Exempt Assets1. Property held under Trust. S.5(i)-Any property held under a trust for public purpose ofcharitable or religious nature exempt from tax.Business Assets-1.Not taxable, if business of printing and publication ofbooks is for public religious purposes.
• 2. Not taxable, if business is wholly forcharitable purposes and the work is mainlycarried on by beneficiaries.• 3. Not taxable, if business carried on by aninstitution referred to in S.10(23B) or10(23C).
• 2. Coparcenary interest in a H.U.F. S.5(ii)• Such interest of a member totally exempt.• 3. Residential Building of a former ruler.S.5(iii)• The value of one building used for residence byformer ruler of a princely state totally exempt.• Some Decisions• Where some buildings in the palace let out bythe former ruler, value of buildings occupied forself residence only exempt.• Mohd. Ali Khan v. CWT 224 ITR 672 (S.C.)
• An ex ruler who has opted for exemptionof one house u/s. 5(iii) cannot claimexemption u/s. 5(vi).• Gaj Singh v. Settlement Commission 113Taxman 32 (S.C.)
• 4.Former Ruler’s Jewellery. S.5(iv).• Jewellery in possession of a former rulerof a princely state recognised by the Govt.as heirloom before 1stApril, 1957 or by theC.B.D.T. thereafter totally exempt fromtax.
• Conditions to be satisfied,if jewellery recognised by theGovt. before 1stApr.,1957.• 1. Jewellery shall not be removed out of India except fora period and purpose approved by the Board.• 2. Jewellery to be kept substantially in the same shape.• 3. Reasonable facilities to be provided to officer of theGovt. or authorised by the Board to inspect the jewellerywhen necessary.• Conditions do not apply if jewellery is recognised by theBoard on or after 1stApr., 1957.
• If any of the above conditions not fulfilled,recognition can be withdrawn by the Boardfor reason to be recorded in writing by theBoard with retrospective effect from 9thSeptember, 1972.• Wealth tax payable by the former ruler forall A.Y.s falling after 9thSept. 1972 subjectto the following.
• 1. F. M. V. on the date of withdrawal ofrecognition deemed to be the F. M. V. ofthe jewellery on each Valuation Daterelevant for the above referred A. Y.s.• 2. Total Wealth tax payable not to exceed50% of its F. M. V. on Valuation Daterelevant to A. Y. in which recognition iswithdrawn.
• 5.Assets belonging to Indian ex-patriates.S.5(v).• Conditions• 1. Exemption is available to a citizen of India ora person of Indian origin.• 2. Such person was ordinarily residing in foreigncountry.• 3. Such person has returned to India with theintension of permanently residing in India.
• The following not taxable for 7 A. Y.s from the A.Y. following the date of his return to India.• 1. Money brought to India.• 2. Value of assets brought to India.• 3. Money in N. R. E. A/C in any bank in India onthe date of his return.• 4. Assets acquired out of (1) & (3) above withinone year before the date of his return or at anytime thereafter.
• 6. One House or a part of a house. S.5(vi).• The following exempt in case of an individualand H. U. F..• a. A house or a part of a house, or• b. A plot of land not exceeding 500 Sq. mtrs. inarea.• Exemption available for both S. O. & let outhouse.• In case of co-ownership, each co-owner entitledto exemption.
• A house means a dwelling place. If aperson owns a part of a house, exemptionallowed to a part of the house.• If there are more than one dwelling unit inthe house, each unit is not a separatehouse. The entire house entitled toexemption.• Shiv Narayan Chaudhary v. CWT 108 ITR104 (All).
Debts Owed S. 2(m)• Debt means liability to pay presently or in future. Debtmeans an existing liability to pay and not a contingentliability.• Judgements.• 1. An ascertained liability constitutes deductible debt.• CWT v Associated Cement Co. Ltd. 128 ITR 626(Bom.)• 2. Existing liability quantifiable on future date deductible.• V. Chandramani Pattamaha Devi v. CWT 64 ITR 147(AP)• 3. Liability acrued but not quantified also a deductibledebt. Devi Raj Chawla v. CWT TLR 1444 (All).
• Wealth tax liability is not deductible.-• Circular No. 663 dated 28thSeptember,1993 as it is not debt incurredin relation to an asset taxable under theWealth tax Act.
Valuation of Assets.• 1. Valuation of Building. Part B ofSchedule III• Building or land appurtenant thereto.• Step 1-• Find out Gross Maintainable Rent• a. Annual rent received or receivable orannual value assessed by local authoritywhichever is higher, if property is let out or
• b. Annual rent assessed by local authorityor annual rent reasonably expected by theowner, if property is outside the jurisdictionof a local authority.• If property was vacant for a part of theyear, actual rent should be grossed up toarrive at Annual Rent.
• Adjustments in actual rent-• 1. If property is let out, municipal taxes borne by thetenant, if any, shall be added to actual rent paid/payableby the tenant.• 2. If property is let out and repair expenses are borne bythe tenant, 1/9thof actual rent shall be added to actualrent.• 3. If owner has accepted any deposit other than advancerent for three months or less, actual rent shall beincreased by 15% p.a. on deposit from month to monthexcluding part of a month. If interest is payable by theowner, addition to be made to be limited to interestcalculated above less interest actually paid.
• 4. If owner has received premium forleasing or renewing the lease, thepremium divided by the no. of years leaseshall be added to the actual rent.• 5. If the owner derives any benefit orperquisite as consideration for leasing theproperty or modifying terms of lease, thevalue of such benefit or perquisite shall beadded to actual rent.
• If tenant has made default in payment ofrent, gross maintainable rent to bedetermined on the basis of rent as peragreement.• CIT v. Bhagwati Ammal 262 ITR 622(Mad.)
• Step 2-• Find Net Maintainable Rent• Deduct the following from G. M. R.-• a. Taxes levied by local authority on theproperty on accrual basis whether or notborne by the tenant.• b. 15% of G. M. R.
• Step 3-• Capitalise N. M. R.-• Multiply N. M. R.• A. by 12.5, if building is on Freehold Land.• B. by 10, if building is on Leasehold Land andunexpired period of lease is 50 years or more onthe Valuation Date.• C. by 8, if building is on Leasehold Land andunexpired period of lease is less than 50 yearson the Valuation Date.
• Property acquired/constructed after 31stMarch,1974-• The following Rule will apply.• The higher of the capitalised value asabove or the original cost ofacquisition/construction plus cost ofimprovement shall be taken.
• Exception-• If the following conditions are fulfilled, costof acquisition/construction shall not betaken in case of any one house property.• A. The property acquired/constructed after31stMarch,1974 is used by the assesseeexclusively for his residence throughout 12months preceding the Valuation Date.
• B. The cost of acquisition/constructiondoes not exceed Rs.50 lakhs, if housesituated in Mumbai, Calcutta, Delhi orChennai (Rs. 25 lakhs, if house situatedanywhere else.)• Step 4-• Add premium, if unbuilt area of the landexceeds the specified area.
• Aggregate Area- Total area of land.• Unbuilt Area- Area of land on which no buildingis constructed.• Specified Area-• Property situated at Mumbai, Calcutta, Delhi orChennai- 60% of Aggregate Area.• Property situated at Agra, Ahmedabad,Allahabad, Amritsar, Bangalore, Bhopal, Cochin,Hyderabad, Indore, Jabalpur, Jamshedpur,Kanpur, Lucknow, Ludhiana, Madurai, Nagpur,
• Patna, Pune, Salem, Sholapur, Srinagar,Surat, Tiruchirapalli, Trivendram,Vadodara or Varanasi- 65% of theAggregate Area.• Property situated at any other place- 70%of the Aggregate Area.
• Premium to be added to capitalised value-• If excess of unbuilt area over specified area is• a. Not >5% of Aggregate Area- NIL• b. 5%>/=10% of Aggregate Area- 20% ofcapitalised value.• c. 10%>/=15% of Aggregate Area- 30% ofcapitalised value.• d. 15%>/=20% of Aggregate Area- 40% ofcapitalised value.• e. 20%> of Aggregate Area- Part-B, Schedule IIInot applicable.
• Step-5-• Deduct Unearned Increment-• If property is built on leasehold land and any partof unearned increase is payable to Govt. or anyauthority at the time of transfer, valuedetermined at step 4 above shall be reduced bythe amount liable to be paid, if the property istransferred on the Valuation Date or 50% of thevalue in step 4 whichever is less.
• When Schedule III, Part B does not apply-• 1. If A. O. with the prior approval of D. C. I. T. isof the opinion that it is not practicable to applyPart B, Schedule III in any case.• 2. Where unbuilt area exceeds the specifiedarea by more than 20% of Aggregate Area.• 3. Where property is built on leasehold land andunexpired period of lease on Valuation Date isnot more than 15 years and lessee does nothave option to renew lease.