a bird’s eye view of wealth tax act,1957 by: ca sanjay agarwal assisted by: ca jyoti kaur email...
TRANSCRIPT
A BIRD’S EYE VIEW OF WEALTH TAX ACT,1957
By: CA Sanjay AgarwalAssisted by: CA Jyoti Kaur
Email id: [email protected]
Recent Developments….
Ist Amendment to the Wealth‐tax Rules, 1957….
The Central Board of Direct Taxes (‘CBDT’) has notified • Form • Manner
of filing return of net wealthby notifying the Wealth tax (1‐ st Amendment) Rules, 2014 vide Notification No. 32 dated 23/06/2014.
Note: The powers to amend the Wealth-tax Rules, 1957 have been conferred in clause (ba) & clause (bb) of sub‐section (2) of section 46 r.w.s. 14A & 14B of the Wealth‐tax Act, 1957.
3
Form of return of net wealth…..
4
Individuals, HUF and Companies shall file the wealth tax return in following Forms:
In Form BA for A.Y. 2013 14‐
In Form BB for A. Y. 2014 15 & onwards‐
Notification applicable where ‘Net Wealth’ exceeds the limit of Rs. 30 lakh as specified in Section 14 of wealth Tax Act, 1957.
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1)Every person, if his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax, shall, on or before the due date, furnish a return of his net wealth or the net wealth of such other person as on that valuation date in the prescribed form and verified in the prescribed manner setting forth particulars of such net wealth and such other particulars as may be prescribed.
Explanation.—In this sub-section, "due date" in relation to an assessee under this Act shall be the same date as that applicable to an assessee under the Income-tax Act under the Explanation to sub-section (1) of section 139 of the Income-tax Act.
2)Notwithstanding anything contained in any other provision of this Act, a return of net wealth which shows the net wealth below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished :
Provided that this sub-section shall not apply to a return furnished in response to a notice under section 17.
Section 14 - Return of wealth…
E-Filing of Wealth Tax Return for A.Y. 2014-15 & any other subsequent A.Y. as per the Notification No. 32 dated 23/06/2014.....
Section 44AB of the Income Tax Act, 1961
Applicable Not Applicable
Individual/ HUF/ Company Individual/ HUF Company
Shall file return electronically under digital signature
Shall file return electronically under digital signature
E-File under digital
signatureIn Paper form
Option
available only for AY 2014-15.
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Form-BB 7
Applicable for A. Y. 2014‐15 & onwards
Form- BB…..8
Form- BB…..9
Form- BB…..10
Form- BB…..11
Form- BB…..12
Form- BB…..13
Discussed later
Form- BB…..14
Form- BB…..15
Form- BB…..16
Form- BB…..17
Form- BB…..18
Note 1: OPR;
Form- BB…..19
Form- BB…..20
Form- BB…..21
Schedule OPR - Additional information regarding other assets -Form BB- ….
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*The new form makes it mandatory to file information regarding the properties held by the individual/ HUF even not liable to wealth tax.
Individual or HUF is also required to file the following information regarding All properties other than
i. assets referred to in Section 2(ea) and liable for wealth tax;
ii. assets claimed as exempt u/s 5;
iii. assets excluded u/s 6; or
iv. assets being part of business or profession which is subject to
audit u/s 44AB of the Income Tax Act, 1961 (43 of 1961)
*Note: Clarification is required in respect of the above.
Steps for e-Filing of Form BB
23
Steps for e-Filing…..
24
Steps for e-Filing…..
FORMBB_ AY201415_ PR1
25
Steps for e-Filing…..26
Steps for e-Filing…..27
Insertion of Section 14A & 14B Amendment to section 46 (2) Amendment in meaning of Urban
land in Section 2(ea)
Amendments by Finance Act, 201328
Power of Board to dispense with furnishing documents, etc., with return of wealth and Filing of return in electronic form - section 14A and 14B of Wealth Tax Act [w.e.f. 1st June, 2013]29
14A. Power of Board to dispense with furnishing documents, etc., with return of wealthThe Board may make rules providing for a class or classes of persons who may not be required to furnish documents, statements, receipts, certificates, audit reports, reports of registered valuer or any other documents, which are otherwise under any other provisions of this Act, except section 14B, required to be furnished, along with the return but on demand to be produced before the Assessing Officer.
14B. Filing of return in electronic formThe Board may make rules providing for—(a) the class or classes of persons who shall be required to furnish the return in electronic form;(b) the form and the manner in which the return in electronic form may be furnished;(c) the documents, statements, receipts, certificates, audit reports, reports of registered valuer or any other documents which may not be furnished along with the return in electronic form but shall be produced before the Assessing Officer on demand;(d) the computer resource or the electronic record to which the return in electronic form may be transmitted.
Amendment in section 46 (2) of Wealth Tax Act. [w.e.f. 1st June, 2013]
30
Section 46- Power to make rules
(2)(ba) the documents, statements, receipts, certificates, audit reports, reports of registered valuer or any other documents which may not be furnished along with the return but shall be produced before the Assessing Officer on demand under section 14A.
(bb) the class or classes of persons who shall be required to furnish the return in electronic form; the form and the manner in which the return in electronic form may be furnished; the documents, statements, receipts, certificates, audit reports, reports of registered valuer or any other documents which may not be furnished along with the return in electronic form and the computer resource or electronic record to which such return may be transmitted under section 14B.
Amendment in meaning of Urban land in Section 2(ea)[w.e.f. 1st April, 2014]
31
Clause (b) of Explanation to Section 2(ea)
"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.Note: Words "according to the last preceding census of which the relevant figures have been published before the first day of the previous year" have been omitted by the Finance Act, 2013, w.e.f. 1-4-2014
Amendment in meaning of Urban land in Section 2(ea)…..32
(ii) in any area within the distance, measured aerially,—I. not being more than 2 Kms, from the local limits of any
municipality or cantonment board referred to in item (a) and which has a population of more than 10,000 but not exceeding 1 lakh; or
II. not being more than 6 Kms, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 1 lakh but not exceeding 10 lakh; or
III. not being more than 8 Kms, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than 10 lakh.
Contd….
Explanation- For the purposes of this sub-clause, "population" means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;
33
but does not include land classified as agricultural land in the records of the Government and used for agricultural purposes or 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.
Substituted for "but does not include land on which construction of a building" by the Finance Act, 2013, w.r.e.f. 1-4-1993.
Amendment in meaning of Urban land in Section 2(ea)…..
Contd….
W.e.f. 01-04-2014, Distance to be measured aerially……
Also referred as “As the crow flies” i.e. the
shortest distance between two points.
This is a way to describe the distance between
two locations without considering all the variable
factors i.e. roads, mountains, etc.
34
Relevant Sections of Wealth Tax Act, 1957
35
Section
Brief
2 Definitions
3 Charge of wealth-tax
4 Net wealth to include certain assets
5 Exemptions in respect of certain assets
6 Exclusion of assets and debts outside India
7 Value of assets, how to be determined
14 Return of wealth
15Return after due date and amendment of
return
Relevant Sections of Wealth Tax Act, 1957
36
Section
Brief
15A Return by whom to be signed
16 Assessment
16A Reference to Valuation Officer
17 Wealth escaping assessment
17ATime limit for completion of assessment and
reassessment
17BInterest for defaults in furnishing return of net
wealth
18Penalty for failure to furnish returns, to comply with notices and concealment of assets, etc.
18APenalty for failure to answer questions, sign state ments, furnish information, allow inspection, etc.
18B Power to reduce or waive penalty in certain cases
Contd….
Relevant Sections of Wealth Tax Act, 1957Sectio
nBrief
18BA Power of Commissioner to grant immunity from penalty
18CProcedure when assessee claims identical question of law is pending before High Court or Supreme Court
19 Tax of deceased person payable by legal representative
19A Assessment in the case of executors
20 Assessment after partition of a HUF
20A Assessment after partial partition of a HUF
21Assessment when assets are held by courts of wards, administrators-general, etc.
21AAssessment in cases of diversion of property, or of income from property, held under trust for public charitable or religious purposes
21AAAssessment when assets are held by certain associ ations of persons
22 Assessment of persons residing outside India
Contd….
Relevant Schedules of Wealth Tax Act, 1957
Schedule Brief
Schedule I Rates of Wealth-tax
Schedule IIIRules for determining the value
of assets
38
The Wealth Tax Act extends to whole of India and came into force on 1st
April 1957.
Individual Company HUF AOP chargeable u/s
21A Wealth Tax Act
Company registered u/s 25
Social Club Mutual Fund u/s 10(23D) of the Income Tax Act, 1961
Co-operative society Political Parties
Applicable to Not Applicable
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Basis of Computation
40
S. No. PERSON BASIS
1 Individual u/s 3
a) Legal heirs of an individual
Nationality &
residential status
b) Holder of an impartible estate.
c) Hindu deities
d) Trustees of a trust who are liable u/s 21A Wealth Tax Act
e) Trade unions
2 HUF & Company Residential status
Taxability of Assets located outside India & in India in the hands of………….
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S. No.
Citizenship / Residential
Status
Asset located Debts Located
In India
Outside India
In India Outside India
1.Individual Indian national and HUF
a. R & OR Taxable Taxable Deductible Deductible
b. R but not OR Taxable Not Taxable Deductible
Not Deductible
c. NR & OR Taxable Not Taxable Deductible
Not Deductible
2.Individual foreign national
Taxable Not Taxable Deductible
Not Deductible
3. a.
Resident Company
Taxable Taxable Deductible Deductible
b.
Non-resident Company
Taxable Not Taxable Deductible
Not Deductible
Section 2(q) - “Valuation date”
“In relation to any year for which an assessment
is to be made under this Act, means the last day of the
previous year as defined in Sec. 3 of the Income-tax
Act, if an assessment were to be made under that Act
for that year.
Definitions42
Section 2 (m) - “Net Wealth" • 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 on the valuation date which have been incurred in relation to the said assets.
Definitions
In Brief :Net Wealth = Value of all the taxable assets
Less: Value of all exempted assets u/s 5 Less: Value of all the debts incurred in
relation to said assets u/s 2(m)
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Assets covered u/s 2(ea) of Wealth Tax Act, 1957
44
Assests
Any Building or
land appurtenant thereto
Cars
Jewellery, bullion,
Gold/Silver utensils
etc
Yachts, boats & aircrafts
Urban land
Cash in hand
Section 2(ea)(i) - Any Building or land appurtenant thereto
45
Any Building or land appurtenant thereto, whether used for:-
Residential purposes Commercial purpose Maintaining a guest house Otherwise including a farm house situated within 25
kilometres from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board.
46
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 5 lakhs. [10 lakhs as amended w.e.f. 1st April, 2013]
2) any house for residential or commercial purpose which forms part of stock-in-trade;
3) any house occupied by the assessee for his business or profession.
4) any residential property let-out for a minimum period of 300 days in the P.Y.
5) any property in the nature of commercial establishments or complexes.
Section 2(ea)(i) - Any Building or land appurtenant thereto……
Contd….
Section 2(ea)(ii) - Motor cars
47
All motor cars whether Indian or importedExcept other than those used by the
assessee in the business of running
them on hire or as stock-in-trade.
Section 2(ea)(iii) - Jewellery, bullion etc.
48
Jewellery, bullion & furniture, utensils or any other article made wholly or partly of gold, silver, platinum or any other precious metals or any alloy containing one or more of such precious metals but not include stock in trade.
Note: “Jewellery” not include Gold deposit Bonds under Gold deposit scheme, 1999 notified by Central Government.
Section 2(ea)(iv) - Yachts, boats and aircrafts
49
Yachts, boats and aircrafts but Not to include those used
for commercial purposes Commercial purpose
includes stock in trade.
Section 2(ea)(v) - Urban Land (Vacant land)
50
As defined in Clause (b) of explanation to Section 2(ea)
[already discussed]
Not include :o Land classified as agricultural land in the records of the
Government and used for agricultural purposes or land on which construction of a building in not permissible [as amended by Finance Act, 2013 w.r.e.f 01-04-1993]
o Land occupied by building constructed with approval of appropriate authority.
o Unused land for industrial purpose for 2 years from acquisition.
o Held as stock in trade for 10 yrs from acquisition.
Section 2(ea)(vi) - Cash in hand51
In case of
Individual: In excess of Rs.
50,000/-
Others: Not recorded in
books (found in search &
seizure)
Note: Balance in bank and cheque in hand not an asset
52
If the land is adjacent to a commercial building & useful to it, then it is not taxable under Wealth Tax. [CWT vs. Industrial Cables (India) Ltd. (2013) 38 taxmann.com 126 (Punjab & Haryana)]
On receiving rent from leased out part of a manufacturing unit along with plant & machinery for commercial exploitation is not taxable under Wealth Tax Act. [Vyline Glass Work Ltd. vs. Asst. CWTO (2012) 20 taxmann.com 32 (Chennai)]
The assessee in the business of letting out properties. The commercial property used by the assessee in business is not liable to wealth tax. [Shankaranarayana Industries & Plantations (P.) Ltd. Vs. CWT (2010) 194 Taxman 189(Kar.)]
Issue - Section 2(ea) …..
53
Property used in business, would be exempt from wealth-tax. [CWT vs. Sohna Forge (P.) Ltd. [2012] 19 taxmann.com 29 (Delhi)]
Assessee took a property on rent and created a commercial establishment by providing necessary facilities for operating commercial office and further sub-let the property to a company. Held that the said property being a commercial property was outside purview of section 2(ea). [CIT vs Vasumatiben Chhaganlal Virani [2013] 37 taxmann.com 216 (Gujarat)]
Issue - Section 2(ea) …..Contd….
54
Naturell (India) (P.) Ltd. v. Asstt. CWT [2012] 23 taxmann.com 142 (Mum.)
Exception (5) of section 2(ea )(i) clearly expressed the intention of the legislature that any property in the nature of commercial establishments or complexes will not be included in the definition of 'assets' for the purpose of Wealth-tax Act.
The term 'establishments or complexes' is used in the provision in plural and, therefore, suggests that the property which comprising more than one commercial establishment is excluded from the definition of assets. Even otherwise the term 'commercial establishments or complexes' does not mean a mere building structure to be used for commercial purpose.
In the general parlance, commercial establishments mean a building comprising more than one establishment meant for commercial purpose and having the infrastructure and ancillary facilities and establishment, such as, banking, financial institution, supermarket, bar, post office, retail shops, communication facilities, telephone, stationery, security, etc. which are basic requirements for doing business/commercial activities from the said place. It also comprises commission business area and other common facilities for all the occupants of the various and different parts of establishments/complexes. Therefore, the building structure having number of establishments, offices and other commercial establishments coupled with the necessary infrastructure, services and facilities, which are basic requirement of doing the business or trade or commerce from the place, constitutes the same as commercial establishments or complex as stipulated under section 2(ea )(i)(5).
Issue - Section 2(ea) - commercial establishments or complexes ..
Contd….
55
Dy. CWT vs G. Girijapathi Reddy [2014] 42 taxmann.com 507 (Hyderabad - Trib.)
To claim exemption u/s 2(ea)(i)(5), property must be of commercial complex or establishment in nature where business or trade is being carried on and the property must also be used for the purpose of any business or trade as well.
It appears that any property in the nature of commercial
establishments or complexes is not included within the definition of "assets" for the purpose of WT Act.
To claim benefit u/s 2(ea)(i)(5), one must prove and establish that the property claimed to be excluded from the definition of "assets", should be in the nature of commercial establishments or complexes.
In this sub-cl. (5), "complexes or establishments" are qualified with an adjective 'commercial' establishment or complex, therefore, must be of commercial in nature.
'commercial' means something which is used in or related to, a business or a trade.
'establishment' means an organization, building, construction, shop, store, concern or corporation. Thus, commercial establishment means some kind of place or building or shop or store where business or trade is carried on.
Issue - Section 2(ea) - commercial establishments or complexes ..
Contd….
56Dy. CWT vs G. Girijapathi Reddy [2014] 42 taxmann.com 507 (Hyderabad - Trib.)……. "complex" means composite, compounded, multiple, manifold,
multi-complex or something composed of or made of many interrelated parts, as for example, a multi-purpose building.
'commercial complex' mean the commercial multi-purpose building composed and made of inter-relating parts in contrast to a single commercial establishment.
In the case of commercial establishment, it is not necessary that it should be composed of or made of interrelated parts. In the case of a property in the nature of commercial establishment, it is not necessary that it should be also in the nature of commercial complex.
The legislature has excluded both commercial establishment as well as commercial complexes from the definition of "asset" for the purpose of chargeability to tax under the WT Act. Hence, the words 'commercial establishment or complex', as the case may be, appear to be used in the sense must be in the nature of commercial property and the same must also be used for the purpose of trade or business and nothing else.
Issue - Section 2(ea) - commercial establishments or complexes ..
Contd….
57
Assessee was in business of land development, buying agricultural lands and developing them into plots after obtaining non-agricultural permission and approval from local authority. Held that_ the agricultural land held as Stock-in-trade would not be treated as 'asset' within meaning of section 2(ea). [Asstt. CIT vs Vasantrao Sudam Pingle [2013] 37 taxmann.com 126 (Pune - Trib.)]
The assessee was in the business of printing and also in leasing out properties.
Held that_ leasing out the premises owned by a company is part of the company's business and the same has been commercially exploited. Therefore, premises is not includible in the net wealth and the assessee is entitled to exemption. [Kumudum Printers (P.) Ltd. v. CWT [2012] 341 ITR 514 (Mad.)]
Issue - Section 2(ea) …..Contd….
58
Where assessee had given gold to third party from whom it had been seized and being a contraband article had been handed over to Gold Control Authorities, it could not be held to be an asset of assessee on relevant valuation date and its value was not includible in net wealth of assessee; further gold given on trust to third party which was neither recovered by police, nor returned to assessee and whose recovery had become time barred, could not be included in assessee’s wealth. [Meghji Girdhar (HUF) v. CWT [2012] 20 taxmann.com 744 (MP)]
Use of aircraft by the director or any other person for business connection is considered as used for “Commercial purpose” whereas use of the same for personal & non-business purpose is exempt from Wealth Tax. [Jay pee Ventures Ltd. vs. CWT (2013) 37 taxmann.com 348 (Delhi)]
Issue - Section 2(ea) …..Contd….
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Whether the land claimed as exempt by the assessee in return of wealth has complied with all the amended provisions with retrospective effect from 01.04.1993 or not has to be examined by the Assessing Officer in order to allow exemption to the Assessee. [Maninder Singh vs WTO [2014] 44 taxmann.com 23 (Amritsar - Trib.)]
Building in process of construction cannot be understood as a building which has been constructed, in terms of meaning given to ‘urban land’ as defined under section 2(ea)(b). ‘Constructed’ would mean ‘fully constructed’ as understood in common parlance. [CWT v. Giridhar G. Yadalam] [2007] 163 Taxman 372 (KAR.)
Also see CWT vs Sanjay Krishna Hedge [2013] 35 taxmann.com 173 (Calcutta)
Issue - Section 2(ea) …..Contd….
60
Without the permission of converting agricultural land to non-agricultural land as required under Karnataka Land Revenue Act, 1964, that land is not taxable as urban land. [M.R. Raghuram vs. WTO (2013) 38 taxmann.com 54 (Karnataka)]
The period of two years’ tax exemption period qua industrial plots held by assessee would be reckoned from date of acquisition of plots by it and not from date when permission to change land use for industrial purpose was granted. [Rockman Cycle Industries Ltd. vs. CWT [2010] 191 Taxman 399 (Punj. & Har.)]
Issue - Section 2(ea) …..Contd….
61
Where assessee was a partner and firm in which she was partner had received cash incentive/duty drawback as a personal reward for promotion of export of handloom goods given by Handloom Export Promotion Council, such rewarded remittance did not fall within purview of movable or immovable property and could not possibly be termed as ‘assets’ as defined under section 2(e) and, hence, share of assessee in cash incentive/duty drawback due to firm was not includible in her net wealth [In favour of assessee. [CWT v. Smt. Kamal Saroj [2010] 325 ITR 341 (Punj. & Har.)]
Issue - Section 2(ea) …..Contd….
62
Deposit under Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, constitutes an asset under section 2(e) and the same is liable to wealth tax.
Income-tax refund, which is merely claimed but not assessed, has an unascertainable value on date of valuation and cannot form part of taxable asset. [Smt. Smitaben N. Ambani v. CWT [2009] 181 Taxman 233 (Bom.)
Mere right to receive enhanced compensation for acquired land of assessee can not be treated as an asset, includible in wealth of assessee. [CWT v. Nand Lal, Mohan Lal [2010] 191 Taxman 152 (PUNJ. & HAR.)]
Issue - Section 2(ea) …..Contd….
63
Assets
a) Transferred to spouse without adequate consideration (except agreement to live apart)
b) Held by a minor child not being a married daughter.
Exception:
(i) Minor child referred in section 80U.
(ii) Asset acquired from the income earned on manual work and activity involving skill, talent and specialize knowledge.
c) Transferred to person or AOP for the benefit of individual/spouse
d) Transferred otherwise than under irrevocable transfer.
e) Transferred to son’s wife without adequate consideration.
f) Transferred to person or AOP (Trust) for benefit of son’s wife
Section 4 - Deemed Assets
Contd….
64
g) Interest of partner of a firm or member of AOP in assets of a firm/AOP.
Note: the value of interest of minor determined as per schedule III and included in the net wealth of parents.
h) Holder of impartial estate.i) Member of cooperative housing society even if flat is not
registered in his name.j) Immovable property obtained in part performance of contract.k) Member of HUF converts his self acquired property in to the
HUF property otherwise than adequate consideration.
Note: Accretion to the assets transferred to spouse for inadequate consideration is not to be clubbed with the wealth of the transferor.
Section 4 - Deemed Assets…….
65
Asset from which assessee was deriving rental income would be deemed to be 'belonging to' assessee even if legal ownership of said property had not yet been passed to assessee. [H.P. Small Industries & Export Corp. v. CWT[2012] 22 taxmann.com 32 (HP.)
For the purpose of levying tax on the assessee in case of a flat in a co-operative society, two conditions are required to be fulfilled on valuation date–
(i)The assessee must be a member.
(ii)Assessee should be allotted a building or part of building.
When these two conditions get satisfied the assessee becomes liable to pay wealth tax. [Bennett Coleman & Co. Ltd. v. Asst. CWT [2008] 170 Taxman 491 (Bom.)
Land used for internal roads of factory and playground for workers of factory was taxable as wealth of company. [Motwane Manufacturing Co. (P.) Ltd. v. CWT [2009] 222 CTR 462 (Bom).
Issues-Section 4…….
66
i. Property held under a trust for charitable or religious nature in India.
Note: (a) Exemption not available to business assets of the trust.
(b) Gangabai Charities vs CWT [2001] 250 ITR 666 (SC)
Where trust deed provides that trust property can be used for other than charitable or
Religious purposes, exemption shall not available.
ii. The interest in the coparcenaries property of any HUF
Section 5 - Exempted Assets
iii. Any one building in the occupation of a former ruler as his official residence declared by Central Govt.
Case: Mohammad Ali Khan vs CWT [1997] 224 ITR 672 (SC): A palace consist of number of buildings out of which some were actually occupied and few of them were let out. Then the assessee entitled to exemption u/s 5 (iii) only in respect of self occupied house.
iv. Heirloom Jewellery in possession of a ruler subject to condition of CBDT.
Contd….
Section 5 - Exempted Assets
v. Money and assets brought by NRI and value of asset acquired by him out of money sent from abroad and NRE account with in one year from the date of his return to India. Value of assets acquired at any time after return out of that money. Exemption for 7 successive years.
CWT vs K.O. Mathews [2003] 261 ITR 702 (Kerala): Even if the assessee has converted assets, which were brought by him from outside India, into money, and has used that money for acquisition of other asset, the asset which is acquired with the sale consideration of original asset, is also eligible for exemption.
Contd….Section 5 - Exempted Assets
69
Note:
1. Exemption u/s 5(vi) is available for any house, whether residential or commercial or whether let out or self occupied.
2. Exemption u/s 5(vi) can be availed for Guest House or Farm House.
3. Where the assessee is claiming exemption u/s 5(iii) for one house, he shall not be entitled to seek exemption for another house u/s 5(vi). Gaj Singh (2000) 113 Taxman 32 (Supreme Court)
4. Right in film in nature of copyright is exempted from wealth tax. [CWT v. Smt. Krishna Kapoor] [2009] 180 Taxman 190 (Bom.)
vi.One house or part of the house belonging to an individual or an HUF or a plot of land comprising an area of 500 sq mts or less.
Contd….Section 5 - Exempted Assets
70
Where movable and immovable properties of a hotel were transferred to assessee-trust for providing catering education therein and in hands of doner said transfer was not treated as gift on ground that it was only a permission granted for a college, said property could not be treated as assessee's wealth in its wealth tax assessment. [CWT v. Manipal Hotel & Restaurant Management College Trust [2011] 15 taxmann.com 279 (Kar.)]
In respect of valuation of assessee’s interest in immovable properties of firm, a separate deduction u/s 5(1)(iv) was admissible to assessee as a partner to extent of his share in said firm and Appellate Tribunal was justified in holding that firm in which assessee was partner was an industrial undertaking and that assessee was entitled to exemption u/s 5(1)(xxxii). [CWTv.Manna Lal [2010] 2 DTLONLINE 101 (Raj.)
Issues…….
71
Circular no. 663 dated 28.09.1993 : Liability under the Wealth Tax Act is not a debt.
Section 2(m) -Debt
• A debt secured on or incurred in relation to property in respect of which wealth-tax is chargeable, will not cease to be a debt or will not change its character to one of a non-deductible debt merely because it is invested in an instrument which is not chargeable to wealth-tax. [Miss Deanna J. Jeejeebhoy v. WTO [2009] 180 Taxman 586 (Bom.)]
Debt should be outstanding on valuation date.
Debt in relation to assets included in net wealth
72
Wealth tax payable is to be treated as debt and same has to be excluded from wealth for purpose of calculating net wealth. [CWT vs Southern Roadways Ltd. [2013] 37 taxmann.com 322 (Madras)]
Tax liability resulting on account of settlement pertaining to earlier assessment years arrived at with Commissioner during relevant assessment year is allowable as a deduction. [CWT v. Manna Lal Surana] [2009] 184 Taxman 448 (Raj.)
After eight year, addition made in the income of the assessee as undisclosed income is not taxable under Wealth Tax. [Shri Gyan Chand Jain vs. CWT (2013) 31 taxmann.com 178 (Jharkhand)]
Issues-Section 2(m) -Debt
73
Assessee transfer its assets to Charitable Trust And later on become the trustee of that trust. If assessee use that assets for personal use. Then it shall not include in his wealth. [CIT vs. Smt. K. Savithramma [2013] 40 taxmann.com 303 (Karnataka)]
Issues-Section 2(m) -Debt
74
S. No.
Nature of valuation Rule No.
1. Valuation of Immovable property 3 to 8
2. Global valuation of Business 14
3. Valuation of Interest in firm / AOP
15 & 16
4. Valuation of life interest 17
5. Valuation of Jewellery 18 & 19
6. Valuation of other assets 20
7. Restrictive Covenants to be ignored
21
Schedule III - Valuation of Assets
75
Section 7 of Wealth Tax Act- Value of assets, how to be determined.
The value of any immovable property being a building or land appurtenant thereto shall be determined as per Part B of Schedule III as on Valuation date.
The value of a house belonging to the assessee and exclusively used by him for residential purposes throughout the period of twelve months immediately preceding the valuation date, may, at the option of the assessee, be taken to be the value determined in the manner laid down in Schedule III
as on the valuation date the value determined as per part B of Schedule III as on
Valuation date next following the date on which he became the owner of the house or the valuation date relevant to the assessment year commencing on the 1st day of April, 1971, whichever valuation date is later :
Explanation.—For the purposes of this sub-section,—
(i) where the house has been constructed by the assessee, he shall be deemed to have become the owner thereof on the date on which the construction of such house was completed ;
(ii) "house" includes a part of a house being an independent residential unit.
If property is not let out then annual value assessed; if no such assessment then expected annual rent (Fair Value) (or)
If the property is let out then annual rent or annual value assessed by local authority, whichever is higher;
The Annual rent shall be computed as below.
Actual rent received or receivableAdd:a) The amount of taxes borne by the tenant, if anyb) If the repairs are borne by tenant then 1/9 of
actual rent
XXX
XXXXXX
Schedule III - Valuation of Immovable Assets- Rule 3 to 8
A.Valuation as per Rule 3, 4, & 5
Step 1 - Gross maintainable rent (Rule 5):
76
77
c) If any deposit is accepted (not being rental advance; if any, for 3 months or less) amount calculated at 15% per annum as reduced by actual interest paid.
d) If premium for leasing of the property is received, amount obtained by dividing the premium by the number of years of the period of lease.
e) The value of any benefit or perquisite derived as consideration for leasing of the property.
f) Any sum paid by a tenant or occupier in respect of any obligation payable by the owner.
Annual Rent.(GMR)
XXX
XXX
XXX
XXX
XXX
XXX
Step 1 - Gross maintainable rent…….
Contd….
Gross Maintainable RentLess:
a) Municipal tax levied by local authorityb) A sum equal to 15% of the gross maintainable
rent
Net maintainable rent (NMR)
XXX
XXXXXX
XXX
Step 2 – Net Maintainable Rent (NMR) (Rule 4):
Step 3 – Valuation by capitalization (Rule 3):
A. If the property is constructed on free hold land then the
value = NMR x 12.5
B. If such property is constructed on lease hold land, then
i. Where the unexpired lease period is 50 years or more,
the value is equal to NMR x 10.0
ii. Where the unexpired lease period is less than 50 years, the value is equal to NMR x 8.0
Contd….
78
Value as computed under step III :
a) If the unbuilt area of the plot of land on which the property is constructed exceeds the specified area, addition is to be made on the following basis i.e., (Inbuilt aggregate specified Area)
XXX
If the excess is –above 5% upto 10%above 10% upto 15%above 15% upto 20%Above 20% of the aggregate area
Addition to be made,20% of the above value30% of the above value40% of the above valueThis rule is not applicable
XXX
b) Adjusted Net Maintainable Rent XXX
Step 4:
Contd….B. Rule 6- Further adjustments to be made
Note: ‘Unbuilt area’ in relation to the aggregate area of the plot of land on which the property is constructed, means that part of such aggregate area on which no building has been erected
79
S. No.
Location of Property Specified Area
a Mumbai, Calcutta, Delhi or Chennai 60% of the aggregate
area
b Agra, Ahmedabad, Allahabad, Amritsar, Bangalore, Bhopal, Cochin, Hyderabad, Indore, Jabalpur, Jamshedpur, Kanpur, Lucknow, Ludhiana, Madurai, Nagpur, Patna, Pune, Salem, Sholapur, Srinagar, Surat, Tiruchirapalli, Trivandrum,Vodadara or Varanasi.
65% of the aggregate
area
c Any other place 70% of the aggregate
area
80
‘Specified area’ is determined as under:
Note: ‘Aggregate area’ in relation to the plot of land on which the
property is constructed, means the aggregate of the area on which the
property is constructed and the un built area.
Contd….
81
Adjusted Net Maintainable Rent XXX
Less: lower of the following:
1. Amount liable to be claimed and recovered as unearned increase or
2. An amount equal to 50% of the value arrived in Step 4 (i.e value as per Rule 3,4,5 & 6)
XXX
XXXXXX
Value of immovable property as per Wealth Tax Act.
XXX
Step 5:
Contd….Rule 7-Deduction of unearned increase
Only one house property
Self occupied Throughout the 12
months
Other Properties
Property acquiredbefore 01.04.74
Property acquiredafter 31.03.74
Schedule III value as on 31.3.71 or as on the first valuation date after the assessee has become the owner, whichever is later shall be adopted as the value for wealth tax purposes for all the assessment years. (This is known as pegging down of value).
The benefit of pegging down the value is permissible only if the cost of acquisition together with improvement does not exceed–a) Rs.50 lakhs if it is
Delhi, Bombay, Calcutta, Madras.
b) Rs. 25 lakhs if it is in other places.
Otherwise, it shall be treated at par with other properties.
Property acquiredbefore 01.04.74
Schedule III Value as on the relevant valuation date shall be adopted.
Property acquiredafter 31.03.74
Schedule III value as on the relevant valuation date (or)the cost of acquisition together with improvement, whichever is higher shall be adopted.
Contd….Buildin
g
*Acquisition includes Construction
83
S.No.
Assets not to be considered for valuation
Liabilities not to be considered for valuation
A Advance tax paid Capital employed other than borrowed money
B Bad debts allowed as deduction under IT act
All reserves
C Assets which is not liable for wealth tax
Provisions for contingent liabilities
D Assets shown in balance sheet not relating to business
Liabilities not pertaining to business
E Balance in P&L a/c shown in assets side of B/S
Liabilities in relation to assets which are not liable for wealth tax
Some Points to be considered…….
Contd….
84
Valuation of a vacant piece of land shall be made in accordance with provisions of Schedule III and no other mode of valuation is permissible. [Indrajit Banerjee vs CWT [2014] 43 taxmann.com 98 (Calcutta)]
Land allotted to assessee which is declared as surplus land under Urban Land (Ceiling and Regulation) Act, 1976, is not marketable and for purpose of wealth-tax, its value has to be determined as per compensation payable by Government under said Act. [AIMS Oxygen (P.) Ltd. v. CWT [2012] 23 taxmann.com 185 (Guj.) (FB)]
In accordance with provisions of Schedule III, Rule 5 to Wealth-tax Act, 1957, AO is justified in adding interest on security deposits to annual rent in order to compute fair market value of property. [CWT v. MG Builders Co. [2011] 16 taxmann.com 241 (Delhi)]
Issues –Section 7
85
Nature of Assets Value To Be Considered
Depreciable assets Written down value as on the
valuation date
Non- Depreciable assets Book value as on valuation date
Urban land held as SIT
after 10 years from the date
of its acquisition.
Value adopted for IT purpose
for that previous year
Value of the asset not
disclosed in the Balance
sheet
Determined in accordance with
provisions of schedule IIINote: Only Assets as defined in Section 2(ea) should be taken.
Rule 14 – Valuation of Business Assets
Step-1
86
Determine the schedule III value of the said assets as under:
(i) House - Rule 3 to 8 (ii) Jewellery - Rule 18 and 19 (iii) Urban land, Motor car, Yachts, boats & Air crafts - Rule 20 (FMV)
As per Step II > the value as per step I
by more than 20% of value as per step I
Then value as per step II to be taken.
As per step II does not exceed the value as per step I
by more than 20% of value as per step I
Then value as per step I to be taken.
Step-2
Contd….
If the value
87a) Determine the net wealth of the firm/AOP/BOI as if it were an
assessee as per Rule 14. No exemption to be availed u/s 5.
b) The net wealth computed above as is equal to the capital of the Firm/AOP/BOI should be allocated to the partners/members in the ratio of capital contribution.
c) The residual net wealth to be allocated in dissolution ratio. If there is no dissolution ratio then in profit sharing ratio.
d) Interest in the firm is aggregate of (b) & (c).
Note 1. Where partner is a NRI/R & NOR/ non citizen, following shall not be included in the net wealth of such partner.
Such partner’s share Asset of the firm _ Debt incurred in
As computed under X located outside India respect of such asset
Rule 15 & 16 Net wealth of the Firms
Rule 15 & 16 – Interest in firm and association of persons
88
Life interest = Average annual income X capitalisation factor
Average annual income = Average gross – Average expenses
(last 3 years) income
Note:
1. The expenses shall not exceed 5% of the average of the annual gross income.
2. The value of life interest shall, in no case, exceed the market value of the trust corpus on the valuation date.
Rule 17 – Valuation of life interest
The value of jewellery shall be estimated to be the price which it would fetch if sold in the open market on the valuation date.
The return of wealth shall be supported by:I. Where the value of jewellery does not exceed Rs. 5 lakhs on
the valuation date, a statement in prescribed form (Form No.O8A)
II. Where the value of jewellery exceeds Rs. 5 lakhs, a report of a registered valuer in the prescribed form.
III. Value determined by valuation officer or registered valuer shall be adopted for subsequent 4 assessment years.
IV. Adjustment shall be made in respect of any acquisition or sale of jewellery since the last valuation date.
V. Market value of gold/silver /any alloy containing gold /silver as on next valuation date shall be substituted.
Rule 18 & 19 – Valuation of Jewellery
Rule 3(4) of Wealth Tax Rules, 1957 as amended by Wealth‐tax (1st Amendment) Rules, 2014, provides that Return in Form BB shall not be accompanied with any such document or statement.
90
Rule 21 – Restrictive covenants The price or other consideration for which any
property may be acquired by or transferred to any person under the term of a trust deed or under any restrictive covenant in any instrument of transfer shall be ignored for the purposes of determining the value of the property under the schedule.
Rule 20 & 21
Rule 20 – Valuation of other assets
The value of other assets shall be the value it will fetch if sold in open market.
91
It is statutorily obligatory for every person to file the return if his net wealth exceeds maximum amount which is chargeable to wealth tax.
He can file a belated or revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier.
Section 14 - Return Of Wealth Tax
92
Section 14A & 14B (as introduced by Finance Act, 2013 w.e.f. 1st June, 2013) provides
Power of Board to dispense with furnishing documents, etc., with return of wealth and Filing of return in electronic form.
Section 14A & 14B – Power of Board
Section16A - Reference to Valuation Offer
93
Conditions for Reference:i. The valuation is necessary for the purpose
of making an assessment.
ii. The market value of the asset is required to be adopted while making such assessment.
94
AO may refer the valuation of any asset to a Valuation Officer in the following cases—
(a) Where the value of the asset as returned is in accordance with the estimate made by a registered valuer, if the AO is of opinion that
the value so returned is less than its FMV.
(b) In any other case, if the AO is of opinion that -
(i) FMV of the asset exceeds the value of the asset as returned
by more than 33 1/3% of the value of the asset as returned or by more than 50,000/- such amount as may be prescribed in this behalf ; or
(ii) Having regard to the nature of the asset and other relevant circumstances, it is necessary so to do.
Contd….Section16A - Reference to Valuation
Offer…….
95
While adopting value estimated by
DVO, AO is not obliged to confront report of DVO to assessee. [CWT v. Vardhman Polytex Ltd. [2010] 186 Taxman 454 (Punj. & Har.)
Contd….Issues- Reference to Valuation
Offer u/s 16A
96
If the AO has reason to believe that the net wealth of
any person has escaped assessment for any assessment
year, he may be subjected to the provisions of the act
serve on such person a notice requiring him to furnish
within such period as specified in the notice, a return in the
prescribed form and prescribed manner setting forth the
net wealth of such person is assessable as on the valuation
date mentioned in the notice.
No action shall be taken under this sec after the
expiry of 4 years from the end of the relevant
assessment year.
Section17 - Wealth Escaping Assessment
97
Issue of notice in case of reassessment u/s 17 Notice issued upon a company which was not in
existence at time of issuance of notice due to its winding up, was insufficient to initiate proceedings against assessee who had taken over liability of said company earlier to issue of said notice and such fact was also made known to revenue. [I.K. Agencies (P.) Ltd. v. CWT [2012] 20 taxmann.com 731 (Cal.)]
Issues….
98
It is not open to AO to call for report of Valuation Officer after assessment proceedings are completed and use that report to commence proceedings for reassessment; however in cases where report was called for during pendency of proceedings but received subsequent to completion of assessment, law is that such report/order can be basis for issuing notice for reopening assessment u/s 17(1). [CWT v. Sona Properties (P.) Ltd.] [2008] 216 CTR 217 (Bom.)
Issues….Contd….
Section 17A - Time limit for completion of Assessment or Reassessment
99
No order of assessment shall be made at any time after the expiry of 2 years from the end of the assessment year in which the net wealth was first assessable.
No order of assessment or reassessment shall be made u/s 17 after the expiry of 1 year from the end of the financial year in which the notice u/s 17(1) was served.
Section 17(1A) –Time limit for Notice
100
No notice under sub-section (1) shall be issued for the relevant assessment year,—
a) if 4 years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c )
b) if 4 years, but not more than 6 years, have elapsed from the end of the relevant assessment year unless the net wealth chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees ten lakhs or more for that year.]
c) if 4 years, but not more than 16 years, have elapsed from the end of the relevant assessment year unless the net wealth in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year. [Inserted by the Finance Act, 2012, w.e.f. 1-7-2012]
Section 17(1A) –Time limit for Notice
101
Explanation 1For the purposes of sub-section (1) and sub-section (1A), the following shall also be deemed to be cases where net wealth chargeable to tax has escaped assessment, namely :—a) where no return of net wealth has been furnished by the assessee
although his net wealth or the net wealth of any other person in respect of which he is assessable under this Act on the valuation date exceeded the maximum amount which is not chargeable to wealth-tax ;
b) where a return of net wealth has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the net wealth or has claimed excessive exemption or deduction in the return.
c) where a person is found to have any asset (including financial interest in any entity) located outside India.Explanation 2. For the removal of doubts it is hereby clarified that
the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.
Contd….
Assessment Procedure under Wealth Tax Act
102
Provisions of Wealth Tax Act,
1957
Corresponding Provisions of
Income Tax Act, 1961
Particulars
14(1) 139(1) Obligation to file returns
15 139(4) Belated Return
15 139(5) Revised Return
15A 140 Signing of Return
15B 140A Self assessment
16(1) 143(1) Intimation / Deemed intimation
16(2) 143(2) Notice for making scrutiny assessment
16(3) 143(3) Scrutiny assessment
16(5) 144 Best Judgment assessment
Assessment Procedure under Wealth Tax Act
103
Provisions of Wealth Tax Act,
1957
Corresponding Provisions of
Income Tax Act, 1961
Particulars
17 147 to 152 Income escaping assessment
17A 153 Time limit for completing assessment or reassessment.
17B 234A Interest on late filing of return
18(1)(c) 271(1)(c) Penalty for concealment
18B 273A Power to reduce or waive penalty in certain cases
25(2) 263 Revision for orders prejudicial to revenue by commissioner
25(1) 264 Revision of other orders by commissioners Note: There is no provision for payment of advance tax in the Wealth Tax
Act,1957
Contd….
104Section Particulars
14(2) Wealth tax return can not be filed if Net Wealth is below taxable limit. Not apply to return furnished in response to a notice u/s 17.
17(1) Time limit for issue of notice where wealth has escaped assessment:
(a) 4 years in any case.(b) 4 – 6 years where wealth escaped assessment
is Rs. 10 lakhs or more.
18(1)(c)
Explanation 4 to Section 18(1)(c)
Penalty for concealment of wealth: 100% to 500% of tax sought to be evaded.
Where value of asset returned is less than 70% of value of assets determined in assessment, then it is deemed to have furnished inaccurate particulars unless he proves.
19 Penalty of deceased can not be levied on legal heir.
Other Specific provisions of wealth Tax different form Income Tax Act……
Miscellaneous Issues105
106
New clause (k) to section 45 shall be inserted.[w.e.f. 1st April, 1957]
“(k) the Reserve Bank of India incorporated under the Reserve Bank of India Act, 1934.”
Therefore wealth tax shall not applicable in respect of net wealth of RBI.
Exemption from Wealth Tax - Reserve Bank of India
Where return is not filed pursuant to notice u/s 16(4), no further notice is mandatory u/s 16(5) prior to passing of best judgment assessment.[CWT v. Motor & General Finance Ltd. [2011] 11 taxmann.com 62 (Delhi)]
Issues……..107
Assessment order passed without issuing a notice under section 16(2) or notice as contemplated in proviso to section 16(5), is violative of principles of natural justice. [Smt. Prameela Krishna v. CWT [2012] 18 taxmann.com 181 (Kar.) (HC)
Where a suit is pending before the court, the lessee will not be called up for the payment of wealth tax. The position of the lessee as of now is a precarious position and it is not possible to predict with certainty as to what the outcome of the suit will be. [George Oakes Ltd. V. Dy. CWT [2012] 21 taxmann.com 158 (Mad.)
Issues……..108
Appeal to High Court u/s 27A of the Wealth-tax Act, 1957
Where relevant assessment order has not been specifically referred to by sanctioning authority in his sanction to prosecute assessee u/s 35B, same would be a case of mechanical signing of order on part of sanctioning authority which will vitiate order of sanction.
Mere fact that statement of assets furnished by assessee was not accepted by department, same could not be ground on which failure to submit return could be held as a wilful act.
Non-filing of return is not a continuing offence.
[J. Jayalalitha V. Asst. CWT [2012] 20 taxmann.com 736 (Mad.)
Contd….
