COMMR OF WEALTH TAX Vs. MATHEW

JUDGEMENT

(1.) At the instance of the Revenue the Income Tax Appellate Tribunal has referred the following three questions of law under S.27 of the Wealth Tax Act:

(2.) We shall state the facts of the case so far as it is necessary to answer the questions referred. The two references arise out of assessment proceedings in respect of two assessees who are partners of a firm M/s.E.K. Mathew and Bros, for the assessment year 1976-77 and 1977-78. Common issues arise in both the cases. The partnership owned among other assets a tea estate called 'Alampally Estate' and a rubber estate called 'Glenrock Rubber Estate'. The computation of the interest of these two estates was in dispute. The assessees had claimed exemption under S.5(1)(iva) in respect of the interest they had in the estates. The partnership had taken a loan on the security of the property in Alampally Estate from the Federal Bank.

(3.) The Wealth Tax Officer denied exemption under S.5(1)(iva) on the ground that the interest of a partner in a firm is a movable asset and cannot be treated as agricultural land. Regarding the loan from Federal Bank the Wealth Tax Officer held that the debt being secured on a property in respect of which wealth tax is not chargeable, the same cannot be taken into account in determining the net wealth of the assessee under S.2(m)(ii) of the Act. In appeal the Appellate Assistant Commissioner confirmed the view taken by the Wealth Tax Officer on these questions. On appeal by the assessees on the Tribunal, the Tribunal directed the Wealth Tax Officer to allow exemption under S.5(1)(iva) for the two assessment years. The Tribunal further held that the loan from Federal Bank even though charged on agricultural land would not fall under S.2(m)(ii) for the purpose of determining the net wealth of the firm. Accordingly the Tribunal directed the Wealth Tax Officer to work out the interest of the partners by deducting the entire liability of the firm to the Federal Bank from the assets of the firm in the computation under R.2 of the Wealth Tax Rules. Aggrieved by the decision of the Tribunal the Commissioner filed an application for reference of the above questions to this Court and accordingly the Tribunal has referred the questions mentioned at the beginning.