Law:

Section:

Section 5(1)(iv) of the Wealth-tax Act, 1957 - Exemptions - House property - Assessment years 1974-75 and 1975-76 - Assessee, an individual and partner in a firm, claimed deduction under section 5(1)(iv) in respect of house property owned by firm - WTO rejected claim - Whether a firm is not a distinct legal entity, at all, under general law as well as Wealth-tax Act and wealth-tax cannot be levied on a firm - Held, yes - Whether since house in question, in reality belonged to partners and assessee was one of co-owners of house property, Tribunal was legally correct in allowing claim for deduction - Held, yes FACTS The assessee was an individual and a partner in the firm 'L'. The assessee claimed deduction under section 5(1)(iv) in respect of the house property owned by the firm. The WTO rejected the assessee's claim. But the appeal was allowed by the first appellate authority and his order was upheld by the Tribunal. On reference : HELD The house in question, no doubt, it had been mentioned that it belonged to a firm but it must be remembered that a firm is not distinct legal entity unlike a company registered under the Companies Act. When it is said that the house is owned by a firm, it really meant that the house belong to the partners. Similarly, when it is said that the firm has acquired or sold some property, then it really mean, in law, that its partners have done so. This is because a firm is not a distinct legal entity, at all, both under the general law as well as under the Wealth-tax Act, although it is a legal entity under the Income-tax Act. [Para 6] Since the house in question, which was said to belong to the firm, in reality belonged to the partners and since the assessee was one of the co-owners of the house property, the value of his share in the house property had to be deducted from the net wealth for the purposes of wealth-tax. [Para 8] The Tribunal was, therefore, legally correct in allowing the deduction claimed under section 5(1)(iv). ORDER M. Katju, J. - This is a reference under section 27 of the Wealth-tax Act in which the following question has been referred to us for our opinion : "Whether on the facts and in the circumstances of the…

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