Sasi K.G.

01. INTRODUCTION

Income-tax is levied on the income of the taxpayer, whereas wealth tax is levied on the wealth of the taxpayer. Wealth tax is governed by Wealth Tax Act, 1957. Wealth Tax Act, 1957 is abolished w.e.f. 1.04.2016. The Finance Ministry, however, is planning to bring back Wealth Tax.

Wealth-tax is levied on following persons only:

· an individual;

· a Hindu undivided family (HUF); and

· a company.

Persons other than individuals, Hindu Undivided Families (HUFs) and companies are not liable to pay wealth tax.

Kerala High Court in Mammad Keyi v. Wealth Tax Officer AIR 1962 Ker 110 has observed, “In our view, this case has to be decided on the rule in Budhan Choudhry v. State of Bihar, (S) AIR 1955 SC 191, decided by a Bench of the Supreme Court which consisted of the same learned Judges who took part in the decision of (S) AIR 1955 SC 1166, and of Jagannadhadas, J., the judgment in which was delivered within a few days of the judgment in the latter, and on the law as exhaustively laid down in AIR 1958 SC 538. We therefore, come to the conclusion, that Hindu undivided families of wealth have been singled out by the Act from, other similar joint families in the country and that the State has thereby denied equal protection of the law to the former. The provisions in the Act relating to Hindu undivided families are severable and to that extent the Act has to be struck down.”

A partnership firm is not liable to wealth tax, but the assets of the partnership firm are charged to tax in the hands of the partners of the firm in the form of “Interest in partnership firm”. The value of the assets held by the firm is to be ascertained and this value will be distributed amongst the partners of the firm and will be charged to tax in the hands of the partners. However, where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such minor in the firm shall be included in the net wealth of the parent of the minor.

Similarly, an association of persons (not being a co-operative housing society) is not liable to wealth tax, but the assets of the association of person are charged to tax in the hands of its members in the form of “Interest in partnership firm”. Wealth tax is levied on the net wealth owned by a person on the valuation date, i.e., 31st March of every year. Wealth-tax was levied at 1% on the net wealth in excess of Rs.30,00,000/-. There is no surcharge or education cess in respect of wealth tax. There is no wealth tax since 01.04.2016.

02. WEALTH TAX LAWS

01. Wealth-tax and residential status

A person may own assets in India as well as abroad. The taxability of an asset will be determined on the basis of the residential status and the location of the asset. Residential status will be ascertained in the same manner as is determined under Income-tax Law. Following persons are liable to pay wealth-tax in respect of their world assets (i.e., on the assets located in India as well as on the assets located outside India):

(a) A resident and ordinarily resident individual, who is an Indian citizen.

(b) A resident and ordinarily resident HUF.

Following persons are liable to pay wealth-tax only in respect of assets located in India. In other words, following persons are not liable to pay wealth tax in respect of assets owned by them and which are located outside India:

(a) An individual who is not a citizen of India (whether resident and ordinarily resident or not).

(b) A resident but not ordinarily resident individual and a resident but not ordinarily resident Hindu Undivided Family.

02. Some of the significant provisions of Wealth-tax Law

Every person whose net wealth on the valuation date exceeds Rs. 30,00,000 shall file his/her return of net wealth.

The due dates for filing the return of net wealth are the same as the due dates prescribed for filing the return of income under section 139 of Income-tax Act, inter-alia, if the taxpayer is liable to audit under Income-tax Act, the due date will be 30th September and in other cases, the due date will be 31st July.

A belated return or revised return can be filed within a period of one year from the end of the assessment year or before completion of assessment, whichever is earlier.

Interest @ 1% per month or part of the month is levied for delay in filing the return of net wealth.

Where the taxpayer fails to pay the whole or any part of tax or interest or both, he shall be deemed to be an assessee-in-default in respect of the tax or interest or both. If the amount is not paid within 30 days or within such lesser time specified in the notice of demand, then the taxpayer is liable to pay interest @ 1% per month or part of a month comprised in the period commencing from the expiry of the day specified in the demand notice for payment and upto the date on which the amount is paid.

Penalty in case of concealment of wealth can be between 100% to 500% of tax sought to be avoided.

Apart from levy of penalty for various defaults, the law also provides for prosecution for defaults like willful attempt to evade tax, not filing return of wealth, failure to produce accounts, records; and false statement in verification, etc.

03. ASSETS UNDER WEALTH TAX

01. Wealth Tax defined

Section 2(e) of Wealth Tax defines Wealth Tax as given under;

(e) “assets” includes property of every description, movable or immovable, but does not include,—

(1) in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year—

(i) agricultural land and growing crops, grass or standing trees on such land;

(ii) any building owned or occupied by a cultivator of, or receiver of rent revenue out of, agricultural land: Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling-house or a store-house or an outhouse;

(iii) animals;

(iv) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;

(v) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee;

(2) in relation to the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year[but before the 1st day of April, 1993]—

(i) animals;

(ii) a right to^[i][any annuity (not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee)] in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into a lump sum grant;

(iii) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee:]

[ii][Provided that in relation to the assessment year commencing on the 1st day of April, 1981,^[iii][and the assessment year commencing on the 1st day of April, 1982], this sub-clause shall have effect subject to the modification that for item (i) thereof, the following item shall be substituted namely:—

(i) (a) agricultural land other than land comprised in any tea, coffee, rubber or cardamom plantation;

[iv][Provided further that in relation to the assessment year commencing on the 1st day of April, 1983, or any subsequent assessment year, this sub-clause shall have effect subject to the modification that for item (i) thereof, the following item shall be substituted, namely:—

(i) (a) agricultural land and growing crops (including fruits on trees), grass or standing trees on such land;

[v][Provided also that] in relation to the State of Jammu and Kashmir, this sub-clause shall have effect subject to the modification that for the assets specified in^[vi][item (i)] of this sub-clause, the assets specified in^[vii][items (i) to (iii)] of sub-clause (1) shall be substituted and the other provisions of this Act shall be construed accordingly;]

(b) any building owned or occupied by a cultivator of, or receiver of rent or revenue out of, agricultural land other than land comprised in any tea, coffee, rubber or cardamom plantation: Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of the rent or revenue by reason of his connection with the land requires as a dwelling-house or a store-house or an outhouse;

(b) one building or one group of buildings owned or occupied by a cultivator of, or receiver of rent or revenue out of, agricultural land: Provided that such building or group of buildings is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as store-house or for keeping livestock;

[viii][(ea) “assets”, in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year, means—

[ix][(i) any building or land appurtenant thereto (hereinafter referred to as “house”), whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise including a farm house situated within twenty-five kilometres from local limits of any municipality (whether known as Municipality, Municipal Corportation or by any other name) or a Cantonment Board, but does not include—

(1) a house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than five lakh rupees;

(2) any house for residential or commercial purposes which forms part of stok-in-trade;

(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;

(4) any residential property that has been let-out for a minimum period of three hundred days in the previous year;

(5) any property in the nature of commercial establishments or complexes;]

(ii) motor cars (other than those used by the assessee in the business of running them on hire or as stock-in-trade);

(iii) jewellery, bullion and furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals: Provided that where any of the said assets is used by the assessee as stock-in-trade, such asset shall be deemed as excluded from the assets specified in this sub-clause;

(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial purposes);

(v) urban land;

(vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu undivided families and in the case of other persons any amount not recorded in the books of account.

[x][ Explanation 1 ].—For the purposes of this clause,—^[xi][ Explanation 2 .—For the removal of doubts, it is hereby declared that “Jewellery” does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.]

(a) “jewellery” includes—

(i) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones and whether or not worked or sewn into any wearing apparel;

(ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;

(b) “urban land” means land situate—

(i) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the valuation date; or

(ii) in any area within such distance, not being more than eight kilometres from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification[xii] in the Official Gazette, but does not include land on which construction of a building is not permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him^[xiii][or any land held by the assessee as stock-in-trade for a period of ten years from the date of its acquisition by him];]

(f) “Board” means the^[xiv][Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963 (54 of 1963)];^[xv][***]^[xvi][***]

[xvii][(h) “company” shall have the meaning assigned to it in clause (17) of section 2 of the Income-tax Act, 1961, (43 of 1961);]

[xviii][(ha) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912 (2 of 1912), or under any other law for the time being in force in any State for the registration of co-operative societies;]^[xix][***]

(i) “executor” means an executor or administrator of the estate of a deceased person;

[xx][(ia) “High Court”, in relation to the Union territories of Dadra and Nagar Haveli and Goa, Daman and Diu, means the High Court at Bombay;]

[xxi][(j) “Income-tax Act” means the Income-tax Act, 1961 (43 of 1961);]^[xxii][***]

[xxiii][(ka) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976), and the air space above its territory and territorial waters;]^[xxiv][***]

[xxv][(lb) “legal representative” has the meaning assigned to it in clause (11) of section 2 of the Code of Civil Procedure, 1908 (5 of 1908);]

[xxvi][(lc) “maximum marginal rate” means the rate of wealth-tax applicable in relation to the highest slab of wealth in the case of an individual as specified in Part I of Schedule I;]

[xxvii][(ld) “National Tax Tribunal” means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005 (49 of 2005)]

(m) “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^[xxviii][on the valuation date which have been incurred in relation to the said assets];

(n) “prescribed” means prescribed by rules made under this Act;

(o) “principal officer”, used with reference to a company, means the secretary, manager, managing agent or managing director of the company, and includes any person connected with the management of the affairs of the company upon whom the^[xxix][Assessing Officer] has served a notice of his intention of treating him as the principal officer thereof;

[xxx][(oa) “public servant” has the same meaning as in section 21 of the Indian Penal Code (45 of 1860);]

[(oaa) “registered valuer” means a person registered as a valuer under section 34 AB;]

[(ob) “regular assessment” means the assessment made under⁴¹ [sub-section (3) or sub-section (5) of section 16];]

Andhra High Court in Tulsidas Bolumal v. Commissioner Of Income-Tax 1988 170 ITR 1 AP has held, “By virtue of clause (c) of sub-section (2) of section 64, the income arising from the share of converted property allotted to such minor son would be included in the individual income of the assessee-father. It would again be rather queer if we hold that while the income arising from the share of converted property allotted to the minor child will be included in the individual income of the father, the income arising from the share of converted property allotted to the father himself will not be treated as his individual income but will be treated as the income of the smaller Hindu joint family consisting of the father and his wife. In our opinion, it would be consistent and proper to hold in this case that even after partition, the income arising from the share of converted properties allotted to the assessee-father should be treated as his individual income and be taxed as such, and not as the income of the smaller Hindu joint family consisting of himself and his wife. It is in this connection that the principle of the decision of the Supreme Court in Surjit Lal Chhabda v. CIT becomes relevant.”

02. Assets covered under wealth-tax

Wealth tax is levied on the value of assets. The term “assets” is defined under Section 2(ea) of the Wealth-tax Act. Hence, wealth tax is levied only on those properties which are covered in the definition of the term “assets” as defined in the Wealth-tax Act. Following items are covered in the definition of the term “assets”.

1. Any building or land appurtenant thereto, whether used for residential or commercial purposes or for the purpose of maintaining a guest house or otherwise. It will also include a farm house situated within 25 kilometers from local limits of any municipality or a Cantonment Board. However, following buildings or land appurtenant thereto are not included in this category:

A house meant exclusively for residential purposes and which is allotted by a company to an employee or an officer or a director who is in whole-time employment, having a gross annual salary of less than Rs. 10,00,000.
Any house (may be residential house or used for commercial purposes) which forms part of stock-in-trade of the taxpayer.
Any house occupied by the taxpayer for the purposes of any business or profession carried on by him.
Any residential property which has been let-out for a minimum period of 300 days in the previous year.
Any property in the nature of commercial establishments or complexes.

2. Motor cars (other than those used by the taxpayer in the business of running them on hire or held as stock-in-trade).

3. Jewelry, bullion, furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals. However, this category does not include any of the above items held as stock-in-trade by the taxpayer.

4. Yachts, boats and aircrafts (other than those used by the taxpayer for commercial purposes).

5. Urban land (*), other than following:

Land on which construction of a building is not permissible under any law for the time being in force; or
Any land on which construction is done with the approval of the appropriate authority; or
Any unused land held by the taxpayer for industrial purposes for a period of two years from the date of its acquisition by him; or
Any land held by the taxpayer as stock-in-trade for a period of ten years from the date of its acquisition by him.
Land classified as agricultural land in the records of the Government and which is used for agricultural purpose.

(*) Urban land means a land situated:

a. Within jurisdiction of municipality, notified area committee, town area committee, cantonment board and which has a population of not less than 10,000;

b. Within range of following distance measured aerially from the local limits of any municipality or cantonment board:

i. not being more than 2 KMs, if population# of such area is more than 10,000 but not exceeding 1 lakh;

ii. not being more than 6 KMs , if population# of such area is more than 1 lakh but not exceeding 10 lakhs; or

iii. not being more than 8 KMs , if population of such area is more than 10 lakhs.

# Population” means the population according to the last preceding census of which the relevant figures have been published before the date of valuation. Cash in hand, in excess of Rs. 50,000 in case of an individual and HUF. In case of any other person, any amount not recorded in the books of account.

01. Guest house, residential house or commercial building (section 2(ea) (i))

Means

1. Any building or land appurent thereto whether used for commercial or residential purposes or for the purpose of guest house.

2. A farm house situated within 25 kilometres from the local limits of any municipality or a cantonment board.

Exclusion:

1. A residential house given to employee or officer or director who is in full time employment by company. The gross annual salary of such employee should be less than 10 lakh.

2. A house held as stock in trade. Means house held by builder for sale purpose.

3. A house used for business or profession purpose.

4. House which is given on let out for minimum period of 300 days in previous year.

5. Commercial complex.

So tax is not levied on above five type assets.

02. Motor cars (section 2(ea)(ii))

Tax is levied on motor car but there is exclusion for two types:

Exclusion:

1. Motor cars held as stock in trade

2. Motor cars used for business purpose

03. Jewellery, bullion, utensils of gold, silver etc: (section 2(ea)(iii))

Furniture, jewellery, buillion, utensils etc made by gold, platinum, silver or precious metals are covered here.

Exclusion:

Jewellery etc. held as stock in trade

Gold Deposit bonds

04. Yachts, boats, aircrafts (section 2(ea)(iv))

Yachts, boats, aircrafts are also considered as asset.

05. Urban land (section 2(ea) (v))

Meaning of urban land:
Any area which is comprised within the jurisdiction of municipality or cantonment board and which has a population of not less than 10000 according to last census.
OR

Population	Area
10000 to 1,00,000	2 km from municipality/cantonment board
1,00,000 to 10,00,000	6 km from municipality/cantonment board
More than 10,00,000	8 km from municipality/cantonment board

So land situated at place where population is less than 10000 is not covered and tax is not levied on it.

Exclusion:

Agricultural land
Land on which construction is not permissible under any law.
Land on which building has been constructed with the approval of the appropriate authority.
Any land held by landlord for industrial purpose for a period of 2 years from the date of acquisition.
Any land held by landlord as stock in trade for a period of 10 years from the date of acquisition.

06. Cash in Hand (section 2 (ea) (vi))

For individual or HUF:

Cash in hand at valuation date in excess of Rs.50,000. So Rs.50,000 is exempt but excess of 50,000 is taxable.

For any other person:

Any amount not recorded in books of accounts.

All these assets are on the name of business or company. In excess of them, some assets are not on the name of assessee but they are inclusive in assets covered as deemed assets.

03. Summary of Provisions

Sec 2(ea) of the Wealth Tax Act, 1957 defines assets means six assets only. One has to note that the assessee must be owner of these assets on the last day of the previous year. In other words, the assessee would not be liable for wealth tax even if he holds the assets for 364 days in the previous year and he sold the said asset on the last day of the previous year.

Sec 2(ea) itself provides for exception to each type of assets mentioned in the said clause. If an asset falls under this exception, then the said asset is not an asset within the meaning of sec 2(ea) and consequently not liable for wealth tax. Also, sec 5 of the Wealth tax Act, 1957 provides for exemption for levy of wealth tax in respect of certain assets. In case a particular asset does not fall under any of the exception provided in sec 2(ea) of the Act, but falls under the exemption provided u/s. 5 of the Act, then also, one need not pay any wealth tax on such exempt asset.

The type of assets covered in the definition and exemption u/s. 5 provided in relation to such type of assets are given in the table below:

Type of asset	Additional conditions	Exception (sec.2 [ea])		Exemption – sec.5
Urban land	Situated in specified area	a) On which construction not permissible b) On which building constructed with approval c) Held for industrial purpose for 2 years from the date of acquisition d) Held as stock in trade for 10 years from the date of acquisition e) Classified as agricultural land in the records of the government and used for agricultural purposes		For NRI - see note below For individual, plot of land not exceeding 500 sq meters in area (alternatively see note in building column below)
Motor Cars	a) Used in the business of running on hire b) used as stock in trade			For NRI - see note below
Cash in Hand			a) For Individuals and HUF - upto Rs.50000/- b) For others – amount recorded in the books

Bombay High Court in Assistant Commissioner of Income Tax v. Narendra I. Bhuva 2004 90 ITD 174 Mum held that, “the antique car held by the assessee is not a "personal effect" as occurring in section 2(14)(ii) rather it is a capital asset. Consequently, the surplus realized on its sale is chargeable to Capital gain under section 45 of Income Tax Act, 1961.”

04. ASSETS DEEMED UNDER WEALTH TAX

Sec 4 of the Wealth Tax Act, 1957 deems certain assets as that of the assessee even though the assessee is not the owner of such assets on the valuation date.

There are 10 such deemed assets contemplated u/s. 4 of the Act. Those 10 assets could be classified into two categories, viz., assessee wise and asset wise. Following table lists out those 10 deemed assets

ASSESSEE WISE DEEMED ASSETS

1. Interest in AOP/ Firm

2. Transfer to Spouse / Son’s wife

3. Transfer or conversion by Member of HUF

4. Assets transferred under a revocable transfer

5. Gift by book entries

6. Impartiable Estate

7. Minor’s wealth

ASSET WISE DEEMED ASSETS

8. Building allotted by Housing Society

9. Rights acquired in building by way of any agreement or arrangement

10. Possession of building by a contract u/s. 53A of Transfer of Property Act

01. Deemed Assets (section 4)

Some Deemed Assets are detailed as under.

01. Assets transferred by one spouse to another (section 4(1)(a)(i))

1. when asset is transferred from one spouse to another without adequate consideration after March 31, 1956, the value of asset on valuation date shall be taxation in the hand of transfer or.

2. The marriage should be subsist on the date of transfer and date of valuation.

3. Asset is exempt if gift tax is already charged on that asset.

4. Accretions to asset is not covered under section 4. Example, if husband gifts house to wife, then value of house is taxable in the hand of husband but if wife receives rent and purchase car from the rent , then value of car is not taxable in the hand of husband.

02. Assets held by minor child (section 4(1)(a)(ii))

1. Similarly provision of clubbing, value of assets held by minor child on valuation date shall be taxable in the hand of the parent whose net wealth is greater.

2. Where such assets once included in either parent, it cannot be included with the assets of other parent unless assessing officer is satisfied that it is necessary to do so.

3. The aforsaid clubbing provision shall not apply when the assets are acquired by minor child with manual work or skill or special knowlege or talent.

4. The aforesaid clubbing provision is not applicable to minor child who is suffering from disability specified in section 80U of the income tax act.

03. Assets transferred to a person or AOP (section 1(a) (iii))

1. Asset is transferred to individual or AOP without adequate consideration.

2. The transfer is for benefit of transferor or his spouce.

3. Gift tax was not levied on that asset.

4. In this case, value of asset is to be included in the wealth of transferor.

04. Assets transferred under revocable transfer (section 4(1)(a)(iv))

1. Asset is transferred to individual or AOP by individual.

2. Asset is transferred under revocable transfer after march 31, 1956.

3. The asset may be held by transferee on relevant valuation date.

4. If all these conditions are satisfied, the asset is deemed asset of transferor and value of asset shall be included in the wealth of transferor.

Here, revocable transfer means when transfer is revocable within 6 years or lifetime of the beneficiary. It also includes transaction when transferor gets direct or indirect benefit from the asset or transferor can re assume power on whole or part of asset.

05. Assets transferred to son’s wife (Section 4(1)(a)(v))

1. Asset is transferred to son’s wife without adequate consideration.

2. Asset is transferred after March 31, 1973.

3. The asset is held by son’s wife on valuation date.

4. The relationship between father-in-law/mother-in-law should subsist on the date of transfer and on the date of valuation.

5. If all above conditions are satisfied, the asset should be clubbed with wealth of transferor.

06. Assets transferred for benefit of son’s wife (section 4(1)(a)(vi))

If asset is transferred for the benefit of son’s wife to any individual or AOP, it is also considered as deemed asset and clubbed with the wealth of transferor. Conditioned mentioned in section 4(1)(a)(v) should be satisfied.

07. Interest in partnership firm or interest of partner (section 4(1)(b))

When you are partner of firm or member of AOP, interest as a partner or member in the assets of firm or AOP shall be included for wealth tax computation purpose. The interest shall be calculated as per schedule III to the wealth tax act.

If minor is included in the firm, interest of minor in assets of firm shall be clubbed with the value of asset of the parent. (section 4(1)(a)(ii).

08. Conversion of property by individual into joint family property (section 4(1A))

1. Individual transferred his separate property to HUF in which he is member without adequate consideration.

2. If property is transferred before partition of HUF, value of property transferred shall be included in net wealth of individual.

3. If property is transferred after partition of HUF and members of HUF received part from the property, the part received by wife of individual shall be included in the net wealth of individual.

4. If the property is transferred after 31/12/1969.

09. Gifts by book entries (section 4(5A))

1. When gift is made by mere book entry by individual, HUF, firm, AOP, BOI and there is no real transfer then the value of gift shall be considered as asset of donor (who has given gift).

2. Gift is valid if there is sufficient proofs that property is really transferred and there is sufficient cash and bank balance in accounts on the date of gift.

10. Impratible estate (section 4(6))

Holder of impartible estate have to pay wealth tax on all the assets included in impartible estate.

11. Property held by member of housing society (section 4(7))

1. When any person holding property of housing society, company or HUF on lease or installment purchase, he shall be deemed to be owner of the property.

2. He can reduce value of property by deducting installment payable’s amount. Remaining amount shall be considered taxable under wealth tax act.

12. Property received under part performance of contract (section 4(8))

1. Any person who receives property for part performance of contract shall be deemed to be owner of the property.

2. Any person who acquires property under lease shall be also become deemed owner of the property.

3. The lease should not be monthly basis or for a period not exceeding one year.

02. Net wealth to include certain assets

Generally, wealth tax is to be paid on assets owned by the taxpayer on the valuation date. However, in the following cases, though assets are held by other persons, yet they are to be included in the net wealth of the taxpayer, i.e., assets of other persons are clubbed with the wealth of the taxpayer.

1. Asset transferred by an individual without adequate consideration to any of the following persons shall be included in the net wealth of such individual:

2. Assets transferred to the spouse, not being a transfer in connection with an agreement to live apart.

3. Assets transferred by an individual to his/her son’s wife.

4. Assets transferred to a person or an association of persons for the immediate or deferred benefit of the individual, his/her spouse or his/her son’s wife.

5. Assets belonging to minor child of an Individual will be included in the net wealth of such individual. However, no clubbing will be done in respect of assets belonging to a minor child suffering from any disability specified in section 80U of the Income-tax Act or a minor married daughter of the individual. Further, clubbing provisions will not apply in respect of any asset acquired by the minor out of his income arising to him by: (a) manual work done by him; or (b) activity involving application of his skill, talent or specialized knowledge and experience. Note: where the assets held by a minor child are to be included in computing the net wealth of an individual, such assets shall be included,—

a) where the marriage of his parents subsists, in the net wealth of that parent whose net wealth (excluding the assets of the minor child so includible under this sub-section) is greater ; or

b) where the marriage of his parents does not subsist, in the net wealth of that parent who maintains the minor child in the previous year as defined in section 3 of the Income-tax Act,

and where any such assets are once included in the net wealth of either parent, any such assets shall not be included in the net wealth of the other parent in any succeeding year unless the Assessing Officer is satisfied, after giving that parent an opportunity of being heard, that it is necessary so to do.

6. Assets transferred under revocable transfer will be clubbed in the net wealth of the transferor.

7. Interest (i.e., assets) in a partnership firm or an association of persons. A partnership firm or an Association of People (AOP) is not liable to wealth-tax; however, value of taxable assets of the firm or AOP is to be computed in the prescribed manner and then the value of interest of each partner/member in such asset is included in the net wealth of the partner/member.

However, where a minor is admitted to the benefits of partnership in a firm, the value of the interest of such minor in the firm shall be included in the net wealth of the parent of the minor.

8. If an individual transfers his property to his HUF without adequate consideration or treats his property as the property of his HUF, then such asset will be included in the net wealth of the transferor.

Further, if the converted property becomes the subject-matter of a total or a partial partition among members of the family, the converted or transferred property or any part thereof, which is received by the spouse of the transferor, is deemed to be the asset of the transferor and is includible in his wealth.

9. In the case of gift of money made by means of book entries, if the Assessing Officer is not satisfied that the money was actually gifted (i.e., transaction is merely a book entry and not a genuine gift), the value of such gift will be included in the net wealth of the donor.

10. Holder of an impartible estate will be deemed to be the individual owner of all the properties comprised in the estate.

11. In case of property allotted or leased by a co-operative society to the member of the society, the member will be treated as the owner of the property, and the value of such property (i.e., building or part), shall be included in his net wealth. This rule is also applicable in case of a member of a company or association of person.

12. In case of property acquired in part performance of a contract, i.e., in accordance with section 53A of the Transfer of Property Act, the person allowed to take or retain possession of any building or part thereof shall be deemed to be the owner. Accordingly, the value of such building or part shall be included while computing the net wealth of such person.

13. In the case of property acquired as per section 269UA(f) of the Income-tax Act, 1961, it shall be included in the net wealth of a person who acquires any rights in or with respect to such building excluding any rights by way of a lease from month to month or for a period not exceeding one year.

05. EXEMPTED ASSETS UNDER WEALTH TAX

01. Provisions under Section 5

Section 5 of the Wealth Tax Act provides exemptions in respect of certain assets. It runs as,

“5. Exemptions in respect of certain assets [xxxi][***] [xxxii][***] Wealth-tax shall not be payable by an assessee in respect of the following assets], and such assets shall not be included in the net wealth of the assessee-

(i) any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in India:

[xxxiii][Provided that nothing contained in this clause shall apply to any property forming part of any business, not being a business referred to in clause (a) or clause (b) of sub-section (4A) of section 11 of the Income-tax Act in respect of which separate books of account are maintained or a business carried on by an institution, fund or trust referred to in

[xxxiv][***] clause (23B) or clause (23C) of section 10 of that Act;]

(ii) the interest of the assessee in the coparcenary property of any Hindu undivided family of which he is a member;

(iii) [xxxv][any one building in the occupation of a Ruler, being a building which immediately before the commencement of the Constitution (Twenty-sixth Amendment) Act, 1971, was his official residence by virtue of a declaration by the Central Government] under paragraph 13 of the Merged States (Taxation Concessions) Order, 1949, or paragraph 15 of the Part B States (Taxation Concessions) Order, 1950;

[xxxvi][***]

[xxxvii][(iv)] jewellery in the possession of any Ruler, not being his personal property, which has been recognised before the commencement of this Act, by the Central Government as his heirloom or, where no such recognition exists, which the Board may, subject to any rules that may be made by the Central Government in this behalf, recognize as his heirloom at the time of his first assessment to wealth-tax under this Act:

[xxxviii][Provided that in the case of jewellery recognised by the Central Government as aforesaid, such recognition shall be subject to the following conditions, namely:-

(i) that the jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by the Board;

(ii) that reasonable steps shall be taken for keeping the jewellery substantially in its original shape;

(iii) that reasonable facilities shall be allowed to any officer of Government authorised by the Board in this behalf to examine the jewellery as an d when necessary; and

(iv) that if any of the conditions hereinbefore specified is not being duly fulfilled, the Board may, for reasons to be recorded in writing, withdraw the recognition retrospectively with effect from the date of commencement of clause (b) of section 5 of the Rulers of Indian States (Abolition of Privileges) Act, 1972, and in such a case, wealth-tax shall become payable by the Ruler for all the assessment years after such commencement for which the jewellery was exempted on account of the recognition.

Explanation.- For the purposes of clause (iv) of the foregoing proviso, the fair market value of any jewellery on the date of the withdrawal of the recognition in respect thereof shall be deemed to be the fair market value of such jewellery on each successive valuation date relevant for the assessment years referred to in the said proviso:

Provided further that the aggregate amount of wealth-tax payable in respect of any jewellery under clause (iv) of the foregoing proviso for all the assessment years referred to therein shall not in any case exceed fifty per cent of its fair market value on the valuation date relevant for the assessment year in which recognition was withdrawn;]

[xxxix][***]

[xl][[xli][(v)] in the case of an assessee, being a person of Indian origin [xlii][or a citizen of India (hereafter in this clause referred to as such person)] who was ordinarily residing in a foreign country and who, on leaving such country, has returned to India with the intention of permanently residing therein, moneys and the value of assets brought by him into India and the value of the assets acquired by him out of such moneys [xliii][within one year immediately preceding the date of his return and at any time thereafter]:

Provided that this exemption shall apply only for a period of seven successive assessment years commencing with the assessment year next following the date on which such person returned to India.

Explanation [xliv][1].- A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.]

[xlv][Explanation 2.- For the removal of doubts, it is hereby declared that moneys standing to the credit of such person in a Non-resident (External) Account in any bank in India in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder, on the date of his return to India, shall be deemed to be moneys brought by him into India on that date;]

[xlvi][(vi) one house or part of a house or a plot of land belonging to an individual or a Hindu undivided family:

Provided that wealth-tax shall not be payable by an assessee in respect of an asset being a plot of land comprising an area of five hundred square meters or less.]

[xlvii][***]

[xlviii][***]

[xlix][***]

[l][***]

[li][***] ”

02. Assessees Not Liable to Wealth Tax Under Section 3

Wealth Tax is charged for every assessment year in the hands of individuals, HUFs and all companies (private as well as public) on the net wealth as on 31st March.

The following assessees are specifically excluded from the levy of Wealth Tax :

a. Company registered u/s. 25 of the Companies Act, 1956

b. Co-operative society

c. Social club

d. Political party

e. Mutual fund specified u/s. 10(23D) of the Income-tax Act.

f. Reserve bank of India incorporated under Reserve Bank of India Act, 1934 (Inserted by Finance Act, 2012 w.r.e.f 1-4-1957.)

03. Assets Exempt From Tax (Exempted Assets)

The following assets are exempt from Wealth Tax

· Property held under trust.

· Residential Building of former ruler.

· Former rulers Jewelry.

Following assets are exempt from wealth-tax, i.e., they are exempt assets:

· One house or part of a house or a plot of land (not exceeding 500 Sq. Mtrs.) in case of Individual or HUF

· The interest of a person in the coparcenary property of any HUF of which he is a member.

· Any property held by the taxpayer under trust or other legal obligation for any public purpose of a charitable or religious nature in India. This exemption is not applicable to business assets of charitable/religious trust except when business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business or the business is carried on by an institution, fund or trust referred to in clause (23B) or (23C) of section 10 of the Income-tax Act. Any one building in the occupation of former Ruler, i.e., used for the residence by a former ruler.

· Jewellery in possession of a former ruler of a princely State, not being his personal property which has been recognised by the Central Government as a heirloom before 1-4-1957 or by the CBDT after 1-4-1957.

· Certain assets belonging to a person of Indian origin or an Indian citizen who was residing abroad and now returning with an intention of permanently residing in India is exempt subject to following conditions:

o This exemption is available only to a person of Indian origin or a citizen of India. A person will be said to be of Indian origin if he or any of his parents or grandparents were born in un-divided India.

o Such person was residing in foreign country.

o Exemption is available at the time he returns to India, i.e., he is an Indian repatriate.

o Exemption is available for a period 7 years (starting from the year in which he returns to India).

The above discussed exemption is available in respect of following assets:

(1) Money brought into India at the time of his return to India.

(2) Value of assets brought into India at the time of his return to India.

(3) Money standing to the credit of such person in a Non-resident (External) Account in any bank in India on the date of his return to India.

(4) Assets acquired by him out of money refered to in (1) and (3) above within a period of one year prior to the date of his return and any time thereafter.

01. Property held under trust for charitable purpose (section 5(i))

Following assets are entitled for wealth tax exemption:

· When trust referred to in clause 22, clause 22A or clause 22B or clause 22C of section 10 holds any property, it is exempt from wealth tax.

· Condition is that the business carried out by trust should be religious or charitable purposes.

· The activity may be publications of book, printing of books or business notified by central government in this behalf in the official content.

02. Coparcenary interest in HUF (section 5(ii))

Interest in HUF by member is exempt from wealth tax.

03. Residential building by former ruler (section 5(iii))

Former ruler of principal state can get exemption for one residential house used by him. He cannot exemption for more than one house. He can get exemption for new building also.

04. Jewellery of former ruler (section 5(iv))

Jewellery owned by former ruler of principal state which has recognised by central government as heirloom is exempt.

05. Assets belonging to Indian repatriates (section 5(v))

When Indian origin person returns to India, assets brought by him in India or assets purchased by him from money brought him in India are exempt from tax. The exemption is available for 7 assessment years. Suppose person comes to India in financial year 2013-14, exemption is available for him for 7 a.y. starting from year 2014-15. (up to a.y. 20-21)

Indirectly government is giving incentive to settle in India to foreigners.

06. Exemption for one house (section 5(vi))

Exemption is available for one house / part of house owned by Individul or HUF. The house can be self occupied or let out.

Exemption is available for land for area up to 500 square metres.

07. Exemption for debt

One need not pay tax for the property which he actually does not own completely. Suppose A has one house and he has taken it from loan and loan installments are pending, he is actually owning part of house. So he has to pay wealth tax on amount by calculating value of house reducing value of installment pending.

Thus A can claim exemption for debt owned by him for particular asset for valuation date.

08. Some Case Laws

Madras High Court in Commissioner Of Wealth-Tax v. Martinammal AIR 1965 Mad 182, 1964 54 ITR 687 Mad held that “The leasehold interest obtained by the assessee could not be regarded as an asset within the meaning of S. 2(e)(v) of the Act and answer the question referred to us in the negative and in favour of the assessee. The assessee will be entitled to her costs: Advocate's fee Rs. 250/-.”

Supreme Court in the case of CWT v. T. S. Sundaram (1999) 237 ITR 61 (SC) after considering the relevant provisions of the Wealth Tax Act and Rules have held that in computing the net wealth of a firm under rule 2 of the Wealth Tax Rules, 1957, the assets exempted under section 5 of the Act should be included and then apportioned among the partners for granting exemption in their individual assessments in computing their own individual net wealth.”

In Appollo Tyres Limited v. The Assitant Commissioner of Kochi WTA.No. 197 of 2009 High Court of Kerala held, “the assessee progressively completed construction of a four storied building with basement and started using it within the course of two years from the valuation date. The assessee cannot be expected to complete construction of a four storied massive building in the course of two years which is the period provided in Explanation (b) to Section 2(ea). Keeping in mind the exemption available to productive assets we feel, there is no scope for levy of tax during the period of construction of the productive asset, namely, commercial ;building, by utilising the urban land. In other words, once the non-productive asset like urban land is converted to a productive asset like a building which qualifies for exemption, then the assessee can start availing exemption even during the period of conversion of such non-productive asset to productive asset.”

Income Tax Appellate Tribunal, Jaipur in Niranjan Lal Data , Alwar v. Department Of Income Tax WTA No. 4/JP/2012 has held, “Apropos the ground no. 6 relating to the property at Nangali Khor, it has not been disputed that in lieu of assessee's two plots, the impugned plot was allotted to the assessee for 99 years lease. As per plain meaning of legal fiction of section 4(8) of the Wealth Tax Act, it applies only to leasehold right in a building and not on the land. The scope of fiction cannot be enlarged by intendment. In view thereof, we see no infirmity in the order of the ld. CWT(A) which has been passed keeping in view the plain meaning of Section 4(8) of the Wealth Tax Act and the decisions of Hon'ble Supreme Court in the case of CWT v. Biswanath Chatterjee (1976) 103 ITR 536 and the Hon'ble Karnataka High Court judgement in the case of Vysya Bank Ltd. v. DCWT (supra). Thus the order of ld. CWT(A) is upheld. The ground raised by the Revenue is dismissed.”

Madras High Court in T.Ravikumar v. R.Meenakshi Sundaram on 11 September, 2006 held, “The Division Bench judgment of this Court reported in 269 ITR 203 in the case of Commissioner of Wealth-tax V. Indian Warehousing Industries Ltd., following the principles enunciated by this Court judgment reported in 260 ITR 164 in the case of K.N.Chari Rubber and Plastics P. Ltd. V. Commissioner of Wealth-tax, held that, as per Section 40(3)(vi) of the Finance Act, there is an additional requirement that the building should be used by the assessee as godown or warehouse for the purpose of its business. We are of the view that the let out assets are used by the assessee in its leasing business. If the leased out assets such as, godown, warehouse, hospital or other assets, come within the specified assets in Clause 40(3)(vi) of the Finance Act, certainly the assessee is entitled to the exemption, because the same is used in leasing business. The view of the Division Bench judgment that the leased assets are not used for the purposes of business, is contrary to the Supreme Court judgment cited supra.”

04. Exclusion of assets and debts outside India

Section 6 of the Act provides,

“S. 6. Exclusion of assets and debts outside India- In computing the net wealth of an individual [lii][who is not a citizen of India or of an individual] or a Hindu undivided family not resident in India or resident but not ordinarily resident in India, or of a company not resident in India during the year ending on the valuation date-

(i) the value of the assets and debts located outside India; and

(ii) the value of the assets in India represented by any loans or debts owing to the assessee in any case where the interest, if any, payable on such loans or debts is not to be included in the total income of the assessee under [liii][section 10] of the Income-tax Act; shall not be taken into account.

Explanation 1.- An individual or a Hindu undivided family shall be deemed to be not resident in India or resident but not ordinarily resident in India during the year ending on the valuation date if in respect of that year the individual or the Hindu undivided family, as the case may be, is not resident in India or resident but not ordinarily resident in India within the meaning of the Income-tax Act.

[liv][Explanation 1A.- Where in the case of an individual the value of an asset in India is represented by any debt owing to him, being any moneys to his credit in a Non-resident (External) Account, the interest payable on which is not to be included in his total income under [lv][sub-clause (ii) of clause (4)] of section 10 of the Income-tax Act, the provisions of this section shall, in relation to such asset, apply subject to the modification that the reference in this section to an individual not resident in India shall be construed as a reference to a person resident outside India as defined in clause (q) of section 2 of the Foreign Exchange Regulation Act, 1973 (46 of 1973)].

Explanation 2.- A company shall be deemed to be resident in India during the year ending on the valuation date, if-

(a) it is a company formed and registered under the Companies Act, 1956 (1 of 1956), or is an existing company within the meaning of that Act; or

(b) during that year the control and management of its affairs is situated wholly in India.

05. Exemption to Charitable or Religious Trusts

Charitable or religious trusts would be exempt from levy of wealth tax so long as the provisions of sec 13(1)(c ) or 13(1)(d) of the Income tax Act are not attracted.

06. CALCULATION OF WEALTH TAX

01. Valuation of Assets

Assets are valued as per the rules given in Schedule III of Wealth Tax Act, 1957. These are the following under which Valuation of Assets is done.

01. Valuation of a Building

Step1: Find out the Gross Maintainable Rent (GMR).

Step2: Find out the net maintainable rent that is

Goss Maintainable Rent – Any Amount of taxes relating to property – 15% of GMR

Step3: Capitalize the Net Maintainable Rent.

· Multiplying the Net Maintainable Rent by 12.5.

· In case the property is constructed on leasehold land, net maintainable rent is to be multiplied by 10 when the unexpired period of lease land is 50 years or more. It is multiplied by 8 where the unexpired period of leased land is less than 50 years.

Step4: (Add Premium)

· If the unbuilt area of a plot of land on which property is built exceeds specified area, then the premium is to be added.

Aggregate Area = Land on which property is built.

Unbuilt Area = Land on which no building is erected.

Specified Area:

· Where property is situated in Bombay, Calcutta, Delhi, Madras, 60% of the aggregate area.

· Where property is situated at Agra, Bhopal, Amritsar, Ahmedabad, Banglore, Cochin, Indore, Hyderabad, Ludhiana, Nagpur, Madurai, Lucknow, Patna, Pune, Salem, Kanpur, Srinagar, Surat, Trivandrum, Tiruchanapalli, Varanasi, 65% of the aggregate area.

· Where property is situated at any other place, 70% of the aggregate area.

The amount of premium to be added to the Capitalized value is determined as follows:

The Acess of unbuilt area	Premium
Not more than 5% of the aggregate area	NIL.
More than 5% but not more than 10% of the aggregate area	20% of the Capitalised Value.
More than 10% but less than 15%	30% of the Capitalised Value.
More than 15% but less than 20%	40% of the Capitalised Value.
More than 20% of the aggregate area	Rules as given.

Thus, these are the steps that are used in Valuation of Assets.

02. Manner of computation of net wealth

Wealth tax is levied on net wealth owned by the taxpayer on the valuation date. Net wealth (i.e., taxable wealth) of every person is computed in following manner:

*Particulars*	*Amount*
Ascertain value of taxable assets as per valuation rules prescribed in this regard (i)	XXXXX
Add: Assets clubbed with the assets of taxpayer (i.e., deemed assets) (ii)	XXXXX
Less: Exempt asset (iii)	(XXXXX)
*Gross value of asset*	XXXXX
Less: Debt i.e., loan taken to acquire the asset at (i) and (ii)	(XXXXX)
*Taxable wealth*	XXXXX
Wealth tax is to be paid at 1% on the net wealth in excess of Rs. 30,00,000. No cess or surcharge is levied on Wealth tax.

03. Some Case Laws

Hon'ble Punjab & Haryana High Court in the case of Sidhartha Enterprises 322 ITR 82 has held as under,

"The judgment of the Supreme Court in Union of India v. Dharamendra Textile Processors & Ors. (2008) 219 CTR (SC) 617 : (2008) 306 ITR 277 (SC) cannot be read as laying down that in every case where particulars of income are inaccurate, penalty must follow. What has been laid down is that qualitative difference between criminal liability under s. 276C and penalty under s. 271(1)(c) had to be kept in mind and approach adopted to the trial of a criminal case need not be adopted while considering the levy of penalty. Even so, concept of penalty has not undergone change by virtue of the said judgment. Penalty is imposed only when there is some element of deliberate default and not a mere mistake. This being the position, the finding having been recorded on facts that the furnishing of inaccurate particulars was simply a mistake and not a deliberate attempt to evade tax, the view taken by the Tribunal cannot be held to be perverse".

Supreme Court of India in Juggi Lal Kamlapat Bankers & Anr v. Wealth Tax Officer. Special 1984 AIR 564, 1984 SCR (2) 35 has held, “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.”

02. Partition of HUF — Sections 20 and 20A

In case of HUF, if total partition takes place on valuation date itself, then for that assessment year, it will be assessed as if no such partition has taken place. Likewise, a partial partition in the H.U.F. effected after 31-12-1978 will not be recognised and H.U.F. will continue to be assessed as if no partition has taken place.

03. Interest for default in furnishing return — S. 17B

Mandatory interest is payable @ 1% for every month/part of a month from due date till date of furnishing of return or, as the case may be, date of completion of best-judgment assessment u/s. 16(5), on tax payable on net wealth determined on regular assessment. Levy of interest is not dependent upon reasonable cause for such a default. The mandatory interest is payable along with self-assessment tax before filing of the return of wealth.

07. CONCLUSION

Levying wealth tax on non-productive assets by the Government had compelled the assessees to convert the non-productive assets into productive assets. The taxability of the agricultural land situated in the specified area was addressed by making a retrospective amendment in sec 2(ea) of the Act whereby the agricultural lands situated in the specified area is excluded from the definition of asset itself. However, taxing the motor cars even if used for productive purposes would be against the fundamental principle on which the entire levy of wealth tax is contemplated. Similarly, taxing cash balance exceeding Rs.50000 held on the valuation date in the case of money lender would be creating genuine hardship. However these genuine hardships are no more live as the Wealth Tax is abolished since 01.04.2016. However we should anticipate its resurrection in near future and its changed form may either solace or threaten the tax payer community.

APPENDICISES

SOME TABLES

What Assets shall mean

	Description of Assets	Exclusions
a.	Any building or land appurtenant thereto, residential or commercial purpose (including a farmhouse and a guest house within twenty-five kilometres of municipal limits)	1. In case of a Company, a house meant exclusively for residential purpose and allotted to an employee, officer or a Whole time Director whose gross annual salary is less than – ten lakhs. (w.e.f A.Y. 2013-14) 2. House (residential or commercial) held as stock-in-trade. 3. House occupied for purpose of business/profession carried on by the assessee. 4. Residential property let out for at least 300 days in previous year. 5. Commercial establishments or complexes
b.	Motor cars	Used for the business of running them on hire or as stock-in-trade.
c.	Jewellery, bullion and furniture, utensils or any other article made of gold, silver, etc.	When used by the assessee as stock-in-trade. Gold Deposit Bonds issued under Gold Deposit Scheme, 1999
d.	Yachts, boats and aircraft	When used by the assessee for commercial purposes.
e.	Urban Land being land situated, in any area within the jurisdiction of a municipality constructed with the (by whatever name called) or a Cantonment Board with a population of not less than ten thousand as per last preceding Census; or in an area within a distance of not more than two kilometres measured aerially from local limits of municipality or Cantonment Board as above and has a population exceeding ten thousand but not more than one lakh as per last preceding Census; or in an area within a distance of not more than six kilometres (measured aerially) from local limits of municipality or Cantonment Board as above and has a population exceeding one lakh but not more than ten lakhs as per last preceding Census; or in an area within a distance of not more than eight kilometres (measured aerially) from local limits of municipality or Cantonment Board as above and has a population of more than ten lakhs as per last preceding Census; or	a. Land on which construction is not permissible. b. Land occupied by any building constructed with the approval of the appropriate authority, c. Unused land held for industrial purpose of 2 years from the date of acquisition, d. Land held as stock-in-trade for a period of from the date of acquisition.
f.	Cash in hand In case of individuals/HUFs: in excess of₹50,000. In other cases: an amount not recorded in the books of account.	— —

Scope (Sec. 6)

Status	Assets Includible	Debts Deductible
Resident and Ordinarily Resident
Citizen	All assets in or outside India	All Permissible Debts in or outside India
HUF–Ordinarily Resident	As above	As above
Company–Resident	As above	As above
Non-Citizen	All assets in India	All Permissible Debts in India
Resident but not Ordinarily Resident
Citizen/Non-Citizen	All assets in India	All Permissible Debts in India
Non-Resident
Citizen	As above	As above
Non-Citizen	As above	As above

Rates of Tax

Wealth Tax is charged in respect of Net Wealth of every Individual, HUF and Company @ 1% of the amount by which the Net Wealth exceeds₹30 lakhs.

Deemed Assets : Sec. 4

a. The value of assets mentioned below shall be clubbed as provided herein under:

	Description of Assets		Exclusion from clubbing	Clubbed with
i)	Assets transferred by individual to spouse for inadequate consideration.	i)	Assets transferred in connection with an agreement to live apart	Net Wealth of Individual
		ii)	No husband-wife relationship at time of transfer as well as on valuation date
ii)	Assets transferred by individual for immediate or deferred benefits of individual or spouse to other persons or Association of person for inadequate consideration.	No husband-wife relationship at time of transfer as well as on valuation date		Net Wealth of Individual
iii)	Assets held by minor child	i)	Assets held by Minor Married Daughter	Net Wealth of parent whose net wealth is higher, if marriage subsists or else in hands of the parent who maintains minor child.
		ii)	Assets acquired out of Minor’s Income as referred to in proviso to S. 64(1A)
		iii)	Minor attains on or majority before valuation date
		iv)	Assets held by a physically or mentally handicapped minor child
iv)	Assets transferred by Individual under Revocable Transfer to other persons or A.O.Ps	Assets transferred under Irrevocable Transfer		Net Wealth of Individual
v)	Assets transferred by Individual to son’s wife for inadequate consideration.	i)	No father-in-law/mother-in-law/daughter-in-law relationship at time of transfer as well as on valuation date	Net Wealth of Individual
		ii)	Assets transferred prior to 1-6-1973
vi)	Assets transferred by Individual for immediate or deferred benefits of individual or son’s wife or both to other persons or A.O.Ps for inadequate consideration.	i)	No father-in-law/mother-in-law/ daughter-in- law relationship at time of transfer as well as on valuation date	Net Wealth of Individual
		ii)	Assets transferred prior to 1-6-1973
*Note :* Any accretion to the transferred assets or accumulated income of the transferred assets will not attract the clubbing provisions.
vii	Assets transferred/converted by individual into joint family property.	i)	Assets transferred for adequate consideration	i) Net Wealth of Individual
		ii)	Conversion or gifts effected prior to 31-12-1969	ii) On Subsequent Partition of HUF — Share of spouse in converted property to be included in net Wealth of Individual.
viii	Gifts by book entries		Money actually delivered at time of entry.	Net Wealth of Individual
ix	Value of House/part thereof leased/allotted to Individual by Co-op. Society net of outstanding Instalment payable to Society.		None	Net Wealth of Individual
x	Possession of building taken/retained in part performance of contract (S. 53A of the Transfer of Property Act) or right with respect to building acquired by transaction u/s. 269UA(f) of I.T. Act.		None	Net Wealth of Individual
xi	Holders of Impartial Asset Estate		None	Net Wealth of Individual

Valuation of Assets — Section 7

Valuation of assets specified in S. 2(ea) other than cash are governed by provisions of S. 7(1). Value as on valuation date will be determined as per Schedule III of the W.T. Act.

A. Immovable Property — (Rules 3 to 8, Sch. III, Part B)

1. Determine gross maintainable rent (GMR) as follows:

If property is let out:

Higher of:

1. Annual rent received/receivable by the owner

2. Annual value as assessed by local authority

If property is not let out:

Situated within jurisdiction of a local authority	Situated outside jurisdiction of a local authority
Annual rent assessed by the local authority	Amount owner can reasonably be expected to receive as annual rent had the property been let out.

2. Determine net maintainable rent (NMR) as follows:

Deduct the following from GMR:

taxes levied by any local authority in respect of property (deductible on accrual basis). This deduction is available even if taxes are to be borne by the tenant; and
15% of GMR.

3. Capitalise NMR as follows:

	*Property situated on*	*Multiply NMR by*
(a)	Freehold Land	12.5
(b)	Leasehold Land (unexpired period of lease is 50 years or more)	10
(c)	Leasehold Land (unexpired period of lease is less than 50 years)	8

	*Value*	*Exception*
Property acquired/constructed after 31-3-1974	Capitalised NMR as provided hereinabove or Actual Cost (including cost of improvement) whichever is higher.	For one house used wholly for residential purposes and cost thereof up to₹50 lakhs (in Delhi, Kolkata, Mumbai & Chennai) or₹25 lakhs (in other cities), the value is Capitalised N.M.R.
Property acquired/constructed on or prior to 31-3-1974	Capitalised N.M.R.	None

B. Valuation of assets of business (Rule 14, Para D, Schedule 3)

1. In case accounts of the business are maintained regularly, value of assets as disclosed in the balance sheet shall be taken as follows:

ASSETS	VALUE TO BE TAKEN
a) Depreciable assets	Written down value
b) Non-depreciable assets	Book Value
c) Closing Stock	Value adopted for the purpose of income-tax

2. If value of any asset determined as per provisions of Schedule III exceeds value as per above table by more than 20%, then higher value shall be taken as value of the asset.

3. Value of assets not disclosed in balance sheet to be determined as per provisions of Schedule III.

4. Value of following assets disclosed in balance sheet not to be taken into account.

Advance tax paid under Income-tax Act.
Bad debts allowed as deduction u/s. 36(1)(vii) of Income-tax Act.
Asset in respect of which Wealth Tax is not payable.
Debit balance in profit & loss account, or any other amount which does not represent value of any asset.
Asset not really pertaining to the business.

5. Value of following liabilities disclosed in balance sheet not to be taken into account:

Capital employed in the business other than attributable to borrowed money.
Reserves by whatever name called.
Any provision made for meeting any failure or contingent liability
Liability not really pertaining to the business.
Debt utilised for acquiring asset in respect of which Wealth Tax is not payable.

C. Jewellery : (Rule 18, Part G, Schedule III)

1. For first Assessment Year:

Find out Fair Market Value (FMV) as on the valuation date and declare in Return.
FMV = Price fetched if sold in open market.
If FMV does not exceed₹5 lakhs, support Return by Statement in prescribed form. (O-8A)
If FMV exceeds₹5 lakhs, support Return by Registered Valuer’s Report, in prescribed form. (O-8)

2. For subsequent four assessment years:

Substitute price of gold, silver or alloy obtaining on the respective valuation date.
Add/Deduct value of new Purchases/Sales.

D. Value of interest in Firm or AOP (Rule 16, Part E, Schedule III)

Determine net wealth of the firm or AOP.
Allocation amongst partners/members.

Portion of net wealth of firm/AOP	Allocation to partners/ members
a) That portion which is equal to the amount of capital of firm/AOP	Proportion in which capital is contributed by them.
b) Residue	Ratio in which assets will be distributed in the event of dissolution of firm/AOP as per agreement of partnership/AOP. (If no agreement, use profit sharing ratio)

E. Value of life interest (Rule 17, Part F, Schedule III)

Determine average net annual income (ANAI) derived from the life interest during three years ending on the valuation date. Expenses incurred on the collection of such income (subject to a maximum of 5% of average of annual gross income) shall be deducted.
Value of life interest = ANAI x [1 / (P+D) – 1]

Where,

P = Annual premium for a whole life insurance without profit on the life of the tenant for unit sum assured as specified in the Appendix to Schedule III.

D = 6.5/106.5

Time limit for issuance of Notice for re-opening of assessment

Time limit for issuance of notice under section 17(1A), extended up to 16 years, where any net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment. The amendment will take effect from 1st July, 2012.

Penalty

Default	Minimum Rs.	Maximum Rs.	Section
Failure to comply with Notices u/ss. 16(2) and (4)	1,000	25,000	18(1)(b)
Concealment of the particulars of assets or furnishing inaccurate particulars of assets or debts	Tax sought to be evaded	Five times of such tax	18(1)(c)
Refusal to answer any question	500	10,000	18A(1)(a)
Refusal to sign any statement made in course of any proceedings	500	10,000	18A(1)(b)
Omission to attend to give evidence or to produce books of account or documents [summons u/s. 37(1)]	500	10,000	18A(1)(c)
Failure to furnish statement or information on points specified in notice u/s. 38	100 per day	200 per day	18A(2)
Committing default in payment of tax, interest or penalty	Nil	Amount in arrears	32

Rates of Gold and Silver

Valuation Date	Gold (per 10 gms.)(₹)	Silver (per 1 kg.)(₹)
01-04-1981	1,670	2,715
31-03-1982	1,645	2,680
31-03-1983	1,800	3,105
31-03-1984	1,975	3,570
31-03-1985	2,130	3,955
31-03-1986	2,140	4,015
31-03-1987	2,570	4,794
31-03-1988	3,130	6,066
31-03-1989	3,140	6,755
31-03-1990	3,200	6,463
31-03-1991	3,466	6,646
31-03-1992	4,334	8,040
31-03-1993	4,140	5,489
31-03-1994	4,598	7,142
31-03-1995	4,680	6,335
31-03-1996	5,160	7,346
31-03-1997	4,725	7,345
31-03-1998	4,045	8,560
31-03-1999	4,235	7,615
31-03-2000	4,380	7,900
31-03-2001	4,190	7,215
31-03-2002	5,010	7,875
31-03-2003	5,310	7,695
31-03-2004	6,065	11,770
31-03-2005	6,180	10,675
31-03-2006	8,490	17,405
31-03-2007	9,395	19,520
31-03-2008	12,125	23,625
31-03-2009	15,105	22165
31-03-2010	16,320	27255
31-03-2011	20,775	56,900
31-03-2012	25,813	56,200
31-03-2013	29,605	54,775
31-03-2014	28,511	42,838
31-03-2015	26,220	37,210

BIBLIOGRAPHY

1. Dr. Vinod K. Singhania and Dr. Kapil Singhania, Taxmann’s Direct Taxes Law and Practice, Taxmann Publications (P.) Ltd, New Delhi, 48^th Edition 2012-2013, May 2012

2. Dr. Girish Ahuja and Dr. Ravi Gupta, Bharat’s Professional Approach to Direct Taxes Law and Practice including Tax Planning, 26^th Edition 2012-2013, June 2012

3. https://indiankanoon.org

4. http://judis.nic.in/supremecourt/chejudis.asp

5. http://judis.nic.in/judis_kerala/content.asp

6. https://en.wikipedia.org/wiki/Main_Page

NOTES

[i] Subs. by Act 20 of 1974, sec. 14(1)(a), for “any annuity” (w.e.f. 1-4-1975)

[ii] Subs. by Act 44 of 1980, sec. 36, for the proviso (w.e.f. 1-4-1981). Earlier the proviso was added by Act 19 of 1970, sec. 26(a) (w.r.e.f. 1-4-1969) and was amended by Act 20 of 1974, sec. 14(1)(b) (w.r.e.f. 1-4-1974)

[iii] Subs. by Act 14 of 1982, sec. 33(a), for “or any subsequent assessment year” (w.e.f. 1-4-1983)

[iv] Ins. by Act 14 of 1982, sec. 33(b) (w.e.f. 1-4-1983)

[v] Subs. by Act 14 of 1982, sec. 33(b), for “Provided further that” (w.e.f. 1-4-1983)

[vi] Subs. by Act 20 of 1974, sec. 14(1)(b), for “items (i) to (iii)” (w.e.f. 1-4-1975)

[vii] Subs. by Act 20 of 1974, sec. 14(1)(b), for “items (i) to (v)” (w.e.f. 1-4-1975)

[viii] Ins. by Act 18 of 1922, sec. 89(b) (w.e.f. 1-4-1993)

[ix] Subs. by Act 21 of 1998, sec. 67 (b) (i), for sub-clause (i) (w.e.f. 1-4-1999). Earlier sub-clause (i) was substituted by Act 33 of 1996, sec. 56 (w.e.f. 1-4-1997)

[x] Explanation re-numbered as Explanation 1 by Act 27 of 1999, sec. 91 (w.e.f. 1-4-2000)

[xi] Ins. by Act 27 of 1999, sec. 91 (w.e.f. 1-4-2000)

[xii] See Notification No. S.O. 871(E), dated 9th November, 1993

[xiii] Subs. by Act 21 of 1998, sec. 67(b)(ii), for certain words (w.e.f. 1-4-1999). Earlier those words were inserted by Act 38 of 1993, sec. 38 (w.e.f. 1-4-1994) and were amended by Act 32 of 1994, sec. 51(i) (w.e.f. 1-4-1995)

[xiv] Subs. by Act 54 of 1963, sec. 5(1), for “Central Board of Revenue constituted under the Central Board of Revenue Act, 1924 (4 of 1924)” (w.e.f. 1-4-1964)

[xv] Clause (g) omitted by Act 4 of 1988, sec. 128(iii) as amended by Act 26 of 1988, sec. 88(e)(iii) (w.e.f. 1-4-1988)

[xvi] Clause (gg) omitted by Act 4 of 1988, sec. 128(iii) as amended by Act 26 of 1988, sec. 88(e)(iii) (w.e.f. 1-4-1988). Earlier clause (gg) was inserted by Act 29 of 1977, sec. 39, Sch. V, Pt. II

[xvii] Subs. by Act 4 of 1988, sec. 128(iv), for clause (h) (w.e.f. 1-4-1989). Earlier clause (h) was substituted by Act 11 of 1958, sec. 14(a) (w.e.f. 28-4-1958) and was amended by Act 20 of 1967, sec. 34(a) (w.e.f. 1-4-1967) and was substituted by Act 25 of 1975, sec. 25 (w.r.e.f. 1-4-1975)

[xviii] Ins. by Act 16 of 1972, sec. 44(a) (w.e.f. 1-4-1957)

[xix] Clause (hb) omitted by Act 4 of 1988, sec. 128 (iii) as amended by Act 26 of 1988, sec. 88(e)(iii) (w.e.f. 1-4-1988). Earlier clause (ha) was re-lettered as clause (hb) by Act 16 of 1972, sec. 44(b) (w.e.f. 1-4-1965)

[xx] Ins. by Act 3 of 1963, sec. 3 and Sch. (w.e.f. 1-4-1963)

[xxi] Subs. by Act 46 of 1964, sec. 2(d), for clause (j) (w.e.f. 1-4-1965)

[xxii] Clause (k) omitted by Act 4 of 1988, sec. 128(iii) as amended by Act 26 of 1988, sec. 88(e)(iii) (w.e.f. 1-4-1988)

[xxiii] Subs. by Finance Act, 2007, sec. 83(b), for clause (ka) (w.r.e.f. 25-8-1976). Earlier clause (ka) was inserted by Act 3 of 1963, sec. 3 and Sch. (w.e.f. 1-4-1963). Clause (ka), before substitution by Finance Act, 2007, stood as under:

[xxiv] Clauses (l) and (la) omitted by Act 4 of 1988, sec. 128(iii) as amended by Act 26 of 1988

[xxv] Ins. by Act 46 of 1964, sec. 2(e) (w.e.f. 1-4-1965)

[xxvi] Ins. by Act 4 of 1988, sec. 128(v) (w.e.f. 1-4-1989)

[xxvii] Ins. by Act 49 of 2005, sec. 30 and Sch.—Part II-1

[xxviii] Subs. by Act 18 of 1992, sec. 89(c), for certain words (w.e.f. 1-4-1993). Earlier clause (m) was amended by Act 12 of 1959, sec. 20 (w.e.f. 28-12-1959), by Act 46 of 1964, sec. 2(f) (w.e.f.

[xxix] Subs. by Act 4 of 1988, sec. 127, for “Wealth-tax Officer” (w.e.f. 1-4-1988)

[xxx] Ins. by Act 46 of 1964, sec. 2(g) (w.e.f. 1-4-1965)

[xxxi] The words "(1) Subject to the provisions of sub-section (1A)", omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xxxii] Substituted for the words "Wealth-tax shall not be payable by an assessee in respect of the following assets" by the Finance Act, 1970, w.e.f. 1st. April, 1971

[xxxiii] Proviso re-enacted by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st. April, 1989

[xxxiv] The words, brackets and numbers "clause (22) or clause (22A) or" omitted by the Finance (No.2) Act, 1998, w.e.f. 1st. April, 1999

[xxxv] Substituted for the words "any one building in the occupation of a Ruler declared by the Central Government as his official residence" by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.r.e.f. 28th. December, 1971

[xxxvi] Clauses (iv) to (xiii) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xxxvii] Clause renumbered by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xxxviii] Inserted by the Rulers of Indian States (Abolition of Privileges) Act, 1972, w.e.f. 9th. September, 1972

[xxxix] Earlier clauses (xv) to (xxxii) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xl] Inserted by the Finance Act, 1976, w.e.f. 1st. April, 1977

[xli] Renumbered by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xlii] Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st. April, 1977

[xliii] Inserted by the Finance Act, 1986, w.e.f. 1st. April, 1987

[xliv] Inserted by the Finance Act, 1986, w.r.e.f. 1st. April, 1977

[xlv] Inserted by the Finance Act, 1986, w.r.e.f. 1st. April, 1977

[xlvi] Earlier clause (vi) substituted by the Finance (No. 2) Act, 1998, w.e.f. 1st. April, 1999

[xlvii] Earlier clause (xxxiv) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xlviii] Earlier sub-section (1A) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[xlix] Earlier sub-section (2) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[l] Earlier sub-section (3) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[li] Earlier sub-section (4) omitted by the Finance Act, 1992, w.e.f. 1st. April, 1993

[lii] Inserted by the Finance Act, 1958, w.r.e.f. 1st.April, 1957

[liii] Substituted for the words, figure and brackets " sub-section (3) of section 4" by the Wealth-tax (Amendment) Act, 1964, w.e.f. 1st. April, 1965

[liv] Inserted by the Finance Act, 1982, w.e.f. 1st. April, 1982

[lv] Substituted for the words, figure and brackets "clause (4A)" by the Direct Tax Laws (Amendment) Act, 1989, w.e.f. 1st. April, 1989

Thursday, December 20, 2018

ASSETS, DEEMED ASSETS AND EXEMPTED ASSETS UNDER WEALTH TAX

02. Net wealth to include certain assets

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