1977 (4) TMI 22 - HC - Wealth-tax

Court rules interest in partnership firm as part of HUF's net wealth, subject to wealth tax

Sudhakar Manibhai And Kulinsingh Manibhai Versus Commissioner Of Wealth-Tax

Sudhakar Manibhai And Kulinsingh Manibhai Versus Commissioner Of Wealth-Tax - [1978] 111 ITR 384, 1977 CTR 473 Issues Involved:1. Whether the share or interest of the assessee in the partnership firm is an 'asset' under section 2(e) of the Wealth-tax Act, 1957.2. Whether the interest or share of the assessee is includible in its net wealth under section 3 of the Wealth-tax Act, 1957.3. Whether the Tribunal's finding that there is adequate machinery under the Wealth-tax Act, 1957, to evaluate and compute such interest or share is warranted by law.4. Whether such evaluation and computation is to be made under rule 2 of the Wealth-tax Rules read with section 7 of the Wealth-tax Act, 1957.Detailed Analysis:Issue 1:The learned counsel for the assessee did not press question No. 1. Therefore, the court did not address whether the share or interest of the assessee in the partnership firm is an 'asset' within the meaning of section 2(e) of the Wealth-tax Act, 1957.Issue 2:The court examined whether the interest or share of the assessee, who is a partner in a firm in his capacity as the karta of a Hindu Undivided Family (HUF), is includible in the net wealth of the HUF under section 3 of the Wealth-tax Act, 1957. The assessee contended that the value of its interest in the partnership firm should not be included in the total wealth of the HUF. The Tribunal had upheld the view that section 4(1)(b) is not attracted when the assessee is assessed as HUF. However, the court disagreed, stating that section 4(1)(b) applies to all persons by whom wealth-tax is payable, including a karta representing an HUF. The court concluded that the interest of the assessee in the partnership firm is includible in the computation of the net wealth of the HUF, as defined by section 2(m), and chargeable to wealth-tax under section 3.Issue 3:The court addressed whether there is adequate machinery under the Wealth-tax Act, 1957, and its rules to evaluate and compute the interest or share of the assessee in the partnership firm. The Tribunal had found that there is adequate machinery for such evaluation and computation. The court affirmed this finding, noting that the interest of the assessee in the partnership firm is an asset capable of being valued and included in the net wealth of the HUF.Issue 4:The court considered whether the evaluation and computation of the interest or share of the assessee in the partnership firm should be made under rule 2 of the Wealth-tax Rules read with section 7 of the Wealth-tax Act, 1957. The court held that section 4(1)(b) is attracted, and therefore, the rules framed under section 4(2) for the valuation of the interest in a partnership firm apply. Consequently, the court affirmed that such evaluation and computation should be made under rule 2 read with section 7.Conclusion:The court answered questions Nos. 2, 3, and 4 in the affirmative and in favor of the revenue. The interest of the assessee in the partnership firm, representing the HUF as a karta, is includible in the net wealth of the HUF and subject to wealth-tax. The court directed that the assessee in each matter will pay the costs of the reference to the revenue.