Wealth-tax exemption for replacement fixed deposit allowed by counting firm's prior holding period under the six-month rule.

A fresh fixed deposit made from the maturity proceeds of an earlier firm deposit qualified for exemption under section 5(1)(xxvi) of the Wealth-tax Act because bank deposits are exempt assets and the ceiling in section 5(1A) does not alter that character. In construing the Explanation to section 5(3), the partnership property was treated as jointly owned by the partners, so the assessee could count the period during which the firm held the earlier exempt deposit. As the new deposit was placed immediately on maturity from the earlier proceeds, the holding period satisfied the six-month requirement, and the addition of the deposit to net wealth was not sustainable.

---

---

Issues: Whether the assessee was entitled to exemption under section 5(1)(xxvi) of the Wealth-tax Act, 1957 in respect of the fresh fixed deposit made out of the maturity proceeds of an earlier firm deposit, and whether the holding period of the firm could be counted under the Explanation to section 5(3).

Analysis: The relevant fixed deposit was created from the maturity proceeds of an earlier bank deposit held by the partnership firm. Bank deposits fall within the exempt asset category under section 5(1)(xxvi), and the ceiling under section 5(1A) does not change the character of the asset as one eligible for exemption. In construing the Explanation to section 5(3), the Tribunal treated the partnership property as jointly owned by the partners, so the assessee could be regarded as having owned the earlier exempt asset during the period the firm held it. Since the new deposit was made immediately on maturity from the proceeds of the earlier exempt deposit, the earlier holding period was available for reckoning the six-month requirement.

Conclusion: The assessee was entitled to include the period during which the firm held the earlier deposit, and the fresh fixed deposit qualified for exemption under section 5(1)(xxvi) read with section 5(3). The addition of the deposit to net wealth was not sustainable.

---