Commissioner of Wealth-tax vs N. Kamatchi Ammal

A. Subbulakshmy, J.—The assessee is an individual. She was a partner in a firm. The firm, owned certain assets which are eligible for

exemption u/s 5 of the Wealth-tax Act, 1957. The assessee contended that the net wealth of the firm was to be ascertained without making any

deduction in respect of the exempted assets and the share in the firm so ascertained was to be added to the net wealth of the assessee and the

asses-see was to be granted a deduction in respect of the exempted assets held by her in her individual capacity as well as the value of exempted

assets-attributable to the share in the firm to the full extent possible u/s 5(1A) of the Act. According to the Wealth-tax Officer, the exemption had

to be allowed only in computing the net wealth of the firm. The Appellate Tribunal accepted the case of the assessee and allowed the claim of the

assessee. On that this reference has been made to this court and at the instance of the Revenue, the following question has been referred to us for

consideration :

Whether the deduction u/s 5(1A) in respect of assets belonging to a firm should be allowed in the hands of the firm only in computing the deemed

net wealth of the firm in terms of Rule 2 of the Wealth-tax Rules and not in the hands of each individual partner ?

The year of assessment involved is 1979-80.

A similar question was considered by this court in the case of R. Venkatavaradha Reddiar Vs. Commissioner of Income Tax, , wherein this

court has held that (headnote) :

The principles relating to exemption which can be claimed by a partner of a firm u/s 5(1)(iv) of the Wealth-tax Act, 1957, are : (1) a firm has no

legal existence and as such it cannot hold any property ; (2) it is the partners who own the partnership property as such ; (3) the partners alone

should have the benefit of the exemption u/s 5(1)(iv) when their individual assessments are taken up to the extent of their respective shares in the

net wealth of the partnership firm ; (4) the mere fact that a partner cannot claim to be entitled to any portion of the property owned by a firm as

exclusively belonging to him will not completely disentitle him from seeking the benefit of exemption u/s 5(1)(iv) of the Act, so long as he is the

owner of the house property even though as a partner in a firm ; (5) for the purposes of the exemption u/s 5(1)(iv), it is not necessary that the

partner should be able to say that the property or any specific part thereof exclusively belongs to him.

For the purpose of the benefit of exemption u/s 5(1)(iv) of the Wealth-tax Act, the concept of habitability is inherent in the word ''house'' and

unless it is habitable, the word would not answer the common sense meaning of ''house''. A cinema theatre cannot answer the requirement of the

elements of habitation, as envisaged under the Act. A partner cannot claim exemption u/s 5(1)(iv) in respect of his share in a cinema theatre owned

by the firm.

and the question has been answered in favour of the assessee.

Following the decision reported in R. Venkatavaradha Reddiar Vs. Commissioner of Income Tax, , and for the reasons stated therein, we

answer the question referred to us in favour of the assessee and against the Revenue.