Wealth tax---

----Assets---Firm---Partner bequeathing his right, title and interest in firm and amounts outstanding to his credit to a. minor---Death of partner-- Subsequent agreement between guardian of minor and firm---Firm agreeing to pay- monthly sum to minor---Minor acquired assets consisting of right, title and interest and share of partner in firm on his death---Subsequent agreement between guardian of minor and firm was not relevant---Indian Wealth Tax Act, 1957.

The assessee was the legal heir under the will of one G, who was one of the partners in a firm and who passed away on October 10,1967, bequeathing the right, title and interest that he had in the said firm and the amount outstanding to his credit with the said firm, as also his share in the property of the firm to the assessee, who was the son of his niece and who was a minor. After the death of G, a fresh lease deed was executed on January 1,1968, in which it was recited that the father of the assessee, who was his natural guardian, had agreed that the minor assessee would not exercise his rights and instead would allow the goodwill and other assets representing the share of 15 percent. of G to remain in the firm, on the firm agreeing to paying certain periodical sum to the minor. In his return of wealth for the assessment year 1969-70, the assessee valued the goodwill at Rs.36,000 and Rs.1,884, contending that the amount should not be added in the net wealth of the assessee. The Wealth Tax Officer did not accept this contention on the ground that the assessee had inherited the value of goodwill as on October 10,1967, when G passed away. In the returns filed by the assessee for the years 1970-71 to 1973-74 also the assessee contended that the value of Rs.37,884 which was shown, should not be included in his wealth, but the same was not accepted. The Tribunal held that the assessee had no interest in the partnership firm except to receive Rs.2,500 per month under the agreement, dated January 1,1968. On a reference:

Held, that the assessee acquired the asset consisting of the right, title and interest and the share of the deceased G when it devolved on him on October 10,1967 which he was entitled to recover from the firm and the amount of Rs.2,500 per month referred to in the agreement, dated January 1,1968 which was executed after the asset had devolved on the assessee, could not be taken to be the value of that asset, as erroneously decided by the Tribunal. The assessee, who was a minor, could not have become a partner in the firm. He was never admitted to the benefits of the partnership firm. He, therefore, did not have any interest in the firm in the capacity of a partner or a minor admitted to the benefits of a partnership. He was only entitled to the share of G in the firm, which had devolved on him under the will and had become his property when the bequest opened on October 10, 967, which alone he was entitled to recover from the firm. Since the position of his rights already crystallised on October 10,1967, it was immaterial whether the partnership was at will. Since the assessee was not a partner in the firm nor was he admitted to the benefits of the partnership, the question of his interest in the firm being precarious did not arise. The Tribunal erred in law in directing the Wealth Tax Officer not to include in the wealth of the assessee any amount towards the share of the assessee in the partnership firm on account of the will of the deceased partner.

Mihir Joshi instructed by Manish R. Bhatt for the Commissioner.

J. P Shah for the Assessee.

JUDGMENT

R. K. ABICHANDANI, J.---This reference relates to the following questions in respect of which the Appellate Tribunal was required to draw up the statement and refer the case to this Court under the provisions of section 27(3) of the Wealth Tax Act, 1957:

"(1) Whether, on the facts and in the circumstances, of the case, the Appellate Tribunal has been right in law in holding that the assessee had no interest in the partnership firm of Cadila Laboratories except to receive Rs.2,500 per month under the agreement, dated January 1, 1968?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding that even if the assessee had any other interest since under both partnership deed, dated April 3,1963, and January 1,1968, the partnership was at will the asset was precarious?

(3) Whether, the Appellate Tribunal was on the facts and in the circumstances of the case, right in law in holding that neither section 2(c)(1) nor section 2(e)(2) of the Wealth Tax Act had any application to the facts of the case.

(4) Whether, the Appellate Tribunal erred in law in directing the Wealth Tax. Officer not to include in the wealth of the assessee any amount towards the share of the assessee in the partnership firm of Cadila Laboratories on account of the will of the deceased partner, Sri Govindalal M. Tamboli except to the extent of a right to receive a monthly sum of 85.2,500?"

The assessee is a legal heir under the will of one Govindalal M. Tamboli, who was one of the partners in Cadila Laboratories, and who passed away on October 10,1967 bequeathing the right, title and interest that he had in the said firm and the amount outstanding to his credit with the said firm, as also his share in the property of the firm to the assessee, who was the son of his niece Shilaben, under a will, dated February 28, 1967. After the death of the said partner, Govindlal M. Tamboli, there was a fresh lease deed executed on January 1,1968, in which it was recited that the father of Rajiv who was his natural guardian had agreed that minor Rajiv shall not exercise his rights and instead will allow the goodwill and other assets representing the share of 15 percent. of Govindlal Tamboli to remain in the firm, on the firm agreeing to paying certain periodical sum which was embodied in a separate deed executed between the firm on the one hand and Mr. Indravadan Modi as a natural guardian of minor Rajiv, on the same day.

In his return of wealth for the assessment year 1969-70, the. assessee valued the goodwill at Rs.36,000 and Rs.1,884, contending that the amount should not be added in the total wealth of the assessee. The Wealth Tax Officer did not accept this contention on the ground that the assessee had inherited the value of goodwill as on October 10,1967, when Govindlal Tamboli passed away. In the returns filed by the assessee for the years 1970-71 to 1973-74 also the assessee contended that the value of Rs.37,884 which was shown, should not be included in his wealth, but the same was not accepted. The Appellate Assistant Commissioner held that after the death of Govindlal Tamboli, his .15 percent. share in the firm devolved on the assessee. It was also observed by him that on the date of death of Govindlal Tamboli, his capital account in the books of the firm showed a credit balance of Rs.55,982.90 and this balance was transferred to an account opened in the name of the assessee and the amount was treated as a loan from the assessee and interest was paid thereon from year to year. In the view of the Appellate Assistant Commissioner, two sums of Rs.36,000 and Rs.1,884 brought to tax by the Wealth Tax Officer did not represent the real value of 15 percent. interest in the share of the deceased Govindlal, which had devolved on the assessee. A notice was, therefore, issued on the assessee to show cause as to why the interest of the firm should not be valued at Rs.4,80,000 which figure was arrived at by multiplying the yearly consideration of Rs.30,000 on the basis of Rs.2,500 per month, which was agreed; by sixteen. The Appellate Assistant Commissioner took into consideration the figures of income returned by the firm for the assessment years 1967-68 to 1977-78 and took the view that the potentialities of the firm must have been visualised by the parties while entering into the agreement to give to the assessee Rs.2,500 per month. The Appellate Assistant Commissioner determined the capital of value of this interest taking the annual yield at 6 1/4 percent. In the view of the Appellate Assistant Commissioner, the rate of yield called for applying the multiple of sixteen to the annual yield for arriving at the capital value of the interest. The capital value was thus, taken at Rs.4,80,000 against Rs.37,884 brought: to `tax by the Wealth Tax Officer in each of the assessment years and the wealth was enhanced by Rs.3,62,116 in each of the assessment years 1969-70 to 1974-75.

The assessee carried the matter to the Tribunal and the Tribunal held that the assessee did not have any interest in the partnership firm except to receive Rs.2,500 pre month. It was observed that the agreement to receive the said amount was not arrived at on the ground that it was collusive and that. the subsequent events showed that the agreement to receive Rs.2,500 per month was in the interest of the assessee, who was a minor. It was held that the assessee was not the heir of Govindlal Tamboli and was not entitled under the partnership deed, dated April 3,1963, to be admitted to the partnership. It was also held that there was nothing in the partnership deed, dated April 3,1963 which required to admit a minor heir of a deceased partner to the benefits of partnership. The Tribunal, therefore, held that the assessee had no interest in the partnership firm except to receive Rs.2,500 per month under the agreement, dated January 1,1968. The Tribunal, therefore, directed not to include in the wealth of the assessee the amount of Rs.37,884 and to re compute the wealth of the assessee after excluding the said amount. The order of enhancement made by the Appellate Assistant Commissioner for the assessment years 1969-70 to 1974-75 was set aside, leading to this reference.

There is no dispute about the fact that the assessee inherited under will, dated February 28,1967, of Govindlal Tamboli on October 10,1967, i.e., the date on which the testator passed away, the right, title anti inter of the testator in the partnership firm, Cadila Laboratories, and an amount of Rs.55,982.90, as also his share in the property of the firm. It is obvious that the will operated on October 10,1967, devolving the right, title and interest and the share of the testator Govindlal Tamboli an the assessee. Therefore, on that day, the right of the assessee. who was a minor, .to claim the right, title, interest including the share of the testator .in, the firm, which had devolved can him got crystallised. ,As defined by the provisions of section 2(e) of the said Act. "asset" includes properties,, movable or. immovable, except those which are specified therein. The property which 'had devolved on the assessee on October 10,1967, was an asset belonging to the assessee, which required to be included in his net wealth. Any agreement which may have been entered into after the property had devolved in the above manner under the will in respect of such. property was only an arrangement as to how the asset which the assessee acquired should be dealt with. The crucial date for ascertaining the value of the asset acquired under the will by the assessee was the date on which the bequest of legacy opened which was on October 10,1967. The Assessing Officer was required to work out the value of the asset so acquired in the context of that date and the subsequent arrangement of January 1,1968, which was made, by the natural guardian of the minor assessee in an agreement entered into with the firm cannot, therefore, constitute the basis for holding that the amount of Rs.2,500 per month fixed for the use of the asset mentioned in the agreement was to be treated as the asset acquired under the will. The Tribunal overlooked the fact that since the right, title and interest including that share in the property of the firm which Govindlal Tamboli had bequeathed to the assessee, the assessee became entitled to recover it from the firm when the bequeath opened on October 10,1967.In this view of the matter, in our opinion, the Tribunal, on a misconception of law, committed an error in holding that the assessee had no interest in the partnership firm except to receive Rs.2,500 per month under the agreement, dated January 1,1968.

We, therefore; hold that the assessee already acquired the asset consisting of the right, title and interest and the share of the deceased Govindlal Tamboli when it devolved on him on October 10,1967, which he was entitled to recover from the firm and that the amount of Rs.2,500 per month referred to in the agreement, dated January 1,1968, which was executed after the asset had devolved on the assessee, could not be taken to be the value of that asset, as erroneously decided by the Tribunal. Questions Nos. 1 and 4 are, therefore, answered- accordingly in favour of-the Revenue and against the assessee.

As-regards question No.2, it is obvious that since, admittedly the assessee, who was a minor, could not have become a partner in the firm. He was never admitted to the benefits of the partnership firm. He, therefore, did not have any interest in the firm in the capacity of a partner or a minor admitted to the benefits of a partnership. He was only entitled to the share of Govindlal Tamboli in the firm, which had devolved on him under the will and had become his property when the bequest opened on October 10,1967, which alone he was entitled to recover from the firm. Since the position of his rights already crystallised on October 10,1967, it was immaterial whether the partnership was at will. In view of our answer to questions Nos. 1 and 4, this question No.2 would, therefore, not survive and is left unanswered.

As regards question No.3, again since the assessee was not a partner in the firm 'nor was he admitted to the benefits of the partnership, the question of his interest in the firm being precarious does not arise since the assessee had already acquired the share of the deceased partner Govindlal Tamboli under the will on October 10,1967, and his rights became crystallised on that day for recovering whatever was the right, title and interest including the share of the deceased partner, in the firm. Question No.3, therefore, would not survive and is left unanswered, in view of our answer to questions Nos. l and 4. The reference stands disposed of accordingly with no order as to costs.

M.B.A./4242/FCOrder accordingly.