Wealth tax---

---- Net wealth---Computation of net wealth---Partner of firm ---Exemptions-- Partner to be given benefit of exemption to extent of share in net wealth of firm---Exemption in respect of all items under S.5(1) to be ascertained and limit under S. 5(1-A) to be applied---Share of exemption available to firm not to be added back---Indian Wealth Tax Act, 1957, S.5(1) & (1-A).

The assessee owned properties in India and outside India. For the assessment year 1975-76, the Wealth Tax Officer added back in the net wealth of the assessee a sum of Rs.55,000 being a 11/30 share of Rs.1,50,000, refusing the exemption claimed under section 5(1)(iva) of the Wealth Tax Act, 1957, in respect of bank deposits and agricultural lands belonging to a foreign firm in which the assessee was a partner. Similarly, for the assessment year 1976-77, the Wealth Tax Officer disallowed a sum of Rs.36,666 being a 11/30 share of Rs.1,00,000 refusing exemption under section 5(1)(iv) of the Act in respect of a house at Bangalore belonging to the firm. The Tribunal deleted the additions. On a reference:

Held, that a firm has no legal existence and as such it cannot hold any property. It is the partners who own the property as such and the partners alone should have the benefit of the exemption under section 5(1)(iv) of the Act when their individual assessments are taken up, to the extent of their respective shares in the net wealth of the partnership firm. Therefore, the finding given by the Tribunal that the Wealth Tax Officer ought to have granted exemption under section 5(1) in the hands of the firm and not in the hands of the partners individually and separately was not sustainable. Also, even though the Wealth Tax Officer was correct in allowing exemption under section 5(1)(iv) of the Act to the limit prescribed under section 5(1-A) of the Act during the assessment years under consideration he was not correct in adding back the share of exemption available in the foreign firm to the extent of the asessee's 11/30 share. The Tribunal was to ascertain the exemption available to the assessee as an individual partner from all sources under section 5(1) of the Act and limit the same to the limitation provided under section 5(1-A) of the Act.

Venkatavaradha Reddiar (R.) v. CWT (1995) 214 ITR 76 (Mad.) rel.

CWT v. Vasantha (1973) 87 ITR 17 (Mad.) ref.

C.V. Rajan for the Commissioner.

Miss M.J. Nichani for the Assessee.

JUDGMENT

K.A. THANIKKACHALAM, J. ---At the instance of the Department, the Tribunal referred the following two questions of law, for the opinion of this Court, under section 27(1) of the Wealth Tax Act, 1957 (hereinafter referred to as "the Act"):

"(1)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is justified in deleting the additions made by the Wealth-tax Officer to the extent of Rs.55,000 and Rs.36,666 for the assessment years 1975-76 and 1976-77, respectively?

(2)Whether, the Tribunal is justified in holding that the assessee is entitled to further exemption under section 5(1)(iv) in respect of the individual assets even though the same exemption has been granted while working out the assessee's share of interest in the firm of

A.M.K.M.K. Firm, Alorstar?"

The assessee, Sri V. RM. SM. Karuppan Chettier, is assessed to income-tax as well as wealth tax. His wealth consisted of movable and immovable properties, situated both in India and outside India. For the assessment year 1975-76, he had filed a return disclosing net wealth of Rs.4,76,363 and Rs.4,99,849 for the assessment year 1976-77. In the assessment completed in the assessment year 1975-76, the Wealth Tax Officer added back a sum of Rs.55,000 being 11/30 share of Rs.1,50,000 being the exemption claimed under section 5(1)(iv)(a) of the Act in respect of the bank deposit, agricultural lands, etc., to A.M.K.M.K. Firm, Alorstar. Similarly, for the assessment year 1976-77, the Wealth Tax Officer disallowed a sum of Rs. 36,666 being 11/30 share of Rs. 1,00,000 being the value of the house at Bangalore, belonging to A.M.K.M.K. Firm, Alorstar.

Aggrieved, the assessee filed an e` appeal before the Appellate Assistant Commissioner, who confirmed the order passed by the Wealth Tax Officer in both the assessment years under consideration. Not satisfied with the order passed by the Appellate Assistant Commissioner, the assessee filed second appeals before the Appellate Tribunal. The Tribunal was of the opinion that there is no question of the Wealth Tax Officer withdrawing a proportionate share of exemption granted to the foreign firm, as there is no provision for such withdrawal. This conclusion was arrived at on the basis of the Madras High Court decision in the case of CWT v. Vasantha (1973) 87 ITR 17. The Tribunal was also of the view that the exemption is to be given to the firm and not to the partner individually and separately. Therefore, according to the Tribunal, the Wealth Tax Officer's action in adding 11/30 share of the exemption granted to the Alorstar firm in the two years is not justified. Ultimately, the Tribunal came to the conclusion that they are deleting the additions made by the Wealth Tax Officer to the extent of Rs.55,000 during the assessment year 1975-76 and to the extent of Rs.36,666 during the assessment year 1976-77. Accordingly, the appeals were allowed.

Before us, learned standing counsel appearing for the Department, submitted that in view of the later decision of this Court in R. Venkata Varadha Reddiar v. CWT (1995) 214 ITR 76, wherein it was held that a firm has no legal existence and as such it cannot hold any property and it is the partners, who own the partnership property as such, the partners alone should have the benefit of the exemption under section 5(1)(iv) when their individual assessments are taken up to the extent of their respective shares in the net wealth of the partnership firm, the Tribunal was not correct in holding that such exemption is to be given to the firm and not to the partner individually and separately. Learned standing counsel further submitted that the Wealth Tax Officer ascertained the net wealth of the assessee by applying rule 2 of the Wealth Tax Rules and thereby ascertaining the net wealth of the firm, which would come to the share of the assessee in the assessment year 1975-76, Rs.40,063 and for the assessment year 1976-77, Rs.24,710. According to learned standing counsel, the Wealth Tax Officer ascertained the exemption available to the assessee in these two assessment years under consideration under section 5(1)(iv) of the Wealth Tax Act, and granted exemption to the extent possible as per the provisions contained in section 5(1-A) of the Act. While doing so, inasmuch as the Wealth Tax Officer has already granted exemption tinder section 5(1)(iv) of the Act with regard to the other items of the properties, he added back the share of net Wealth in the firm in the individual assessment of the assessee. Though the order passed by the Wealth Tax Officer is correct in accordance with law, the Wealth Tax Officer ought not to have stated that he is adding back the net wealth with regard to the assessee's share in the foreign firm in the assessment years under consideration. Therefore, learned standing counsel for the Department submitted that suitable directions may be given to the assessing authority to ascertain the exemption provided under section 5(1)(iv) of the Act, subject to the limit prescribed under section 5(1-A) of the Act On the other hand, learned counsel appearing for the assessee submitted that the exemption available under section 5(1)(iv) of the Act was not ascertained, by applying rule 2 of the Wealth Tax Rules. According to learned counsel, the Wealth Tax Officer was not correct in stating that 11/30 share in the foreign firm should not be added back in the individual assessment of the assessee. Learned counsel also pointed out that the Wealth Tax Officer was not correct in granting exemption under section 5(1)(iv) of the Act in the hands of the firm, instead of giving such benefit in the hands of the assessee. Therefore, learned counsel appearing for the assessee also submitted that suitable direction may be given to the assessing authority to rework the exemption available under section 5(1)(iv) of the Act, in accordance with section 5(1-A) of the Wealth Tax Act.

We have heard learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee. The dispute in these two wealth tax appeals is with reference to additions made by the Wealth Tax Officer relating to the assessee's 11/30 share of exemption in respect of the foreign wealth in Alorstar. The Valuation Officer had worked out the share of interest of the assessee in the partnership concern at Alorstar and he had worked out such share interest in the firm Alorstar in respect of the assessee's estate at Rs.40,063 during the assessment year 1975-76 and Rs.24,710 during the assessment year 1976-77, Such share of interest was worked out by applying rule 2 of the Wealth Tax Rules. It was pointed out by the Tribunal that during the assessment year 1975-76 the divisible wealth in A.M.K.M.K Firm at Alorstar was worked out to Rs.2,59,318 and exemption under section 5(1-A) of the Act was limited to Rs.1,50,000. During the assessment year 1976-77, the divisible wealth was taken as Rs.3.17,727 and exemption under section 5(1) was given to the extent of Rs.1,00,000. According to the Wealth Tax Officer, since the assessee was given full exemption in the Indian wealth under section 5(1) of the Act, the proportionate 11/30 share exemption allowed in the case of Alorstar firm of Rs.1,50,000 during the assessment year 1975-76 and Rs.1,00,000 during the assessment year 1976-77 had to be withdrawn.

Even though the Wealth Tax Officer was correct in allowing exemption under section 5(1)(iv) of the Act as per the limit prescribed under section 5(1-A) of the Act during the assessment years under consideration, he is not correct in stating that he would add back the share of exemption available in the foreign firm to the extent of 11/30 share. The Wealth Tax Officer could have taken into account all the exemption available under section 5(1) of the Act and granted exemption only to the extent of the limit prescribed under section 5(1-A) of the Act. Therefore, the Wealth Tax Officer was not correct in, stating that he would add back 11 /30 share exemption available in the foreign firm.

As per the later decision of this Court in R. Venkatavaradha Reddiar v. CWT (1995) 214 ITR 76, a firm has no legal existence and as such it cannot hold any property. It is the partners, who own the property as such and the partners .alone should have the benefit of the exemption under section 5(1)(iv) of the Act when their individual assessments are taken up to the extent of their respective shares in the net wealth of the partnership firm. Therefore, the finding given by the Tribunal that Wealth Tax Officer ought to have granted exemption under section 5(1) in the hands of the firm and not in the hands of the partners individually and separately is liable to be set aside. Accordingly, we do the same. So also the Tribunal was not correct in deleting the addition made by the Wealth Tax Officer to the extent of Rs.55,000 during the assessment year 1975-76 and to the extent of Rs.36,666 during the assessment year 1976-77.

In view of the foregoing reasons; we direct the Tribunal to ascertain the exemption available to the assessee as an individual partner from all sources under section 5(1) of the Act and limit the same to the limitation provided under section 5(1-A) of the Act, taking into consideration the decision in R. Venkatavaradha Reddiar v. CWT (1995) 214 ITR 76 (Mad.), instead of adding back 11/30 share of exemption in the hands of the partners as done by the Wealth Tax Officer. In view of the foregoing conclusion, we are returning the questions unanswered, with the above direction. No costs.

M.B.A./1813/FC Order Accordingly.