wealth-tax payable by him or by any other person or the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation 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. Rule 2A.-Where the Wealth-tax Officer determines under clause (a) of sub-section (2) of section 7, the net value of the assets of the business as a whole having regard to the balance-sheet of such business, he shall make the adjustments specified in rules 2B, 2C, 2D, 2E, 2F and 2G. Rule 2B.-Adjustments in the value of an asset disclosed in the balance-sheet.-(1) The value of an asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Act; (c) the value of any asset in respect of which wealth-tax is not payable under the Act; (d) any amount shown in the balance-sheet including the debit balance in the profit and loss account or the profit and loss appropriation account which does not represent the value of any asset. Rule 2E.-Value of certain liabilities not to be taken.-The following amounts shown as liabilities in the balance-sheet shall not be taken into account for the purposes of rule 2A: (a) capital employed in the business other than that attributable to borrowed money; (b) reserves by whatever name called; (c) any provision made for meeting any future or contingent liability ; (d) any debt owed by the assessee which has been specifically utilised for acquiring an asset in respect of which wealth-tax is not payable under the Act: Provided that where it is not possible to calculate the amount of debt so utilised, it shall be taken as the amount which bears the same proportion to the total of the debts owed by the assessee as the value of that asset bears to the total value of the assets of the business. Explanation.-Provision for any purpose other than taxation shall be treated a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance-sheet or not by making necessary adjustments. In our view, the general principles of valuation of assets have been clearly laid down in section 7(1) of the Act and rule 2 of the rules. The Legislature had advisedly laid down the exception in procedure in section 7(2) in the specific case of valuation of assets of a business which the assessee is carrying on and accounts of which are being maintained by the assessee regularly. Admittedly, in the instant case, the assessee is not carrying on the business of the firm by himself nor is it the case of the Revenue that the assessee is maintaining the accounts of such business regularly. In our view, the Revenue is not entitled to invoke the special provisions of section 7(2) of the Act read with rules 2A to 2G in the facts of this case where only the net wealth of the firm and the interest of the assessee therein are being determined. Section 4(1)(b) specifically lays down that the value of share in firm is to be determined in the prescribed manner and rule 2 of the Rules prescribes such manner. Section 7(2) of the Act and rules 2A to 2G of the Rules, in our view, cannot be extended to cover cases specially governed by se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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