Per Shri Prakash Narain, Accountant Member - Since the above appeals relate to the same assessee and are inter-related, they are disposed of by this consolidated order for the sake of convenience.
2. The assessee is the co-owner of a property situated at 24/73, Birhana Road, Kanpur. Besides, he is also a partner in firms, which in their turn, also own immovable properties. The WTO had made the assessment on 30-31-1981 on a net wealth of Rs. 19,03,120. This included one-third share of the assessee in the firm of Nagarmal & Co. taken at Rs. 26,812.
3. The Commissioner being of the opinion that the order passed by the WTO was erroneous insofar as it was prejudicial to the interest of the revenue, initiated proceedings under section 25(2) of the Wealth-tax Act, 1957 (the Act). In the notice issued on 10-2-1983 under the above section, to the assessee, the Commissioner pointed out two errors to the value of the assessees share in the firm of Nagarmal & Co. The Commissioner stated that there was appreciation in the value of the property belonging to the above firm and if that appreciation was taken into account, then the assessees share worked out to Rs. 1,35,724 as against Rs. 26,812 included in the assessment. It was pointed out to the assessee that there was, thus, under-valuation of his share in the above firm to the extent of Rs. 1,08,912. It will be pertinent to mention here that the Commissioner specifically pointed out that the above appreciation of Rs. 1,33,216 included in the above amount in the property had been worked out by the departmental valuer. The second error pointed out by him was that the assessee had been under-charged additional wealth-tax leviable on urban assets. The Commissioner worked out the value of the urban assets at Rs. 11,70,517. On this, the additional wealth-tax worked out to Rs. 36,935. He pointed out in the notice that as against the above charge, actual charge was only Rs. 21,915, thereby resulting in a short charge of Rs. 14,960.
4. At the time of the hearing before the Commissioner it was argued by the learned counsel for the assessee that the assessee was not provided with any valuation report indicating the value of the property belonging to Nagarmal & Co. higher by Rs. 1,33,216 than the value originally adopted. He submitted that he would have not objection in adoption of the value as determined by the departmental valuer at Rs. 1,57,000 if there was any such report on the record of the WTO. The Commissioner did not deal with this matter further nor did he give any finding on this issue in the operative part of his order contained in paragraph 5.
4.1 With regard to the second error regarding the under-charge of additional wealth-tax, it was pointed out to the Commissioner that Rs. 11,70,517 included the value of two properties belonging to the firms of New Cawnpore Flour Mills and Nagarmal & Co., which were the assessees business assets. It was argued before the Commissioner that the additional wealth-tax was chargeable on the assets other than the business premises. In this connection, attention of the Commissioner was also invited to the definition of business premises appearing in rule 1 of Paragraph B of Part I of Schedule I of the Act. This contention was rejected by the Commissioner in view of rule 3 of Part I of Schedule I thereof. We will have occasion to deal with this rule a little later in our this order. The Commissioner finally held as under :
'5. In view of above positions, additional wealth-tax is leviable even in respect of share of partners in business firms. The failure of the WTO to charge such tax is prejudicial to the interests of revenue. As such the order of the WTO for the assessment year 1976-77 is set aside for being framed afresh.'
5. The assessee had also filed an appeal to the Commissioner (Appeals) against the assessment order challenging the valuation of the properties. The Commissioner (Appeals) treated the appeal as infructuous in view of the finding of the Commissioner setting aside the entire assessment for being made afresh.
6. The present appeals have been filed by the assessee against the order of the Commissioner and the Commissioner (Appeals), respective. The learned counsel for the assessee repeated the contentions, which were pleaded before the Commissioner. It was again submitted before us that there was no report of any Valuation Officer suggesting that the value of the property belonging to Nagarmal & Co. had shown any appreciation to the extent of Rs. 1,57,300. He still maintained that if there was any such report, he would have no objection to the adoption of the new value for the purposes of tax in the assessment of the assessee. He also submitted that it appeared that the Commissioner had accepted the above claim of the assessee inasmuch as he had not directed the setting aside of the assessment on the above basis as would appear from para 5 of his order.
7. On behalf of the department, it was submitted that if there was any lacuna in the operative part of the order of the Commissioner it was open to the Tribunal to either call for a remand report or direct him to plug the lacuna and pass a proper order. The learned departmental representative was, however, unable to place before us any copy of the report of the Valuation Officer with regard to the valuation of the property belonging to Nagarmal & Co.
8. We have carefully considered the submissions placed before us. In the absence of any report of any Valuation Officer, it cannot be said that there was any appreciation in the value of the property belonging to the above firm. There is also no material on record to suggest any such appreciation. In that view of the matter, it will not be proper to set aside the assessment and direct the WTO to adopt a new valuation or enhance the value of the property.
9. To us, it appears that the claim of the assessee in this regard had been accepted by the Commissioner and, therefore, he did not set aside the assessment on this ground. The order of the WTO cannot, therefore, be called erroneous or prejudicial to the interests of the revenue on this score.
10. With regard to the charge of additional wealth-tax, it was submitted by the learned counsel for the assessee that the actually the WTO had not charged any such tax. He then argued that the Legislature has specifically exempted the business premises from the additional tax. He also took us through the definition of the business premises as contained in rule 1. He further contended that rule 3 did not abrogate the exemption granted to the business premises but only laid down the procedure for determining the value of the share of a partner in a firm relating to urban assets other than business premises.
11. On behalf of the department, it was submitted that rule 3 of laid down the method for valuing interest of a partner in all the assets including business premises and that it was an independent rule overruling the other provisions. According to the learned departmental representative, therefore, rule 3 had been correctly followed by the Commissioner in rejecting the assessees claim.
12. We have carefully considered the submissions placed before us. In our opinion, there is considerable force in the submission placed on behalf of the assessee. We will quote below the relevant portions of Part I of the Schedule to the Act :
'(2) In addition, in the case of every individual and Hindu undivided family, where the net wealth the individual or Hindu undivided family includes the value of any asset, being building or land (other than business premises) or any right in such building or land, situated in an urban area (such asset being hereafter in this Part referred to as urban asset).
Rule 1, In this Part -
(i) business premises means any building or land or part of such building or land, or any right in building or land or part thereof, owned by the assessee and used throughout the previous year for the purpose of his business or profession, and includes any building used for the purpose of residence of persons employed in the business or any building used for the welfare of such persons as a hospital, creche, school, canteen, library, recreational centre, shelter, rest-room or lunch-room, but does not include any premises in the nature of a guest house;
** ** **
Rule 3. Where the net wealth of the assessee includes the value of his interest as a partner in a firm or as a member of an association of persons and the assets of such firm or association include any urban assets, then notwithstanding anything contained in the Indian Partnership Act, 1932 (9 of 1932), or in any other law for the time being in force, the interest of the assessee in such firm or association, to the extent specified in the Explanation below shall be deemed to be an urban asset and the provisions of item (2) of paragraph A shall apply accordingly.
Explanation : The extent of the interest of the assessee in a firm or association deemed to be an urban asset as aforesaid shall be a sum which bears to the value of the whole of the interest of the assessee in the firm or association the same proportion which the net value of the urban assets of the firm or association (determined under rule 2 as if they were urban assets belonging to an individual or a Hindu undivided family) bears to the net wealth of the firm or, as the case may be, the association, computed as if such firm or association, were individual.'
Our reading of the above provisions goes to show that the Legislature had granted exemption to business premises from the additional wealth-tax by excluding them from the definition of urban assets. Rule 1 then defined business premises. Rule 3 then laid down the procedure for valuing the interest of partner in a firm or a member of an AOP in urban assets. Rule 3 refers to urbans assets. `Urban assets have already been taken to be the assets other than business premises. Rule 3, therefore, cannot refer to business premises. Even otherwise, there appears to be no logic in withdrawing exemption from additional wealth-tax on business premises only in the case of a partner in a firm or a member of an AOP while at the same time maintaining such exemption in case of other assessees. That being the position, we hold that additional wealth-tax cannot be charged on the business premises even if they might be held by the firms in which the assessee is a partner.
13. That being the position, properties belonging to New Cawnpore Flour Mills and Nagarmal & Co. will have to be excluded from the charge of additional tax. If they are excluded, then there remains only Birhana Road property of the assessee whose valuation has been taken at Rs. 5 lakhs. That too is subject to exemption under section 5(1)(iv) of the Act to the extent of Rs. 1 lakh. In any case, additional wealth-tax is not chargeable when the value of the urban assets does not exceed Rs. 5 lakhs. The assessee is, therefore, not chargeable to any additional wealth-tax. It cannot, therefore, be sad that there is any error in the order of the WTO prejudicial to the interests of the revenue. We, therefore, set aside the order of the Commissioner passed under section 25(2) and restore that of the WTO.
14. In the view we have taken, the assessees appeal before the Commissioner (Appeals) will survive. We, therefore, set aside the order of the Commissioner (Appeals) and direct him to deal with the assessees appeal on merits.
15. In the results, both the appeals are allowed.