TaxTMI 
TaxTMI 
1977 (8) TMI 82
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....re in building. If a property did not belong to the assessee, it value cannot be included in net wealth. (4) Appellant's interest in R.F. Layallpur Flour Mill, except that exempt under cl. (xxxii) of s. 5(1), having already included in appellant's net wealth further addition of Rs. 65,266 (74-75)/Rs. 62,533 (75-76) being value of 1/3 share of land and building of Layallpur Flour Mill was not justified and was duplicate addition. The learned AAC has erred in holding that the WTO had added only appreciation and has erred in confirming the addition. (5) The learned AAC has erred in confirming valuation of 1/42 share of appellant in shop No. 107, New Cloth Market, Ahmedabad at Rs. 6,000 as against Rs. 4,000 shown by the appellant and valued by Approved Valuer. (6) The learned AAC has erred in not allowing exemption in respect of one house on the ground that the exemption was allowed in respect of agricultural lands Rs. 800. We shall take up first grounds No. 1, 2 & 3 together. The brief facts relating to these three grounds are as follows. The assessee and his two brothers, Svs. Kartar Singh & Ajit Singh, were partners in a firm Layallpur Flour Mills, Sriganganagar with 1/3....
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....as not a legal entity separate from the partners and, therefore, whatever assets the firm had were, in fact, the assets of the partners jointly owned by them in their profit sharing proportions. In other words, the assets of the firm belonged to the partners and it was on this premise the learned counsel said that the value thereof was made includible in the WT assessments of the partners under s. 4(1)(b) of the WT Act. Explaining this provision on the WT Act from his own point of view, the learned counsel said that the interest of a partner in a firm which to be included in the WT assessment was comprised of the partner's interest in the various assets of the firm. In this context, he also referred to the provisions of s. 5(1)(xxxii) of the WT Act according to which the value of the interest of an assessee in the assets forming part of an industrial undertaking belonging to a firm is not to be subjected to Wealth-tax. He also referred to r. 3 of paragraph B of part I of the schedule to WT Act according to which in the case of a partner of a firm, where the firm's assets include urban assets, there notwithstanding anything contained in the Indian Partnership Act, 1932 or in any oth....
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....antha 87 ITR 17 and decisions of the Hyderabad and Gujarat Benches of the Tribunal in the cases of Mrs. Lillian Rodrigues (1977) TTJ 222 and Ramniwas Karwa (1976) TTJ 1108 respectively. 4. On behalf of the Revenue, the learned Departmental Representative has referred to us the decision of the Hon'ble Supreme Court of India in the case of Addaki Narayanappa vs. Bhaskara Krishnappa (AIR 1966 (SC) 1300), wherein their Lordships have considered the nature of the interest of a partner in a Partnership. According to their Lordships, the nature of the interest of the partner in a firm does not partake of the nature of the assets held by the firm and whatever be the nature of the assets of the firm, it was held that the interest of a partner in the partnership assets is movable property. Their Lordships further held that a partner, so long as the firm subsisted, could not claim ownership with reference to any of the individual assets of the firm. On that view of the law laid down by the Supreme Court, the learned Departmental Representative said that the assessee had merely "an interest in the firm", the value which is to be determined in the manner laid down r. 2 of the WT Rules, 1957.....
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....s to be determined in the manner laid down in r. 2 of the WT Rules, 1957. In doing so, the net wealth of the firm has to be determined in the first instance and thereafter, it is to be allocated amongst the partners in the manner laid down in the said rule. The case of the assessee is that even though the value of the assessee's interest in the firm is determined in the manner laid down in the rules, such value has direct relation to the individual assets of the firm and further that these assets have the same character in the hands of the assessee as they have in the hands of the firm. Against that the Department's view is that the assessee's interest in the firm has no relation at all to the individual assets of the firm. We have considered these view points in the light of the Supreme Court decision in Addanki Narayanappa vs. Baskara Krishnappa considering the nature of a partner's interest in a firm, their Lordships have observed : "It seems to us that looking to the scheme of the Indian Act no other view can reasonably be taken. The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including imm....
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..... It thus clearly emerges that so long as the partnership subsists, a partner cannot claim any right of ownership over any of the assets of the firm. The partners' interest in the firm has no direct relation to the firm's individual asset. The nature of the partners' interest in the firm is not the same as the nature of the various assets of the firm and, in fact, the former is invariably movable property even if the firm's assets are partly movable and partly immovable. This being the position in law, a partner of a firm cannot exemption under s. 5(1)(iv) in respect of any property belonging to the firm firstly because the partners dos not have any house or part of a house and secondly, it does not belong to him. the learned counsel for the assessee has referred to s. 5(1)(xxxii) of the WT Act and also to r. 3 of paragraph B of Part I of the Sch. to WT Act which according to him suggest that the partners' interest in the firm has a direct relation to the assets of the firm and that the assets retain in the hands of the partner the same character as they have in the hands of the firm. We do not think any such inference can be drawn. The aforesaid provisions are special provisions i....
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....ld that the building did not belong to the partners of the firm is hardly tenable. The Tribunal's view in the case of Ramniwas Karwa referred to by the assessee's counsel can not be of any help to the assessee as in that case the Tribunal was concerned with an AOP and a member thereof while in the present case we are concerned with a firm and a partner thereof. 6. We have also considered the assessee's contention that while determining the net wealth of the firm for the purpose of ascertaining the value of the assessee's interest in the firm, the benefit of s. 5(1)(iv) should have been considered. This issue is covered squarely by the decision of their Lordships of the Madras High court in the case of CIT vs. Vasantha, and respectfully following it, we hold that the computation of the net wealth of the firm Lyallpur Flour Mills should have been made in accordance with the provisions of the WT Act including 5(1)(iv). In other words, in determining the net wealth of the said firm, one house or part of a house belonging to the firm, to the extent of Rs. 1 lakh of its value, should have been exempted in terms of s. 5(1)(iv). We direct the WTO to recalculate the net wealth of the fir....