| SooperKanoon Citation | sooperkanoon.com/61230 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Apr-08-1985 |
| Judge | V Balasubramaniam, Vice, G Cheriyan, B Ahuja |
| Reported in | (1985)13ITD545(Pune.) |
| Appellant | N.R. Karia |
| Respondent | Wealth-tax Officer |
2. On this issue there had been a conflict of decisions as rendered by the Pune Bench of the Tribunal. Briefly put, Kantilal H. Doshi v. ITO [WT Appeal Nos. 37 and 38 (Pune) of 1978-79, dated 21-7-1979] the decision was that the deduction under Section 5(1)(iv) was to be allowed in the computation of the net wealth of the partner and not in arriving at the net wealth of the firm for purposes of Rule 2. In S. M.Murdande, Ichalkaranji v. WTO [WT Appeal No. 1 (Pune) of 1980, dated 16-9-1980] the aforesaid view was followed. In Pandurang D. Timblo v.WTO [WT Appeal Nos. 132, 133, 135, 136, 179, 180, 183 and 184 of 1981, dated 30-11-1981] having regard to the ratio of decision of the Andhra Pradesh High Court in CWT v. Narendra Ranjalker [1981] 129 ITR 203, it was held that the deduction should be allowed in arriving at the net wealth of the firm which was to be computed in terms of Rule 2. This view came to be considered again at length in WT Appeal Nos. 22 to 27, 43, 44, 48, 49, and 50 (Pune) of 1983, dated 30-4-1984 in Inani group of cases. Eventually, the view that the deduction under Section 5(1)(iv) should be allowed in determining the net wealth of the firm for the purposes of computation under Rule 2 was reiterated. The decision in the Inani group of cases and in the Timblo group of cases, it may be mentioned, deviated from the decision of the Special Bench of the Tribunal in the case of L. Gulahchand Jhabakh v. WTO 1 SOT 613 (Mad.) where the conclusion was that the deduction under Section 5(1)(iv)(a) was admissible in the hands of the partners. In view of the conflict, the matter was referred to the President, ITAT, for constitution of a Special Bench and consequent to the directions of the President, these appeals have come before us.
3. As could be seen from the cause title, all the appeals except that in the case of WTO v. Shashikant K. Doshi [WT Appeal No. 42 (Pune) of 1983], are appeals preferred by the assessees. In the case of Shashikant K. Doshi (supra) the appeal is by the revenue. Shri N.R.Karia and B.R. Karia are partners of a firm, which firm owned certain properties. The assessees concerned had claimed deduction under Section 5(1)(iv) in their individual assessments. The claim for deduction was disallowed by the WTO and this view was upheld in each of the years by the AAC. The AAC preferred to follow the decision of the Madras High Court in the case of Purushothamdas Gocooldas v. CWT [1976] 104 ITR 608 in preference to the decision of the Karnataka High Court in the case of CWT v. Mrs. Christine Cardoza [1978] 114 ITR 532 and that of the Orissa High Court in CWT v. I. Butchi Krishna [1979] 119 ITR 8.
4. Before us the learned Counsel for the assessee placed reliance on the decisions of the Karnataka and Orissa High Courts relied on before the AAC as also the decision of the Madhya Pradesh High Court in the case of Narsibhai Patel v. CWT [1981] 127 ITR 633 and in particular, the decision of the Bombay High Court in the case of CWT v. Vasudeva V.Dempo [1981] 131 ITR 291.
5. The learned departmental representative, on the other hand, relied on the decision of the Madras High Court in CWT v. Vasantha [1973] 87 ITR 17 and the decision of the Andhra Pradesh High Court in Narendra Ranjalker's case (supra). Reference was also made to the decision of the Patna High Court in the cases of CWT v. Nand Lal Jalan [1980] 122 ITR 781 and CWT v. Radha Krishna Man [1984] 145 ITR 217. Yet another case on which reliance was placed was the decision of the Madras High Court in Purushothamdas Gocooldas's case (supra). The learned departmental representative stated that he would even urge that deduction under Section 5(1)(iv) was not admissible either in the case of the firm or in the case of the partner. What has been set out aforesaid would show that there has been a conflict of opinion. Sitting as we are in Pune, we have to first consider the case before us in the light of pronouncements of the Bombay High Court and only if there is no binding decision, the question arises of our examining the issue further. In the case of Vasudeva V. Dempo (supra), the Bombay High Court had held that no AOP had come into existence as a result of the marriage of the assessee and his wife and if that be so, then Section 4(1)(b) of the Act and Rule 2 would not be applicable. After holding so, it has been observed in the said judgment as under: The further submission of Mr. Mehta, the learned Counsel for the assessee, namely, that the exemption under Section 5 of the said Act is not to be considered at the stage of determining the net wealth of the communion is equally sound, and this would be so even if the communion can be regarded, though in our opinion, it cannot be so regarded, as an association of persons. Section 5, which provides for exemption in respect of certain assets, in its opening words under Sub-section (1), indicates that exemption is to be considered at the stage of assessment of net wealth of an assessee. We have already seen how under Section 3 of the said Act, charge of wealth-tax is made on the net wealth of an individual, HUF and company, which would mean that the assessee contemplated under Section 5(1) would be an individual and not the communion, whether a communion be regarded as a body of individuals or an association of persons. In this view of the matter, the stage at which exemption is to be considered and allowed is the stage after the share of wealth from the communion is brought to the individual's assessment. We find that this is clearly borne out by the statutory phraseology employed by the Legislature, and in this view we find considerable support from the two decisions of the Karnataka High Court and one of the Orissa High Court, to which reference may now be made. The first of these is a decision in CWT v. Purushotham Pai [1978] 114 ITR 270 (Kar.). In this case, the assessee held one-third share as a tenant-in-common with two others in a coffee estate, and the value of one-third share in the estate was added in the computation of his net wealth. The WTO deducted the exemption allowable under Section 5(1)(iva) from the total value of the estate and thereafter determined the value of the interest of the assessee by dividing the net wealth by three. This, in the view of the Karnataka High Court, was an erroneous procedure, and the exemption allowable under Section 5(1)(iva) of the said Act was, in the opinion of the Karnataka High Court, required to be given in its entirety to the assessee. Observations to a similar effect are to be found in CWT' v. Mrs. Christine Cardoza [1978] 114 ITR 532 (Kar.). It has been observed by the Karnataka High Court that the deduction contemplated by Section 5(1)(iva) of the said Act is in the computation of the net wealth of an individual who is an assessee and not the firm of which he may be a partner. Observations in a similar vein are also to be discovered in a decision of the Orissa High Court in CWT v. J. Butchi Krishna [1979] 119 ITR 8 (Ori.). In the said decision it has been observed that a firm is not an assessable entity under the said Act as would appear from Section 3 thereof. In the view of the Orissa High Court, the stage at which exemption under Section 5(1) has to be given effect to is at the stage of computation of the net wealth of the assessee. The fallacy of the approach of the department has been pointed out by the Orissa High Court at p 13 of the said judgment. We need not advert to the same here, as, in our opinion, the statutory provisions are clear and do not admit of any further or more elaborate discussion.
In our view, on a consideration of the statutory provisions, the decision of the Bombay High Court is that the stage at which the exemption is to be considered and allowed is the stage after which the share of the individual is brought into his hands. In coming to the aforesaid conclusion, their Lordships have approved of the decisions of the Karnataka and Orissa High Courts both of which were cases in which assets were owned by a firm and it was held that the exemption should be considered for allowance in the hands of the individual partner.
Inasmuch as we consider that the aforesaid conclusion of the High Court of Bombay applies to the interpretation of the statutory provisions of Rule 2 and Section 5(1), the same is binding on us sitting in Pune and it would be superfluous to enter into any further discussion on the point. Therefore, we hold that the allowance of exemption under Section 5(1) would have to be considered in the hands of the partners, i.e., the assessees before us and not in the hands of the firm.
6. As far as the contention of the learned departmental representative that no deduction could be allowed in respect of the value of immovable property held by a firm, in the hands of the partner, is concerned, the decision of the Special Bench of the Tribunal in the case of L.
Gulabchand Jhabakh (supra) discusses the decision of the Madras High Court in the case of Purushothamdas Gocooldas (supra) in the light of the subsequent decision of the same High Court in the case of CIT v. K.Saraswathi Ammal [1981] 127 ITR 404 and it has been held that the partners are entitled to deduction in their hands. The Special Bench decision also makes reference to other relevant pronouncements of the Supreme Court in the cases of Addanki Narayanappa v. Bhaskara Krishnappa AIR 1966 SC 1300 and CIT v. R.M. Chidambaram Pillai [1977] 106 ITR 292 also. In the light of the aforesaid discussion in the Special Bench case referred to, once the conclusion is that the claim for exemption has to be considered in the hands of the partner and not in the hands of the firm, which conclusion we have arrived at on the basis of the decision of the Bombay High Court in Vasudeva V. Dempo's case (supra), which is binding on us, we have no hesitation in holding that there is no further bar to the allowance of the deduction under Section 5(1)(iv) in the hands of each assessee-partner.
7. Accordingly, in the appeals preferred by the assessee, the decision of the AAC on the point at issue is set aside and we direct the allowance to be made by the WTO in the case of each of the assessees for each of the assessment years to the extent admissible under Section 5(1)(iv) in respect of the share of the value of the property owned by the firm included in the hands of each such partner. In the departmental appeal in WT Appeal No. 42 (Pune) of 1983, we uphold the order of the AAC.8. In the result, all the appeals preferred by the assessees are allowed and the revenue's appeal is dismissed.