JUGGL LAL KAMLAPAT BANKERS & ANR. v. WEALTH TAX OFFICER SPECIAL CIRCLE C-WARD KANPUR & ORS

Citation: [1984] 2 S.C.R. 35

Court: Supreme Court of India

Bench: V.D. TULZAPURKAR, V. BALAKRISHNA ERADI, D.P. MADON

Case summary

2 & 3) the question of valuatipn of those buildings. The writ' petition having been dismissed, the appellants have come up in appeal to .

Judgment text

•· JUGGl LAL KAMLAPAT BANKERS & ANR . • v. WEALTH TAX OFFICER. SPECIAL CIRCLE C-WARD. KANPUR & ORS. December 15. 1983 [V. D. TULZAP~RKAR,'V. BALAKRISHNA ERADI & D. P. MADON, JJ. J Wealth Tax Act 1957. Sections 2 (e), 2(111), 3, 4(1), 7(2) (a~,/6A and 38A(l) (h). C· Wealth Tax R11fes 1957-Rule 2A & Rule 2B -- JYealth Tax-Assess111e11t nf-lnterest of Karla of H. U. F. in a partnei·ship . . firn1-'-Whether to be i11c(11ded in the net wealth of H. V. F. Wealth Tax Officer-Reference to Valilation Officers- Wh~n justifierl U7ords & Phrases-Meaning of 'Havin!! regard to the halanc~-s! ieet (}(such hllfiiness'-s. 7(2)'ca), Wealth Act 1957. The asses'sec (Appellant No. 2) who was Karta of a Hindu Undivided ·Fa1nily was a partner of the fan1ily finn (Appellant -No. 1). and w:as bCing assessed to wealth tax as a HUF. For the p·urposc. of evaluating the interest of the fan1i! y's _interest in the finn. the asscsscc ad0Ptcd the book value of buildings owned by the firn1.

On the view that the n1arkct value of the buildings was n1uch n1ore than their book value. the Wealth Tax Officer (Respondent No. 1) Tefcrred, under section \-GA on the We. alth Tax Act,_ 1957, to the Valuation Ofi'i~rs (KesPondent Nos. 2 & 3) the question of valuatipn of those buildings. The Valuation Off'lcers issued notices under section 38A(I) (b) for inspection of buildings and records relating to the1n, and the . asSessees objections to such procedure were overruled. The High Court dis1nisscd the asscssee's writ petition holding~ (I) having regard to 5ection 29 of the PartnCrship Act ·which enables a f'\artne; to -transfer his interest in the partnership finn a~d Section 2(e) and Section 4(1) (b) of the Act the interest of a partner in the par nershiP fir1n will have to be regarded as a part of his nqt wealth under the Act. (2) Section 3 the charging pfovision expressly levied wealth tax on the net wealth of every Hindu undivided· fan1ily, and consequCntlY the interest of a H. U.

F. in a Partnership firm, which is Properly, could be regarded as a part of its assets liahlc to be charged unde. r this Section. (3) R. ule 2, section 7 and section l6A (l) (i)_(li) had ·' 36 SUPREME corntr REPORTS (1984] 2 S. C. R. tp be. read hanhoniously and Rule 2 did ,;ot exclude the application of sections 7 and 16A for valuing an asset of a partner· in a partnership firm. (4) Section 7(2) was an enabling pr6vision giving a discretion to the Wealth-tax Officer either to value the assets of a business as a whole or valuing each 3ssct thereof separately and. in that' behalf he had the power to refer such ·valuation to ihe • Valuation Officer under Section l6A. (5) A. ppellant N~. 2 as a . Partner could be regarded as a·n agent of appellant no. J firn1 and the Valuation Officers could issue notices requiring affording of' facilities for inspection of buildings and Production of boOks, docuni. ents and reCords.. In the Appeal to this Court it was contended that : (l) there was n.

o provi- ..... sion for inclusion of a 'Kafta~s interest in a Partnership firn1 in the H. U. F. 's net-wealth f0r \vealth tax purPo. ses under th6 Act, and (2) even· assuming" that api)e! lant No. 2's interest (asn Karta of his H. U. F. ) in the app~llant No. J's . firm is eligible to tax tinder the Act, the valuation of such interest would bC governed by section 7(2) (a) of the Act rC;;id \Vith rule 2A of the \Vealth Tax Rules 1957 alld it wos hot open to the Wealth Tax OfficCr to refer the valuation to the valuation Officer under section 16A. Dis;:111issing 1h~ Appeal, HELD: l(i) Section 3 01 ·the Act read with the definitions of i'net-wealth" as given in Section 2(1n) and "assets" given in section 2(e} clearly brings out the cxigibility of a partner's interest in a firm either . jn his individual capa'- . chy or his capacity as Karta of a II.. U. F. to wealth tax under the Act. [44 B-CJ. (ii} There _is no. lacuna.

in the Act as regards the making bf a Karb··s interest {feprcsenting his H. U. F. ) jn the· partnership 1irn1 exigiblc to wealthtax. J45 CJ" (iii) Secti6n 4 (J) deals \vith the con1putation of the net-wealth of an ~individual. It enacts a deeming provision. Certc. in . assCts which do noJ in fact or ih re1litY be1ong to the individual (the assessee) but sonie one else are to be treated as belonging to that irtdividu~l and are to be indud('. d in his net wealth. Analysis of Clauses (a) and (b) of•section 4(1) nlake it clear th8t there · is a gre~t difference betw? en ~th~ casqs covered by clause (b). Clause (a) refers to five situations. in all of \vhich the . asSet is h6ld by soine one other than the individual concer~ed (the assessee). It is provided that such asset held by that ,some One else shall be treated as belonging to the assessee. Clause (b) provid_es that where tlie individllal assessee is. ·a partner In a firn1_ it is the valu. e of 'his interest in the 1irn1.

det~rn1ine1 in the prescribed n1anner that is to be treated ·as belonging to hin1·and is inclp. dible in his net-\vealth. (43 C-FJ • e included, ae belongina to tt. at iadiviaual- · • ' (a) the value of assets which on the valuation date are · held-- ' · 0 (i) by the spouse of such individual to whom such assets have been transferred by the. individual, directly or indirectly, otherwise than for adequate considera. tion or in connection with an agreement to live apart, or (ii) by a minor child, not being a married daughter, of such individual, to whom such assets have .

been transferred by the indi~idual, directly or indirectly, otherwise · than for adequate consideration, or (iii) by a person or association ofpersons to whom such assets have been transferred by the indi- • vidual directly or indirectly otherwise than for adequate consideration for the immediate ~r deferred benefit of the individual, his or her spou·se· or minor child (not being a married daughter) or both, or (iv) by a person or association of persons to whom such assets have been transferred by the individual otherwise than under an irrevocable transfer, or· · (v) by the son's wife, or the son's minor child, of such individu~I, to whom such assets have been transferred by the individual, directly or indirectly, on or after the 1st day of·June, 1973, otherwise than for adequate consideration, whether the assets referred to in any of the sub-clauses aforesaid·are held in the form in which they were transferred or otherwise : .

Provided that where the transfer of such assets or any part thereof is either chargeable to. gift tax under the Gift-tax Act, J958 (18 of 1958), oris not chargeable under ;ection 5 of that Act, for any assessment JUGGI LAL v. WEALTH TAX OFFICER (Tulzapurkar, J. ) 43 year commencing after the 31st day of March,_ 1964 but before the Ist day of April, 1972, the value of such assets or part thereof, as the case may be, shall not be included in computing the net wealth of the individual; (b) where the assessee is a partner in a firm or a member of an association of persons not being a co-operative housing so~iety, the value of his interest in the firm or a~sociation determined in the prescribed manner". · . It is true that sec. 4 (! ) deals with the co~putation of the net• wealth of an individual'and it is also true that same enacts n deeming • provision in the sense that certain assets which. do not in fact or in reality belong to that individu~l (the assessee) but .

to some one else are to be treated as belonging to that individual and are to be included in his net wealth. But, in our view, a cart:ful reading and analysis of els. (a) and (b) thereof will make it clear that there is a great difference betwe-en the cases covered by sub-els. (i) to (v) of . cl. (a) and the case covered by cl. (b).. Cl. (a) refers to five situations in all of which the asset is held by some one other than the individual concerned (the assessee) (e. g. held by the spouse or minor child of such iudividual to ')'horn such asset. has been transferred by such individual directly or indirectly otherwise than for adequate co. nsideration, etc. ) "3ud it is provided that such asset held by that some one else shall be treated as belonging to the assessee-a dee1iling provision in the real , sense of creating a legal fiction, while under cl.

(b) it is provided that where the individual assessee is a partner in a firm it is the value of his interest in the firm determined in the prescriped manner that is to be treated as belonging to him and is includible in his net-wealth. · In other words cl.. (bj is not a deeming provision in the sense in which ' a deeming provision is made in cl. (a). It cannot be said that the in- · terest of a partner in a firm does not belong to him; it in fact belongs to him and no legal fiction is required for treating it as belonging to him; and the-proper way to interpret cl. (b) would be that the deeming part of it relates to the quantum of his interest in the firm determined in the prescr\bed manner which is to be treated as_belonging to him and includible in his net wealth. It i's impossible to accept the c01itention that but for cJ.. (b) of s. 4 (! ) the interest of a partner (where he happens to be an individual assessee) in a firm would not have been exigiblc to wealth tax under tbe Act.

As we shall presently point out a partner's interest in a firm either in hi~ individual capacity or in his capacity as a Karta of H. U. F is otherwise exigible [1984) 2 S. c. R-. • to wealth tax under the other provisions of the Act and the deeming provision contained in s. 4 {I) (b) properly understood must be held to · be referable to the quantification of his interest in the. firm determined in the prescribed manner that is made includible in his net-wealth. ~ . Section 3 of the Act read with the definitions of "net-wealth" as given in sec. 2 (m) and '"assets" given in sec. 2 (e) clearly brings out · 'he exigibility of a partnel"'s interest in a firm either in his individual 'apacity or his capacity as a Karta of ·a H. U. F. to wealth t~x under •he Act. Section 3 which is a ·charging provision ru! ls thus "Charge of wealth-tax. 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 re- . ,.. ,, ferred 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 ra. te or rates specified in Schedule I. " · Section 2 (m) defines "ne. t-wealth" thus : "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 d~te. i~cluding 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 d'! :te other than-- • F' . . • (here follow three types of debts which are not to be reckoned with wh'ich we are not concerned). " Section 2 (e) defines "assets" thus : \ ...

"a'ssets" includes property of every description, movable ·or immovable, · bu\ does not include--- (here follow certain specified properties with which we •• ' are not concefned. )". On . reading the aforesaid provisions together it will appear altar ·that wealth-tax has been levied on the net-wealth of an individual JUGGI LAL )'. WEALTH TAX OFFICER (Tulzapurkar, J. ) • 45 • • or a tt:u. F. meaning thereby the aggregate. value of all the assets belonging to such assessee minus all the debts owed by him. Under the definition of 'assets" property of every description; movab! C or immovable is included, and since ifcatinO. t be disputed and was not disputed before us that a partner's inerest in a firm eitqer in his individual capacity or in his capacity as a Karta efa H. U. F. is property. the same would be includible in the . expressfon "assets" w. hich will have to be taken into accout while computing the net-. wealth of such individual or H. U. F. and on such net.

wealth the charge of wealth tax . has been imposed under sec. 3. It is thus clear that there is no lacuna in the Act as regards the making of a Karla's interest (repre Ollnt the balaat. - JUG:Gl LAL v. WEALTH TAX OFFICER (Tu/zapurkar, J. ) 49 sheet'of such business for such valuation and not that such balancesheet is conclusive or. binding or. decisive of the values . of assets appearing therein. Fourthly, the said sub-section also says that the Wealthtax Officer has to "make such adjustments therein as may be prescribed" . and in this- behalf Rule 2A and 2B already quoted above indicate what adjustments the Wealth-tax Officer has to make while determining the net value of. the business as a whole. Particularly sub-rule (2) of Rule 2B clearly provides that where the market value of an asset exceeds its written down value or ·book value by more than 20 per ci:nt, the value of that asset for the purposes of Rule 2A shall be taken. to be its market value.

In other words, it is clear that even where the Wealth-tax Officer has resorted to sec. 7 (2) for determining the value of assets of a business as a whqle the written - down values or book values of specific assets as appearing in the balance-sheet are not sacr~sanct and when the market value exceeds the written down value or book value by more than 20 per cent, the. Wealth-tax Officer has to adopt the market value of . such assets for the purposes of this Act. This is apart from the f>osition that · the resort to sec. 7 (2) itself iS discretionary and optional,' the provision being an enabling one. • Since in the instant case the Wealth tax Officer was of the view that the book values of specific house properties as indicated in the returns filed by·appellant No. 2 were far far below their market values, he was justified in making a referrence to the Valuation Officets under sec. - l 6A of theAct and the notices is.

sued by the Valuatio_n' Officers in pursuance of such reference were also valid. . ' ' Jn the result the"appeal fails an<\ is dismissed with. costs. N. V. K. Appeal dismi~sed, • " ' •