JUDGMENT Prakash Krishna, J.
1. These are three Wealth Tax References under Section 27 of the Wealth Tax Act (here-in-after referred to as the Act). The following identical question of law has been referred by the Income Tax Appellate Tribunal on the direction of this Court for various assessment years for opinion of this Court:
"Whether in the facts and circumstances of the case the Appellate Tribunal was in error in holding that the assessee was not liable to Wealth Tax on the value of interest in the association of persons?"
2. In W.T.R. No. 193 of 1985 the assessment years 1969-70 to 1976-77 are involved The assessment year 1967-68 is involved in WTR No. 194 of 1985. The assessment years 1974-75 and 1975-76 are involved in WTR No. 2 of 1986:
3. Since common question of law is involved in respect for different assessment years, all these matters were heard together and are being disposed of by a common judgment.
4. The facts giving rise to the present references are that the respondent. J.K. Srivastava, herein after referred as assessee was assessed as an individual during assessment years in question. Sri J.P. Srivastava, father of the assessee made gifts of Rs. 1,38,933/- Rs. 1,09,798/- and Rs. 35/- during his lifetime to the assessee Jointly with his son Sri V.K. Srivastava. These amounts were invested and the income arising out of these amounts was held by the Appellate Assistant Commissioner (Appeals) for the assessment years 1954-55 and 1956- 57 belonged to the association of person where the share of the members being indeterminate and therefore, liable to tax at the maximum rate and for the subsequent assessment year both according to Income Tax return and the Income Tax assessment, the income from this source was assessed the in the status of association of person, where share of members of association of person were not determinate. The Wealth Tax Officer in the Wealth Tax assessment proceeding included half wealth of the A.O.P. in the hands of the assessee. The addition of half share of the value of assets belonging to the association of persons was deleted in appeal by the Appellate Assistant Commissioner in appeal filed by the department. The Tribunal has confirmed the order of the Appellate Assistant Commissioner in appeal filed by the department.
5. Heard Sri A.N. Mahajan, learned Standing Counsel for the revenue and Sri S.D. Singh learned counsel for the assessee.
6. Learned counsel for the revenue submitted that the gifts of certain amounts were made by the father of the assessee during his life time to the assessee and his son jointly. There were only two persons and, as such, number of persons was fixed and determinate. The total assets of these two persons who have been termed as "Association of persons" was also fixed and determinate. Under the common law if the gift has been made to two persons in absence of any contrary intention by the donor, it shall be presumed that the donees have got equal share in the gifted property. The Wealth Tax Officer was, thus justified, in adding half value of the gifted assets belonging to the assessee and half to his son, at the hands of the assessee and rightly charged wealth tax there on.
7. In contra, learned counsel for the assessee submitted that under Wealth Tax Act only three entities are recognized for the purposes of charging wealth tax namely "individual", "Hindu undivided family" and "Company", vide Section 3 of the Act. The assets in question belonged to the association of persons, cannot be charged at the hands of the assessee for Wealth tax purposes.
8. Section 3 of the Act is the charging section. It provides that wealth tax in respect of net wealth on the corresponding valuation date of every individual, Hindu undivided family and the Company shall be charged for every assessment year, at the rate or rates specified in Schedule-I of the Act. It is established that association of persons is not a legal entity for the purposes of charging wealth tax under the Act. The rule of construction of charging section is that before taxing any person it must be shown that he falls within the ambit of charging section by clear words used in the section. The charging section has to be construed strictly. If a person has not been brought with in the ambit of charging section by clear word, he cannot be taxed at all. The Apex Court in the case of Commissioner of Wealth Tax v. Ellis Bridge Jimkhana and Ors. , has come to the conclusion that association of person cannot be charged under the Act. Section 3 of the Act does not mention association of persons as taxable unit of assessment. The position has been placed beyond doubt by insertion of Section 21AA in the Wealth Tax Act. which came in to effect from 01-04-1981. No wealth tax can be charged in respect of wealth of association of person for the assessment year prior to 01-04-1981. The assessment year involved in the present references are all prior to 01-04-1981. Therefore, the references are not to be decided in the tight of provision of Section 21AA of the Act.
9. The question which falls for determination in the present references is about computation of the net wealth of the assessee in the light of Section 4(i)(b) of the Act, with regard to the gifts of moneys gifted by the father of the assessee to the assessee jointly with his son. In other words whether the interest of the assessee could be valued, under Rule 2 of the Rules read with Section 4(1)(b) of the Act. To resolve the issue, it is necessary to refer to the concept of sole ownership and co-ownership. The concept of sole ownership and co-ownership has been clarified by "Salmond on Jurisprudence", Under Chapter-12, about ownership. In Para 89, it has been stated as under:
" As a general rule a right is owned by one person only at a time, but duplicate ownership is perfectly possible. Two or more persons may at the same time have the same right vested in them. This may happen in several distinct ways, but the simplest and most obvious case is that of co-ownership. Partners, for example, are co-owners of the chattels which constitute their stock-in-trade, of the lease of the premises on which their business is conducted, and of the debts owing to them by their customers. It is not correct to say that a right owned by co-owners is divided between them, each of them owing a separate part. The right is an undivided unity, which is vested at the same time in more than one person. If two partners have at their bank a credit balance of L1,000 there is one debt of L1,000 owing by the bank to both of them at once, not two separate debts of L500 due to each of them individually. Each partner is entitled to the whole sum, just as each would owe to the bank the whole of the firm's overdraft. The several ownership of a part is a different thing from the co-ownership of the whole. So soon as each of two co-owners begins to own a part of the right instead of the whole of it, the co-owner ship has been dissolved into sole ownership by the process known as partition. Co-ownership involves the undivided integrity of the right owned.
Co-ownership, like all other forms of duplicate ownership, is possible only so far the law makes provision for harmonizing in some way the conflicting claims of the different owners inter se. In the case of co-owners the title of the one is rendered consistent with that of the other by the existence of reciprocal obligations of restricted use and enjoyment."
10. The Privy Council in the case of Jogeshwar Narain Dev v. Ram Chandra Dutt reported in (1896) 23 Indian Appeal 37, has held that the principle of joint tenancy appears to be unknown to Hindu Law except in the case of Co-parceners between the members of undivided family. In that case certain property was bequeathed to the lady and her son. The lady granted lease of her half share of the said property to another person. The son brought a suit challenging the authority of the lady (her mother) to execute the lease deed in question in respect of her half share. Before the Privy Council an argument was raised that the lady and his son became the joint tenant in bequeathed property and, as such the lady alone can not execute the lease deed in respect of half share. This argument was repelled by following observations:
"In his argument for the Appellant, Mr. Branson raised a new point which is not indicated in the plaint, and was not submitted to either of the Courts below. He maintained, upon the authority of Vydinada v. Nagammal I.L.R. 11 Madras 258, that, by the terms of the will the Rani and the appellant became, in the sense of English law, joint tenants of the 4-annas share of Silda and not tenants in common; and that her alienation of her share before it was severed and, without the consent of the other joint tenant, was ineffectual. The circumstances of that case appear to be on all fours with the circumstances which occur here and, if well decided, it would be a precedent exactly in point. There are two substantial reasons why it ought not to be followed as an authority. In the first place it appears to their Lordships that the learned Judges of the High Court of Madras were not justified in importing into the construction of a Hindu will an extremely technical rule of English conveyancing. The principle of joint tenancy appears to be unknown to Hindu law except in the case of coparcenary between the members of an undivided family."
11. This judgment of Privy Council has been approved by the Apex Court while constructing a Will executed by a lady in favour of two persons and their children, that might be born to them with the provision that they should enjoy the property with the power of gift, transfer and sale. In B. Venkata Krishna Rao and Ors. v. Smt. B. Satyawati and Ors., it has been held that where gift was made to number of parents and their children, the children shall inherit property by succession per strips and not per capita. It was held that it is a case of "co ownership and not of joint ownership".
12. The Apex Court in the case of Commissioner of Income Tax v. Smt. Indra Bala Krishna in , has considered the status of co widows succeeding as co heirs to that estate of their deceased husband. It has been held that though they took as joint tenants no one has a right to enforce absolute partition of the estate against others so as to destroy the right of survivorship. But they are entitled to obtain partition of separate portion of the property so that each may enjoy her equal share of income accruing there from. Similar provision is also contained in Section 45 of Transfer of Property Act. It is true that Section 45 of Transfer of property Act is concerned with immovable properties but the same principle will also be applicable and can be extended to movable properties in absence of any contrary law specially when the principle of Section 45 of the Transfer of Property Act is based on equity, justice and good conscience.
13. We see no reason for not invoking the above principle of law on the facts of the present case. It is a simple case of gift by a person to two persons. In absence of any contrary material, under common law it is reasonable to draw an inference that both the donees have equal share in the gifted property. The gift is to common owners and not to joint owners. It has been held, as noted above, that the concept of "joint ownership" or "joint tenancy" as understood under English law, is unknown to Hindu law in India except in the case Hindu coparcenery. To put it differently the assessee and his son both will be co-sharers in the gifted property and their heirs will take the property strip wise and not per capita.
14. The argument of learned Counsel for the assessee that under the Act only three entities namely "individual", "H.U.F." and "Company" are recognized, cannot possibly be disputed by the department. But in the case in hand, it is not the question of taxing assoceation of person. The assets are being taxed in the status of individual. Section 4 of the Act provides inclusion of certain assets in the net wealth of individual as belongings to that individual. It is a machinery provision to compute the net wealth Section 4(1)(b) of the Act, as it stood at the relevant time, reads as follows::-
"4(1)-In computing the net wealth of individual they shall be included, as belonging to that of individual.........
(a).........
(b) Where the assessee is partner in a firm or member of association of persons (not being a Cooperative Housing society" the value of his interest in the firm or association determined in the prescribed manner..."
15. The "prescribed" means as prescribed by the Rules, Rule 2(1) of the Wealth Tax Rules, 1957 prescribes mode for value of interest in partnership or association of person. Learned counsel for the assessee submitted that interest of the assessee can not be valued in terms of Rule 2 of the Rules, therefore, half share of the assets in the gifts in question cannot be included in his net wealth.
16. A Division Bench of this Court in the case of Smt. Premlata Agarwal v. Commissioner of Wealth Tax has held that Section 4(1)(b) of the Act clearly lays down that in the case of individual as a member of association of persons the value of his interest in the association of persons in the prescribed manner shall be included in computing his net wealth. There is a clear provision that the value of interest of an individual in association of persons is to be included in his net wealth. The argument that association of persons is not legal entity for the purposes of the Act is correct, but is of little consequence in respect of the provisions of Section 4(1)(b) of the Act.
17. The Apex Court in the case of Wealth Tax Officer v. C.K. Mammedi Kavi , has held that "individual" means "individuals" within the meaning of Section 3 of the Act. In this case the Apex Court was considering the controversy as to whether the term "individual" in Section 3 of the Act includes within its ambit "Mapilia Marurnakkathavian Tharwas", it was held that they are included in the term "individual" within the meaning of Section 3 of the Act.
18. As stated above the assessee in the present case is not being taxed as association of persons out is being taxed as an "individual" and certain assets belonging to association of persons in which he has interest, the value of his interest is being added in the net wealth of the assessee in view of the provision of Section 4(1)(b) of the Act. Now we venture to test the view of the Tribunal that since there is no agreement for distribution of the assets in the event of dissolution of association of persons share of the assessee in the profit of association of person is not determinate or known it is, therefore, not possible, to determine the value of the assessee's interest in the association of persons under Rule-2. It is apt here to quote Rule 2(1) of the Wealth Tax Rules which reads as follows:
"(1) The value of the interest of a person in a 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 off partnership or association for the distribution of 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 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"
19. On an analysis of Rule 2(1) following steps are required to be taken up for determining the value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is member.
(1) The net wealth of the firm or the association on the valuation date shall first be determined.
(2) Allocation of the portion of the net wealth of the firm of association as is equal to the amount of its capital be earmarked proportionately in which capital has been contributed.
(3) The residue of the net wealth shall be allocated in accordance with the agreement between the parties, if any, for the distribution of assets in the event of dissolution of the firm or association of persons otherwise in the proportion in which the partners or members are entitled to share profits.
The question is, whether the assessee's interest in the gifted money can be valued in accordance with Rule 2(1).
20. The wealth of the assessee and his son in the association of persons was the gifted assets is determinate being the certain sum of money with accrued profits, if any. This is the first step under Rule-2(1). The second step is to find out contribution of capital by the partners or members. There is no contribution in capital and, therefore, the question of allocation in between the assessee and his son does not arise. The third step is the allotment of residue of net wealth (after the first and second Steps) of the firm or association in accordance with the agreement of partnership or association of distribution to the assessee in the event of dissolution of firm or association. The Tribunal was of the view that since there is no agreement for distribution of assets in the event of dissolution of association of person, the share of assets is not determinate or known. Here the Tribunal went wrong. As discussed above, in absence of any other agreement or material, under ordinary law, both persons will have the equal share in the assets. Therefore, the finding of the Tribunal that by invoking Rule 2 of the Wealth Tax Rules, the interest of the assessee in the assets of association of persons cannot be valued is not legally correct. Rule 2 of the Rules is the machinery provision and it should be interpreted in consonance with ordinary law of the land, in the case of any ambiguity. Interpreting Rule 2, as above, we are of the considered view that in absence of any agreement for distribution of the assets in the event of dissolution of association, the assessee would be entitled to share equal profits with that of his son. The Tribunal ignored the following clause of Rule 2 which reads as follows:
"2- ...in absence of such agreement, in the proportion in which the partners or members are entitled to share profits."
The words "entitled to" are of some significance and they refer entitlement as per general law of the land applicable to the assessee. The word "entitle" means to give a claim, right or title to to give a right to demand or receive, to furnish with grounds for claiming". (The Lax Lexicon P. Ramanath Aiyer, Second Edi. Page 642 referred by Apex Court in , Asgar S. Patel v. Union of India in connection with provisions under Chapter XX-C of the Income Tax Act. Indisputably there is no agreement on record with regard to the manner of distribution of assets in the event of dissolution of association of persons. In view of the above clause of the of Rule 2(1), the general law of succession will come into play. The Tribunal has omitted to consider the aforesaid clause and its effect. Therefore, we are of the considered opinion that the Appellate Tribunal has committed an error in holding that the value of the assessee's interest in the gifted amount was not liable to be included in the net wealth of the assessee, is not correct and was not liable to wealth tax.
21. The judgment delivered by this Court in W.T.R. No. 208 of 1983 Commissioner of Wealth Tax v. Smt. Hemlata Shukla decided on 3-09-2004 which one of us (Hon. R.K. Agarwal, J) was a member is distinguishable and is not applicable to the facts of the case in hand. In that case the property at Delhi was constructed by two ladies, who jointly owned the plot of land which has been received by way of gift. There was no evidence to show in what proportion money was invested by them. The tax authorities including the Tribunal found that it was not clear as to what amount was invested by each assessee in the construction of the house at New Delhi. Therefore, it was held on the facts of that case that the value of interest of the assessee cannot be determined in that house.
22. In view of foregoing discussion the question is answered in affirmative i.e. in favour of the revenue and against the assessee.
23. However, there shall be no order as to costs.