1. In this petition under Article 226 of the Constitution, the petitioners have challenged the reference made by the WTO to the Valuation Officers for valuing certain buildings belonging to petitioner-1 firm. The petitioners have also prayed for quashing the notices issued by the Valuation Officers to petitioner-2. The petitioners have also prayed for a writ in the nature of mandamus restraining the Valuation Officers from valuing those buildings.
2. Most of the material facts are not in dispute and they are briefly as follows: Petitioner-1, Messrs. Juggilal Kamlapat Bankers, is a partnership-firm. Petitioner-2, Padampat Singhania, was one of the partners thereof in his capacity as the karta of a HUF. He had been assessed to wealth-tax in the status of HUF and the assets so assessed for tax included the interest of the family in petitioner-1 firm up to the assessment year 1966-67.
3. In the returns to wealth-tax submitted by petitioner-2 in the status of HUF for the assessment years 1967-68 to 1972-73, the family's interest in petitioner-1 firm was included.
4. Petitioner-1 firm owned a number of buildings in Kanpur. In the returns submitted by petitioner-2, the book value of those buildings had been adopted for valuing the interest of the family in petitioner-1 firm. As respondent-1, the WTO., felt that the market value of those buildings was much more than such book value, he referred the valuation of those buildings to the Valuation Officers under Section 16A of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act'). Respondents 2 and 3, the Valuation Officers', issued notices to petitioner-2 intimating that they would inspect the buildings for determining the fair market value thereof and requesting him to afford necessary facilities for such inspection and to produce certain records connected with those buildings.
5. Petitioner-2 addressed a letter to the WTO in which he contended that none pf the properties referred to the valuers belonged to him and hencesuch reference should be withdrawn. He also addressed letters to the Valuation Officers in which he contended that the references made to them by the WTO were invalid and requested them to return the references to the WTO. As the above contentions were not accepted by the respondents the petitioners have approached this court by way of this petition.
6. The learned senior standing counsel who appeared for the respondents raised a preliminary objection that in view of Clause (3) of amended Article 226 of the Constitution, this petition is not maintainable inasmuch as the petitioners have an alternative remedy by way of appeals under Sections 23 and 24 and a reference to the High Court under Section 27 of the Act.
7. On the other hand, the learned counsel for the petitioners contended that the reference made by the WTO to the Valuation Officers under Section 16A of the Act for valuation of the aforesaid buildings and the notices issued by the Valuation Officers were without jurisdiction and that there is no provision in the Act for appeal against such actions of the WTO and the Valuation Officer. To this, the answer of the learned senior standing counsel was that the petitioners could wait until the WTO made the assessment and in the appeal from such assessment the petitioners could challenge the impugned actions of the WTO and the Valuation Officers and that the question of jurisdiction of those officers could also be raised in appeals and the reference under Section 27 of the Act.
8. The learned counsel for the petitioners urged that the appeals against the assessment orders and the reference under Section 27 thereafter are so cumbersome that they cannot be regarded as adequate and efficacious remedies against the orders and actions of the WTO and the Valuation Officers prior to the assessment.
9. For the purpose of this petition, we do not consider it necessary to go into the question whether the remedy by way of appeals and reference under Section 27 after the assessment is made by the WTO can be regarded as adequate and efficacious alternative remedies. We have heard the parties on merits of the entire case and we propose to decide the petition on merits instead of pronouncing on the preliminary objection as to the maintainability of this petition.
10. Shri S.C. Khare and Shri V.B. Upadhya, learned counsel for the petitioners, urged the following contentions in support of the petition:
(i) For assessment of petitioner-2, the WTO could not refer to the Valuation Officers the valuation of buildings which did not belong to him but belonged to petitioner-1 firm.
(ii) The interest of a HUF in a partnership firm is not exigible to wealth-tax.
(iii) The interest of petitioner-2 in petitioner-1 firm has to be valued in accordance with Rule 2 of the Wealth-tax Rules, 1957 (hereinafter called'the Rules') and hence Section 16A of the Act which provides for reference to the Valuation Officer has no application.
(iv) The value of the aforesaid buildings which formed a part of the assets of the business of petitioner-1 firm has to be determined in accordance with the commercial principles under Clause (a) of Sub-section (2) and not under Sub-section (1) of Section 7.
(v) The Valuation Officers could not issue the notices to petitioner-2 as he was neither the owner of those buildings nor was in occupation thereof.
11. We shall now proceed to consider the above contentions seriatim.
12. Elaborating the first contention, Shri Khare submitted that a partner of a firm is not the owner of the property belonging to the firm nor has he dominion over such property and that his only right is to get a share of profits, if any, accruing to the firm from the income of such property. In other words, according to Shri Khare, a partner, as such, cannot be said to have any interest in the properties of the firm. Shri Khare maintained that the properties of a firm cannot be taken into account in computing the wealth of a partner.
13. The nature of the right and the interest of a partner of a firm in the properties thereof has been explained thus by the Supreme Court in Addanki Narayanappa v. Bhaskara Krishnappa : 3SCR400 :
'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 would 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 sharer of profits of the assignor and accept the account of profits agreed to by the partners.'
14. From the aforesaid enunciation of the legal position, it is clear that though a partner has no exclusive right over any of the partnership properties, he has an interest in them. That such interest is transferable is evident from Section 29 of the Indian Partnership Act, 1932, the relevant portions of which read :
'29. (1) A transfer by a partner of his interest in the firm.....entitles the transferee only to receive the share of profits of the transferring partner,...
(2) If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.'
15. Thus, the interest of a partner in a firm is capable of being transferred in praesenti and there is no reason why such interest should not be regarded as a property. The definition of asset in Section 2(e) of the Act includes property of every description except those categories of properties which have been specifically excluded under Sub-clauses (1) and (2) of Clause (e). That the interest of a partner in a partnership firm can be regarded as an asset, is also clear from Section 4, the relevant portions of which read:
'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.....the value of hisinterest in the firm.....determined in the prescribed manner.'
16. Thus, we are unable to accept the contention of Shri Khare that the interest of a partner in a partnership firm, cannot be regarded as a part of his net wealth.
17. As pointed out in CWT v. Mela Ram : 84ITR323(Delhi) , under the Act there are only two units of assessment, an individual and a HUF. Partnership firm as such is not a unit of assessment and, therefore, for the purpose of arriving at the net wealth of a partner he has to be treated as an individual and the determination of his assets has to be worked out in that capacity.
18. Elaborating his second contention, Shri Khare argued that even if the interest of an individual in a partnership firm can be regarded as an asset within the meaning of Section 2(e) of the Act, the interest of a HUF in a partnership firm cannot be regarded as such asset. In support of his contentions, Shri Khare strongly relied on the circumstance that Section 4(1)(b) of the Act provides that in computing the net wealth of an individual the value of his interest in a partnership firm should be determined in the prescribed manner and that there is no corresponding provision in the Act for inclusion of the interest of a HUF in a partnership firm. From this circum-stance, Shri Khare wanted to infer that the Act does not treat the share of a HUF in a partnership firm as being an asset of the HUF.
19. The legal position of a HUF vis-a-vis a partnership firm in which the karta of such family is a partner, has been explained thus by the Supreme Court in CIT v. Bagyalakshmi & Co. : 55ITR660(SC) :
'A partnership is a creature of contract. Under Hindu law a joint family is one of status..... A contract of partnership has no concernwith the obligation of the partners to others in respect of their shares of profit in the partnership. It only regulates the rights and liabilities of the partners. A partner may be the karta of a joint Hindu family ;.....he occupies a dual position. Qua the partnership, he functions in his personal capacity; qua the third parties, in his representative capacity. The third parties, whom one of the partners represents, cannot enforce their rights against the other partners nor the other partners can do so against the said third parties. Their right is only to a share in the profits of their partner-representative in accordance with law or in accordance with the terms of the agreement, as the case may be.'
20. Though petitioner-2, Padampat Singhania, the karta of the HUF, functioned as a partner of petitioner-1 firm in his personal capacity, the HUF had a share in the profits and the assets of petitioner-1 firm.
21. It is true that Section 4(1)(b) of the Act refers to the manner of ascertaining the value of the share of an individual in a partnership firm and that there is no corresponding express provision in the Act as to the manner of valuing the interest of a HUF in a partnership firm. But from this circumstance it does not follow that the interest of a HUF in a partnership firm, is not a part of the net wealth of such family and liable to wealth-tax. The material portion of Section 3 of the Act, which is the charging Section, reads :
'3. Subject to the other provisions contained in this Act, there shallbe charged for every assessment year commencing on and from the firstday of April, 1957, a tax (hereinafter referred to as wealth-tax) in respectof the net wealth on the corresponding valuation date of every individual,Hindu undivided family.....'
22. Clause (m) of Section 2 of the Act defines 'net wealth' as the aggregate value of all the assets belonging to the assessee on the valuation date in excess of all the 'debts owed by the assessee on that date subject to certain exceptions specified in Sub-clauses (i) to (iii) of that clause. As a HUF is subject to wealth-tax on its net wealth, there is no reason why its interest in a partnership firm, which is a property, cannot be regarded as a part of its assets and of net wealth subject to levy of wealth-tax under the charging section. There is no provision in the Act which excludes expressly or by necessary implication the interest of a HUF in a partnership firm from the ambit of such family's net wealth which is subject to wealth-tax.
23. Thus, we are unable to accept the contention of Shri Khare that the interest of a HUF in a partnership firm cannot be included in computing the net wealth of such family for levy of wealth-tax.
24. To appreciate the third contention advanced by Shri Khare, it is necessary to set out certain provisions of the Act and the Rules. Sub-section (2) of Section 4 of the Act reads :
'4. (2) In making any rules with reference to the valuation of the interest referred to in Clause (b) of Sub-section (1), the Board shall have regard to the law for the time being in force relating to the manner in which accounts are to be settled between partners of a firm and members of an association on the dissolution of a firm or association, as the case may be.'
25. Sub-section (1) of Section 7 of the Act reads:
'7. (1) Subject to any rules made in this behalf, the value of any asset, other than cash, for the purposes of this Act, shall be estimated to be the price which in the opinion of the Wealth-tax Officer it would fetch if sold in the open market on the valuation date.'
26. The relevant portion of Sub-section (2) of Section 7 of the Act reads:
'7. (2)(a) Where the assessee is carrying on a business for which accounts are maintained by him regularly, the Wealth-tax Officer may, instead of determining separately the value of each asset held by the assessee in such business, determine the net value of the assets of the business as a whole having regard to the balance-sheet of such business as on the valuation date and making such adjustments therein as may be prescribed.'
27. Sub-section (3) of Section 7 of the Act reads :
'7. (3) Notwithstanding anything contained in Sub-section (1), where the valuation of any asset is referred by the Wealth-tax Officer to the Valuation Officer under Section 16A, the value of such asset shall be estimated to be the price which, in the opinion of the Valuation Officer, it would fetch if sold in the open market on the valuation date, or, in the case of an asset being a house referred to in Sub-section (4), the valuation date referred to in that Sub-section.'
28. Sub-section (1) of Section 16A of the Act reads:
'16A. (1) For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, the Wealth-tax Officer may refer the valuation of any asset to a Valuation Officer-
(a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the Wealth-tax Officer is of opinion that the value so returned is less than its fair market value ;
(b) in any other case, if the Wealth-tax Officer is of opinion--
(i) that the fair market value of the asset exceeds the value of the asset as returned by more than such percentage of the value of the asset as returned or by more than such amount as may be prescribed in this behalf ; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.'
29. Sub-section (2) of Section 16A of the Act reads :
'16A. (2) For the purpose of estimating the value of any asset in pursuance of a reference under Sub-section (1), the Valuation Officer may serve on the assessee a notice requiring him to produce or cause to be produced on a date specified in the notice such accounts, records or other documents as the Valuation Officer may require.'
30. Rule 2 of the W.T. Rules, 1957, deals with the valuation, inter alia, ofthe interest of a partner. Sub-rule (1) of this rule reads :
'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 or member in the firm or association.'
31. Shri Khare contended that when there is a specific provision, namely, Rule 2 for valuation of the interest of a partner in a partnership firm, the general provisions contained in Section 7 and Section 16A for valuation of assets, have no application for Valuing such interest of a partner.
32. In our opinion, Rule 2 and Sections 7 and 16A are complementary to one another in valuing the interest of a partner in a partnership firm and hence there is no question of exclusion of one provision by the other. Rule 2 merely refers to the manner in which the value of the interest of a partner in a partnership is to be computed after ascertaining the net wealth of the firm, i.e., its assets minus its liabilities. When the value of such assets is to be determined, Section 7 comes into play and Sub-section (1) thereof states that the value of any asset (other than cash) shall be the estimated price it would fetch if sold in the open market on the valuation date. Sub-clause (ii) of Section 16A(1)(b)provides that where the WTO is of opinion that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, he may refer the value of any asset to the Valuation Officer.
33. Thus, Rule 2, Section 7 and Section 16A(1)(b)(ii) can be read harmoniously and Rule 2 does not exclude the application of Section 7 and Section 16A for valuing an asset of a partner in a partnership firm.
34. Even so, Shri Khare contended that Sub-section (2) of Section 7, which contains a non-obstante clause, provides that where the accounts are maintained regularly in a business, the WTO has to determine the net value of the assets of such business on the basis of the balance-sheet of such business and that it is not open to him to determine separately the value of individual assets of such business.
35. We are unable to accept the construction sought to be put by Shri Khare on Sub-section (2) of Section 7 of the Act. Though that sub-section contains a non-obstante clause, it is only an enabling provision giving discretion to the WTO to value the assets of a business as a whole instead of valuing each asset separately. That sub-section does not make it obligatory to value the assets of a business as a whole and not to value such assets separately. The word used in Clause (a) of that sub-section is 'may' and not 'shall'. As pointed out by this court in Sahu Dharmata Saran v. CWT : 80ITR194(All) , Sub-section (2) is not a provision in derogation of the provision of Sub-section (1) of Section 7.
36. Even where the WTO proceeds under Sub-section (2) of Section 7, what Clause (a) thereof provides is that he shall have regard to the balance-sheet of the business. The expression 'have regard to' has not the same meaning as 'on the basis of'. As observed by the Privy Council in Ryots of Garaban-dho v. Zamindar of Parlakimedi, , the requirement to 'have regard to' the provisions in question, has no more definite or technical meaning than that of ordinary usage, and only requires that those provisions must be taken into consideration.
37. Once it is held that the WTO has the power to value separately each asset of a business, it follows that he has also the power under Section 16A to refer to the Valuation Officer the valuation of any asset, if he 'considers it necessary so to do having regard to the nature of the asset and other relevant circumstances.
38. Thus, we are unable to accept the contention of Shri Khare that the WTO had no power to value separately the buildings owned by peti-tioner-1 firm and that he was bound to take the book value of those buildings as entered in the balance-sheet of petitioner-1 firm. We are also unable to accept the contention of Shri Khare that for ascertaining the value of those buildings the WTO had no power to refer such valuation to the Valuation Officer under Section 16A.
39. Lastly, it was contended by Shri Khare that under Section 38A of the Act the Valuation Officers had no power to issue notices to petitioner-2 requiring him to afford facilities for inspection of buildings referred to them for valuation and to produce books of accounts, documents and other records relating thereto, since those buildings did not belong to him nor was he in occupation thereof. Shri Khare maintained that it was petitioner-1 firm and not petitioner-2 to whom those Buildings belonged.
40. Section 38A(1) empowers the Valuation Officer to require any person in charge of, or in occupation of possession of, the buildings referred for valuation, to afford him (the Valuation Officer) necessary facility to inspect such buildings and to produce for inspection any books of accounts, document or record which may be relevant for such valuation. As the aforesaid buildings belonged to petitioner-1 firm, it (petitioner-1 firm) could be regarded as being in charge thereof. As petitioner-2 was a partner of petitioner-1 firm, under Section 18 of the Indian Partnership Act he could be regarded as an agent of petitioner-1 firm and the Valuation Officer could issue notices to him requiring him to afford facility for inspection of those buildings and to produce books, documents and records relevant for the valuation of those buildings.
41. Thus, all the contentions urged on behalf of the petitioners fail.
42. In the result, we dismiss this petition with costs.
43. The interim order made on January 10, 1975, is hereby vacated.