BHARAT HARI SINGHANIA INDIVIDUAL Vs. WEALTH TAX OFFICER

JUDGEMENT

(1.) In this case, the petitioner has challenged the legality, validity and the vires of Rule 2 of the Wealth-tax Rules, 1957 (hereinafter referred to as "the said Rules"). The short facts are stated here-under : The petitioner is a wealth-tax assessee and also a partner of a partnership firm, namely, J. K. and Sons (hereinafter referred to as "the said firm"), which at the relevant time was an existing and going concern and the same was not dissolved. The dispute in the writ petition related to the assessment and imposition of wealth-tax, therefore, for the assessment years 1983-84, 1984-85 and 1985-86, for which the relevant valuation dates were April 13, 1983, April 1, 1984, and March 21, 1985, respectively. In the wealth-tax returns for the three assessment years, the petitioner disclosed his interest in the said firm, valued on the basis of the difference between the debit balance and credit balance of the petitioner in the books of the firm in the capital and current accounts. The petitioner valued and was assessed on the aforesaid basis up to the assessment year 1980-81. By notice issued under Sections 16(2) and 16(4) of the said Act, dated August 3/7, 1987, the concerned Wealth-tax Officer required the petitioner to furnish for the said assessment years, inter alia, the following :

(2.) By the above notices it is apparent as contended by the petitioner that the Wealth-tax Officer wanted to adopt a new and different method of valuation of the petitioner's interest in the said firm by going into the valuation of its assets, the said particulars were called for in order to value each of the assets, both movable and immovable of the said firm. According to the petitioner, the market value of the assets of the partnership firm cannot afford the basis of valuation of the interest of a partner in the assets of the firm. This has been sought to be done obviously under Rule 2 of the aforesaid Rules, which provides that the net wealth of the firm shall first be determined. Under the provisions of Rule 2 that portion of the net wealth of the firm as is equal to the amount of its capital shall be allocated among the partners in the proportion in which capital has been contributed by them. It further appears from the plain reading of Rule 2 that the sum total of the amounts allocated to a partner shall be treated as the value of the interest of that partner in the firm.

(3.) Mr. Dipankar Ghosh, learned Additional Solicitor-General, submits that this writ petition has become infructuous in view of change of law during the pendency of the writ petition, by the Direct Tax Laws (Amendment) Act, 1989, Section 7 of the Wealth-tax Act, 1957, has been amended by way of replacement of the old Section 7 by a new one with effect from April 1, 1989. By such amendment of Section 7, Schedule III was introduced for the purpose of determining the value of assets. He submits that the new provisions Schedule III, Part E, para. 16, sets out the mode of computation of net wealth of the firm or association and its allocation amongst the partners or members. At the same time by the Wealth-tax (Second Amendment) Rules, 1989, Rule 2 of the Wealth-tax Rules was omitted with effect from April 1, 1989. By virtue of the said amendment the procedure for valuing the interest of any person or association of persons, Rule 2 and old Section 7 of the Wealth-tax Act were replaced by the provisions contained in Schedule III, Part E, Para. 16, read with the new Section 7 of the Wealth-tax Act. He submits that the petitioner has not questioned the validity of the old Section 7 nor the new one introduced by the aforesaid amendment Act nor has challenged, questioned the validity of Schedule III, para. 16, of the Wealth-tax Act. His further contention is that even on the merits the writ petition cannot be maintained, as the petitioner challenges Rule 2 as being arbitrary and unreasonable. Citing a decision of the Supreme Court reported in State of Andhra Pradesh v. McDowell and Co., he says that the law enacted by the Legislature as opposed to Part III of the Constitution of India can be struck down. It can also be struck down for lack of legislative competence, but arbitrariness and unreasonableness are no ground to strike down legislative enactment.