1. This common judgment will dispose of two allied reference made at the instance of two brothers representing their respective Hindu undivided family (H.U.F.) which raise identical questions and which arise out of a common judgment rendered by the Income-tax Appellate Tribunal, Ahmedabad Bench 'A', on October 22, 1973.
2. Four questions have been referred this High Court for its opinion. The questions are :
'(1) Whether, the Tribunal was justified in law in holding that the share or interest of the assessee in the partnership firm is an 'asset' within the meaning of section 2(e) of the Wealth-tax Act, 1957
(2) Whether the Tribunal was correct in holding that the said interest or share of the assessee was includible in its net wealth under the provision of section 3 of the said Act
(3) Whether, on the facts and in the circumstances of the case, the Tribunal's finding to the effect that there is adequate machinery under the provisions of the Wealth-tax Act, 1957, and the rules framed thereunder to evaluate and compute such interest or share is warranted by law
(4) If the answer to the above question No. (3) is in the affirmative, whether the Tribunal is correct in holding that such evaluation and computation is to be made under the provisions of rule 2 of the said Rules read with section 7 of the said Act ?'
3. The learned counsel for the assessee made a statement at the bar that he had instructions not to press question No. 1. Under the circumstances, we are concerned only with questions Nos. 2, 3, and 4 adumbrated hereinabove.
4. A few facts require to be stated for a proper appreciation of the questions involved. In Wealth-tax Reference No. 9/74 the assessee, Kulinsingh Manibhai, was a partner in a firm doing business in Bombay under the name and style of M/s. Rasiklal Maneklal & Co. in his capacity as the karta of H.U.F. of Kulinsingh Manibhai. The assessee, at whose instance reference No. 8/74 has been made, Sudhakar Manibhai, was also a partner in the same firm representing the H.U.F. of Sudhakar Manibhai in his capacity as the karta of the said H.U.F. During the course of the assessment of the H. U. F. of (1) Kulinsingh Manibhai, and (2) Sudhakar Manibhai for 1968-69 and 1969-70, each of the assessee contended that the value of its interest or share in the said firm of M/s. Rasiklal Maneklal & Co. was not including in making the computation of the total wealth of the respective assessee. This contention was rejected by the Wealth-tax Officer who was of the opinion that the interest of each of the assessee in the aforesaid partnership firm was capable of being valued and was liable to be included in making computation of the total wealth of each of the assessees. The view taken by the Wealth-tax Officer was confirmed on appeal by the learned Appellate Assistant Commissioner of Wealth-tax by his order dated June 26, 1971, and by the Income-tax Appellate Tribunal, Ahmedabad Bench 'A' by its order dated October 22, 1973.
5. It is not in dispute that when an individual is a partner in a partnership firm, his interest in the said partnership firm is liable to be included in his total wealth for the purposes of assessment under the Wealth-tax Act, 1957. It is, however, contended that when a person is a partner in a partnership firm not in his own right but in his capacity as a karta of the H.U.F. representing his H.U.F., the interest of the said person in his capacity as the Karta in the partnership concern cannot be included in the computation of the total wealth of the H.U.F. In support of this contention reliance has been placed on section 4 of the Wealth-tax Act, 1957, which in so far as material reads thus :
'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 or a member of an association of persons, the value of his interest in the firm or association determined in the prescribed manner.
(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......'
6. Reliance is placed on the opening words of sub-section (1) of section 4 wherein it is provided that in computing the net wealth of an individual there shall be included as belonging to that individual the assets listed in the following clauses. It is argued that the expression 'individual' has been deliberately employed by the legislature with a view to exclude an assessee who is assessed not as an individual but as a Hindu undivided family (HUF). It is then pointed out that in clause (b) the legislature has provided that where the assessee is a partner in a firm or a member of an association of persons, the value of his interest in the firm or association determined in the prescribed manner would be includible in the computation of the total wealth of the assessee concerned. Reading together the opening words of section 4(1) with clause (b) of section 4(1) (it is so argued) it would appear that the expression 'assessee' in section 4(1)(b) is referable to only an individual assessee and not to an individual who is an assessee in his capacity as the karta of the HUF representing a HUF. It is submitted that a view of this circumstance when an individual is an assessee in a firm, the value of his interest in the firm can be included but when an individual is a partner in his capacity as a karta of a HUF and when the assessee is the HUF, the interest of the said person representing the HUF in a partnership firm cannot be included in making computation of the total wealth of the assessee concerned. It is contended that the definition of the expression 'assessee' found in the dictionary of the Act in section 2(c) will not govern the interpretation of the expression 'assessee' in section 4(1)(b) having regard to the fact that in the opening words of section 4(1) there is a reference to an individual only.
7. The Income-tax Appellate Tribunal has taken the view that section 4(1)(b) will not be attracted in the case of an assessee who is not being assessed in his individual capacity but who is being assessed as HUF. The Tribunal has, however, taken the view that even without making recourse to section 4(1)(b) it is possible to hold that the interest of an individual who happens to be a partner in a partnership firm in his capacity as a karta of HUF is includible in the computation of the new wealth of the HUF concerned having regard to the definition of the expression 'net wealth' in section 2(m) which is in the following terms :
''Net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than, - ...'
8. In the opinion of the Income-tax Appellate Tribunal, net wealth means and includes all the assets wherever located belonging to the assessee on the valuation date. That being so, the interest of the assessee in the partnership firm in his capacity as a karta of the HUF being the asset of the HUF belonging to the HUF is includible in making computation of the net wealth and would be chargeable to the wealth-tax as per section 3 which reads thus :
'3. Subject to the other provisions contained in this Act, there shall be charged for every assessment year commencing on and from the first day of April, 1957, a tax (hereinafter referred to as wealth-tax) in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family and company at the rate or rates specified in the Schedule.'
9. An argument was advanced on behalf of the assessee, that an interest of a person in a partnership firm was not an asset, before the Income-tax Appellate Tribunal, which contention was negatived. As observed at the commencement of this judgment, the assessee has now abandoned this contention, the assessee having no dispute that the interest of the assessee in the partnership is an asset. It is, however, argued that the said asset does not belong to the assessee. In support of this argument reliance is placed on Narayanappa v. Bhaskara Krishnappa : 3SCR400 . Our attention is called to the following passages from the aforesaid judgment (pages 1303, 1304) :
'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 property as 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...... 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 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 share of profits of the assignor and accept the account of profits agreed to by the partners.'
10. Drawing inspiration from the aforesaid passages it is argued that inasmuch as the Supreme Court held that during the subsistence of the partnership no partner is entitled to claim an interest in any portion of the property belonging to the partnership as his own inasmuch as he cannot claim an interest in any specific item of partnership property and inasmuch as all the partners would have interest in proportion to their share in the joint venture of the business of partnership and to the surplus upon dissolution, a partner cannot claim that he has interest belonging to him in the partnership assets. In our opinion, this arguments is totally misconceived. What the Supreme Court had laid down is that, during the subsistence of the partnership, a partner cannot claim that the properties belonging to the partnership belong to him or cannot claim that any particular item of the partnership properties belongs to him. The Supreme Court has not laid down that a partner has no interest in the assets of the partnership or has no interest in the partnership which is capable of being valued. It is one thing to say that the properties belong to all the partners and no individual item of the properties belongs to any individual partner. It is another to say that the partner has no interest whatsoever in the assets of the partnership or no interest which is capable of being valued in terms of money. In our opinion, a partner has an interest in a partnership firm which is capable of being valued. The learned counsel for the assessee cannot, therefore, seek support from the decision in Narayanappa's case : 3SCR400 . Reliance on the said decision, in our opinion, has been misplaced by proceeding on the assumption that the Supreme Court has laid down that a partner has no interest in the partnership assets and that all the partnership assets belong only to the partnership as an entity. The Supreme Court has not laid down that a partner has no interest in the partnership assets which is capable of being valued. Under the circumstances, we cannot accede to the argument advanced on behalf of the assessee. In this view of the matter, interest of the assessee in the partnership firm wherein he represents the HUF as a karta is includible in the computation of the net wealth as defined by section 2(m)which chargeale to wealth-tax in making computation of the net wealth. Though the Income-tax Appellate Tribunal has upheld the contention of the assessee that section 4(1)(b) is not attracted, we are of the view that section 4(1)(b) is, in fact, attracted. The Tribunal was in error in holding that section 4(1)(b) was not attracted and though no question is referred to us directly making a reference to section 4(1)(b), question No. 2 is wide enough in its amplitude to govern this aspect as well. In our opinion, the interpretation of section 4(1)(b) canvassed on behalf of the assessee would lead to an absurdity and would create an anomaly. If the view were to be upheld, when an individual is a partner in his own right in a partnership firm, his interest in the partnership can be valued and can be included in making computation of his net wealth under section 3. If, however, he is a partner representing his H.U.F., the value of his interest in the partnership would not attract the liability for payment of wealth-tax. It is evident that such could not have been the legislative intention. It is, therefore, but reasonable to interpret section 4(1)(b), by taking into account the definition of the expression 'assessee' contained in section 2(c) of the Act. Section 2(c) in terms provides that the assessee means a person by a whom wealth-tax or any other sum of money is payable under this Act. There is nothing is section 4(1)(b) which would suggest that the expression 'assessee' employed therein is employed in a different sense or in a restricted sense so as to apply it to assessees who are individuals only. If section 4(1)(b) is interpreted in the light of the definition of 'assessee' it would apply to all persons by whom wealth-tax is payable under the Act and a karta of a H.U.F. is a person who is liable to pay wealth-tax on behalf of the H.U.F. And the karta when he happens to be a partner of a firm would fall within the definition of assessee contained in section 4(1)(b). Under the circumstances, the view taken by the Tribunal cannot be sustained and the argument advanced on behalf of the assessee cannot be accepted. On a true interpretation of section 4(1)(b) there is no escape from the conclusion that it applied to an assessee meaning thereby a person who is liable to payment of wealth-tax under the Act regardless of his capacity. Whether he is an assessee in his own capacity or in his individual right or whether he is an assessee in the capacity as a karta representing his H.U.F. is immaterial. We are reinforced in the view which has commended itself to us by a decision of the Supreme Court in Banarsi Dass v. Wealth-tax Officer : 56ITR224(SC) . Therein the question agitated was in regard to the interpretation of the expression 'individuals' occurring in entry 86 of List I of Schedule VII of the Constitution of India. It was contended that the expression 'individuals' would apply only to assessees who were being assessed in their individual capacity and not to Hindu undivided families or groups of individuals and, therefore, the legislature was not competent to make a legislation in respect of tax of Hindu undivided families. The Supreme Court has taken the view that the expression 'individuals' takes within its sweep groups of individuals like Hindu undivided families and Parliament is competent to levy a tax on the capital value of the asset of Hindu undivided families. We have, therefore, no hesitation in taking the view that the expression 'assessee' has been employed in the wider sense including H.U.F. and not in the narrower sense of an individual.
11. The next question which has been raised is as regards the methodology of valuation of an interest of the assessee who represents the H.U.F. in a partnership firm. It was argued that sub-section (2) of section 4 authorises the framing of a rule only in the context of section 4(1)(b) and that if the interpretation canvassed on behalf of the assessee was upheld and the assessee did not include a person who was liable to payment of wealth-tax in his capacity as a karta of H.U.F., the revenue could not take recourse to the rules framed under sub-section (2) of section 4. In the view that we are taking, this controvesy will not survive for we are taking the view that section 4(1)(b) would be attracted even to such cases.
12. We, therefore, answer question Nos. (2), (3) and (4) in the affirmative and in favour of the revenue in both the matters and we direct that the assessee in each matter will pay the costs of the reference to the revenue.