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.
(c) A
resident company.
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.
(c) A
non-resident (may be individual or HUF or company).
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;
(c) animals:]
(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;
(c) animals:]
[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;]
[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);]
[(ob)
“regular assessment” means the assessment made under 41 [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 bonds04. 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
|
Exclusion:
Agricultural landLand 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
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,
|
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
|
—
—
|
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, 48th 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, 26th Edition 2012-2013, June
2012
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
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