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K. Ramana Reddy Vs. Commissioner of Wealth Tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAndhra Pradesh High Court
Decided On
Case NumberR.C. Nos. 18 and 19 of 1981
Judge
Reported in(1987)65CTR(AP)211
ActsWealth Tax Act, 1957 - Sections 2, 3, 4(1), 7 and 27(1)
AppellantK. Ramana Reddy
RespondentCommissioner of Wealth Tax
Appellant AdvocateS. Dasaratharama Reddy, Adv.
Respondent AdvocateM.S.N. Murthi, Adv.
Excerpt:
.....to high court at instance of assessee - whether value of partnership share should be included in net wealth of assessee - wealth tax is leviable on wealth of assessee on a particular date - partnership interest held by joint family in partnership firm through its 'karta' is an asset of family - in view of section 2 (e), 2 (m) and 3 huf cannot escape from inclusion of partnership interest in its wealth - held, revenue justified in including partnership interest in wealth of assessee. - - this principle may be good for the purpose of holding that an aop or boi constitutes an individual for the purpose of wealth-tax, as held by the supreme court in cwt v. kripashanker dayashanker worah [1971]81itr763(sc) .but this principle will have no application in the case of a distinct..........of more than the minimum specified therein. in our opinion, the revenue rightly subjected the net wealth held by the assessee-family to tax at the higher rates specified in para (2) of part i of schedule i to the wt act. we, accordingly, answer the first question in the affirmative, that is to say in favour of the revenue and against the assessee. 5. the second question relating to the assessment of the partnership interest held by the assessee-family under s. 4(1)(b) of the act is not free from difficulty. section 4 refers to the computation of the net wealth of an 'individual'. the provisions contained in cls. (a) and (b) undoubtedly come into operation only in the case of computation of net wealth of an individual as distinguished from an huf. the contention of the ld. counsel for.....
Judgment:

Anjaneyulu, J.

1. This reference arises under s. 27(1) of the WT Act, 1975 (hereinafter referred to as 'the Act'). The assessment year involved is 1977-78. The assessee is an HUF. The WTO found that the wife of the Karta has wealth in her individual capacity in excess of Rs. 1 lakh. Consequently, he taxed the net wealth in the case of the assessee joint family at the higher rates specified in para (2) of Part I of schedule I to the Act. It may be pointed out that for the purpose of wealth-tax in the case of every HUF which has at least one member whose net wealth assessable for the assessment year exceeds Rs. 1 lakh, wealth-tax is payable by the joint family on its net wealth at the higher rates specified therein. The assessee's contention is that the expression 'member' occurring in para (2) of Part I of Schedule I refers to a male member who is a coparcener and not a female member. According to the assessee, as the family did not consist of more than one coparcener and only a female member of the family has wealth exceeding Rs. 1 lakh, the higher rates of wealth tax specified above cannot be applied. The revenue rejected the above contention and it was affirmed by the Tribunal.

2. The assessee-family holds interest in a partnership through its Karta. The ITO included the value of the partnership interest acting under s. 4(1)(b) of the Act. The assessee contended that s. 4 comes into operation for purposes of computation of net wealth in the case of 'Individuals' and it can have no application for computation of net wealth in the case of the an HUF. In that view, it was claimed that the provisions of s. 4(1)(b) of the Act cannot be pressed into service for purposes of inclusion of the value of partnership interest held by the assessee-family in the partnership firm through its Karta. The revenue rejected the above contention also and it was affirmed by the Income Tax Appellate Tribunal.

3. Aggrieved by the decision of the Tribunal, the assessee sought a reference of the following two questions of law for the opinion of this Court under s. 27(1) :

'1. Whether, on the facts and in the circumstances and on a correct interpretation of Part I-A of Paragraph A of the Schedule to the finance Act, read with the relevant provisions of the WT Act, 1957, the Tribunal is correct in holding that the word 'member' occurring therein takes in female member of a Mitakshara HUF and, therefore, the assessee-HUF is rightly assessed to tax at the higher rate prescribed in the said Finance Act

2. Whether, on the facts and in the circumstances of the case, the inclusion of the value of the partnership share under s. 4(1)(b) of the Act or under s. 2(m) of the WT Act, 1975 in the net wealth is correct in law ?'

4. As far as the first question is concerned, an identical question came up for consideration before this Court in connection with the levy of income-tax also. In our judgment in S. Venka Reddy v. CIT : [1986]157ITR489(AP) , we upheld the view that the expression 'member' occurring in Part I of Schedule I is not restricted to a male member alone. The ld. counsel appearing for the assessee has not been able to show how the expression 'member' occurring in para (2) of Part I of schedule I to the WT Act, 1957, refers only to a male member and not to a female member. In our opinion, it has application in the case of female members also possessing wealth of more than the minimum specified therein. In our opinion, the revenue rightly subjected the net wealth held by the assessee-family to tax at the higher rates specified in para (2) of Part I of schedule I to the WT Act. We, accordingly, answer the first question in the affirmative, that is to say in favour of the revenue and against the assessee.

5. The second question relating to the assessment of the partnership interest held by the assessee-family under s. 4(1)(b) of the Act is not free from difficulty. Section 4 refers to the computation of the net wealth of an 'individual'. The provisions contained in cls. (a) and (b) undoubtedly come into operation only in the case of computation of net wealth of an individual as distinguished from an HUF. The contention of the ld. counsel for the assessee that s. 4 goes lout of application altogether in a case where the computation of wealth is other than that of an 'individual' is not without force. It is not possible to read clause (b) of sub-s. (1) of s. 4 independently because it does not by itself convey any sense. Clause (b) has to be necessarily read with the opening part of s. 4(1) of the Act in order to make the sense complete. We may for purpose of convenience quote below the provision :

'4(1). In computing the net wealth of an individual, there shall be included as belonging to that individual -

(a) xx xx xx

(b) where the assessee is a partner in a firm or a member of an association of persons (not being a co-operative housing society), the value of his interest in the firm or association determined in the prescribed manner.'

6. It is clear that the language of s. 4(1)(b) of the Act authorises the inclusion of the value of the partnership interest where the assessee is a partner in a firm and that authorisation is for purpose of computing the net wealth of an individual. The ld. standing counsel for the revenue draws our attention to the expression 'assessee' occurring in clause (b) of s. 4(1) of the Act and states that the said expression includes an HUF also by whom wealth-tax is payable under the Act. It is, therefore, argued that the use of the expression 'assessee' supports the plea that the provision contained in s. 4(1)(b) of the Act authorises the inclusion of the value of partnership interest while computing the net wealth of an HUF also. The ld. standing counsel wants us to read s. 4(1)(b) of the Act as an independent provision applicable for the computation of net wealth not only of individuals as specified in the opening part of s. 4(1) but also in connection with the computation of net wealth of HUF. Reliance is placed on the decision of the Gujarat High Court in Sudhakar Manibhai and Kulinsingh Manibhai v. CWT : [1978]111ITR384(Guj) .

7. There is no doubt that the decision of the Gujarat High Court supports the plea urged by the ld. standing counsel for the revenue. The Gujarat High Court interpreted the provisions contained in s. 4(1)(b) independently without reference to the opening part of s. 4(1) of the Act dealing with the computation of the net wealth of an 'individual' and individual alone.

8. If the opening part of s. 4(1) is ignored, 4(1)(b) of the Act as such does not convey the necessary sanction to include the partnership interest in the computation of net wealth of an HUF. It is not permissible for this Court to introduced words that do not form part of s. 4(1)(b) of the Act as to make it applicable while computing the net wealth of an 'HUF'also. It must be noted that clause (b) is an indivisible part of sub-s. (1) has to be read along with the opening part relevant for computing the net wealth of an 'individual' only. The Gujarat High Court has also placed reliance on the principle that an HUF consists of a plurality of individuals, and, therefore, the expression 'individual' takes in its sweep a plurality of individuals. This principle may be good for the purpose of holding that an AOP or BOI constitutes an individual for the purpose of wealth-tax, as held by the Supreme Court in CWT v. Kripashanker Dayashanker Worah : [1971]81ITR763(SC) . But this principle will have no application in the case of a distinct assessable entity like HUF which is treated as a separate unit for the purpose of wealth-tax. It is not permissible to proceed on the basis that because of joint family consists of plurality of individuals, it is covered by the expression 'individual'. Such an interpretation would ignore the charging s. 3 of the Act which refers to an HUF as distinct unit of assessment. We are not, therefore, persuaded to accept the view that an HUF comes within the meaning of 'individual, for purposes of the opening part of s. 4(1) of the Act. This need not, however, detain us.

Section 3, which is the charging section, provides a complete answer. Wealth-tax is leviable on the net wealth on the corresponding valuation date of every HUF as per charging s. 3. It cannot be disputed that the partnership interest held by a joint family in a partnership firm through its Karta is an 'asset' of the joint family and forms part of its net wealth. This is the clear effect of s. 2(e) and s. 2(m), read with s. 3 of the Act. Reading s. 3 together with s. 2(e) and 2(m) of the Act there can be no escape from the conclusion that an HUF is liable to pay wealth tax in respect of value of the partnership interest held by it. If there is a direct sanction in the charging section itself to levy wealth-tax, it is not necessary to look elsewhere for a sanction to tax the value of partnership interest admittedly owned and possessed by the joint family. We are, therefore, of the view that the revenue was justified in including in the net wealth of the assessee-family the value of the partnership interest held by it through its Karta as forming part of its net wealth under s. 3 of the Act.

9. The ld. counsel for the assessee then contended that in the event of partnership interest held by an HUF being taxed under charging s. 3 itself, the valuation of such partnership interest cannot be made in the manner prescribed by r. 2(1) of the WT Rules, 1975 for the purpose of s. 4(1)(b) as the said rule is only for the purpose of s. 4(1)(b) of the Act. We do not see any reason why the principle of valuation provided in r. 2(1) cannot be taken as a guidance by the WTO for the purpose of valuing the partnership interest held by an HUF also. Section 7 of the Act provides that the value of any asset shall be estimated to be the price which in the opinion of the WTO it would fetch if sold in the open market on the valuation date. In order to determine the open market valuation, the WTO can take all relevant materials into account including the principle of valuation as per r. 2(1). Courts have held that the valuation of asset for purposes of the ED Act, 1953, which does not provide exhaustive rules for the valuation of each asset, can be determined taking guidance from the Rules. That being so, we do not see why the WTO cannot seek guidance from r. 2(1) for the purpose of valuing the partnership interest held by an HUF for the purpose of the Act itself. It will be open to the WTO to consider all the materials to determine the open market valuation and, while doing so, the WTO can also take guidance from the principles of valuation in r. 2(1).

10. We, therefore, answer the second question of law referred to us to the effect that the inclusion of the value of the partnership interest in the computation of the net wealth of the assessee under s. 2(m) read with s. 3 is perfectly valid.

11. We, accordingly, answer both the questions in favour of the revenue and against the assessee. No costs, Advocate's fee Rs. 300.


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