R.N. Misra, J.
1. The Wealth-tax Appellate Tribunal, Cuttack Bench, has stated this case and referred the following question for the opinion of the court under Section 27(1) of the Wealth-tax Act of 1957 (hereinafter referred to as 'the Act'):
' Whether, on the facts and in the circumstances of the case and on a true interpretation of Section 5(1A) of the Wealth-tax Act and the Wealth-tax Rules, the Appellate Tribunal was justified in allowing the deduction of Rs. 91,400 in respect of the exempted assets held by the firm in which the assessee was a partner in computing his net wealth ?'
2. Assessee is a partner in three firms, two of which are Immidisetti Ramakrishniah Sons, Anakapalle, and Immidisetti Ramakrishniah Sons, Berhampur. The relevant assessment year is 1972-73 and the valuation date is March 31, 1972. In computing the net wealth, the assessee worked out bis 11 per cent. share in the exempted assets such as bank deposits, Government securities, T.D.S. Bonds et cetra held by the firm, M/s. I.R.K. Sons, Anakapalle, at Rs. 91,400 and he deducted the same from the sum of Rs. 2,54,581 which represented his share of the capital in the firm. The WTO did not accept the computation and was of the view that, in terms of Rule 2 of the W.T. Rules, the exemption of Rs. 1,50,000 as provided in Section 5(1A) of the Act should be adopted in the hands of the firm and the net wealth of the firm should thereafter be calculated. According to the method indicated by the WTO, the assessee was entitled to an exemption within the upper limit of Rs. 16,500 as against Rs. 91,400 claimed by him. The Assessing Officer was further of the view that Rule 2D(c) of the Rules had no application in the case of a partner while valuing his interest in the firm. He, accordingly, computed the net wealth at Rs. 3,81,190.
3. The assessee appealed to the AAC. He upheld the assessment by adopting the view that the exemption of assets mentioned in Section 5(1)(xxvi) was available only to the assessee in whose name the assets were held and, since the assets in question were in the name of the firm, exemption was available in the hands of the firm in terms of the Act and not to the assessee.
4. On further appeal by the assessee, the Tribunal took the view that on a reading of Rule 2(3) which provides that the value of interest of a partner shall be deemed to include the value of his proportionate share in exempted assets also, in computing the net wealth of the firm for the purpose of finding out the share of the partner, it is not necessary to comply with the provisions of Section 5(1A); exemption could be available in respect of the value of assets of the exempted variety in the hands of the assessee, irrespective of whether the assessee held the deposits in his own name or as his share in the name of a firm ; the limit prescribed under Section 5(1A) of the Act was to be applied at that stage and not at the stage of computing the assets in the hands of the firm. Accordingly, the claim of the assessee to a deduction of Rs. 91,400 by way of exemption was admitted. The reference has been made at the instance of the revenue in these circumstances.
5. A firm is not an assessable entity under the Act as would appear from Section 3 thereof. 'Asset' has been defined in Section 2(e) of the Act and Section 5(1) provides for exemption in respect of certain assets. The relevant exemption is in Section 5(1)(xxvi) thus :
'(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--......
(xxvi) any deposits with a banking company to which the Banking Regulation Act, 1949, applies (including any bank or banking institution referred to in Section 51 of that Act), or with a co-operative society engagedin carrying on the business of banking (including a co-operative land mortgage bank or a co-operative land development bank). '
6. Rule 2 of the Rules framed under Section 46 of the Act prescribes the method of valuation of interest in partnership or association of persons and Sub-rule (1) runs thus :
' The value of the interest of a person in a firm of which he is a partner or 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. '
7. There is no dispute that the partner is entitled to the benefit of the exemption provided under Section 5(1)(xxvi) of the Act. The dispute is as to the stage at which the exemption has to be given effect to. By one process, the exemption to which the assessee is entitled works out at Rs. 91,400 as claimed by the assessee and by the other it works out at Rs. 16,500 as maintained by the revenue. The WTO gave the following reasons in support of the stand of the revenue :
'Assessee claimed exemption under Section 5(1A) on assets of the value of Rs. 91,400 being deposits with different banks. The deposits are held in the name of the firm of which the assessee is a partner. Valuation of interest in a partnership has been made in accordance with Rule 2. Rule 2 lays down that the net wealth of the firm on the valuation date shall first be determined. While computing the net wealth of the firm the deposits with banks exempt under Section 5(1A) will be of the value of Rs. 1,50,000 only.
As such the partner will be entitled to exemption on that part of the value of bank deposits out of Rs. 1,50,000 in proportion to his sharing ratio in the firm.
Rule 2D(c) is not applicable to the case of the assessee in so far as valuation of interest in partnership assets is concerned....... '
8. The Tribunal, while reversing the stand of the revenue and admitting the claim of the assessee in entirety, has stated ;
' We have carefully gone through the Rules and the provisions of the Act. In the Rules 2, 2A, 2B, 2C and 2D of the Rules there is no mention of Section 5(1A) of the Act. Under Section 7 of the Act, the methods of valuation of assets have been laid down. Under Section 7(1) of the Act, the Wealth-tax Officer is entitled to estimate the value of any asset as that which it would fetch if sold in the open market on the valuation date. In sub-section (2) of Section 7 of the Act, if any assessee carries on business for which the accounts have been maintained by him regularly, the Wealth-tax Officer instead of determining separately the value of each asset may 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 make such adjustments therein as may be prescribed. We are concerned in this appeal as to the valuation of interest of the assessee in a partnership concern. The Wealth-tax Officer valued these assets with reference to the assessee's share of capital in the firm less the exemption of Rs. 16,500. Hence, it is evident that the valuation of the assets was made with reference to the net value of the assets of the partnership business as a whole having regard to the balance-sheet of the said business. Thus, the Wealth-tax Officer applied Rule 2A of the Rules in the instant case......'
9. Before we proceed further, we have to revert to the contention put up before us on behalf of the assessee to the effect that in applying Rule 2 of the subsequent Rules, the determination of the net value of the assets of the business of a firm cannot be made by treating the firm as an assessable unit. The answer to this contention can be had from the ratio of the decision in CWT v. Vasantha : 87ITR17(Mad) . Such determination, should be made in accordance with the provisions of the Act.
10. In the light of our foregoing discussions, if we are to accept the departmental contention, then a partner of a firm would get double benefit in the sense that, first, in the determination of net wealth of the firm, benefit of Section 5(1A) of the Act should be given and, secondly, in the hands of the partner the same benefit should be extended with reference to the assets held by him in respect of which, similarly, wealth-tax is not payable.'
11. Learned standing counsel relied upon a later decision of the Madras High Court in the case of Purushothamdas Gocooldas v. CWT : 104ITR608(Mad) . The question for consideration in the later Madras case was as to whether under Section 5(1)(iv) of the Act, a partner of the firm would be entitled to exemption in regard to house property standing in the name of the firm. The court came to hold relying on a decision of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa : 3SCR400 , that in a house belonging to the firm which had not been dissolved it was not possible for any partner to indicate with exactitude as to what his share was. We agree with Mr. Mohanty for the assessee that the special mode provided for under the scheme of the W.T. Act to work out a valuation of the asset on a deemed dissolution has been lost sight of and the ratio of the Supreme Court decision which has only application in the case of any partnership property has been relied upon by ignoring the special scheme contained in the statute. That apart, Section 5(1)(iv), on its own terms, would not have applied in view of the language of the statute ' one house or a part of the house belonging to the assessee'. A house of a going partnership firm cannot belong to a partner to satisfy the requirements of Section 5(1)(iv) of the Act. The later Madras decision, therefore, is no authority for the point in issue. On the other hand, in the ratio indicated in the earlier decision in the case of CWT v. Vasantha : 87ITR17(Mad) , there is light in resolving the question.
12. As pointed out by the Tribunal, if the view adopted by the revenue is accepted, double exemption would be available to an assessee. We may illustrate our proposition thus : A firm consisting of three partners has deposits worth rupees five lakhs in a bank. We are concerned with the first partner, A, who is the assessee. A's valuation of interest in the partnership firm works out to Rs. 1,60,000. Exemption as provided in Section 5(1)(xxvi) read with Section 5(1A) of the Act comes to Rs. 1,50,000 and the same is allowed at that stage. A has in his own name deposit of rupees two lakhs with a bank. He again makes a claim under Section 5(1)(xxvi) and gets a deduction of Rs. 1,50,000. This would mean that the same assessee would avail of the benefit twice over which could not have been contemplated under the scheme of the Act. We are, therefore, inclined to accept the assessee's stand and the view that has prevailed with the Tribunal.
13 Our answer to the question referred, therefore, is that-
On the facts and in the circumstances of the case and on a true interpretation of Section 5(1A) of the Wealth-tax Act and the Wealth-tax Rules, the Appellate Tribunal was justified in allowing deduction to the extent of Rs. 91,400 in respect of the exempted assets held by the firm in which the assessee was a partner in computing his net wealth.
14. Assessee would have his costs of the reference. Hearing fee is assessed at rupees one hundred.
15. I agree.