Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the finding of the AAC that the assessee-lady is entitled to full exemption u/s. 5(1)(iv) out of her 1/3rd share in the house property held jointly by three persons as an AOP ?

Counsel Appeared

R.C. Mukati, for the Revenue : Ladda, for the Assessee :

SHUKLA J. :

This is a reference by the Tribunal, Indore, under s. 27(1) of the WT Act, 1957. Facts as stated by the Tribunal are as under Assessee, Vimlabai, had purchased a house jointly with two ladies, namely, Smt. Chandanbai and Smt. Chandrakantabai. Each purchaser had 1/3rd share, in the said house. In connection with the wealth-tax assessment of the assessee, Smt. Vimlabai, for asst. yrs. 1968-69 to 1972-73, the WTO assessed the tax by first determining the total value of the house and thereafter giving statutory deduction admissible under s. 5(1)(iv) of the WT Act. From the balance so arrived at, he took the assessee’s 1/3rd share for the Purposes of assessment to wealth-tax in respect of the asst. yrs. 1968-69 to 1972-73. Assessee claimed before the WTO that the full exemption under s. 5(1)(iv) of the Act should be allowed, on the assessee’s 1/3rd share in the total value of the property. This claim of the assessee was rejected by the WTO. Assessee’s appeal against the orders of the WTO for the assessment year, in question before the AAC was allowed. The AAC held that the value of the house should first be determined and divided among the joint owners and from such divided shares, statutory deduction allowable under s. 5(1)(iv) of the Act should be given to each joint owner while computing the tax payable in respect of her share in the house. Department appealed against these orders before the Tribunal. Tribunal dismissed the appeal and upheld the AAC’s interpretation.

At the instance of the Department, the following question of law has been referred to us for opinion : “Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the finding of the AAC that the assessee-lady is entitled to full exemption u/s. 5(1)(iv) out of her 1/3rd share in the house property held jointly by three persons as an AOP ?” Sec. 5(1) of the WT Act provides for exemption in respect of certain assets. Clause (iv) of s. 5(1) is as follows : “one house or part of a house belonging to the assessee : Provided that, where the value of such house or part exceeds one hundred thousand rupees, the amount that shall not be included in the net wealth of the assessee under this clause shall be one hundred thousand rupees.”

It was an admitted position that 1/3rd part of the house belonged to the assessee. The WTO seemed to be under the impression that the house was owned by an association of persons (AOP) and, therefore, the exemption under cl. (iv) would be available only to the AOP. This was the basic mistake which resulted in the incorrect interpretation by the WTO of cl. (iv) of s. 5(1) of the WT Act. Sec. 3 of the Act, which is the charging section, makes an individual, HUF and company liable for payment of wealth-tax. An AOP is not an assessable entity under the WT Act, unlike in the IT Act. The three owners of the house held it as tenants-in-common with specific shares therein. Thus, though there was no partition by metes and bounds, the assessee was the owner of a part of a house within the meaning of cl. (iv) of s. 5(1) of the Act.

In CWT vs. Purushotham Pai (1978) 114 ITR 270, the Karnataka High Court on similar facts held that the WTO was in error in deducting first the exemption allowable under s. 5(1)(iva) of the WT Act from the total value of the estate, including the shares of the other tenants-in-common and in determining the value of the interest of the assessee thereafter by dividing the net wealth by three. This High Court in Narsibhai Patel vs. CWT (1981) 127 ITR 633 (MP) has taken the same view while considering the claim of an assessee, who was a partner in a firm, and the asset chargeable to tax belonged to the firm. This High Court followed the decision of the Karnataka High Court in CWT vs. Mrs. Christine Cardoza (1978) 114 ITR 532, wherein the Karnataka High Court has held that where agricultural land is owned by a partnership, while computing the tax payable by the partner, the exemption contemplated has to be allowed in the computation of the net wealth of a partner and the partner is entitled to the exemption permissible under s. 5(1)(iva) of the WT Act.

We, therefore, hold that on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the finding of the AAC that the assessee-lady was entitled to the full exemption under s. 5(1)(iv) of the Act out of her 1/3rd share in the house property held jointly by three persons. The answer is in favour of the assessee and against the Revenue. There will be no order as to costs.

[Citation : 141 ITR 484]