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Commissioner of Wealth-tax Vs. Sri Naurangrai Agarwalla - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberMatter No. 761 of 1979
Judge
Reported in[1985]155ITR752(Cal)
ActsWealth Tax Act, 1957 - Sections 2, 3, 4(1) and 5(1); ;Wealth Tax Rules, 1957 - Rule 2; ;Income Tax Act
AppellantCommissioner of Wealth-tax
RespondentSri Naurangrai Agarwalla
Appellant AdvocateA.C. Maitra and ;A. Bhattacharjee, Advs.
Respondent AdvocateR.N. Dutt, Adv.
Cases ReferredAddanki Narayanappa v. Bhaskara Krishnappa
Excerpt:
- suhas chandra sen, j. 1. at the instance of the cwt, west bengal-xiii, the tribunal has referred the following question of law to this court under section 27(1) of the w.t. act:'whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 5(1)(iv) of the w.t. act, 1957, the tribunal was correct in holding that the assessee was entitled to exemption from wealth-tax in respect of a part of the house property owned by the firm of m/s. poolchand bros. & co. of which he was a partner ?'2. the assessee is a partner heaving 1/4 share in the firm, m/s. poolchand bros. & co. the firm owned a house property which was used by the partners for their residence. according to the firm's balance-sheet, the value of the property was rs. 1,29,804. the wto valued it.....
Judgment:

Suhas Chandra Sen, J.

1. At the instance of the CWT, West Bengal-XIII, the Tribunal has referred the following question of law to this court under Section 27(1) of the W.T. Act:

'Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 5(1)(iv) of the W.T. Act, 1957, the Tribunal was correct in holding that the assessee was entitled to exemption from wealth-tax in respect of a part of the house property owned by the firm of M/s. Poolchand Bros. & Co. of which he was a partner ?'

2. The assessee is a partner heaving 1/4 share in the firm, M/s. Poolchand Bros. & Co. The firm owned a house property which was used by the partners for their residence. According to the firm's balance-sheet, the value of the property was Rs. 1,29,804. The WTO valued it at Rs. 3,00,000. The assessee had shown the value of his share in property at Rs. 31,201. The WTO added the difference of Rs. 43,799 to the net wealth of the assessee.

3. The assessee preferred an appeal before the AAC and urged that the firm was not a legal entity and that the assessee as an individual was entitled to the benefit of the exemption under Section 5(1)(iv) of the W.T. Act. In the alternative, it was urged that the firm itself was entitled to the benefit of Section 5(1)(iv). Both these contentions were rejected by the AAC and he affirmed the order of the WTO.

4. The Tribunal on further appeal by the assessee held that the exemption under Section 5(1)(iv) of the W.T. Act was allowable in respect of the house property and reduced the addition of Rs. 43,799 to the net wealth of the assessee.

5. The short question before us is whether a partner in his assessment of wealth-tax is entitled to the exemption granted by Section 5(1)(iv) in respect of a house belonging to the partnership. There is no dispute that the house was being used exclusively for residential purposes by the partners. The only difficulty in this case is that the house formed part of the assets of the partnership. The question, therefore, is can the house be described as 'belonging to the assessees' as to enable the partners to claim the benefit of Section 5(1)(iv). In order to resolve this controversy, we shall first have to examine the scheme of the W.T. Act, and also the relevant provisions of the Act. A charge of wealth-tax has been imposed by Section 3 which at the relevant time stood as under 1

'3. Charge of wealth-tax.--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, HUF and company at the rate or rates specified in the Schedule.'

6. The other sections which are relevant for our purpose are ;

'2. (c) 'assessee' means a person by whom wealth-tax or any other sum of money is payable under this Act, and includes--

(i) every person in respect of whom any proceeding under this Act has been taken for the determination of wealth-tax payable by him or by any other person or the amount of refund due to him or such other person ; ,

(ii) every person who is deemed to be an assessee under this Act;

(iii) every person who is deemed to be an assessee in default under this Act.

2. (m) '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--

(i) debts which under Section 6 are not to be taken into account;

(ii) debts which are secured on or which have been incurred in relation to, any property in respect of which wealth-tax is not chargeable under this Act; and

(iii) the amount of the tax, penalty or interest payable in consequence of any order passed under or in pursuance of this Act or any law relating to taxation of income or profits, or the Estate Duty Act, 1953 (34 or 1953), the Expenditure-tax Act, 1957 (29 of 1957), or the Gift-tax Act, 1958 (18 of 1958),--

(a) which is outstanding on the valuation date and is claimed by the assessee in appeal, revision or other proceeding as not being payable by him, or

(b) which, although not claimed by the assessee as not being payable by him, is nevertheless outstanding for a period of more than twelve months on the valuation date.

4. Net wealth to include certain assets.--(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.

5. Exemption in respect of certain assets.--(1) 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--...

(iv) one house or part of a house belonging to the assessee exclusively used by him for residential purposes : Provided that where the value of such house or part, situate in a place with a population exceeding ten thousand, exceeds one lakh of rupees, the amount that shall not be included in the net wealth of an assessee under this section shall be one lakh of rupees.'

7. It is important to note that Section 5(1)(iv) originally allowed exemption only in respect of 'one house belonging to the assessee'. By an amendment made by the Finance Act, 1964, the exemption was allowed in respect of 'one house or part of a house belonging to the assessee'. Rule 2 of the W.T. Rules is also important for our purpose and is as under:

'2. Valuation of interest in partnership or association of persons.--(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.

(2) Where the net wealth of a firm or association computed in accordance with Sub-rule (1) includes the value of any assets located outside India, the value of the interest of any partner or member in the assets located in India shall be determined having regard to the proportion which the value of the assets located in India diminished by the debts relating to those assets bears to the net wealth of the firm or association.

(3) Where the net wealth of a firm or association computed in accordance with pub-rule (1) includes the value of any assets referred to in Section 5(2) of the Act. the value of the interest of a partner or member shall be deemed to include the value of his proportionate share in the said assets, and the provisions of Section 5(2) of the Act shall be applied to him accordingly.'

8. The argument on behalf of the Revenue is that the exemption under Section 5(1)(iv) is not available to the assessee because the assessee in this casewas an individual and the house which was used exclusively for the residence of the partners did not belong to the assessee but to a partnership firm of which the assessee was a member. Strong reliance was placed on a decision of the Madras High Court in the case of Purushothamdas Gocooldas v. CWT : [1976]104ITR608(Mad) . Reliance was also placed on the judgment of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, : [1966]3SCR400 .

9. We were referred to a large number of decisions of the various High Courts and also of the Supreme Court. We shall refer to these decisions in detail later in the judgment. It appears to us that the relief that was sought to be given to an assessee in respect of a house or part of a house used by him exclusively for the purpose of his residence under Section 5(1)(iv) cannot be denied merely on the ground that the house belonged to a partnership, firm of which the assessee was a partner. The entire house was used for the residence of the partners of the firm. The W.T. Act, unlike the I.T. Act, has not made the partnership an assessee. It is well-settled that 'partnership' is a compendious way of describing the individuals forming the partnership. A partnership is not a legal person or juridical entity. Under the I.T. Act, the firm has been treated as an assessable entity and, for some purposes of the I.T. Act, a firm is treated as an entity distinct and separate from the persons who constitute the firm. But in the W.T. Act, no such distinction has been made and the firm has not been treated as an unit of assessment. The properties held under a firm name will have to be assessed in the hands of the partners of the firm. The W.T. Act imposes a tax on the net wealth of every individual and HUF. 'Net wealth' has been defined to mean, the aggregate value of all the assets wherever located belonging to the assessee on the valuation date. The properties that are held by a firm are really properties held by the parties jointly in the name of the firm. Therefore, when the total of the assets of an individual is computed under the W.T. Act, his share of assets in the firm of which he is a partner has to be taken into account. This has to be done because the partnership assets jointly belong to the partners. If that be the position, it is difficult to see how the assessee can be denied the benefit of the exemption under Section 5(1)(iv) on the ground that the assets did not belong to the partners. It the Revenue's argument is to be accepted, then it has to be held that the house belongs to the assessee for the purpose of computation of his net wealth but does not belong to him for the purpose of granting exemption under Section 5(1)(iv).

10. It was sought to be argued on behalf of the Revenue that the house was not included as an asset belonging to the assessee separately. It was valued along with other assets of the partnership and was included in thecomputation of the net wealth of the assessee by virtue of Section 4(1)(b) of the W.T. Act. In my judgment, Section 4(1)(b) made clear what was otherwise implicit in Section 2(m), wherein it was provided that the net wealth would include 'all the assets wherever located belonging to the assessee on the valuation date'. Section 4(1)(b) did not create any legal fiction by which something which was not otherwise includible in the net wealth of an assessee was included in his net wealth by a deeming provision. It merely laid down that in computing the net wealth of an individual, the value of his interest in the firm determined in the prescribed manner should be taken into account.

11. Assuming the contention of the Revenue is correct and Section 4(1)(b) has created a legal fiction by which the interest of a partner in a firm has to be included in the computation of his net wealth, even then the exemption under Section 5(1)(iv) cannot be denied to the assessee. It is well-settled that a legal fiction must be taken to its logical conclusion and all the inevitable corollaries and consequences of the legal fiction should be given effect to. (East End Dwellings Company Limited v. Finsbury Borough Council [1952] AC 109). Rule 2 of the W.T. Rules lays down the method of valuation of interest of a partner in a partnership firm. For this purpose, the net wealth of the firm on the valuation date has to be determined first. This can only be done by the valuation of the assets of the firm. The house which is used for the purpose of residence of the partners will have to be valued. If the assessee is entitled to any exemption in respect of the house or a part of the house, that has to be allowed. That must follow logically from the legal fiction.

12. It has to be noted that in order to enjoy the benefit of Section 5(1)(iv), an assessee will have to establish (1) that a house or part of a house belonged to the assessee; and (2) that the house or part of the house was used by the assessee exclusively for residential purpose. The section does not require that the house or a part of the house must belong exclusively to the assessee. In a case where an assessee owns a house jointly with somebody else and uses a portion of the house exclusively for his residential purpose, he will be entitled to claim exemption under Section 5(1)(iv).

13. It was contended on the basis of the judgment of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa, : [1966]3SCR400 , that the interest of the partners in the partnership assets was movable property and the partners individually did not have any interest in the partnership property. The Supreme Court in the case of Addanki Narayanappa was faced with the question whether in a case, where the partnership assets included immovable property, a document recording relinquishment by some of the partners of their interest in thefirm was compulsorily registrable under Section 17(1)(c) of the Registration Act. It was observed by Mudholkar J., in that case, at page 1304, as follows :

'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. '

14. I fail to see how this judgment helps the partner in the case before us. It is well settled that no partner can claim that any portion of the partnership assets belonged to him exclusively. But can it be denied that the assets belonged to the partner jointly and to nobody else The firm is not a juristic person. The assets belonged to the partners jointly. It was observed by Mudholkar J, (headnote):

'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.'

15. The short question in this case is whether the part of the house which belonged to the partnership and was exclusively used for residential purpose by the assessee can be described as a house or part of a house belonging to the assessee. The question is not whether the house belonged exclusively to the assessee. If the house belonged to the assessee jointly with other partners, the requirement of Section 5(1)(iv) is satisfied and the benefit of that section cannot be denied to the assessee.

16. A partnership firm is not a distinct legal entity and the partnership property in law belongs to all partners constituting the firm. The firm, as such, has no separate rights of its own in the partnership assets but it is the partners who own jointly or in common the assets of the partnership. When a firm is dissolved, there is no question of any extinguishment of the firm's right in the partnership assets. The Supreme Court in the case of Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) , had occasion to go into the nature of the interest of partners in a partnership firm. Tulzapurkar J., after a review of a large number of cases including the case of Addanki Narayanappa v. Bhaskara Krishnappa : [1966]3SCR400 :

'Having regard to the above discussion, it seems to us clear that a partnership firm under the Indian Partnership Act, 1932, is not a distinctlegal entity apart from the partners constituting it and equally in law the firm as such has no separate rights of its own in the partnership assets and when one talks of the firm's property or firm's assets all that is meant is property or assets in which all partners have a joint or common interest.'

17. In the case before us, the house in which the assessee resided was not used for any business purpose at all. It was used exclusively for the residence of the partners. It is true that the house was treated as an asset of the partnership. The partnership not having any separate juridical entity of its own, it must be held that the house belonged to the partners. It is true that a partner cannot claim that any particular asset of the partnership belongs to him exclusively till the partnership is dissolved, but it cannot be denied that a partner has an existing interest in the partnership assets even while the firm is continuing. In my opinion, the Tribunal was right in holding that the assessee was entitled to the benefit of the exemption under Section 5(1)(iv) in respect of the house which was used exclusively for residential purpose by the assessee.

18. In the case of Purushothamdas Gocooldas v. CWT : [1976]104ITR608(Mad) , a Division Bench of the Madras High Court held that in the case of a partnership, no partner could claim to have any specific interest in its assets and the partner's interest in the house property belonging to the partnership could not be regarded as immovable property as his right was only to a share in the division of the partnership assets on dissolution. In that judgment, reliance was placed on the decision of the Supreme Court in the case of Addanki Narayanappa v. Bhaskara Krishnappa : [1966]3SCR400 . In the case before the Madras High Court, one of the assets of the partners was a house in which the partners resided. The question was whether each of the partners was entitled to exemption under Section 5(1)(iv). It was observed after referring to Addanki's case (p, 612):

'Therefore, the assessees in this case, cannot claim to be entitled to any portion of this house property as exclusively belonging to them.'

19. It has to be noted that in Addanki Narayanappa's case : [1966]3SCR400 , it was clearly stated by the Supreme Court that '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,' The property cannot remain in vacuum. It must belong to somebody. . If the partnership has no legal existence, the property must in law belong to the partners. It is true that during the subsistence of the firm, no partner can deal with any of the assets of the partnership as his own. But none the less, in law, all the assets must belong to the partners jointly. The point has been placed beyond any doubt by the judgmentof the Supreme Court in the case of Malabar Fisheries Co. v. CIT : [1979]120ITR49(SC) , where it was observed at page 57 :

'But, speaking generally, the firm as such has no legal recognition. The law, ignoring the firm, looks to the partners composing it; any change amongst them destroys the identity of the firm ; what is called the property of the firm is their property, and what are called the debts and liabilities of the firm are their debts and their liabilities.' (The underlining is ours)

20. The requirement of Section 5(1)(iv) is that the house or a part of the house must be exclusively used by the assessee for residential purpose. The requirement of the section is not that the house must exclusively belong to the assessee.

21. The view that we have taken in this case is in consonance with the views taken by the Madhya Pradesh High Court and Karnataka High Court in the context of different Sub-sections of Section 5.

22. In the case of Narsibhai Patel v. CWT : [1981]127ITR633(MP) , it was held by a Division Bench of the Madhya Pradesh High Court at page 639:

'Under the Indian Law, a partnership is not a legal entity. The firm name is only a compendious way of describing the partners collectively. Although we generally speak of the property of a firm, the property is really the property of its partners.'

23. It was further emphasised at page 640 :

'As already stated, a partnership or firm is not a legal person and so it cannot hold property. But the property brought in by the partners for the partnership business cannot be without any owner. Such a property really vests in the partners collectively in proportion to their share although the right of ownership of each partner in respect of that property is restricted by the contract of partnership and the very nature and character of the collective business called the partnership business for which the property is to be utilised. We, therefore, find no difficulty in holding that deposits made by a partnership in a bank are in law held by partners in proportion to their shares in the partnership and that the partners are entitled to the benefit of the exemption contained in Section 5(1)(xxvi) in their individual assessments to the extent of the maximum prescribed by Section 5(1A).'

24. It was also held at page 639 :

'After the net wealth of a firm is proportionately allocated to its partners and the net wealth of each partner is determined in accordance with Section 4(1)(b), there seems no valid reason why each partner cannot claimthe benefit of the exemption contained in Section 5(1)(xxvi) when, as earlier seen, deposits made by the firm in the bank are not to be excluded at the time of calculating the net wealth of the firm and in allocating that net wealth to each partner. Under the Indian law, a partnership is not a legal entity. The firm name is only a compendious way of describing the partners collectively. Although we generally speak of the property of a firm, the property is really the property of its partners.'

25. In the case of CWT v. Christine Candoza : [1978]114ITR532(KAR) , the Karnataka High Court held that in computing the net wealth of an assessee, who was a partner in a firm which owned agricultural lands, the value of the share of the assessee in agricultural lands will have to be included in his net wealth and the full deduction under Section 5(1)(iv-a) has to be given in his hands. The Karnataka High Court, after referring to the judgment of the Supreme Court in the case of CIT v. Chidambaram Pillai : [1977]10ITR292(SC) , observed at page 538 :

'...... it is contended that in the light of the clear enunciation by theSupreme Court in this case explaining the scope and effect of the decision in Addanki Narayanappa's case : [1966]3SCR400 , the assessee owned and had interest in the agricultural land and was entitled to the deduction under Section 5(1)(iv-a) of the Act. This submission for the assessee has considerable force. In the light of this pronouncement of the Supreme Court in regard to the concept of a firm and the interests that the partners have in what is called property of the firm, on the facts and in the circumstances of the case, it is difficult to hold that the assessee was not the owner of agricultural lands so as to deny the deduction under Section 5(1)(iv-a). Accordingly, the view taken by the Tribunal must be upheld.

It has been brought to our notice that the method adopted of deducting a sum of Rs. 1,50,000 in the computation of the wealth of the firm under Rule 2 of the W.T. Rules is based upon the decision of the High Court of Madras in CWT v. Vasantha : [1973]87ITR17(Mad) . The counsel for the Department stated that the view taken by the High Court of Madras had been accepted by the CBDT and a decision of the Allahabad High Court in CWT v. Padampat Singhania : [1973]90ITR418(All) , in which a contrary view was taken had not been accepted, and was under appeal to the Supreme Court (vide Board's Instruction No. 545 dated May 10, 1973). But it seems to us that the method of deducting a sura of Rs. 1,50,000 in the computation of the net wealth of the firm under Rule 2 is not warranted by the terms of Section 5(1)(iv-a). The deduction contemplated is in the computation of the net wealth of an assessee and not a firm which is not the assessee. On the principle enunciated by the Supreme Court, the assessee is a person who owns the agricultural land and, therefore, deduction has to begiven in his/her hands. This is what has been directed by the Tribunal. We do not find any error in the decision of the Tribunal.'

26. We are in respectful agreement with the views expressed by the Karnataka High Court. The case before us is not a case of agricultural land but the principle enunciated by the Karnataka High Court will apply to the facts of this case. It is difficult to hold in the case before us that the assessee was not even a joint owner of the house which was used exclusively for the residence of the partners so as to deny the exemption under Section 5(1)(iv) of the W.T. Act. We are of the opinion that the claim for deduction has to be allowed at the time of the computation of the net wealth of the assessee as individual and not at the time of making computation of the firm's net wealth under Rule 2 of the W.T. Rules.

27. In the case of CWT v. Butchi Krishna : [1979]119ITR8(Orissa) , the dispute was as to the stage at which the exemption under Section 5(1)(xxvi) could be claimed by the assessee. There was no dispute that the assessee was entitled to the exemption in respect of the assets such as, bank deposits. Government Securities, VDS Bonds, held by a firm of which the assessee was a partner. The Orissa High Court was of the view that the exemption had to be considered at the time of computation of the assessee's net wealth and after allocation of the assessee's proportionate share in the net wealth of the firm.

28. Our attention was drawn to the fact that some of the High Courts have taken the view that under Section 4(1)(b) of the W.T. Act, read with Rule 2 of the W.T. Rules, it is incumbent on the WTO to compute the 'net wealth' of a firm. It is only after the computation of the net wealth, the interest of a partner can be determined. The expression 'net wealth' has to be understood in the sense it was used in the charging section and, therefore, a firm has to be treated as an assessee while computing its net wealth and all the deductions and allowances could be considered only at the stage of the computation of the firm's net wealth and not the valuation of the assessee's interest in the firm. This view was adopted by the Madras High Court in the case of CWT v. Vasantha : [1973]87ITR17(Mad) and also by the Andhra Pradesh High Court in the case of CWT v. Narendra Ranjalker : [1981]129ITR203(AP) .

29. It has to be noted that if this view has to be adopted, even then the exemption claimed by the assessee in the case before us in respect of the house exclusively used for residential purposes by the partners cannot be denied altogether. If the partnership is treated as an assessee, then logically the house property will have to be treated as an asset belonging to the assessee and the exemption under Section 5(1)(iv) will have to be granted in the computation of net wealth of the firm.

30. But, in our opinion, the Act does not require making of an assessment in accordance with the provisions of the W.T. Act of the net wealth of a firm. It is true that Rule 2 speaks of 'net wealth'. But it does not require assessment of net wealth in accordance with the provisions of the Act. A partnership firm has not been treated as an assessee by the Act. The partners of the firm in their individual capacity are liable to be assessed to wealth-tax. The assessment of the individual partners will have to be made in accordance with the provisions of the Act and the Rules framed for that purpose. The rule has laid down a method of ascertaining the value of the share of an individual in a partnership firm if he happens to be a partner of the firm. That does not mean and there is no express requirement of law that the firm's wealth has to be assessed in accordance with the provisions of the Act. Rule 2 merely lays down the method of valuation of the interest of a person in a firm of which he is a partner. Section 4(1)(b) requires inclusion of the value of the interest of a partner in a firm determined in the prescribed manner. Prescribed manner means the manner set out in the W.T. Rules. The rules do not require that the wealth of a firm will be computed after taking into account various allowances and deductions provided in the Act. The rules have not created any legal fiction treating the firm as an assessee at all. Various exemptions mentioned in Section 5 can only be claimed by an assessee and the terms and conditions of claiming those exemptions have been laid down in Section 5 itself. Therefore, in our opinion, it is only after the value of the assessee's interest in the partnership firm has been determined under Section 4(1)(b), the question of granting exemption in respect of the assets which have been included in the valuation will arise. The assessee in this case was entitled to claim exemption from wealth-tax in respect of a part of a house which was exclusively used by the assessee for his residence, though the house was an asset of a partnership firm of which the assessee was a partner.

31. Section 3 brings to tax the net wealth of every individual computed in the prescribed manner. Net wealth will have to be calculated by including the aggregate value of all the assets belonging to the assessee. Section 4(1)(b) requires the value of a partner's interest in the firm to be determined in the prescribed manner for the purpose of inclusion in the net wealth of the assessee. Proportionate value of the assets of the firm is being included in the net wealth of the assessee only on the ground that the assets jointly belong to the partners. If that be the case, it follows logically that the assessee will be entitled to claim the exemptions provided by the statute in respect of the assets which have been valued and included in his net wealth on proportionate basis. The exemption under Section 5(1)(iv) is in respect of a house or part of a house belonging to an assessee and'shall not be included in the net wealth of the assessee', if it cannot be included indirectly. Merely because the house has been valued along with other assets of the partnership under Rule 2, the exemption granted by Section 5(1)(iv) cannot be denied to the assessee. Moreover, the exemption can only be claimed by the individual partner who is an assessee in his assessment and not by the firm which is not an assessee in the course of valuation under Rule 2.

32. The question, therefore, is answered in the affirmative and in favour the assessee.

33. Each party will bear its own costs.

R.N. Pyne, J.

34. I agree.


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