ANAND PRAKASH, A.M. Order assessee is one of partners in firm M/s Mainsukhdas Jainarain holding one-third share therein. controversy involved in present appeals concerns with determination of value of his share in said firm. said firm owns, inter alia, certain shares, book value of which in respect of various valuation dates as follows : Asst. Yr. Book value of shares 1977-78 Rs. 5,55,617 1978-79 Rs. 3,27,375 1979-80 Rs. 3, 10 ,995 2. total value of all assets of firm on respective valuation dates was as follows : Asst. Total value of assets as per balance sheet of Yr. respective years 1977- Rs. 19,96,616 78 1978- Rs. 20,46,029 79 1979- Rs. 24,70,686 80 As against above value of assets capital of partners as far as can be seen from balance sheets in question was as follows, remaining amount being borrowings; Asst. Total capital of Borrowings Total Yr. partners 1977- Rs. Rs. Rs. 12,99,431 78 6,97,166 19,96,597 1978- Rs. Rs. Rs. 11,58,214 79 8,87,515 20,46,019 1979- Rs. Rs. Rs. 13,41,380 80 11,29,306 24,70,686 3. WTO computed value of assessee's shares on basis of capital investment in firm plus proportionate difference in book value of certain assets including shares and market value of assets. He did not grant to assessee any relief in respect of exempted assets in terms of s. 5 of WT Act, 1957 either while computing net wealth of firm or while computing his own net wealth. While doing so WTO made following observations : "Although assets of firm include value of house property and of shares but no deduction under s. 5(1)(iv) and 5(1)(xxiii) are allowed as assessee is not owner of assets but ownership lies with firm. Besides, assessee's interest in firm has been computed under Rule 2(1) of WT Rules and there is no provision of allowing such deduction under rules." 4. assessee was not satisfied with above order of WTO and, therefore, he appealed to ld. AAC. ld. AAC directed that relief to assessee with regard to house property in terms of s. 5(1)(iv) be allowed following decision of Tribunal `B' Bench in WTA Nos. 671 & 672 (Cal) of 1979 dt. 16th Feb., 1981. With regard to shares, however, ld. AAC did not concede assessee's request. He confirmed order of WTO agreeing with reason given by him in this regard. 5 . assessee feels aggrieved of aforesaid of ld. AAC and it is contention of ld. counsel for assessee contention of ld. counsel for assessee before us that following reasoning given by Tribunal in case of house property in aforementioned appeals, relief ought to have been granted to assessee in respect of corresponding value of shares also. 6. On behalf of Revenue order of ld. AAC was supported. 7 . We have given careful consideration to rival submissions. valuation of share of partner in firm is governed by statute. In terms of cl. (b) of sub-s. (1) of s. 4, value of interest of partner in firm has to be determined in prescribed manner." Sub-s. (2) of s. 4 stipulated that "in making any rules with reference to valuation of interest referred to in cl. (b) of sub-s. (1), Board shall have regard to law for time being in force relating to manner in which accounts are to be settled between partners of firm.....on dissolution of firm." 8 . provisions pertaining to settlement of account amongst partners are contained in s. 48 of Indian Partnership Act, 1932. said section reads as follows : "48 : Mode of settlement of accounts between partners : In settling accounts of firm after dissolution, following rules shall, subject to agreement by partners, be observed. (a) Losses, including deficiencies of capital shall, be paid first out of profits, next out of capital, and lastly, if necessary, by partners individually in proportion in which they were entitled to share profits ; (b) assets of firm, including any sums contributed by partners to make up deficiencies of capital, shall be applied in following manner and order : (i) in paying debts of firm to third parties : (ii) in paying to each partner ratably what is due to him from firm for advances as distinguished from capital : (iii) in paying to each partner ratably what is due to him on account of capital; and (iv) residue, if any, shall be divided among partners in proportions in which they were entitled to share profits." above section is modelled on pattern of s. 44 of Partnership Act of 1980 of United Kingdom. Lindlay on Partnership has explained above scheme of settling accounts amongst partners in following words : "It follows from rules contained in above section that if assets are not sufficient to pay debts and liabilities to non-partners, partners must treat difference as loss and make it up by contributions interest. If assets are more than sufficient to pay debts and liabilities of partnership to non-partners, but are not sufficient to repay partners their respective advances, amount of unpaid advances ought to be treated as loss, to be met like other losses. In such case advances ought to be treated as debt of firm but payable to one of partners instead of to stranger. If, after paying all debts and liabilities of firm and advances of partners, there is still surplus, but not sufficient to pay each partner his capital, balances of capitals remaining unpaid, must treated as so may losses to be met like other losses." above scheme, as contained in s. 48 of Indian Partnership Act, 1932 was also considered by their Lordships of Hon'ble Supreme Court in case of Addanki Narayanappa & Anr. vs. Bhakara Krishnappa AIR 1966 SC 1309 at 1303. Their Lordships explained scheme of s. 48 in following terms : "Form perusal of these provisions it would be abundantly clear that whatever may be character of property which is brought in by partners when partnerships is formed or which may be acquired in course of business of partnership it becomes in property of firm and what partner is entitled to is his share of profits, if any, accruing to partnership from realisation of this property, and upon dissolution of partnership to share in money representing value of property. No doubt, since firm has no legal existence, partnership property will vest in all partner and in that case every partner has interest in property of partnerships. During subsistence of partnerships, however, no partner can deal with portion of property as his own. Nor can be assigned his interest in as pacification of partnership property to any one. His right is to obtain such tritons if any, as fall to his share from time to time and upon dissolution of firm to share in assets of firm which remain after satisfying liabilities set out in cl. (a) and sub-cls. (i),(ii) and (iii) of cl. (b) of s. 48." (Underlining, italicized in print, supplied) Their Lordships approvingly quoted following extract from Lindlay of Partnership, 12th Edn. at p. 375 "What is meant by share of fix partner in his proportion of partnerships assets after they have been all realised and converted into money, and all partnership debt and liabilities have been paid and discharged. This it is, and this only on death of partner passes to his representatives, or to legate of his share.....and which on his bankruptee passes to his trustee." (Underlining, italicized in print, for emphasis) 9 . It is above scheme of settlement of accounts between partners, which was been directed by sub-s. (2) of s. 4 of WT Act, 1957 to be incorporated in rules to be made in terms of cl. (b) of sub-s. (1) of s. 4 aforesaid. Rule 2 is rule pertaining to subject matter. Sub-r. (1) of said rule reads, inter alia, as follows : "The value of interest of person in firm of which he is partner........shall be determined in manner provided therein. net wealth of firm.......On valuation date shall first be determined. portion of net wealth of firm as is equal to amount of its capital shall be allocated amongst partners in proportion in which capital has been contributed by them. residue of net wealth of firm......shall be allocated among partners........in accordance with agreement of partnership............for distribution of assets in event of dissolution of firm.....or, in absence of such agreement, in proportion in which partner..........are entitled to share profits. sum total of amounts so allocated to partner.......shall be treated as value of interest of that partner..........in firm..........." 1 0 . combined reading of aforesaid provisions indicates that share of partner in firm has to be determined more or less on same principles as are contained in s. 48 of Indian Partnerships Act even though on valuation date firm does not stand dissolved. share of partner under s. 48 does not extend to any particular asset of firm as such, but excess of value of all assets over all liabilities of firm. partner can claim his shares only in such excess. If there be no excess, he will have no share in firm even though assets of firm may be numerous. assets, no doubt belong to all partners jointly, but no individual assets of firm whether it be share or property would belong to partner individually. This being so, contention of assessee that shares belonged to him and that, therefore, he should be allowed exemption in respect thereto under s. 5(1)(iv) cannot be sustained. What belongs to partners is not pro rata share in shares of various companies owned by firm, but pro rata share in excess of assets over liabilities. In present case we have noted that assets in all years far exceed capital of partners. No individual asset can be said to be belonging to any partner for it that were so, partners would be asking for much more than what they are entitled to after paying off their liabilities of firm. In law, it is not possible to own asset without discharging liabilities. To say, therefore, that assets of firm belong to individual partner pro rata would be against law. All of them belong to all partners jointly, but none of them belongs to individual partner individually. What belongs to individual partner is his pro rata share in excess of all assets over liabilities and not pro rata share in each individual asset. 11. At same time, it would not be correct to say that relief under s. 5(1)(iv) cannot be granted to partner in respect of exempted assets. What all partners are entitled to their individual capacities would be eligible to them with regard to assets owned by them jointly also. relief cannot be denied to them only because owned assets jointly and not individually. law on this point was well brought out by their Lordships of Hon'ble Patna High Court in case of CWT vs. Nandlal Jalan (1980) 14 CTR (Pat) 181 : (1980) Court in case of CWT vs. Nandlal Jalan (1980) 14 CTR (Pat) 181 : (1980) 122 ITR 781, 788 (Pat) when they made following observations explaining this aspect of law : "Now, therefore, keeping in view above discussion it cannot be said that even though during subsistence of partnership, assets thrown into partnership by partners get merged together and lose their identity, yet all same, assets as whole, do belong to partners. In computing net wealth of firm by reference to Rule 2 of WT Rules, if partner qualified for any of exemption provided under Act, such exemptions must be taken into consideration for determining net wealth of firm in terms of said rule........" 12. In view of above law, we hold that while computing net wealth of firm exemption available to all partners in terms of s. 5(1)(xxiii) ought to be allowed. shares may not belong to individual partner, but they do belong to individual partner, but they do belong to all partners and, therefore, while computing net wealth of firm due recognition of this joint ownership has to be taken and due relief as provided under law has to be allowed. WTO was, therefore, wrong in not granting exemption in respect of shares while computing net wealth of firm. He should now recompute net wealth of firm after deducting exemption under s. 5(1)(xxiii) read with s. 5(1A) from net wealth of firm. proportionate share of partner will be computed with reference to such net wealth and not with reference to net worth of firm as was done by WTO. 13. Subject to above observations, appeals of assessee are partly allowed. *** PREMNARAIN PRAVEENKUMAR v. WEALTH-TAX OFFICER