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1992 Supreme(P&H) 791
PUNJAB & HARYANA HIGH COURT
A.P.Chowdhri and N.K.Sodhi JJ.
Commissioner Of Wealth-tax
Versus
Vipin Kumar
Wealth Tax Reference No. 19 of 1980,21 of 1980,
Decided On : AUGUST 31, 1992
A partner in a firm is entitled to exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the value of his share in the immovable property belonging to the firm.
Headnote:
WEALTH TAX - Exemption - House property - Partner's share in firm's property - Whether entitled to exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957.
Fact of the Case:
The assessee, a partner in a firm, claimed exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the value of his share in the immovable property belonging to the firm, namely, the factory land and building. The Wealth-tax Officer and the appellate authority denied the exemption, holding that the assessee did not own the house property. The Tribunal, relying on the decision of the Karnataka High Court in CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532, upheld the assessee's claim.
Finding of the Court:
The court held that the assessee was entitled to the exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the factory land and building belonging to the firm in which he was a partner. The court held that a firm is not an entity or a "person" in law but merely an association of individuals and a firm name is only a collective name of these individuals who constitute the firm. The court further held that the property of the firm is, in fact, the property of its partners and, consequently, a partner can claim to have a specific interest in its assets exclusively apart from his interest as a partner in the firm.
Issues: Whether a partner in a firm is entitled to exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the value of his share in the immovable property belonging to the firm.
Ratio Decidendi: The court held that a partner in a firm is entitled to exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the value of his share in the immovable property belonging to the firm. The court held that a firm is not an entity or a "person" in law but merely an association of individuals and a firm name is only a collective name of these individuals who constitute the firm. The court further held that the property of the firm is, in fact, the property of its partners and, consequently, a partner can claim to have a specific interest in its assets exclusively apart from his interest as a partner in the firm.
Final Decision: The court answered the questions of law referred to it in the affirmative and in favour of the assessee. The references were disposed of accordingly with no order as to costs.
N.K.Sodhi, J.
1. These are five wealth-tax references made to this court under Section 27 of the Wealth-tax Act, 1957 (hereinafter called "the Act"). Three of these relate to Shri Vipin Kumar, the assesses for the consecutive assessment years 1974-75 to 1976-77, whereas the other two pertain to Shri Satish Kumar, Hindu undivided family, Batala, in regard to the assessment years 1974-75 and 1975-76.
2. Shri Vipin Kumar, in his individual capacity, was a partner in a firm which was working under the name and style of Gurdaspur Roller Flour Mills, Gurdaspur, during the assessment years in question and he had an 11 per cent. share in it. He claimed for all these three years exemption under Section 5(1)(iv) of the Act in respect of an amount of Rs. 74,140 being the value of his share in the immovable property belonging to the firm, namely, the factory land and building. Similarly, Shri Satish Kumar, Hindu undivided family, was also a partner in the same firm during the relevant assessment years. The Hindu undivided family which is the assessee claimed exemption under Section 5(1)(iv) of the Act in respect of an amount of Rs. 80,880 which represented its share in the factory land and building belonging to the firm. The Wealth-tax Officer, while finalising the assessment, negatived the claim of both the assessees in this regard, being of the view that, since the assessees did not own the house property, the deduction claimed was not admissible. In the appeal filed by the assessees, the appellate authority, while relying on the decision of the Madras High Court in the case of Purushothamdas Gocooldas v. CUT [1976] 104 ITR 608, also did not agree with the assessees and dismissed the appeals. In second appeals filed by the assessees, the Tribunal noticed a conflict of opinion between the Karnataka High Court and the Madras High Court and, relying on the observations of the apex court in the case of Naga Hills Tea Co. Ltd. [1973] 89 ITR 236, and on the reasoning of the Karnataka High Court in CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532, upheld the claim of the assessees herein and granted them the exemption as claimed under Section 5(1)(iv) of the Act. Thereafter, at the instance of the Commissioner of Wealth-tax, the Tribunal referred under Section 27 of the Act, the following two similar questions of law in the case of both the assessees for the opinion of this court :
" 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assessee is entitled to the exemption under Section 5(1)(iv) of the Wealth-tax Act, 1957, in respect of the factory land and building belonging to the firm in which he is a partner ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee-Hindu undivided family is entitled to the exemption under Section 5(1)(iv) of the Wealth- tax Act in respect of the factory land and building belonging to the firm from which it derived a share of profit ?"
3. Section 5(1)(iv) of the Act, as it stood during the relevant assessment years, reads as under :
"Section 5(1).--Subject to the provisions of Sub-section (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 : vided 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."
4. The words "and exclusively used by him for residential purposes" were omitted from Clause (iv) above by the Finance (No. 2) Act of 1971, with effect from April 1, 1972. Rule 2 of the Wealth-tax Rules, 1957, which have been framed by the Central Board of Revenue under Section 46 of the Act provides the mode of determining the value of the inter
