COMMISSIONER OF WEALTH TAX VS B. CHANDRASEKHARA RAO
2001 P T D 835
[242 I T R 6]
[Andhra Pradesh High Court (India)]
Before P. Venkatarama Reddi, V. Eswariah and S. Ananda Reddy, JJ
COMMISSIONER OF'WEALTH TAX
versus
B. CHANDRASEKHARA RAQ
Case Reference No. 128 of 1989, decided on 03/12/1999.
Wealth tax---
----Exemption---House property---Firm---Minor---Minor admitted to benefits of partnership---House property owned by firm---Minor entitled to exemption under S.5(1)(iv) in respect of his share in such house property-- Indian Wealth Tax Act, 1957, S.5---Indian Wealth Tax Rules, 1957, R.2.
If for the purpose of computation of the firm's wealth under rule 2 of the Wealth Tax Rules, 1957, and the interest of the partner therein, the assets specified 'in section 5(1) of the Wealth Tax Act, 1957, cannot be excluded, a fortiori, such assets cannot be excluded while adopting the valuation on general principles de hors rule 2: Thus, whether the partner's interest in the firm is evaluated and subjected to tax under section 4(1)(b) read with rule 2 or on general principles based on the concept of net wealth, the result would be the same. There is no question of deducting exemptible assets under section 5(1)(iv) while evaluating his interest in the firm and therefore, on the principle laid down by the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61, he can avail of that exemption in his hands, although the exemptible asset relates to the firm. The law laid down in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and reiterated in C.W.T. v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) no longer holds good. The deduction or exemption, under section 5(1)(iv) cannot be granted while evaluating the firm's wealth for the purpose of ascertaining the interest of the partner or a member of the firm. The exemption under section 5(1)(iv) is available irrespective of the fact that the assessee associated with the firm is a minor.
CWT v. T.S. Sundaram (1999) 237 ITR 61 (SC) applied.
CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) held no longer good law.
C.W.T. v. Mrs. Christine Cardoza (1978) 114 ITR 532 (Kar.) ref.
S.R. Ashok for the Commissioner.
Nemo for the Assessee.
JUDGMENT
P. VENKATARAMA REDDI, J.---Doubting the correctness of the view expressed in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66, a Division Bench of this Court has referred this R.C. for consideration of the Full Bench. The R.C. arises out of the references application filed by the Commissioner of Wealth Tax under section 27(1) of the Wealth Tax Act. The questions of law referred are these:
"(1) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the provisions of section 4(1)(b) of the Wealth Tax Act, 1957, rule 2 of the Wealth Tax Rules, 1957, and the principle decided by the Andhra Pradesh High Court in CWT v. Narendra Ranjalker (1981) 129 ITR 203, are not applicable in the case of the assessee who is a 'minor'?
(2) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in directing the Wealth Tax Officer to grant exemption under section 5'(1)(iv) separately for a minor?"
Before we proceed to state the facts, we would like to extract the relevant provisions including those adverted to in the questions framed.
"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 or a member of an association of persons not being a cooperative housing society the value of his interest in the firm or association determined in the prescribed manner.
5. (1) Subject to the provisions of subsection (1A) wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--
(iv) one house or part of a house belonging to the assessee:
Provided that, where the value of such house or part exceeds one hundred thousand rupees, the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred thousand rupees;"
Section 2(m) defines "net wealth" as follows:
"'net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the asset, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on .that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than--
Rule 2 of Wealth Tax Rules:
"2: (1) The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the manner provided herein. The net wealth of the firm or the association on the valuation date shall first be determined. That portion of the net wealth of the firm or association as is equal to the amount of its capital shall be allocated among the partners or members in the proportion in which capital has been contributed by them. The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or, in the absence of such agreement, in the proportion in which the partners or members are entitled to share profits. The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner of member in the firm or association."
The assessee who was a minor during the relevant assessment year, was admitted to the benefits of partnership in the firm known as Taj Mahal Hotel, Secunderabad. He was having a 1/8th share in the profits of the firm. In wealth tax assessment, the assessee returned a net wealth of Rs.68,897. The Wealth Tax Officer added to that amount a sum of Rs.1,06,656 and arrived at the net wealth of Rs.1,75,553. The amount of.Rs.1,06,656 that was added represents, to put it in the language of the Wealth Tax Officer, "the difference in 1/8th share of interest in Taj Mahal Hotel, as determined in other co-owner s cases . The Wealth Tax Officer quantified the interest of the assessee in the firm apparently under section 4(1)(b), though the details of such quantification are not available from the record. Whether such interest can be included in the net wealth of the assessee at all, is not put in issue anywhere and the only issue that seems to have loomed large before the Appellate Assistant Commissioner and the Appellate Tribunal was whether the assessee can claim exemption under section 5(1)(iv) subject to the ceiling of Rs.1,00,000 to the extent of his share in the value of the house property of the firm. That is the indication we get from the statement of the case and the Appellate Assistant Commissioner's order. It is also seen from the order of the first appellate authority that the claim of the appellant was that he should be given the benefit of exemption under section 5(1)(iv) in respect of the house property of the firm after computing his share of interest in the firm. For putting forward such claim, the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) came in his way. It was held in that case as follows (page 213):
"The net wealth of the firm in which the assessee has a share has to be computed under rule 2 by excluding the bank deposits held by the firm under section 5(1)(xxvi) read with section 5(1A) up to the limit of Rs.1,50,000 and the share of the assessee in the assets of the firm has to be ascertained. The assessee will not thereafter be entitled to exemption under section 5(1)(xxvi) in regard to his share of the bank deposits held by the firm."
It may be mentioned that the ratio of the said decision was applied in the case of the very same assessee in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) and that, reference was answered in favour of the Revenue. Though the questions formulated in. that case CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP), are identical to the question referred to herein and they are somewhat different from the question considered in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), the learned Judges without any discussion, followed the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and answered the reference against the assessee.
Continuing the narrative, we would like to mention that the assessee in order to get over the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), put forward an argument before the Appellate Assistant Commissioner that the said decision had no application because the assessee who was a minor cannot be called a partner in the legal sense of the term and, therefore, the computation under rule 2 of the Wealth Tax Rules, has no application. Hence, it was contended that the benefit of section 5(1)(iv) should be given by granting exemption up to Rs.1 lakh representing the minor assessee's share in the value of house property of the firm. In support of this contention, the appellant relied on the order of the Tribunal in his own case, i.e., W.T.As. Nos.237 and 238 of 1981, dated February 23, 1982 (which was reversed in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP)). In those appeals, an identical contention was accepted by the Tribunal. The Tribunal distinguished the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), on the ground that different considerations would arise in the case of a minor admitted to the benefits of the partnership. In the said appeals, the Tribunal concluded as follows (see page 11 of (1982) 30 CTR 10 (Hyd)):
"The result is the deduction allowed in the firm's case would have to be excluded as far as these assessees are concerned and their interest in the firm computed and thereafter in their individual hands deductions under section 5(1)(iv) to the maximum extent admissible under law, in the present case Rs.1,00,000 in each case, would have to be allowed."
The order of the Tribunal is reported in B. Sadasiva Rao v. WTO (1982) 30 CTR (Trib) 10 (Hyd). Unfortunately, a copy of it was not filed by the. Department. Notwithstanding the order of the Tribunal supporting the assessee's contention, the Appellate Assistant Commissioner held that minor admitted to the benefits of the partnership and major partner are both entitled to the same treatment and therefore, applying the spirit of the judgment in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), the assessee's contention was liable to be rejected. Accordingly, the appeal was dismissed. On further appeal by the assessee, the Appellate Tribunal without any discussion followed its earlier order in W.T.A. No.238 of 1981 which, as already stated, was the appeal relating to the same assessee and allowed the appeal. The order of the Tribunal in W.T.As. Nos.237 and 238 of 1981 which suffered an eclipse by reason of the decision in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP), has gained back its force and vigour in the light of the Supreme Court's view in the case of CWT v. T.S. Sundaram (19:'9) 237 ITR 61. Though the Tribunal approached the question from a different premise, the conclusion (extracted above) accords with the decision of the Supreme Court. In view of the decision of the Supreme Court, we are relieved of the necessity to delve deep into the issue nor is there any scope to adopt an original approach in the matter.
The assessee's contention that the value of his share in the house property of the firm to the extent of Rs.1 lakh is excludable from his net wealth by virtue of section 5(1)(iv) which found favour with the Tribunal ought to be accepted in the light of the judgment of the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61. The Supreme Court, in the aforementioned case, though not referred to the decision of this Court in CWT v. Narendra Ranjalker (1981) 129 ITR 203, approved the decision of the Karnataka High Court in CWT v. Mrs. Christine Cardoza (1978) 114 ITR 532, which was not followed in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP). From the decision of the Supreme Court, it follows that the view taken by this Court in CWT v. Narendra Ranjalker (1981) 129 ITR 202 (AP), is impliedly overruled. The question of law, that arose before the Supreme Court was (page 62):
"Whether, on the facts and in the circumstances of the case, in computing the net wealth of a firm under rule 2 of the Wealth Tax Rules, assets exempt under section 5 should be excluded, or whether such assets also should be included therein and then apportioned among the partners for granting exemption in their individual assessments after computing their own individual net wealth?"
The Supreme Court answered the question as follows (page 64):
"In computing the net wealth of a firm under rule 2 of the Wealth tax Rules, the assets exempt under section 5 should be included and then apportioned among the partners for granting exemption in their individual assessments after computing their own individual net wealth. "
The Supreme Court upheld the direction given by the Tribunal.
Thus, as per the decision of the Supreme Court, the assessee-partner will be entitled to get exemption under section 5(l)(iv) in his individual assessment and that exemption cannot be given effect to while computing the net wealth of the firm under rule 2 in the context of evaluating the interest of the partner. The Supreme Court ruled that the net wealth of the firm determined in accordance with the, rule had to include also assets which may be exempt under section 5.
Thus, the decision of this Court relied upon by the Appellate Assistant Commissioner is no longer good law. The question of deducting the value of the exemptible asset under section. 5(l) at the time of or for the purpose of computing the net wealth of the firm as a prelude to the ascertainment of the interest of the partner does not arise and the deduction could only be given in the hands of the individual partners. Thus, as already noted, the view taken by the Supreme Court is in line with the conclusion reached by the Tribunal in W.T.As. Nos.237 and 238 of 1981 (followed by the Tribunal in the instant case) though the process of reasoning may be different.
It is true that the law laid down by the Supreme Court was in the context of assessment of a major partner of the firm. Whether it would make any difference if the assessee is a minor admitted to the benefits of the partnership and who in a strict legal sense is not a full-fledged partner, is the question. It is not the case of the Revenue that a different principle will apply in the case of a minor assessee admitted to the benefits of the partnership. On the other hand, the basis of the decision of the Appellate Assistant Commissioner who took the decision in favour of the Revenue is that it should not make any difference as regards the computation of net wealth of a partner/person having interest in a firm depending on whether he is a major or minor. The ratio of the decision is CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), which has since been overruled by the Supreme Court was held to govern the case of both major and minor on equal footing. It is also seen from the reference application and the questions formulated therein that the Revenue wants the application of the principle laid down in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), to the cases of a minor assessee as, well. Thereby, the Revenue has taken the stand that while ascertaining the value of the assessee's interest in the firm, deduction/exemption under section 5(l) should be given vis-a-vis the firm and thereafter no further deduction or exemption should be given in the hands of individual partners or members. But, this proposition based on the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), no longer holds good having regard to the decision of the Supreme Court an CWT v. T.S. Sundaram (1999) 237 ITR 61. Straight deduction under section 5(1) ought to be given in the hands of the individual assessee only. With the obliteration of the proposition laid down in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), by the ruling of the superior Court, it is no longer open to the Revenue to take the stand which it did. Thus, the plea of the Revenue which is common to both major and minor "partner" has to be repelled in view of the decision of the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61. We may add that even if section 4(1)(b) read with rule 2 cannot be applied to the case of minor, that shall not make any difference. If for the purpose of computation of the farm's wealth under rule 2 and the interest of the partner therein, the assets specified in section 5(1) cannot be excluded, a fortiori, such assets cannot be excluded while adopting the valuation on the general principles de hors rule 2. Thus whether the minor's interest in the firm is evaluated and subjected to tax under section 4(1)(b) read with rule 2 or on the general principles based on the concept of net wealth, the result would be the same. There is no question of deducting exemptible assets under section 5(1)(v) while evaluating his interest in the firm and therefore on the principle laid down by the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61, he can avail of that exemption in his hands, although the exemptible asset relates to the firm.
The main reason for reference to this Full Bench is that the learned Judges of the Division Bench doubted the correctness of the decision in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP). That reference arose out of the Tribunals order in W.T.As. Nos.237 and 238 of 1981, which has been followed by the Tribunal in the appeal which gives rise to the present reference. In B. Chandrasekhara Rao's case (1989) 175 ITR 66 (AP), which relates to the very same assessee, the learned Judges merely followed the earlier decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), though the answer given therein was not accurately extracted. The Division Bench which referred the matter to the Full Bench was of the view that the principle laid down in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP), that the assessee being a minor is not a partner and therefore deduction under section 5(l)(iv) cannot be given in his individual assessment; requires reconsideration. But, with respect, so much cannot be read into that order. Justice Reghuvir, speaking for the Bench observed (page 69):
"In the instant references, both the assessee are minors. They are not even, in that sense, 'partner'."
From the above sentence, it cannot be inferred that the learned Judge based the conclusion on the ground that the assessee is not a partner. A passing observation was made without further discussion or reasoning. In the immediately following sentence, the learned Judges made it clear that in view of the ratio of the decision in Narendra Ranjalker's case (1981) 129 ITR 203 (AP), the reference was answered against the assessee. The entire judgment contains reference to CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and nothing more. Though the reasoning of the Tribunal rests on the principle that in the case of the minor assessee associated with the firm, the decision in CWT v. Narendra Ranjakler (1981) 129 ITR 203 (AP), does not apply, that reasoning remains untouched by the Division Bench in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP), excepting making a passing observation that the assessee being a minor is not "in that sense, a partner". If so, what follows?--nothing was said. In any case, the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) followed by the Bench in CWT v. B: Chandrasekhara Rao (1989) 175 ITR 66 (AP), having been impliedly overruled by the Supreme Court, there is no need to delve further. The law laid down in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP) and reiterated in CWT v. B. Chandrasekhara Rao (1989) 175 ITR 66 (AP) no longer holds good.
In the light of the above discussion, our answer to the questions is as follows:
Re: Question No. 1: There is no need to answer the first part of the question i.e., whether section 4(1)(b) of the Wealth Tax Act, and rule 2 would apply to the case of an assessee who is a minor admitted to the benefits of the partnership. As regards the applicability of the decision in CWT v. Narendra Ranjalker (1981) 129 ITR 203 (AP), our answer can only be that the said decision having been impliedly overruled by the Supreme Court in CWT v. T.S. Sundaram (1999) 237 ITR 61, there is no question of applying the ratio of that decision--Whether it is a case of a minor assessee or a major assessee having interest in the firm.
Our answer to Question No.2 is in the affirmative subject, however, to two qualifications: (i) the deduction or exemption under section 5(l)(iv) cannot be granted while evaluating the firm's wealth for the purpose of ascertaining the interest of the partner or a member of the firm, and (ii) the exemption under section 5(1)(iv) is available irrespective of the fact that the assessee associated with the firm is a minor.
Accordingly, the reference is answered and disposed of.
M.B.A./416/FC Reference answered.