Wealth-tax valuation of partnership interests requires firm-level computation first, with exemptions applied only in the partner's hands.

For wealth-tax valuation of a partner's interest in a firm, the firm's net wealth is first computed by aggregating assets and liabilities on the statutory dissolution basis, and each partner's share is then worked out under the Rules as if the firm were dissolved on the valuation date. Assets enjoying exemption are not excluded at the firm stage; the exemption is applied in the partner's hands after allocation of his share, when his individual net wealth is computed. This approach preserves the statutory method of valuation and avoids double deduction or premature exclusion of exempt assets.

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Issues: Whether, for wealth-tax purposes, the exemption in respect of assets held by a partnership firm is to be given in the hands of the firm or in the hands of the partner assessee, and how the net wealth of the firm and the partner is to be computed and allocated.

Analysis: The scheme of the Wealth-tax Act and the Rules requires the net wealth of a firm to be computed by aggregating its assets and liabilities in the manner contemplated by section 2(m), and the interest of each partner is then to be worked out under rule 2 as if the firm were dissolved on the valuation date. The exempt character of assets under section 5 does not justify excluding them at the firm stage before allocation, because the firm is not an assessable unit under the Act. Instead, the firm's net wealth is first determined, including exempt assets, and then allocated among the partners with the nature of the assets and liabilities falling to each share. Thereafter, the partner's own net wealth is computed by clubbing the allocated share with his other assets and liabilities, and the exemption under section 5 is applied in his hands to the extent permissible. This construction avoids both double deduction and the exclusion of exempt assets from the statutory method of valuation.

Conclusion: The exemption is not to be allowed in the hands of the firm before allocation, but is to be given in the hands of the partner assessee after his share in the firm is determined; the Revenue's contention was accepted only to the extent of the method of computation, and the assessment was sent back for fresh working.

Final Conclusion: The appellate order was set aside and the matter was remitted to the Wealth-tax Officer for recomputation of the firm's net wealth, allocation of the partner's share, and grant of exemption in the partner's hands in accordance with the Act and the Rules.

Ratio Decidendi: For wealth-tax valuation of a partner's interest in a firm, the firm's net wealth is first computed on a dissolution basis and then allocated among the partners, after which the partner's own exempt assets are considered in his individual assessment.

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