TaxTMI 
TaxTMI 
1977 (10) TMI 15
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.... so assessed for tax included the interest of the family in petitioner-1 firm up to the assessment year 1966-67. In the returns to wealth-tax submitted by petitioner-2 in the status of HUF for the assessment years 1967-68 to 1972-73, the family's interest in petitioner-1 firm was included. Petitioner-1 firm owned a number of buildings in Kanpur. In the returns submitted by petitioner-2, the book value of those buildings had been adopted for valuing the interest of the family in petitioner-1 firm. As respondent-1, the WTO, felt that the market value of those buildings was much more than such book value, he referred the valuation of those buildings to the Valuation Officers under s. 16A of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act "). Respondents 2 and 3, the Valuation Officers, issued notices to petitioner-2 intimating that they would inspect the buildings for determining the fair market value thereof and requesting him to afford necessary facilities for such inspection and to produce certain records connected with those buildings. Petitioner-2 addressed a letter to the WTO in which he contended that none of the properties referred to the valuers belonge....
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....the petition: (i) For assessment of petitioner-2, the WTO could not refer to the Valuation Officers the valuation of buildings which did not belong to him but belonged to petitioner-1 firm. (ii) The interest of a HUF in a partnership firm is not exigible to wealth-tax. (iii) The interest of petitioner-2 in petitioner-1 firm has to be valued in accordance with r. 2 of the Wealth-tax Rules, 1957 (hereinafter called "the Rules") and hence s. 16A of the Act which provides for reference to the Valuation Officer has no application. (iv) The value of the aforesaid buildings which formed a part of the assets of the business of petitioner-1 firm has to be determined in accordance with the commercial principles under cl. (a) of sub-s. (2) and not under sub- s. (1) of s. 7. (v) The Valuation Officers could not issue the notices to petitioner-2 as he was neither the owner of those buildings nor was in occupation thereof. We shall now proceed to consider the above contentions seriatim. Elaborating the first contention, Shri Khare submitted that a partner of a firm is not the owner of the property belonging to the firm nor has he dominion over such property and that his only....
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.... partner of his interest in the firm...... entitles the transferee only to receive the share of profits of the transferring partner.... (2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution." Thus, the interest of a partner in a firm is capable of being transferred in praesenti and there is no reason why such interest should not be regarded as a property. The definition of asset in s. 2(e) of the Act includes property of every description except those categories of properties which have been specifically excluded under sub-cls. (1) and (2) of cl. (e). That the interest of a partner in a partnership firm can be regarded as an asset, is also clear from s. 4, the relevant portions of which read: "4(1). In computing the net wealth of an individual, there shall be included, as belonging to that, individual--... (b) where the assessee is a partner in a firm...... the value of his interest in the f....
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....h law or in accordance with the terms of the agreement, as the case may be." Though petitioner-2, Padampat Singhania, the karta of the HUF, functioned as a partner of petitioner-1 firm in his personal capacity, the HUF had a share in the profits and the assets of petitioner-1 firm. It is true that s. 4(1)(b) of the Act refers to the manner of ascertaining the value of the share of an individual in a partnership firm and that there is no corresponding express provision in the Act as to the manner of valuing the interest of a HUF in a partnership firm. But from this circumstance it does not follow that the interest of a HUF in a partnership firm, is not a part of the net wealth of such family and liable to wealth-tax. The material portion of s. 3 of the Act, which is the charging section, reads: " 3. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family ..........." Clause (m) of s. 2 of the Act defines "net wealth" as....
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....s referred by the Wealth-tax Officer to the Valuation Officer under section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date, or, in the case of an asset being a house referred to in sub-section (4), the valuation date referred to in that sub-section." Sub-section (1) of s. 16A of the Act reads: "16A. (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, the Wealth-tax Officer may refer the valuation of any asset to a Valuation Officer-- (a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value; (b) in any other case, if the Wealth-tax Officer is of opinion-- (i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescri....
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.... the value of such assets is to be determined, s. 7 comes into play and sub-s. (1) thereof states that the value of any asset (other than cash) shall be the estimated price it would fetch if sold in the open market on the valuation date. Sub-cl. (ii) of s. 16A(1)(b) provides that where the WTO is of opinion that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, he may refer the value of any asset to the Valuation Officer. Thus, r. 2, s. 7 and s. 16A(1)(b)(ii) can be read harmoniously and r. 2 does not exclude the application of s. 7 and s. 16A for valuing an asset of a partner in a partnership firm. Even so, Shri Khare contended that sub-s. (2) of s. 7, which contains a non-obstante clause, provides that where the accounts are maintained regularly in a business, the WTO has to determine the net value of the assets of such business on the basis of the balance-sheet of such business and that it is not open to him to determine separately the value of individual assets of such business. We are unable to accept the construction sought to be put by Shri Khare on sub-s. (2) of s. 7 of the Act. Though that sub-section contains a n....