Law:

Section:

Section 5(1)(xxxii) of the Wealth-tax Act, 1957 - Exemptions - Assets forming part of industrial undertakings - Whether undrawn profits held by firm for distribution among partners are not assets of firm but are assets which belong to partners and, therefore, exemption under section 5(1)(xxxii) would not be applicable to such assets - Held, yes Facts The assessee was a partner in a firm and there was a current account balance of the partners in the firm which represented the accumulated undrawn profits. The Tribunal, after considering section 5(1)( xxxii), read with rule 2, of the Wealth-tax Rules, held that the current account balance of the partners of the firm was to be treated as capital only and there was no element of advance in it and, therefore, the computation of interest of the partners in the firm had to be enhanced by that amount for the purpose of exemption under section 5(1)(xxxii) . On reference at the instance of the revenue: Held Admittedly the amount in Question, namely, current account balance represented the accumulated undrawn profits. This amount constiuted the assets of the partners' and was assessable in their hands in proportion to their respective shares. Section 5 has no relevance to what is held by the firm as amounts due to the assessee partner as his proportionate share of the profit what is exempted under section 5(i )(xxxii) is the value of the assessee's interest in the assets of the firm as computed in the manner prescribed under rule. The interest of the assessee in the assets of the firth is his interest to receive his proportionate share upon settlement of the account consequent on the dissolution of the firm or his retirement. Such interest is excluded in determining the assets 6'f the partners for the purpose of 'assessment under the Act. Profits held by the firm for distribution among the partners, according to their respective shares, are not the assets of the firm, but assets which belong to the partners. What was in question, in the present ease, was the assessee's proportionate share of those profits and, therefore, in adding that amount to the assets of the assessee, the exemption under section 5(xxxii) had no…

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