COMMR OF WEALTH TAX Vs. YESODHARA

JUDGEMENT

(1.) The following question has been, at the instance of the Revenue, referred to us by the Income Tax Appellate Tribunal, Cochin Bench:

(2.) The claim of the assessee that undrawn profits are exempted under S.5 has no merit. That Section has no relevance to what is held by the firm as amounts due to the assessee partner as his proportionate share of the profit. What is exempted under clause (xxxii) of S.5(1) is the value of the assessee's interest in the assets of the firm as computed in the manner prescribed under R.2(i) read with R.2(h) of the Wealth Tax Rules, 1957. The interest of the assessee in the assets of the firm is his interest to receive his proportionate share upon settlement of the account consequent on the dissolution of the firm or his retirement. Such interest is excluded in determining the assets of the partners of the purpose of assessment under the Wealth Tax Act. In computing such interest the rules speak of deduction of debts owned by the firm and secured on or incurred in relation to such asset thereby excluding such liability from the computation of the interest of a partner in the assets of the firm. Profits held by the firm for distribution among the partners, according to their respective shares, are not the assets of the firm, but assets which belong to the partners. What is in question in the present case is the assessee's proportionate share of those profits. In adding that amount to the assets of the partner, the exemption under S.5(1) has no application whatsoever.

(3.) In the circumstances, we answer the question in the negative, that is, in favour of the Revenue and against the assessee.