COMMISSIONER OF WEALTH TAX Vs. PADAMPAT SINGHANIA

JUDGEMENT

(1.) THIS is a reference under Section 27(1) of the Wealth-tax Act, 1957. It is a consolidated reference relating to several assessment years, viz., 1957-58 to 1963-64. The following common question of law has been referred for the opinion of this court:

(2.) THE assessee is a Hindu undivided family. It holds through its karta l/3rd share in a partnership firm of the name and style of Juggilal Kamlapat Bankers (hereinafter referred to as " the firm"). While computing the net wealth of the assessee for each of the seven years, the Wealth-tax Officer had to take into consideration the assessee's share in the wealth of the firm. While computing that share the Wealth-tax Officer took the net wealth of the firm as per its books of accounts ignoring the liability of the firm on account of the outstanding income-tax. THE assessee appealed and contended, inter alia, that in order to determine the net wealth of the firm for the purposes of including l/3rd share of that wealth in the wealth-tax assessment of the assessee, it was necessary for the Wealth-tax Officer to have deducted out of the assets of the firm its outstanding income-tax liability, because net wealth had to be taken after deducting out of the gross assets of the firm its total debts and the income-tax liability was a debt outstanding against the firm, which should have been taken into consideration. THE Appellate Assistant Commissioner of Income-tax did not accept this contention. He held' that the liability on account of income-tax could not be deducted while computing the net wealth of the firm because of the provisions contained in Sub-clauses (a) and (b) of Clause (iii) of Section 2(m) of the Act. On second appeal, the Income-tax Appellate Tribunal reversed the finding of the Appellate Assistant Commissioner of Income-tax and held that Section 2(m) was not applicable in the instant case and, as such, the outstanding income-tax liability was deductible while computing the net wealth of the firm. THE Commissioner is aggrieved and has brought this reference before us.

(3.) THE manner for the determination of the value of the interest of an individual in a firm is contained in Rule 2 of the Wealth-tax Rules. Paragraph 1 of that rule is material and reads :