A partnership firm is not a separate legal entity, and the interest of a partner in the firm is assessable wealth in the hands of the partner under the Wealth Tax Act.

1. The Income-tax Appellate Tribunal, Cochin Bench has, under S.27(1) of the Wealth Tax Act, 1957, referred the following question of law for the opinion of the High Court:

"Whether, on the facts and in the circumstances of the case, the assessee partner is entitled to exemption u/s. 5(1) (iva) in respect of the agricultural properties of the firm?".

The question referred is covered by the decision of a Division Bench of this court reported in Commissioner of Wealth-tax v. Jose Mathew 1987 (2) KLT 67 = (1987) 168 I.T.R.46. But the case has come up before a Full Bench as another Division Bench felt that the decision in Jose Mathew's case requires reconsideration.

2. The assessee is a partner of a firm called M/s. Koliat Estates. The assets of the firm include agricultural lands. In computing the net wealth of the assessee his interest in the firm was taken into account as required by S.4(1)(b) of the Wealth Tax Act. The assessee's claim for exemption under S.5(1)(iva) of the Act in respect of the value of her share of the agricultural assets of the firm was not accepted by the Wealth Tax Officer. In appeal the Appellate Assistant Commissioner allowed exemption under S.5(1)(iva) in computing the net wealth of the firm and directed a fresh assessment allocating the net wealth of the firm amongst the partners in accordance with the Wealth Tax Rules. In further appeal at the instance of the assessee, the Tribunal has allowed exemption under S.5(1)(iva) in computing the net wealth of the assessee. The above question of law referred to this Court under S.27(1)of the Act arises from the common order of the Tribunal passed in respect of the assessment years 1970-71 to 1973-74.

3. As per the charging provisions under S.3 of the Act, wealth tax is to be charged for every assessment year in respect of the net wealth of every individual, Hindu undivided family and company at the rates specified in the schedule. As per S.4(1)(b) the net wealth of an individual includes where the assessee is a partner in a firm or a member of an association of persons, the value of his interest in the firm or association determined in the prescribed manner. S.5 contains the exemptions and as per clause (iva) of sub-sec.(1) as it stood at the relevant period, agricultural land belonging to the assessee is exempt to the extent of its value upto Rs. 1,50,000/-. R.2 of the Wealth Tax Rules provides for the method of computation of the interest of a partner of a partnership firm or of a member in an association of persons.

4. A Division Bench of this Court in Jose Mathew's case (supra), following the decision of the Karnataka High Court in C.W.T. v. Mrs. Christine Cardoza (1978) 114 ITR 532, has held that the assessee who is a partner of a firm is entitled to exemption under S.5(1)(iva) of the Act with respect to the value of his share of agricultural land held by the firm in determining his net wealth. A partnership firm is not an assessee under the Wealth-tax Act. The interest of a partner in the firm is assessable wealth in the hands of the partner as provided for in S.4(1)(b) of the Act. The computation of net wealth of the firm is as provided for in R.2 of the Wealth Tax Rules. Since the firm is not an assessee, there is no question of exemption under S.S(1) of the Act in the matter of computation of the net wealth of the firm. The exemption under S.5(1) is applicable only to an assessee and that is clear from the wording of the section itself. In Dulichand Laxminarayan v. Commissioner of Income-tax ((1956) 29 I.T.R.535) the Supreme Court stated at page 541:

"It is clear from the foregoing discussion that the law, English as well as Indian, has, for some specific purposes, some of which are referred to above, relaxed its rigid notions and extended a limited personality to a firm. Nevertheless, the general concept of partnership, firmly established in both systems of law, still is that a firm is not an entity or "person" in law but is merely an associat