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Commissioner of Wealth-tax, Karnataka-i Vs. Christine Cardoza - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKarnataka High Court
Decided On
Case NumberTax Referred Cases Nos. 10 and 11 of 1975
Judge
Reported in[1978]114ITR532(KAR); [1978]114ITR532(Karn)
ActsWealth Tax Act, 1957 - Sections 5(1); Wealth Tax Rules, 1957 - Rule 2
AppellantCommissioner of Wealth-tax, Karnataka-i
RespondentChristine Cardoza
Appellant AdvocateS.R. Rajasekharamurthy, Adv.
Respondent AdvocateS.P. Bhat, Adv.
Excerpt:
.....himself had he been alive. further, section 163-a read with schedule ii of the act, itself having provided the percentage of deduction to be effected, the deduction can be in terms thereof only and not otherwise. award is justified. - 1,50,000 under section 5(1)(iv-a), which was not accepted to the appellate assistant commissioner of wealth-tax in this behalf did not meet with success. the relevant passage, which has been relied upon by the learned counsel for the assessee, is as follows (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......such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48.' 7. similar observations are to be found in the case of dewas cine corporation : [1968]68itr240(sc) . the question for decision in addanki narayanappa's case, : [1966]3scr400 , was, whether a particular document by which the interest of a partner in partnership assets comprising of immovable properties also was relinquished was compulsorily registrable under section 17(1)(c) of the registration act. the supreme court held that the interest of a partner was not immovable property as such and was movable property and.....
Judgment:

Srinivasa Iyengar, J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has referred a question of law which is common to both the cases. The questions relates to the admissibility of a deduction as provided in section 59(1)(iv-a) of the Wealth-tax Act, 1957, as it stood in the relevant assessment years 1970-71 and 1971-72 (hereinafter referred to as 'the Act'). The question referred to is as follows :

'Whether, on the facts and in the circumstances of the case, the tribunal was right in law in holding that the assessee is entitled to a deduction of one lakh fifty thousand rupees under section 5(1)(iv-a) of the Act ?'

2. The material facts lie in a marrow compass. The assessee and four others owned an estate known as the Shigade plantations in partnership. The estate was valued by an approved valuer whose valuation was accepted by the Wealth-tax officer. In determining the net wealth of the assessee for the assessment year 1970-71, what the Wealth-tax Officer did was to compute the net wealth of the firm including the value of the agricultural lands therefor and thereafter giving a deduction under section 5(1)(iv-a) of the Act to the extent of the share held by the assessee in the firm, i.e., he deducted a sum of Rs. 18,750 in this behalf as the assessee had a 2/16th share in the firm. But in the assessment for the year 1971-72, what the Wealth-tax Officer did was to give a deduction of one lakh fifty thousand rupees, after ascertaining the wealth of the firm including the value of the agricultural lands therefore and thereafter apportioned the share of each of the partners in respect of their interest in the firm. The claim of the assessee was that she should be given a deduction in a sum of Rs. 1,50,000 under section 5(1)(iv-a), which was not accepted to the Appellate Assistant Commissioner of Wealth-tax in this behalf did not meet with success. On further appeals by the assessee to the Income-tax Appellate Tribunal the contention was accepted and the Tribunal held that the assessee was entitled to a deduction of Rs. 1,50,000 under section 5(1)(iv-a). At the instance of the department the above question has been referred to this court for a decision. The relevant provision of section 5(1)(iv-a) in the assessment years under consideration was as follows :

'5. (1)..... Wealth-tax shall not be payable by an assessee in respect of the followings assets, and such assets shall not be included in the net wealth of the assessee -.....

(iv-a) agricultural land belonging to the assessee subject to a maximum of Rs. 1,50,000 in value...'

3. (proviso omitted as unnecessary).

4. The contention on behalf of the department is this that the deduction or exemption under section 5(1)(iv-a) can be given only when the value of agricultural land belonging to the assessee is included in the net wealth and in the instant case what is included is only the value of the interest of the assessee in a firm which includes movable and immovable properties and not the value of agricultural land belonging to the assessee as such and accordingly the view taken by the Tribunal is not correct. It is further asserted that the immovable property, though it might have belonged to the assessee at one time, had become the partnership property and by virtue of a partnership having been constituted the proprietary right of the assessee had been transformed into a contractual right and the right she had in the partnership firm was not immovable property but movable property and, therefore, it could not be said that any agricultural land belonged to her. Reliance has been placed in this behalf on the ruling of the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa, : [1966]3SCR400 , and three other cases, viz., : [1967]63ITR292(SC) (Commissioner of Income-tax v. Juggilal Kamlapat), : [1968]68ITR240(SC) (Commissioner of Income-tax v. Dewas Cine Corporation) and the decision if the High Court of Madras : [1976]104ITR608(Mad) (Purushothamdas Gocooldas v. Commissioner of Wealth-tax).

5. The learned counsel, Sri Rajasekharamurthy, relied upon the following passage in Addanki Narayanappa's case : [1966]3SCR400 :

'(5) It seems to us that looking to the scheme of the Indian Act no other view can reasonable be taken. The whole concept of partnership is to embark upon a joint venture and for that purpose to bring in as capital money or even property including immovable property. Once that is done whatever is brought in would cease to be the exclusive property of the person who brought it in. It would be the trading asset of the partnership in which all the partners could have interest in proportion to their share in the joint venture of the business of partnership. The person who brought it in would, therefore, not be able to claim or exercise any exclusive right over any property which he has brought in, much less over any other partnership property. He would not be able to exercise his right even to the extent of his share in the business of the partnership. As already stated his right during the subsistence of the partnership is to get his share of profits from time to time as may be agreed upon among the partners and after the dissolution of the partnership or with his retirement from partnership of the value of his share in the net partnership assets as on the date of dissolution or retirement after a deduction of liabilities and prior charges. It is true that even during the subsistence of the partnership a partner may assign his share to another. In that case what the assignee would get would be only that which is permitted by section 29(1), that is to say, the right to receive the share of profits of the assigner and accept the account of profits agreed to by the partners.'

6. and an earlier passage at page 1303 :

'From a perusal of these provisions it would be abundantly clear that whatever may be the character of the property which is brought in by the partners when the partnership is formed or which may be acquired in the course of the business of the partnership it becomes the property of the firm and what a partner is entitled to is his share of profits, if any, accruing to the partnership from the realisation of this property, and upon dissolution of the partnership to a share in the money representing the value of the property. No doubt, since a firm has no legal existence, the partnership property will vest in all the partners and in that sense every partner has an interest in the property of the partnership. During the subsistence of the partnership, however, no partner can deal with any portion of the properties his own. Nor can be assign his interest in a specific item of the partnership property to anyone. His right is to obtain such profits, if any, as fall to his share from time to time and upon the dissolution of the firm to a share in the assets of the firm which remain after satisfying the liabilities set out in clause (a) and sub-clauses (i), (ii) and (iii) of clause (b) of section 48.'

7. Similar observations are to be found in the case of Dewas Cine Corporation : [1968]68ITR240(SC) . The question for decision in Addanki Narayanappa's case, : [1966]3SCR400 , was, whether a particular document by which the interest of a partner in partnership assets comprising of immovable properties also was relinquished was compulsorily registrable under section 17(1)(c) of the Registration Act. The Supreme Court held that the interest of a partner was not immovable property as such and was movable property and accordingly section 17(1)(c) of the Registration Act was not attracted. It is on the basis of the above premises that the arguments have been put forth on behalf of the department. For the assessee it is contended that a firm as such is not a legal entity and any property owned by it is really the property of the partners and the use of the expression 'firm' is only a compendious mode to designate persons who have agreed to a joint venture and what is called the property of the firm is really the property of the partners and on the facts and in the circumstances of the case the assessee was the owner of agricultural land in the context of the Wealth-tax Act and had specified share in the immovable property though in a sense it may be said to be property of the firm and was entitled to the deduction. In support of this contention reliance has been placed on the decision of the Supreme Court in Commissioner of Income-tax v. R. M. Chidambaram Pillai : [1977]10ITR292(SC) . The question for consideration in that case was whether the assessee, a partner in a firm, who in addition to a share in the profits, was entitled to salary for service under the firm, was entitled to apportionment of the salary as part being attributable to agricultural income and whether the salary had to be apportioned in the same proportion as income in the tea estate was to be apportioned. The Supreme Court, reversing the decision of the High Court of Madras in R. M. Chidambaram Pillai v. Commissioner of Income-tax : [1970]77ITR494(Mad) , upheld the contention of the assessee that only 40 per cent. of the salary received was liable to income-tax as the remaining 60 percent. was attributable to agricultural from the land which was held in partnership.

8. The Supreme Court in Chidambaram Pillai's case : [1977]10ITR292(SC) quoted with approval the following passage from Lindley on Partnership, 12th edition, page 28 :

'The firm is not recognised by English lawyers as distinct from the members composing it. In taking partnership accounts and in administering partnership assets, courts have to some extent adopted the mercantile view, and actions may now, speaking generally, be brought by or against partners in the name of their firm, but, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities. In point of law, a partner may be the debtor or creditor of his co-partners, but he cannot be neither debtor or creditor of the firm of which he is himself a member, nor can he be employed by his firm, for a man cannot be his own employer.'

9. Further on, it was stated :

'The Indian law of partnership is substantially the same and the reference in counsel's submissions to the Scottish view of a firm being a legal entity is neither here nor there.'

10. Further on, the Supreme Court referred to its decision in Dulichand Laxminarayan v. Commissioner of Income-tax : [1956]29ITR535(SC) and quoted certain passages therefrom. The relevant passage, which has been relied upon by the learned counsel for the assessee, is as follows (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 a 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 association of individuals who constitute the firm. In other words, a firm name is merely an expression, only a compendious mode of designating the persons who have agreed to carry on business in partnership. According to the principles of English jurisprudence, which we have adopted for the purposes of determining legal rights 'there is no such thing as a firm known to the law' as we said by James L.J. in Ex parte Corbett : In re Shand [1880] 14 Ch D 122. In these circumstances, to import the definition of the word 'person' occuring in section 3(42) of the General Clauses Act, 1897, into section 4 of the Indian Partnership Act, will, according to lawyers, English or Indian, be totally repugnant to the subject of partnership law as they know and understand it to be.'

11. Immediately following this quotation, the Supreme Court stated - (See : [1977]10ITR292(SC) ) :

'In Addanki Narayanappa v. Bhaskara Krishnappa, : [1966]3SCR400 , the view taken by this court accords with the position above stated.'

12. Considerable emphasis has been laid by the learned counsel for the assessee on this sentence and it is contended that in the light of the clear enunciation by the Supreme Court in this case explaining the scope and effect of the decision in Addanki Narayanappa's case, : [1966]3SCR400 , the assessee owned and had interest in the agricultural land and was entitled to the deduction under section 5(1)(iv-a) of the Act. This submission for the assessee has considerable force. In the light of this pronouncement of the Supreme Court in regard to the concept of a firm and the interests that the partners have in what is called property of the firm, on the facts and in the circumstances of the case, it is difficult to hold that the assessment was not the owner of agricultural lands so as to deny the deduction under section 5(1)(iv-a). Accordingly, the view taken by the Tribunal must be upheld.

13. It has been brought to our notice that the method adopted of deducting a sum of Rs. 1,50,000 in the computation of the wealth of the firm under rule 2 of the Wealth-tax Rules is based upon the decision of the High Court of Madras in Commissioner of Wealth-tax v. Vasantha : [1973]87ITR17(Mad) . The counsel for the department stated that the view taken by the High Court of Madras had been accepted by the Central Board of Direct Taxes and a decision of the Allahabad High Court in Commissioner of Wealth-tax v. Padampat Singhania : [1973]90ITR418(All) , in which contrary view was taken had not been accepted, and was under appeal to the Supreme Court (vide Board's Instruction No. 545 dated May 10, 1973). But it seems to us that the method of deducting a sum of Rs. 1,50,000 in the computation of the net wealth of the firm under rule 2 is not warranted by the terms of section 5(1)(iv-a). The deduction contemplated is in the computation of the net wealth of an assessee and not a firm which is not the assessee. On the principle enunciated by the Supreme Court, the assessee is a person who owns the agricultural land and, therefore, deduction has to be given in his/her hands. This is what has been directed by the Tribunal. We do not find any error in the decision of the Tribunal.

14. Accordingly, the question referred in these two cases is answered in affirmative and in favour of the assessee.

15. Parties shall bear their own costs.


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