JUDGMENT
G. C. BHARUKA, J. :
These two references involve a common question of law based on identical facts and such are being disposed of by a common judgment. The references have been made by the Tribunal under s. 27(1) of the Wealth Tax Act, 1957 (hereinafter in short the Act) seeking opinion of this Court on the following questions :
“Whether, in the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the assessee is entitled to exemption under ss. 5(i)(iv), 5(i)(xxxa) and 5(i)(xxii) of the WT Act, 1957, in respect of the assets owned by the firm in which the assessee was a partner ?”
2. In both the cases the assessees are the partners of a registered partnership firm M/s. Narbheram Vishram Gua. The assessment year involved is 1978-79. The firm owned two buildings, one of which was used for running a Petrol Pump and the other was used solely for the purpose of residence of the persons employed in the undertaking belonging to the firm. The firm also owned loan bonds. In the wealth-tax returns filed by the assessees, they claimed deduction to the extent of their share in the said three assets held by the firm under the provisions of ss. 5(i)(iv), 5(i)(xxxa) and 5(i)(xxii). The claim was rejected by the WTO on the ground that the said assets were owned by the firm and assessees cannot be deemed to be the owner thereof only because they are the partners of the firm thereby entitling them to the deduction claimed. The appeal to the AAC having failed, the assessees went to the Tribunal in second appeal. The Tribunal held that the claim was sustainable and according the additions made in respect of the said three assets by the CWT was deleted.
3. Mr. Vidyarthi learned counsel appearing for the Revenue, has submitted that the sine quo non for claiming deduction under three clauses of s. 5(1) of the Act referred to above, is that the assets should be owned by the assessee and according to him, since in the present case the assets admittedly belong to the firm which has a separate and distinct legal entity, the assessees only by virtue of their status as partners in the said firm cannot claim to be the owners of the said assets and as such they cannot derive any benefit of deduction under the provisions in question. In support of his submission he placed reliance on the cases of Purushottam Dass Gocooldas (Deceased) vs. CWT reported in (1976) 104 ITR 608 (Mad) and Adanki Narayanappa vs. Bhaskara Krishnappa, reported in AIR 1966 SC 1300.
4. On the other hand, Mr. K. N. Jain, learned Senior Advocate appearing for the assessees, submitted that a firm is merely a compendious name of the partners constituting the firm and under the common law pertaining to ownership it is not an independent person in contradistinction to its partners. His submission is that the property of the firm is, always for all legal and practical purposes, the property of the partners. Therefore, whatever is said to be owned by the firm in common parlance for convenience, is for all legal purposes the property owned by its partners. Accordingly, he submitted that all deductions which are admissible to a person as a owner of the assets has to be allowed to the partners of the firm in respect of the properties held by their firm. In support of his submission he placed reliance on the case of CWT vs. Nand Lal Jalan, reported in (1980) 122 ITR 781 (Pat).
5. The provisions under which an assessee is claiming deductions may first be quoted, which run thus :
“Sec. 5(1) Subject to the provisions of sub-s. (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 –
(i) ..................... ......................... (iv) one house or part of a house belonging to the assessee; ....................... ....................... (xxii) any security of the Central Government or a State Government not being a security referred to in cl. (xvi) or cl. (xvia); ........................ ........................
(xxxa) the value of any building belonging to the assessee, where the building is used solely for the purpose of residence of persons employed by the assessee, in any plantation or industrial undertaking belonging to the assessee and the income of each such person chargeable under the head “Salaries” under the IT Act is ten thousand rupee or less;
6. Having heard the rival contentions and on an examination of the aforesaid provisions it is clear that the answer to the question referred depends on the legal issue as to whether the partners of the firm are in law the owners of the assets held and owned by the firm constituted of them. Before proceeding further I may notice here that though cl. (iv) and cl. (xxxa) expressly say about the asset belonging to the assessee but cl. (xxii) does not use any such expression. But, in my opinion, it is not of much consequence because the requirement of the ownership of the assessee in the asset has to be held as implicit since unless the assessee is owner of an asset that cannot be considered for the purpose of ascertaining his wealth.
7. So far as the pivotal question of ownership of the assessees in the assets in question is concerned, in my opinion, I am not required to delve deep into the issue because the same has been duly considered by a Bench of this Court in the case of CWT vs. Nand Lal Jalan (supra) in which it has been held that :
“It cannot be gainsaid that during the continuance of the partnership, no partner can say that any particular part of the firms assets were his assets but certainly he can always say that he together with his other partners are the owners of the asset possessed by the firm. He may not be able to say that a particular asset of the firm belongs to me, but he can always say that the partnership assets belong to us.”
Now, therefore, when the assessment is of the net wealth of a partnership, which under the rules framed under the WT Act is determined by first determining the net wealth of the firm, in my opinion, it would be wholly unreal to leave out the exemptions to which a partner thereof would be entitled for the purpose of assessment of his net wealth. The Madras High Court in the case of Purushottam Dass Gocooldas vs. CWT (supra) has held that a partner will not be entitled to receive the exemption under s. 5(i) (iv) of the Act in respect of an asset owned by a firm, but with great respect to their Lordships, I do not agree with that conclusion for the simple reason that the decision of the Supreme Court in the case of Adanki Narayanappa vs. Bhaskara Krishnappa (supra) although quoted for arriving at that conclusion, has not been appreciated in its proper context.
A similar question arose before the Karnataka High Court in the case of CWT vs. Mrs. Christine Cardoza (1978) 114 ITR 532 (Kar). There the exemption claimed to the value of the agricultural land, the agricultural land having been thrown in as an asset of the firm, of which the assessee was a partner. On a consideration of the various case law, their Lordships came to the conclusion that the exemption was admissible in determining the net wealth of the partner.
Now, therefore, keeping in view the above discussions, it cannot but be said that even though during the subsistance of a partnership, assets thrown into the partnership by the partners get merged together and lose their identity, yet all the same, the assets as a whole do belong to the partners. In computing the net wealth of the firm by reference to r. 2 of the WT Rules, if a partner qualified for any of the exemption provided under the Act, such exemptions must be taken into consideration for determining the net wealth of the firm in terms of the said rule. Bearing in mind that the assets of the firm belong to the partners, if one looks at the provisions of cl. (iv) of s. 5(1) of the Act, it is clear that the partners do qualify for receiving that exemption. The house in question belongs to them and, therefore, also belongs to “the assessee”.
The same view has been taken by the High Court of Karnataka, Calcutta, M.P. and Gauhati in the cases of CWT vs. Mrs. Christine Cardoza (supra), CWT vs. Sri Naurangrai Agarwalla reported in (1985) 155 ITR 752 (Cal), CWT vs. Dipak Kumar Sen & Ajit K. Sengupta, reported in (1985) 155 ITR 765 (Cal), Jagdish Chandra Grover vs. CWT, reported in (1985) 156 ITR 560 (MP), CWT vs. Tarachand Agarwalla, reported in (1989) 180 ITR 234 (Gau) and CWT vs. Subimal Sen & Ors. reported in (1992) 195 ITR 574 (Gau).
8. For the reasons aforesaid, I record our opinion to the question referred in affirmative and in favour of the assessee. The cost is assessed at Rs. 250 in each case.
9. Let a copy of this order be sent to the Tribunal, Patna Bench, Patna.
AFTAB ALAM, J. :
I agree.