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PETITIONER: JUGGI LAL KAMLAPAT BANKERS & ANR.

       Vs.

RESPONDENT: WEALTH TAX OFFICER. SPECIAL CIRCLE C-WARD, KANPUR & ORS.

DATE OF JUDGMENT15/12/1983

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. ERADI, V. BALAKRISHNA (J) MADON, D.P.

CITATION:  1984 AIR  564            1984 SCR  (2)  35  1984 SCC  (1) 571        1983 SCALE  (2)953

ACT:      Wealth Tax  Act 1957.  Sections 2  (e), 2(m),  3, 4(1), 7(2) (a), 16A and 38A(1) (b).      Wealth Tax Rules 1957-Rule 2 A & Rule 2B      Wealth Tax-Assessment of-Interest of Karta of H.U.F. in a partnership  firm-Whether to be included in the net wealth of H.U.F.      Wealth Tax Officer-Reference to Valuation Officers-When justified.      Words & Phrases-Meaning of      ’Having regard to the balance-sheet of such businesses. 7(2) (a) Wealth Tax Act 1957.

HEADNOTE:      The assessee (Appellant No. 2) who was Karta of a Hindu Undivided Family was a partner of the family firm (Appellant No. 1)  and was  being assessed  to wealth tax as a HUF. For the purpose  of evaluating  the  interest  of  the  family’s interest in the firm, the assessee adopted the book value of buildings owned by the firm.      On the  view that the market value of the buildings was much more  than their  book value,  the Wealth  Tax  Officer (Respondent No. 1) referred, under section 16A on the Wealth Tax Act,  1957, to the Valuation Officers (Respondent Nos. 2 JUDGMENT: Valuation Officers  issued notices  under section 38A(1) (b) for inspection  of buildings  and records  relating to them, and  the   assessees  objections   to  such  procedure  were overruled.      The High  Court dismissed  the assessee’s writ petition holding:      (1) having  regard to section 29 of the Partnership Act which enables  a partner  to transfer  his interest  in  the partnership firm  and Section  2(e) and  Section 4(1) (b) of the Act  the interest  of a  partner in the partnership firm will have  to be  regarded as a part of his net wealth under the Act.  (2) Section  3 the  charging  provision  expressly levied wealth tax on the net wealth of every Hindu undivided family, and  consequently the  interest of  a  H.U.F.  in  a partnership firm,  which is property, could be regarded as a part of  its assets liable to be charged under this Section.

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(3) Rule 2, section 7 and section 16A (1) (i) (ii) had 36 to be  read harmoniously  and Rule  2 did  not  exclude  the application of  sections 7 and 16A for valuing an asset of a partner in  a partnership  firm. (4)  Section  7(2)  was  an enabling provision  giving a  discretion to  the  Wealth-tax Officer either  to value the assets of a business as a whole or valuing  each asset thereof separately and in that behalf he had  the power  to refer  such valuation to the Valuation Officer under  Section 16A. (5) Appellant No. 2 as a partner could be  regarded as  an agent  of appellant no. 1 firm and the  Valuation   Officers  could   issue  notices  requiring affording of  facilities for  inspection  of  buildings  and production of books, documents and records.      In the  Appeal to this Court it was contended that: (1) there was  no provision for inclusion of a ’Karta’s interest in a  partnership firm in the H.U.F.’s net-wealth for wealth tax purposes  under the  Act, and  (2)  even  assuming  that appellant No.2’s  interest (as a Karta of his H.U.F.) in the appellant No.1’s  firm is eligible to tax under the Act, the valuation of such interest would be governed by section 7(2) (a) of  the Act  read with  rule 2A  of the Wealth Tax Rules 1957 and  it was not open to the Wealth Tax Officer to refer the valuation to the valuation Officer under section 16A.      Dismissing the Appeal, ^      HELD:  1(i)   Section  3  of  the  Act  read  with  the definitions of  "net-wealth" as  given in  Section 2(m)  and "assets" given  in  section  2(e)  clearly  brings  out  the exigibility of  a partner’s interest in a firm either in his individual capacity  or his capacity as Karta of a H.U.F. to wealth tax under the Act. [44 B-C]      (ii) There  is no  lacuna in  the Act  as  regards  the making of  a Karta’s  interest (representing  his H.U.F.) in the partnership firm exigible to wealth-tax. [45 C]      (iii) Section  4 (1)  deals with the computation of the net-wealth of  an individual. It enacts a deeming provision. Certain assets  which do not in fact or in reality belong to the individual  (the assessee)  but some  one else are to be treated as  belonging to  that  individual  and  are  to  be included in  his net wealth. Analysis of Clauses (a) and (b) of section  4(1)  make  it  clear  that  there  is  a  great difference between  the cases  covered by clause (b). Clause (a) refers  to five  situations in all of which the asset is held by  some one  other than  the individual concerned (the assessee). It  is provided that such asset held by that some one else  shall be  treated as  belonging to  the  assessee. Clause (b)  provides that where the individual assessee is a partner in  a firm  it is  the value  of his interest in the firm determined  in the  prescribed manner  that  is  to  be treated as  belonging to  him and  is includible in his net- wealth. [43 C-F]      (iv) It cannot be said that the interest of the partner in a  firm does  not  belong  to  him.  The  proper  way  to interpret clause  (b) would  be that  the deeming part of it relates  to   the  quantum  of  his  interest  in  the  firm determined in  the prescribed  manner which is to be treated as belonging to him and includible in his net-wealth. [43 F- G]      (v) A  partner’s interest  in a  firm,  either  in  his individual capacity  or in his capacity as a Karta of a HUF, is property  and is  otherwise exigible  to wealth tax under the other provisions of the Act. [43 H] 37      2(i) Even  where the Wealth-tax Officer has resorted to

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section 7(2)  for determining  the  value  of  assets  of  a business as  a whole  the written down values or book values of specific assets as appearing in the balance-sheet are not sacrosanct and  when the  market value  exceeds the  written down value  or book  value by  more than  20 per  cent,  the Wealth-tax Officer  has to  adopt the  market value  of such assets for the purposes of the Act. [49 C-D]      (ii) In order to determine the valuation of a partner’s interest in  the firm,  first the net wealth of the firm has to be  determined under  section 7  of the  Act and  Rule  2 provides that the net wealth of the firm so determined shall be allocated among the partners of the firm, which allocated amount will  be the value of the interest of each partner in the firm. [46 F-G]      (iii) The  primary method  of determining  the value of the assets  for the  purposes of the Act is the on indicated in section  7(1), which  provides that  value of any assets, other than  cash, shall  be estimated to be its market price on the  valuation date. Sub-section (2) provides that in the case of  a business for which accounts are maintained by the assessee regularly  the Wealth-tax  Officer may  instead  of determining separately  the valuation  of each asset held by the assessee  in such  business, determine  the net value of the business  as a  whole having regard to the balance-sheet of such  business as  on the  valuation date and making such adjustment to therein as may be prescribed. [48 D-F]      (iv) It  is optional  for  the  Wealth-tax  Officer  to resort to  either of  the methods even in the case where the net value  of a business carried on by the assessee is to be determined. Even  when he  proceeds under sub-section (2) he has to  determine the  net value  of the business as a whole having regard  to the  balance-sheet of  such business as on the valuation date. [48 G-H]      (v) The  phrase "having  regard to the balance-sheet of such business"  as judicially  interpreted  means  that  the Wealth-tax Officer has to take into consideration or account the balance-sheet  of such  business for  such valuation and not that  such balance-sheet  is conclusive  or  binding  or decisive of  the values  of assets appearing therein. [48 H; 49 A]      (vi) Sub-rule  (2) of  Rule 2B  clearly  provides  that where the  market value of an asset exceeds its written down value or  book value  by more  than 20 percent, the value of that asset  for the purposes of Rule 2A shall be taken to be its market value. [49 B]      In the  instant case, the Wealth-tax Officer was of the view that  the book  values of  specific house properties as indicated in  the returns  filed by the appellant No. 2 were far   below their  market values. He was therefore justified in making  a  reference  to  the  Valuation  Officers  under section 16A and the notices issued by the Valuation Officers were valid. [49 E]

&      CIVIL APPELLATE  JURISDICTION: Civil  Appeal No. 816 of 1978.      From the Judgment and Order dated the 4th October, 1977 of the  High  Court  of  Judicature  at  Allahabad  in  Writ Petition No. 88 (Tax) of 1975. 38      V.S. Desai,  Ravindra Narain,  Harish Salve, Miss Rainu Walia and P.K. Ram, for the Appellants.      B.B. Ahuja for the Respondents.

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    The Judgment of the Court was delivered by      TULZAPURKAR, J.  This appeal by certificate is directed against the  judgment and  order dated 4th October, 1977. of the Allahabad  High Court  whereby the High Court upheld the reference made  by the Wealth Tax Officer (Respondent No. 1) to the  Valuation Officers  (Respondents Nos.  2 and  3) for valuing certain  buildings belonging  to the appellant No. 1 firm as well as the notices issued by the Valuation Officers to appellant  No.2 in  furtherance  of  the  Reference.  The appellants had  by means  of a  writ petition challenged the reference as  well as the notices on certain grounds and had prayed for  a mandamus  restraining respondents Nos. 2 and 3 from valuing  the buildings.  The writ  petition having been dismissed, the  appellants have  come up  in appeal  to this Court.      Most of  the material  facts giving rise to this appeal are not  in dispute  and may  briefly be  stated as follows: Appellant No.  1 (M/s.  Juggi Lal  Kamlapat, Bankers)  is  a partnership firm.  Appellant No.  2 (Padampat Singhania) was one of the partners in the firm in his capacity as a ’Karta’ of a  Hindu Undivided  Family upto  15-3-1972. He  was being assessed to  wealth tax  in the  status of  H.U.F.  and  the assets so  assessed for  wealth tax included the interest of the family in appellant No. 1 firm. For the assessment years 1967-68 to  1972-73 wealth-tax  returns  were  submitted  by appellant No.  2 in  the status  of H.U.F.  and therein  the family’s interest  in appellant  No. 1  firm  was  included. Since appellant  No. 1  firm owned  a number of buildings in Kanpur in  the returns  so submitted the book-value of those buildings had been adopted by appellant No.2 for valuing the interest of  the family  in appellant No. 1 firm. Respondent No. 1 felt that the market value of those buildings was much more than  such  book-value.  He,  therefore,  referred  the question of valuation of those buildings to respondents Nos. 2 and  3 (the  concerned Valuation  Officers) under s.16A of the Wealth  Tax Act  1957 (hereinafter  referred to  as ’the Act’). Respondents  Nos. 2 and 3 issued notices under s. 38A (1) (b)  of the  Act to appellant No. 2 intimating that they would inspect  the buildings for determining the fair market value  thereof   and  requested   him  to  afford  necessary facilities  for  such  inspection  and  to  produce  certain records connected with those build- 39 ings. On receiving the notices appellant No. 2 realised that respondent No.1  had referred  the question  of valuation of the concerned buildings to respondents Nos. 2 and 3 under s. 16A of  the Act  and that  the notices issued by respondents Nos. 2  and 3  were in furtherance of such reference. On 9th of September,  1974 appellant  No.2 addressed  a  letter  to respondent No.  1 contending  that none  of  the  properties referred to  the Valuation Officers belonged to him and that the reference  to them  was unauthorised and the same should be with-drawn. He also addressed letters to respondents Nos. 2 and 3 in which he contended that reference made to them by respondent No.1  was invalid  and requested each one of them to return  the reference  back to  the Wealth  Tax  Officer. Since  these   contentions  were   not   accepted   by   the respondents, the  appellants filed  a writ  petition in  the High Court challenging the reference made by respondent No.1 as well as the notices issued by respondents Nos. 2 and 3.      On behalf  of the  appellants the following contentions were urged  in support  of the  writ petition:  (1) For  the assessment of  appellant No.  2, respondent  No. 1 could not refer to  respondents nos. 2 and 3 the valuation of building which did  not belong to him but belonged to appellant no. 1

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firm: (2) the interest of a H.U.F. in a partnership firm was not exigible  to wealth  tax; (3)  the interest of appellant no. 2 in appellant no. 1 firm had to be valued in accordance with Rule 2 of Wealth Tax Rules 1957 and hence s. 16A of the Act had  no application;  (4) the valuation of the concerned buildings forming  part of  the assets  of the  business  of appellant no. 1 firm had to be determined in accordance with the commercial  principles under  s.7 (2)  (a) and not under s.7 (1)  of the  Act and  (5) the  respondents nos.  2 and 3 could not  issue the  notices to  appellant No.2  as he  was neither the  owner of  the buildings  nor was  in occupation thereof.      In regard  to the  first contention the High Court took the view  that though  it was  true that a partner of a firm could not  claim ownership  in specific properties belonging to the partnership firm either during the continuance of the partnership or  even on  its dissolution but was entitled to get a  share in  the profits  during its continuance and was further entitled,  upon its  dissolution or  his  retirement there-from, to  the value of his share in the surplus of the partnership assets left after a deduction of liabilities and prior charges  on the  date of dissolution or retirement, it was clear that having regard to s. 29 of the Partnership Act (which enables  a partner  to transfer  his interest  in the partnership firm)  and s.2  (e) and 4 (1) (b) of the Act the interest of  a partner  in the partnership firm will have to be regarded as a part 40 of his  net wealth  under the  Act. As  regards  the  second contention which  was elaborated  to the effect that even if the interest of an individual in a partnership firm could be regarded as  an asset  within the  meaning of  s.2(e) of the Act, the  interest of a H.U.F. in the partnership firm could not be  regarded as  such  asset  and  was  not,  therefore, exigible to wealth tax (for which reliance was placed on the circumstances that  under s.4  (1) (b)  of the Act provision has been  made for  determining the value of an individual’s interest  in   a  partnership   firm  but  no  corresponding provision obtains  in the  Act for inclusion of the interest of H.U.F. in a partnership firm for purposes of assessment), the  High   Court  took   the  view   that  from   the  said circumstances  relied  upon  it  did  not  follow  that  the interest of  a H.U.F.  in a  partnership firm  could not  be regarded as  a part  of net wealth of such family or was not liable to wealth tax, especially when the charging provision namely, s.3  of the  Act expressly  levied wealth tax on the net wealth  of every Hindu undivided family and there was no reason why  its interest  in a  partnership firm,  which was property, could  not be  regarded as  a part  of its  assets liable to  the charge  under the section. With regard to the third and  fourth contentions  the High Court held that Rule 2, sec.  7 and  sec.  16A  (1)  (4)  (ii)  had  to  be  read harmoniously and  Rule 2  did not exclude the application of secs. 7  and 16A  for valuing  an asset  of a  partner in  a partnership firm  and that  notwithstanding the non-obstante clause contained  in sec. 7 (2) it was an enabling provision giving a  discretion to  the Wealth  Tax Officer  either  to value the  assets of  a business  as a whole or valuing each asset thereof  separately and  in that behalf the Wealth Tax Officer had  the  power  to  refer  such  valuation  to  the Valuation Officer  under  sec.  16A.  As  regards  the  last contention the  High Court  negatived the  same by observing that appellant  No. 2  as a  partner could be regarded as an agent of  appellant No.  1 firm  and the  Valuation Officers could  issue   Notices  to   him  requiring  him  to  afford

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facilities for  inspection of the concerned buildings and to produce  books,  documents  and  records  relevant  for  the valuation of those buildings. In this view of the matter the High Court  dismissed the  writ petition but its decision is challenged in this appeal.      Counsel for  the appellants  raised  substantially  two contentions in  support of  the appeal.  In the  first place counsel has  contended that  there is  no provision  for the inclusion of a Karta’s interest in a partnership firm in the H.U.F.’s net-wealth  for wealth  tax purposes  under the Act and this  would be clear from sec. 4 of the Act. Elaborating this contention  counsel has  pointed out that sec. 4 (1) is applicable to  the  computation  of  the  net-wealth  of  an individual and 41 that the  said provision  is a  deeming provision whereunder certain tassets though held in reality by some others are to be treated  as belonging  to that individual and included in his net wealth for purposes of his wealth tax assessment and one such deeming provision is to be found in cl. (b) thereof which provides  that where  the assessee  is a  partner in a firm the  value of  his interest in a firm determined in the prescribed manner  shall be  included in  computing the net- wealth of such individual and what is urged is that there is no provision  to be  found in the Act which provides for the inclusion of Karta’s interest in a firm in the H.U.F.’s. net wealth. Counsel  strenuously urged  that but for the deeming provision which  is to be found in cl. (b) even the interest of partner  (in his  individual  capacity)  would  not  have become includible in his net wealth. In otherwise, according to counsel,  there is  a lacuna  in the  Act as  regards the inclusion of  a Karta’s  interest in the partnership firm in his H.U.F.’s.  net wealth  and, therefore,  the Department’s attempt to  include the  interest of  appellant No.2  (as  a Karta) in  appellant No.I’s  firm in  the net-wealth  of his H.U.F. is not warranted by any of the provisions of the Act. Secondly, counsel  has urged  that assuming  that  appellant No.2’s interest  (as a Karta of his H.U.F.) in appellant No. 1’s firm  is exigible  to the  wealth-tax under the Act, the valuation of  such interest being governed by sec. 7 (2) (a) of the  Act read  with Rule 2A of the wealth Tax Rules, 1957 it is  not open  to the  Wealth Tax  officer  to  refer  the valuation of specific house properties belonging to the firm to the  Valuation officers under s. 16A of the Act; in fact; according to  him,  the  valuation  of  the  assets  of  the partnership business  of appellant  No.1 as  a whole  having regard to  its balance-sheets  for the concerned years ought to have  been undertaken  by the  Wealth Tax  officer and as such the book values of the house properties as appearing in the Balance  Sheets ought  to have been accepted by him and, therefore, the  reference made  by the Wealth Tax officer to Valuation officers  as well  as the  notices issued  by  the latter being  incompetent and unjustified in law, are liable to be  quashed. For  the reasons  which we  shall  presently indicate neither  of the  contentions has  any substance and both are liable to be rejected.      In order  to deal  with the  first contention mentioned above  it   will  be  necessary  to  set  out  the  material provisions of  s.4 of  the Act Clauses (a) (b) of sub-s. (1) of sec. 4 run as follows:-      "Net wealth to include certain assets:-      4.(1) In  computing the  net wealth  of an  individual,           there shall  be included,  as  belonging  to  that           individual- 42

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     (a)  the value  of assets  which on the valuation date           are held- -                (i)  by the spouse of such individual to whom                     such assets have been transferred by the                     individual,  directly   or   indirectly,                     otherwise     than      for     adequate                     consideration or  in connection  with an                     agreement to live apart, or                (ii) by a  minor child,  not being  a married                     daughter, of  such individual,  to  whom                     such assets have been transferred by the                     individual,  directly   or   indirectly,                     otherwise     than      for     adequate                     consideration, or               (iii) by a person or association of persons to                     whom such  assets have  been transferred                     by the individual directly or indirectly                     otherwise     than      for     adequate                     consideration  for   the  immediate   or                     deferred benefit  of the individual, his                     or her  spouse or minor child (not being                     a married daughter) or both, or                (iv) by a person or association of persons to                     whom such  assets have  been transferred                     by the  individual otherwise  than under                     an irrevocable transfer, or                (v)  by the  son’s wife,  or the  son’s minor                     child, of  such individual, to whom such                     assets  have  been  transferred  by  the                     individual, directly  or indirectly,  on                     or after  the 1st  day  of  June,  1973,                     otherwise     than      for     adequate                     consideration,           whether the  assets referred to in any of the sub-           clauses aforesaid  are held  in the  form in which           they were transferred or otherwise:           Provided that where the transfer of such assets or           any part  thereof is either chargeable to gift tax           under the  Gift-tax Act,  1958(18 of  1958), or is           not chargeable  under section  5 of  that Act, for           any assessment 43           year commencing  after the 31st day of March, 1964           but before  the 1st  day of April, 1972, the value           of such  assets or  part thereof,  as the case may           be, shall  not be  included in  computing the  net           wealth of the individual;           (b)   where the assessee is a partner in a firm or                a member  of an  association of  persons  not                being a  co-operative  housing  society,  the                value  of   his  interest   in  the  firm  or                association  determined   in  the  prescribed                manner".      It is  true that  sec. 4 (1) deals with the computation of the  net-wealth of an individual and it is also true that same enacts  a deeming  provision in  the sense that certain assets which  do not  in fact  or in  reality belong to that individual (the  assessee) but  to some  one else  are-to be treated as  belonging to  that  individual  and  are  to  be included in  his net  wealth. But,  in our  view, a  careful reading and  analysis of  cls. (a) and (b) thereof will make it clear  that there is a great difference between the cases covered by  sub-cls. (i)  to (v)  of cl.  (a) and  the  case covered by cl. (b). Cl. (a) refers to five situations in all of which  the asset  is held  by some  one  other  than  the

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individual concerned (the assessee) (e.g. held by the spouse or minor  child of  such individual  to whom  such asset has been transferred  by such  individual directly or indirectly otherwise than  for adequate  consideration, etc.) and it is provided that such asset held by that some one else shall be treated as  belonging to the assessee-a deeming provision in the real  sense of creating a legal fiction, while under cl. (b) it  is provided  that where the individual assessee is a partner in  a firm  it is  the value  of his interest in the firm determined  in the  prescribed manner  that  is  to  be treated as  belonging to  him and  is includible in his net- wealth. In other words cl. (b) is not a deeming provision in the sense  in which  a deeming provision is made in cl. (a). It cannot  be said  that the interest of a partner in a firm does not  belong to  him; it  in fact  belongs to him and no legal fiction  is required  for treating  it as belonging to him and  the proper  way to  interpret cl. (b) would be that the deeming  part of  it  relates  to  the  quantum  of  his interest in  the firm  determined in  the prescribed  manner which is to be treated as belonging to him and includible in his net  wealth. It  is impossible  to accept the contention that but  for cl.  (b) of  s.4 (1) the interest of a partner (where he  happens to  be an  individual assessee) in a firm would not have been exigible to wealth tax under the Act. As we shall  presently point out a partner’s interest in a firm either in  his individual  capacity or  in his capacity as a Karta of H.U.F is otherwise exigible 44 to wealth  tax under the other provisions of the Act and the deeming  provision   contained  in   s.4  (1)  (b)  properly understood  must   be  held   to   be   referable   to   the quantification of his interest in the firm determined in the prescribed manner that is made includible in his net-wealth.      Section 3 of the Act read with the definitions of "net- wealth" as  given in sec. 2 (m) and "assets" given in sec. 2 (e) clearly  brings  out  the  exigibility  of  a  partner’s interest in  a firm either in his individual capacity or his capacity as a Karta of a H.U.F. to wealth tax under the Act. Section 3 which is a charging provision runs thus:      "Charge of wealth-tax.           3. Subject  to the  other provisions  contained in      this Act,  there shall  be charged for every assessment      year commencing  on and  from the  first day  of April,      1957, a  tax (hereinafter referred to as wealth-tax) in      respect  of   the  net   wealth  on  the  corresponding      valuation date  of every  individual,  Hindu  undivided      family and  company at  the rate  or rates specified in      Schedule I."      Section 2 (m) defines "net-wealth" thus:      "net wealth"  means the  amount by  which the aggregate      value computed  in accordance  with the  provisions  of      this  Act   of  all   the  assets,  wherever,  located,      belonging  to  the  assessee  on  the  valuation  date,      including assets  required to  be included  in his  net      wealth as  on that date under this Act, is in excess of      the aggregate  value of  all  the  debts  owed  by  the      assessee on the valuation date other than-      (here follow  three types  of debts which are not to be      reckoned with which we are not concerned)."      Section 2 (e) defines "assets" thus:           "assets" includes  property of  every description,      movable or immovable, but does not include-           (here follow  certain  specified  properties  with      which we are not concerned.)"      On reading  the aforesaid  provisions together  it will

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appear clear  that wealth  tax has  been levied  on the net- wealth of an individual 45 or a  H.U.F. meaning  thereby the aggregate value of all the assets belonging  to such  assessee minus all the debts owed by him.  Under the  definition of ’assets" property of every description, movable  or immovable is included, and since it cannot be  disputed and  was not  disputed before  us that a partner’s interest  in  a  firm  either  in  his  individual capacity or  in his  capacity as  a Karta  of  a  H.U.F.  is property. the  same would  be includible  in the  expression "assets" which  will have  to be  taken into  account  while computing the net-wealth of such individual or H.U.F. and on such net  wealth the  charge of  wealth tax has been imposed under sec.  3. It  is thus  clear that there is no lacuna in the  Act  as  regards  the  making  of  a  Karta’s  interest (representing his  H.U.F.) in  the partnership firm exigible to wealth-tax. The first contention, therefore, must fail.      The second  contention of counsel for the appellant has been that even if it be held that appellant No. 2’s interest (as a  Karta of his H.U.F.) in the appellant No. 1’s firm is exigible to  the tax  under the  Act the  valuation of  such interest would be governed by sec. 7 (2) (a) of the Act read with Rule  2A of the Wealth Tax Rules 1957 and since it is a case of valuing such interest in the partnership business of appellant No.  1 firm  the Wealth  Tax Officer  while  first valuing the  assets of  the  business  should  have,  having regard to  the balance sheets of the said business as on the valuation dates,  accepted the  book values  of the specific house properties  as appearing  in the  balance  sheets  and could not  refer the  valuation  thereof  to  the  Valuation officers under  sec. 16A of the Act which being inapplicable could not  be resorted  to; in this connection reference was also made by counsel to sub-s (2) of sec. 4 whereunder it is provided that  in making  any rules  with reference  to  the valuation of  the interest  referred to in cl. (b) of sub-s. (1) (being  a partner’s  interest in a firm) the Board shall have regard  to the law for the time being in force relating to the  manner in  which accounts  are to be settled between partners of  a firm  on  the  dissolution  of  a  firm.  The substance of  the argument,  in brief,  has been that sec. 7 (1) which  enables the  Wealth-tax officer  to determine the value of  any asset,  other than  cash, at  the market price thereof on the valuation date for the purposes of the Act is inapplicable to the instant case and, therefore, sec. 16A is not attracted  and hence the valuation reference made by the Wealth-tax  officer  to  the  Valuation  officers  regarding specific house  properties is  liable to be set aside. As we shall demonstrate  presently, the  contention proceeds on an entire misconception  of the  relevant provisions of the Act and the Rules.      We  have  already  indicated  above  that  a  partner’s interest in a 46 firm, either  in his  individual capacity or as a Karta of a H.U.F., is  property or  asset liable  to be included in the net wealth  of the  concerned assessee  and is  exigible  to wealth-tax under  the Act. Once that position is accepted it is clear  that such  asset will  have to  be valued  for the purposes of  the Act  and in  this behalf  Rule 2 (1) of the Wealth tax Rules, 1957 prescribes the manner of valuing such interest, It runs thus:           "Valuation   of   interest   in   partnership   or      association of persons.           2. (1)  The value of the interest of a person in a

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    firm of  which he  is a partner or in an association of      persons of which he is a member, shall be determined in      the manner  provided herein. The net wealth of the firm      or the association on the valuation date shall first be      determined. That  portion of the net wealth of the firm      or association as is equal to the amount of its capital      shall be allocated among the partners or members in the      proportion in  which capital  has been  contributed  by      them. The  residue of  the net  wealth of  the firm  or      association shall  be allocated  among the  partners or      members in accordance with the agreement of partnership      or association  for the  distribution of  the assets in      the event  of dissolution  of the  firm or association,      or, in the absence of such agreement, in the proportion      in which  the partners or members are entitled to share      profits. The  sum total  of the amounts to so allocated      to a partner or member shall be treated as the value of      the interest  of that  partner or member in the firm or      association."      The aforesaid  rule  clearly  says  that  in  order  to determine valuation  of a  partner’s interest  in the  firm, first the net wealth of the firm has to be determined, which determination, of  course, is  governed by sec. 7 of the Act and the  rule goes on to provide as to how the net wealth of the firm so determined shall be allocated among the partners of the  firm, which allocated amount will be regarded as the value of the interest of each partner in the firm. Coming to the precise  contention  raised  by  counsel,  the  material provisions of the Act and the Rules having a bearing thereon would be  sec. 7  (1), 7  (2) (a), 7 (3) and Rules 2A and 2B and these are as under:      "Value of assests, how to be determined.      7. (1)  Subject to  any rules  made in  this behalf the      value 47      of any asset, other than cash, for the purposes of this      Act, shall  be estimated  to the  price  which  in  the      opinion of  the Wealth  tax Officer  it would  fetch if      sold in the open market on the valuation date.      (Explanation...................................... )           (2) Notwithstanding  any thing  contained in  sub-      section (1),--           (a)   where the assessee is carrying on a business                for which  accounts  are  maintained  by  him                regularly,  the   Wealth  tax   officer  may,                instead of  determining separately  the value                of each  asset held  by the  assessee in such                business, determine  the  net  value  of  the                assets of  the business  as  a  whole  having                regard to  the balance sheet of such business                as on  the valuation  date  and  making  such                adjustments therein as may be prescribed.           (3) Notwithstanding  any thing  contained  in  sub      section (1),  where  the  valuation  of  any  asset  is      referred by  the Wealth  tax officer  to the  Valuation      officer under  section 16A,  the value  of  such  asset      shall be  estimated to  be  the  price  which,  in  the      opinion of  the Valuation  Officer, it  would fetch  if      sold in  the open  market on the valuation date, or, in      the case  of an  asset being a house referred to in sub      section (4), the valuation date referred to in that sub      section."      Rules 2A and 2B run thus:           "Determination of  the  net  value  of  assets  of      business as a whole.

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         2A. Where  the Wealth tax officer determines under      clause (a)  of sub  section (2)  of section  7 the  net      value of  the assets  of the business as a whole having      regard to  the balance sheet of such business, he shall      make the adjustments specified in rules 2B, 2C, 2D, 2E,      2F and 2G."      "Adjustments in  the value of an asset disclosed in the      balance sheet.      2B. (1)  The value of an asset disclosed in the Balance      sheet shall be taken to be- 48           (a)  in the case of an asset on which depreciation                is admissible, its written down value;           (b)    in  the  case  of  an  asset  on  which  no                depreciation is admissible, its book value;           (c)   in the  case of  closing  stock,  its  value                adopted for  the purposes of assessment under                the  Income  tax  Act,  Act,  1961,  for  the                previous year  relevant to  the corresponding                assessment year.           (2) Not  withstanding any thing containing in sub-      rule (1) where the market value of an asset exceeds its      written down  value or  its book  value  or  the  value      adopted for purposes of assessment under the Income tax      Act, 1961,  as the  case may  be, by  more than  20 per      cent, the  value of  that asset shall, for the purposes      of rule 2A, be taken to be its market value."      On a  fair reading  of the aforesaid provisions it will appear clear  that the  primary method  of  determining  the value of  assets for  the purposes  of the  Act is  the  one indicated in  sec. 7  (1), inasmuch  as it provides that the value of  any assets,  other than  cash, for the purposes of this Act  shall be  estimated to  be its market price on the valuation date.  Then comes sub-sec. (2) which provides that in the  case of a business for which accounts are maintained by the assessee regularly the Wealth tax officer may instead of determining  separately the  valuation of each asset held by the assessee in such business, determine the net value of the business  as a  whole having regard to the balance sheet of such  business as  on the  valuation date and making such adjustments therein  as may  be prescribed.  It is true that sub sec.  (2) commences with a non obstante clause, but even so, the  provision itself  is  an  enabling  one  conferring discretion on  the Wealth  tax officer  to determine the net value of the assets of the business as a whole having regard to its  balance sheets  as on the valuation date, instead of proceeding under  sub  sec.  (1).  In  other  words,  it  is optional for  the Wealth  tax officer to resort to either of the methods  even in  the case  where the  net  value  of  a business carried  on by  the assessee  is to  be determined. Thirdly, even  when he proceeds under sub sec. (2) he has to determine the  net value  of the  business as a whole having regard to  the balance-sheet  of such  business  as  on  the valuation date;  the phrase  "having regard  to the  balance sheet of such business" as judicially interpreted means that the Wealth  tax officer  has to  take into  consideration or account the balance- 49 sheet of  such business for such valuation and not that such balance sheet  is conclusive  or binding  or decisive of the values of  assets appearing therein. Fourthly, the said sub- section also  says that  the Wealth tax officer has to "make such adjustments  therein as  may be prescribed" and in this behalf Rule  2A and  2B already  quoted above  indicate what adjustments  the   Wealth-tax  officer  has  to  make  while

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determining the  net value  of  the  business  as  a  whole. Particularly sub-rule  (2) of  Rule 2B clearly provides that where the  market value of an asset exceeds its written down value or  book value  by more than 20 per cent, the value of that asset  for the purposes of Rule 2A shall be taken to be its market  value. In  other words,  it is  clear that  even where the  Wealth-tax officer has resorted to sec. 7 (2) for determining the value of assets of a business as a whole the written down  values or  book values  of  specific assets as appearing in  the balance-sheet  are not sacrosanct and when the market  value exceeds  the written  down value  or  book value by  more than  20 per cent, the Wealth-tax officer has to adopt the market value of such assets for the purposes of this Act. This is apart from the position that the resort to sec.  7  (2)  itself  is  discretionary  and  optional,  the provision being an enabling one.      Since in the instant case the Wealth tax officer was of the view  that the  book values of specific house properties as indicated  in the  returns filed  by appellant No. 2 were far far  below their  market values,  he  was  justified  in making a  reference to the Valuation officers under sec. 16A of the  Act and the notices issued by the Valuation officers in pursuance of such reference were also valid.      In the  result the  appeal fails  and is dismissed with costs. N. V. K.                                   Appeal dismissed, 50