Wealth-tax Act, 1957(a) Chargeability(b) Computation of Net Wealth(c) Valuation Rules(d) Assessment Procedures, Appeals, etc.
ChargeabilityThe following persons are liable to Wealth-tax -IndividualsH.U.F.sCompanies other than S. 25companies.
ChargeabilityAssessment Year – S. 2(d)- 2013-14Valuation Date - S. 2(a) – 31.03.2013Valuation Date instead of Previous YearWealth to be computed as on the last momentof the Valuation Date.
• India S.2(ka)-• India means the territory of India as referred to inArticle 1 of the Constitution, its territorial waters,seabed and subsoil underlying such waters,continental shelf, exclusive economic zone or anyother maritime zone as referred to in theTerritorial Waters, Continental Shelf, ExclusiveEconomic Zone and other Maritime Zone Act,1976, and the air space above its territory andterritorial waters.
What is Net Wealth? S. 2(m) –Assets [S. 2(ea)] xxxDeemed Assets u/s. 4 xxx----xxxLess : Exempt Assets u/s. 5 xxx----xxxLess : Debts in relation to assetswhich are not exempt xxx----Net Wealth xxx
Incidence of tax S. 6Net Wealth –(A)Assets located in India xLess : Debts in relation to assetslocated in India y(B) Assets located outside India aLess : Debts in relation to assetslocated outside India b
Incidence of TaxIndividuals :R. & O.R. and Citizen of India (x-y)+(a-b)R. & O.R. but not Citizen of India x-yR. but N.O.R. (whether or notCitizen of India) x-yNon-Resident (whether or notCitizen of India) x-y
Incidence of taxH.U.F.R. & O.R. (x-y) + (a-b)R. but N.O.R. x-yNon-Resident x-yCompanyResident (x-y) + (a-b)Non-Resident x-y
• Some Decisions-• (1) Law in force on the first day of the AssessmentYear is applicable.• Pramod Kumar Jain v. CWT 58 ITR 161 (Bom)• (2) Method of Accounting is not relevant underthe Wealth tax Act.• Dipit Kumar Basu v. CWT 105 ITR 450 (Cal)• (3) A Hindu deity is an individual• CWT v. B.C. Gupta & Sons Ltd.182 ITR 240(Gau)
• (4) Property of father who dies inestate, devolveson his son in his individual capacity u/s.8 of theHindu Succession Act and does not constituteassets of the son’s H.U.F..• CWT v. Chander Sen 161 ITR 370 (SC)• (5) Widow and minor daughter cannot constituteHUF in respect of property devolving onhusband’s death.• Rukmani Bai Rathor v. CWT 54 ITR 430 (Ori.)
Assets S.2(ea)-Six categories of assets fall within the ambitof Wealth-tax –(1) Guest House, Residential House orCommercial Building S. 2(ea)(i)(a) Any building used for commercial orresidential purpose or as guest house orland attached to such building.
Assets S.2(ea) – (contd.)(b) A farm house situated within 25 kms. fromthe local limits of a municipality or acantonment board.
Assets -However, the following buildings are not regardedas assets –(i) A residential house, if the following conditionsare satisfied –(a) it is meant exclusively for residential purposes.(b) it is allotted by a company to an employee orofficer or a director in whole-time employment.
Assets – (contd.)(c) The gross annual salary of such person isless than Rs. 5,00,000 – Gross AnnualSalary not defined – It would includesalary, bonus, commission and all taxable orexempt allowances excluding perquisites.
Assets – (contd.)( ii) A house held as stock in trade(iii) A house used for own business or profession.It is not necessary to use the house throughout the P.Y.. Itis enough if it is earmarked for use for business purpose.Some Decisions-(1) If a place is used for conducting meetings, it can betreated as property used for business.Tracstar Investment P. Ltd. v. CWT 1 SOT 117(Mum).
(2) If property owned by an individual is used for thebusiness of the firm in which he is a partner, it is deemedto have been used by him for the purpose of his business.CIT v. K.M. Jagannathan 180 ITR 191(Mad.)Contrary view-CIT v. K.N.Guruswamy 146 ITR 34 (Kar.)(3) A residential house used for business purposes is notcovered by this exception as a residential house is coveredby the specific provision of S.2(ea)(i)(1). S.2(ea)(i)(3)applies to a house other than a residential house used forbusiness purposes.• Floatglass India Ltd. V. CWT 89 ITD 542 (Mum)
(iv) A residential property let out for atleast 300 days in thePrevious Year.(v) A commercial complex2. Motor Car S. 2(ea)(ii) –Any motor car other than a motor car used in the business ofrunning it on hire or held as stock in trade.3. Jewellery, bullion, utensils of gold, silver, etc. other thanthose held as stock in trade. S. 2(ea)(iii).Gold Deposit Bonds issued under the Gold Deposit Scheme,1999 by the Central Govt. – not assets.Assets – (contd.)
Assets – (contd.)4. Yachts, boats and aircrafts other than thoseused for commercial purposes S. 2(ea)(iv).Some Judgements –It is not necessary that the aircraft should be usedas air taxi to satisfy the test of commercialpurpose.Amalgamated Electricity Co. Ltd. v. State ofRajasthan AIR 1983 Raj. 154.
Assets – (contd.)Use of helicopter or air craft for the purposeof an assessee’s business is use forcommercial purpose.Garware Wall Ropes Ltd. v. C.I.T. 89 ITD221 (Mum.)
(5) Urban Land S.2(ea)(v)-• Land situated within the local limits of amunicipality having a population of not lessthan 10,000.• Land situated within 8 kms. from the locallimits of any municipality as the CentralGovernment may specify.
Exceptions (Urban Land nottreated as asset)(1) Land on which construction of a building isnot permissible under any law in the area inwhich such land is situated.(2) Land on which building has been constructedwith the approval of the appropriate authority.
Exceptions (Urban Land nottreated as asset) (contd.)(3) Any unused land held by the assessee forindustrial purposes for a period of two yearsfrom the date of its acquisition by him.(4) Any land held by the assessee as stock in tradefor a period of 10 years from the date of itsacquisition by him.
Judgement –Once construction starts on urban land, itlooses its character of urban land and will notfall within the meaning of ‘asset’.Mathew L. Chakola v. CWT 9 SOT 617(Cochin).
(6) Cash in Hand S.2(ea)(vi)-In the case of an individual or H.U.F., cash inhand on the last moment of the valuation date inexcess of Rs. 50,000.In the case of a company, any amount not recordedin books of account.The above assets must be owned by the assesseefor being included in his/its Net Wealth.
Deemed Assets S. 4 -(1) Assets transferred by an individual tohis/her spouse S.4(1)(a)(i) –If an asset is transferred by an individual after31stMarch, 1956 to his/her spouse directly orindirectly, otherwise than for adequateconsideration or in connection with anagreement to live apart, the asset shall beincluded in the net wealth of the transferor.
If the following two conditions are satisfied, theasset so transferred shall not be included in thenet wealth of the transferor –(a) The asset was transferred to spouse duringthe accounting year relevant to gift tax A.Y.s1964-65 to 1971-72.(b) The assets transferred were chargeable toGift tax or was exempt from Gift tax u/s. 5 ofthe Gift-tax Act.
Some Judgements -(a) Adequacy of consideration should bemeasurable with money or money’s worth.CWT v. Khan Saheb Dost Mohd. Alladin 91ITR 179 (A.P.)(b) Husband-wife relationship should subsist bothon the date of transfer and on valuation date.CWT v. Khan Saheb Dost Mohd. Alladin 91ITR 179 (A.P.)
Some Judgements (contd.)(c) Where husband gifted money to his wife whoacquired a house with the gifted money, value ofthe house on the Valuation Date shall beincluded in the wealth of the husband.Vaidya Subramaniam v. CWT 108 ITR 538(Mad.)CWT v. Kishan Lal Bubna 204 ITR 600 (SC)
Some Judgements (contd.)(d) If property transferred to spouse is an asseton the Valuation Date although it was notan asset on the date of transfer, such assetshall be included in the wealth of thetransferor.M. G. Kallakulam v. C.I.T. 115 ITR 16(Ker.)
Some Judgements (contd.)(e) If an intimate connection is establishedbetween the two transactions, they will fallwithin S.4, even though they may be primafacie separate transactions, e.g. cross gifts.S. C. Vashnet v. CWT 1976 TLR 261 (Pat.)
Some Judgements (contd.)(f) Accretions to the assets transferred do notfall within the scope of S.4.CWT v. T. Saraswathi Achi 4 Taxman 356(Mad.)
(2)Assets held by a minor childS.4(1)(a)(ii) -Value of assets held by a minor child (includingstep/adopted child) other than a marrieddaughter on the Valuation Date shall beincluded in the net wealth of the parent whosenet wealth excluding the assets of the minorchild is greater.
If the marriage of parents does not ‘subsist’, netwealth of the minor child to be included in the netwealth of the parent who maintains the childduring the P. Y.Once such assets included in the Net Wealth of aparent, such assets not to be included in the NetWealth of the other parent unless the AssessingOfficer is satisfied that it is necessary to do so.That parent shall be given opportunity of beingheard.
Exceptions :Net Wealth of minor not to be clubbed in thefollowing cases –(a) Assets acquired by the minor out of(i) income earned on account of manual workdone by him and
(ii) from any activity involving applicationof his skill, talent or specialised knowledgeand experience.(b) assets of a minor child suffering from anydisability specified in S. 80U.Clubbing provisions not to apply, if theminor has become major on the ValuationDate.
(3)Assets transferred to a person or anA.O.P. S. 4(1)(a)(iii) -Where an asset is transferred by an individual toany person or an A.O.P. after 31stMarch,’56 forthe immediate or deferred benefit by himself orspouse for inadequate consideration, it shall beincluded in the net wealth of the transferor.Exception –Exception in the case of an individual u/s.4(1)(a)(i)applied u/s. 4(1)(a)(iii).
(4) Assets transferred under RevocableTransfers S. 4(1)(a)(iv)-Any asset transferred under a revocable transfer after31stMarch, 1956 by an individual to a person or anA.O.P. shall be included in the Net Wealth of thetransferor.Revocable Transfer –(a) If the transfer is revocable within 6 years or duringthe lifetime of the beneficiary or
(b) if the transferor derives any benefit,directly or indirectly, from the transferredasset, or(c) if the transferor has a right to retransfer,directly or indirectly, the whole or any partof the assets or income from the assets sotransferred or
(d) If the transferor has the right to reassumepower, directly or indirectly, over thewhole or any part of the asset or the incomearising from the asset.Exceptions –Exception u/s. 4(1)(a)(i) apply.
(5) Assets transferred to son’s wife S. 4(1)(a)(v) -Any asset transferred by an individual after31stMay, 1973, directly or indirectly, tohis/her son’s wife without adequateconsideration shall be included in the NetWealth of the transferor.
(6) Assets transferred for the benefit ofson’s wife S. 4(1)(a)(vi) -Any asset transferred by an individual after31stMay, 1973, directly or indirectly, to aperson or an A.O.P. for the immediate ordeferred benefit of son’s wife shall beincluded in the Net Wealth of the transferor.
(7) Interest of Partner – S. 4(1)(b) -The value of interest of a partner or a member ofa firm or A.O.P. shall be included in the NetWealth of the partner or member.Interest to be determined as per Schedule – IIIto the Wealth-tax Act.Interest of a minor pertner to be included in theNet Wealth of the parent as per S. 4(1)(a)(ii).
(8) Conversion of self acquired propertyinto joint family property – S.4(1A) -If a member of H.U.F. impresses his propertywith the character of a property belonging to thefamily or throws it into common stock of thefamily after 31stDecember, 1969, the value ofthe property shall be included in the Net Wealthof the member.After partition of H.U.F., that part of suchproperty received by the spouse of the transferorshall be included in his Net Wealth.
(9) Gifts by book entries S. 4(5A) -Asset gifted by book entry shall be includedin the Net Wealth of the transferor unless heproves to the satisfaction of the W.T.O. thatthe money had actually been delivered tothe donee at the time, the entries weremade.
(10) Impartible Estate S. 4(6) –Holder of impartible estate shall be deemedto be the owner of all the properties in theestate.
(11) Property held by a member of ahousing society S. 4(7) -A member of a co-op. society who isallotted a building or part thereof shall bedeemed to be the owner of such building.
(12) Property held in part performance of acontract S. 4(8) -A person who is allowed to take possession ofan immovable property in part performance of acontract referred to in S. 53A of the Transfer ofProperty Act shall be deemed to be the ownerof the property.