WealthTax-AbhijitModi-080514

Report
Nasik Branch of WIRC of ICAI
10th May 2014
CA Abhijit Modi
Basic
 The Wealth Tax Act came into force on 1st April 1957.
 The Wealth tax Act, 1957 is applicable to the whole of
India , including Jammu and Kashmir.
 The purpose of the introduction of Wealth tax Act:
 To tax idle wealth and to de-motivate to hold idle wealth
 To support the revenue collection
 The Regulatory Body - CBDT
Wealth tax – Session plan
 Session can be divided into two parts
 The Charging provisions
 The Procedural Provisions
Coverage of Wealth Tax
 Charging Provisions
 Section 2(ea) – Definition of an Asset
 Section 2(q) – Valuation Date
 Section 2(m) – Net Wealth
 Section 3 – Charging Section
 Section 4 – Deemed Asset
 Section 5 – Exemption
 Section 7 – Valuation of Assets
Coverage of Wealth Tax
 Procedural Provisions
 Section 14/14A/14B – Filing of Return of Net Wealth
 Section 15 – Belated Return and Revised Return
 Section 16 – Assessment
 Section 16A – Reference to Valuation Officer
 Section 17 – Wealth Escaping Assessment
 Section 17A – Time Limit to Complete the Assessment
 Section 17B – Interest for Late Payment and Late Filing
of return
 Section 18 - Penalties
Valuation Date (section 2(q)
 The ‘valuation date’ means the last date of the previous
year in respect of the assessment year for the purpose
of income tax assessment.
 Since the tax is charged on the net wealth of an
assessee on the corresponding valuation date, the
existence of assets on the valuation date is a necessary
condition for the levy.
 Where there is change of ownership of assets on the
valuation date – Net wealth at the last moment of the
day shall be the subject of assessment of Wealth Tax.
Section 2(m) – Net Wealth
 "net wealth" means
 the amount by which the aggregate value computed in
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accordance with the provisions of this Act (Schedule III –
Valuation Rules)
of all the assets, (Section 2(ea) – Definition of Asset)
wherever located, belonging to the assessee (section 6)
on the valuation date, (section 2(q))
including assets required to be included in his net wealth
as on that date under this Act, (section 4 – Deemed Assets)
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. (Deduction allowed)
Section 3 – Charging Section
 Every Individual, HUF and Company,
 to pay tax @ 1%
 on net wealth (section 2(m))
 exceeding Rs.30,00,000
 on the corresponding valuation date (section 2(q))
(No Education Cess prescribed on Wealth tax)
Other Assessee’s Wealth
 Partnership Firm/LLP/AOP/BOI
 As per section 3, Partnership Firm/LLP/AOP/BOI are
not liable to pay wealth tax.
 However, Rule 15 and 16 of the Valuation Rules as per
Schedule III, prescribes the mechanism to club the net
wealth of the Partnership Firm/LLP/AOP/BOI in the
hands of partners/members in the proportionate
manner.
Other Assessee’s Wealth
 Section 21AA – AOP where share of members is
unknown or indeterminate
 wealth tax leviable in like manner and to the same
extent as applicable to an Individual
 thus, AOP has to be treated as individual, in such cases,
and liable for tax.
Other Assessee’s Wealth
 Trust
 Any property held under trust or other legal obligation
for any public purpose of a charitable or religious nature
in India is exempt from Wealth Tax u/s 5.
 Thus, any property held by a trust for the purpose other
than a charitable or religious purpose, will be taxable, to
the same manner and extent to an individual
Asset (section 2(ea))
 The definition of Wealth Tax is exhaustive (i.e.
exclusive). Section 2(ea) defines an asset and contains
6 assets liable to wealth tax. Any asset owned, other
than the six specified assets, as per section 2(ea) as on
valuation date is not liable to wealth tax.
Section 2(ea)
 6 assets are covered and liable for Wealth Tax:
1.
2.
3.
4.
5.
6.
Building
Motor Car
Jewellery
Yachts, Boats and Aircrafts
Urban Land
Cash in hand
Building
- Any building or land appurtenant thereto,
- whether used for residential or commercial purposes or
for the purpose or maintaining a guest house or
otherwise,
- including a farmhouse 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,
- but does not include:
Building
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/b. any house for residential or commercial purposes which
form part of stock-in-trade.
c. any house which the assessee may occupy for the purpose
of any business of profession carried on by him.
d. any residential property that has been let out for a
minimum period of 300 days in the previous year.
e. any property in the nature of commercial establishments
or complexes
a.
Building
 Definition of Building - not defined in the Act
 General Dictionary meaning of Building: a structure
with a roof and walls, such as a house or factory
 Definition of Farm House – not defined in the Act
 If reference is taken from Income Tax Act, 1961, farm
house could be considered as - any building owned and
occupied by the receiver of the rent or revenue of any
such land, or occupied by the cultivator or the receiver
of rent-in-kind, of any land with respect to which, or the
produce of which, any agricultural process is carried on.
Building – Exemptions (Sec. 5)
 any one building in the occupation of a Ruler, being a
building which was his official residence by virtue of a
declaration by the Central Government.
 one house or part of a house or a plot of land
(comprising an area of five hundred square metres or
less) belonging to an individual or a Hindu undivided
family.
Building
 To sum up, following building are not taxable to Wealth Tax:
 Any commercial building or part of the commercial building
(irrespective of use)
 Farm house situated beyond 25 kms from the municipality limits
 Building held as stock in trade
 Building used for business or profession
 House property let out for 300 days or more during the previous
year
 Residential house owned by company and provided for
accommodation to the employees drawing annual salary less than
Rs.10,00,000
 One self occupied residential house (for Individual and HUF)
 On residential house (palace) of Ex Ruler
Building - Valuation
 Rule 3 to 8 of the Valuation Rules prescribe the
procedure of Valuation of Building
 Pegging Down value Concept
 Deduction of Unearned Increase of Leased Assets
 Adjustment for Excess of Un-built Area over a
Specified Area.
 If not covered by Rule 3 to 8, buildings has to be
valued as per Residuary Rule 22 – (Market Value)
Building - FAQ
 Is “Farm House” liable to wealth Tax?
 Whether incomplete building is liable for wealth tax?
 CIT v. Smt. Neena Jain (2011) 330 ITR 157 (P & H)
 [2010] 189 TAXMAN 225 (KER.) Apollo Tyres Ltd.
 [2007] 107 ITD 451 (COCHIN) Federal Bank Ltd.
 Whether residential flat used for the purpose of business
or profession liable for Wealth tax?
 Tracstar Investments (P.) Ltd. [2008] 23 SOT 290 (MUM.)
 [2009] 123 TTJ 945 (Mumbai)
Building - FAQ
 Whether a temporary shed on plot be construed as asset liable
for Wealth Tax?
 Whether vacant shop, office, godown, warehouse, not being
used for the purpose of business or profession be treated as an
“asset” for Wealth Tax purpose?
 Can assessee claim exemption of all the residential house
properties for Wealth tax purpose?
 Whether a house owned by the partner, which is being used for
the purpose of business or profession by the partnership firm is
also an asset?
Motor Car
 other than those used by the assessee in the business of
running them on hire or as stock-in-trade
Motor Car
 Definition of Motor car – not defined under the Act
 As per Webster’s Dictionary a motor car is an
automobile which produces motion through the help of
engine operating on gasolene.
 Indian Rayon & Industries Ltd. [2002] 81 ITD 47 (MUM.)
Motor Car – Exemption (Sec.5)
 No specific exemption provided for any type of Motor
Car in Section 5.
Motor Car - Valuation
 No specific rule provided for the valuation of Motor car
in Schedule III – Valuation Rules
 Thus, Residuary Rule 22 will apply (Market Value as on
the Valuation Date)
Motor Car - FAQ
 Whether the motor car used for the purpose of
profession or business liable for Wealth Tax?
 Whether the vehicles other than Motor cars are assets?
 Whether buses and trucks are covered by the
definition of an asset? Whether delivery vans or
display vans will be covered by the definition of an
asset?
Jewellery
 Jewellery, 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,
 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
Jewellery
 "jewellery" includes—
 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
 precious or semi-precious stones, whether or not set in
any furniture, utensils or other article or worked or sewn
into any wearing apparel
Jewellery – Exemption (Sec 5)
 Jewellery in the possession of any Ex-Ruler,
 not being his personal property,
 which has been recognised by the Central Government
as his heirloom or the Board may, subject to any rules,
recognise as his heirloom
Jewellery - Valuation
 Rule 18 and 19 of Valuation Rules as per Schedule III
 The value of jewellery shall be taken to the price which
it would fetch if sold in the open market on the
valuation date.
 Return of Net Wealth shall be supported by –
 A statement in the prescribed form where the value of
jewellery on valuation date does not exceed Rs.5,00,000
 A Report of a registered valuer in the prescribed form
where the value of jewellery on valuation date exceed
Rs.5,00,000
Jewellery - Valuation
 As per Circular No. 646 issued by CBDT, it has been
decided that the report of the registered valuer
obtained for one assessment year can also be used in
the subsequent 4 assessment years subject to the
adjustments of gold and silver rate applicable as on
relevant valuation date.
Jewellery - FAQ
 Whether missing jewellery is includible in the net wealth?
 Is jewellery in the nature of “Stri Dhan” exempt from
Wealth Tax?
 Is silver utensils owned by assessee liable to Wealth Tax?
 Is bullion kept as deposit (which bears interest) with the
Jeweler be treated as an asset for Wealth Tax purpose?
 Is gold and silver bought as ETF’s, bonds and on MCX
Commodity be subject to Wealth tax?
Yachts, boats and aircrafts
 Yachts, boats and aircrafts
 (other than those used by the assessee for commercial
purposes)
 It does not include – Ship, Vessels, Cruise Lines
Yachts, boats and aircrafts –
Exemption (sec 5)
 No specific exemption provided for any type of Yachts,
boats and aircrafts in Section 5.
Yachts, boats and aircrafts –
Valuation
 No specific rule provided for the valuation of yachts,
boats and aircrafts in Schedule III – Valuation Rules
 Thus, Residuary Rule 22 will apply (Market Value as on
the Valuation Date)
 Global Valuation of Business
Yachts, boats and aircrafts – FAQ
 Any boat or yacht owned by the company for business
purpose – marketing, advertisement purpose – be
considered as an asset liable for Wealth Tax?
 Any aircraft owned by the company for the Director’s
personal use be subject to Wealth tax?
 [2013] 37 taxmann.com 348 (Delhi) Jay Pee Ventures Ltd
Urban Land
 "urban land" means land situate—
 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; or
Urban Land
 in any area within the distance, measured aerially,—
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not being more than two kilometres, from the local limits of
any municipality or cantonment board referred to in subclause (i) and which has a population of more than ten
thousand but not exceeding one lakh; or
not being more than six kilometres, from the local limits of any
municipality or cantonment board referred to in sub-clause (i)
and which has a population of more than one lakh but not
exceeding ten lakh; or
not being more than eight kilometres, from the local limits of
any municipality or cantonment board referred to in subclause (i) and which has a population of more than ten lakh,
Urban Land
 but does not include land classified as agricultural land in the
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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 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 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.
Urban land – Exemption (sec 5)
 one house or part of a house or a plot of land
(comprising an area of five hundred square metres or
less) belonging to an individual or a Hindu undivided
family.
 No other specific exemption provided for any type of
Urban Land in Section 5.
Urban Land
 To sum, following lands are not liable for Wealth tax:
 Agricultural land (as per records and used for
agricultural purpose)
 Land situated in rural area (as per discussed territorial
limits)
 Stock in trade for less than 10 years
 Land occupied by legally constructed building
 Vacant land upto 2 years for industrial purpose
 Land on which construction is not permissible (No
development Zone)
 Plot (Area less than 500 square metres)
Urban Land - Valuation
 Rule 22 of the Valuation Rules as per Schedule III,
specifically provides that the Urban Land shall be
valued as per Market Value on the Valuation Date
Urban land - FAQ
 Is agricultural land situated in “Urban Area”, liable to wealth tax; prior
to A.Y 2014-15, where exemption has been claimed by the assessee and
additions being made in the Assessment Orders?
 [2013] 36 taxmann.com 547 (Amritsar - Trib.) Bawa Yadwinder Singh
 Is N.A. plot used for the purpose of agricultural activities (produce) will
be liable to Wealth tax?
 Whether a land on which unauthorized building was being
constructed, the construction of which has been stopped by local
authorities, can be excluded from “asset” for the purpose of wealth tax
on the ground that the construction is not permitted on such land?
 DCM Ltd. [2005] 147 TAXMAN 42 (DELHI)
Urban land - FAQ
 Whether incomplete building on urban land will be an
asset for Wealth Tax purpose?
 CIT v. Smt. Neena Jain (2011) 330 ITR 157 (P & H)
 [2010] 189 TAXMAN 225 (KER.) Apollo Tyres Ltd.
 [2007] 107 ITD 451 (COCHIN) Federal Bank Ltd.
 Whether a piece of Urban Land, on which temporary shed
is being constructed and used for the purpose of business,
will be subject to Wealth tax?
 [2012] 19 taxmann.com 29 (Delhi) Sohna Forge (P.) Ltd.
Urban land - FAQ
 An assessee transferred its immovable property before its
valuation date but the same was not registered in favor of the
buyer. Can the same be included in the net wealth of the assessee
on the ground that he still is the legal owner of the property?
 Whether holding development rights for the land amount to
asset as per Wealth tax?
 [2006] 7 SOT 101 (MUM.) Irani Foods & Investment Co. (P.) Ltd.
 Whether the Right to Purchase an asset (land) given by the
Court amount to asset as per Wealth Tax Act?
 [2010] 326 ITR 451 (BOM.) Ardeshir Behram Dubash
Cash in hand
 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.
Cash in hand –
Deemed Asset (sec 4)
 (5A) Where a gift of money from one person to another is
made by means of entries in the books of account
maintained by the person making the gift
 or by an individual or a Hindu undivided family or a firm or
an association of persons or body of individuals with whom
or which he has business or other relationship,
 the value of such gift shall be liable to be included in
computing the net wealth of the person making the gift
 unless he proves to the satisfaction of the Assessing Officer
that the money has actually been delivered to the other
person at the time the entries were made.
Cash in hand - FAQ
 Does advances given in cash as on Valuation Date, which is
found out by A.O., not to be genuine, subject to Wealth
Tax?
 Whether cash in hand held for business purpose liable for
wealth tax (whereby, a valid evidence is produced to
substantiate that the cash is held for business purpose)?
 [2010] 229 CTR 52 (KER.) Smt. K.R. Ushasree
 [2007] 13 SOT 446 (COCHIN TRIB) A.A. Salam
 Whether cash held in Foreign Currency will be subject to
wealth tax?
Deemed Assets (section 4)
 In case of Individual, assets held –
 by the spouse of such individual to whom such assets have
been transferred by the individual, directly or indirectly,
otherwise than for adequate consideration or in connection
with an agreement to live apart, or
 by a minor child, not being a minor child suffering from any
disability of the nature specified in section 80U of the
Income-tax Act or a married daughter, of such individual,
 by a person or association of persons to whom such assets
have been transferred by the individual otherwise than under
an irrevocable transfer,
 by the son's wife, of such individual, to whom such assets
have been transferred by the individual, directly or indirectly,
otherwise than for adequate consideration,
Deemed Assets (section 4)
 An assessee who is a partner in a firm or a member of
an AOP, there shall be included, as belonging to that
assessee, the value of his interest in the assets of the
firm or AOP determined in the manner laid down in
Schedule III
 An individual being a member of a Hindu undivided
family, any property having been the separate property
of the individual has been converted by the individual
into property belonging to the family or been
transferred by the individual, directly or indirectly, to
the family otherwise than for adequate consideration
Deemed Assets (section 4)
 The holder of an impartible estate shall be deemed to
be the individual owner of all the properties comprised
in the estate.
 Where the assessee is a member of a co-operative
society, company or other association of persons and a
building or part thereof is allotted or leased to him
under a house building scheme of the society,
company or association, as the case may be, the
assessee shall be deemed to be the owner of such
building or part .
Deemed Assets (section 4)
 Where a gift of money from one person to another is
made by means of entries in the books of account
maintained by the person making the gift or by an
individual or a Hindu undivided family or a firm or an
association of persons or body of individuals with
whom or which he has business or other relationship,
the value of such gift shall be liable to be included in
computing the net wealth of the person making the
gift unless he proves to the satisfaction of
the Assessing Officer that the money has actually been
delivered to the other person at the time the entries
were made.
Deemed Assets (section 4)
 A person—
 who is allowed to take or retain possession of any
building or part thereof in part performance of a
contract of the nature referred to in section 53A of the
Transfer of Property Act, 1882
 who acquires any rights (excluding any rights by way of a
lease from month to month or for a period not
exceeding one year) in or with respect to any building or
part thereof by virtue of any such transaction as is
referred to in clause (f) of section 269UA of the Incometax Act, 1961
Return of Net Wealth
 The due date to file wealth tax return is similar to section
139(1) i.e. either 31st July or 30th September of the
Assessment Year, depending upon the due date to file
Income Tax return. (section 14)
 The Wealth Tax Return can be filed belated (like 139(4))
within one year from end of relevant assessment year or
completion of assessment whichever is earlier. (section 15)
 The Wealth Tax Return can be revised, if any mistake
apparent from record, within one year from end of relevant
assessment year or completion of assessment whichever is
earlier. (similar to section 139(5) of Income Tax Act)
(section 15)
Return of Net Wealth
 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.
 However, a return can be file any time in response to
valid notice issued u/s 17 (similar to section 148 of
Income Tax Act)
 The new section 14B (w.e.f. 01.06.2013) says about filing
wealth tax return online. However, the same utility is
not yet provided on www.incometaxindiaefiling.gov.in
by CBDT.
Wealth Tax Challan
 Wealth Tax can be paid manually or online vide Form
No. 282.
 The same is available at the site
www.incometaxindia.gov.in
or
on TIN Website
(https://onlineservices.tin.egovnsdl.com/etaxnew/tdsnontds.jsp)
Interest on Late Payment of tax
 Interest is leviable u/s 17B of Wealth Tax Act if Return of
Wealth is filed after the due date of filing Return of Wealth.
 Interest is payable at the rate of 1% for every month or part
of the month comprised in the period commencing on the
date immediately following the due date and ending on the
date of furnishing of return (where no return is being filed,
up to the date of completion of assessment).
 The interest has to be calculated on the total amount of tax
payable on the net wealth and should be paid before filing
the return.
 No advance tax is payable under the wealth tax. Thus,
no provisions similar to section 234B and 234C in
Wealth Tax Act.
Penalty for non-filing of Return of
Net wealth (Section 18)
 There is no penalty for non-filing of return as per section 14
or for late filing of return u/s 15.
 However, if the assessee is liable to file wealth tax return
(where net wealth is exceeding Rs.30,00,000/-) and does
not file return before issuing notice u/s 17 or assessment
u/s 16 or 17, then tax liability arising in assessment will be
said to be tax sought to be evaded. Penalty in such case
would be ranging from 100% to 500% of tax sought to be
evaded. (section 18(1)(c))
 No penalty to be levied if the assessee proves that there was
reasonable cause for the delay or non-filing of return.
Penalty for non-filing of Return of
Net wealth (Section 18)
 Concealment
 Explanation 4.—Where the value of any asset returned
by any person is less than seventy per cent of the value of
such asset as determined in an assessment under section
16 or section 17, such person shall be deemed to have
furnished inaccurate particulars of such asset within the
meaning of clause (c) of this sub-section, unless he
proves that the value of the asset as returned by him is
the correct value
Time limit to issue notice for
Assessment u/s 16
 The time limit to issue notice for assessment u/s 16 is
within 12 months from the end of the month in which
return is furnished.
 Notice shall be served within expiry of 12 months from
the end of the month in which return is furnished.
 Wherein, the return of net wealth is not furnished u/s
14 (return within due date) or 15 (Revised Return or
Belated Return), the Assessing Office may serve, a
notice to file return of wealth
Assessment - FAQ
 Is there any time limit for issuance of notice U/s. 16(2)
of the Wealth Tax Act, 1961?
 Whether service of notice u/s 143(2) under Income Tax
Act tantamount to service of notice u/s 16(2) of the
Wealth Tax Act?
 Whether non-filing of return of wealth (either u/s
14/15 of in response to notice u/s 16) will deter the A.O.
from Assessment?
Time limit to issue notice for
Reassessment u/s 17
 Notice for wealth escaped from assessment u/s 17 can be
issued only if A.O. has reason to believe that wealth has
escaped from assessment. Time limit to issue notice is as
follows:
 If Net Wealth believed to escape from assessment is upto
Rs.10,00,000/- - within 4 years from the end of relevant
assessment year.
 If Net Wealth believed to escape from assessment is above
Rs.10,00,000/- - within 6 years from the end of relevant
assessment year.
 If any asset related to Net Wealth located outside India within 16 years from the end of relevant assessment year.
Time limit to issue notice for
Reassessment u/s 17
 The findings of A.O. during income tax assessment u/s
143(3) or 147 or any other proceeding can be a valid
reason to believe for wealth escaped from assessment.
Time limit to pass an order u/s
16/17 – section 17A
 Time limit to pass an order u/s 16 – within 24 months
from the relevant Assessment Year
 Time limit to pass an order u/s 17 – within 12 months
from the end of the financial year in which notice is
served
Reference to Valuation Officer –
Section 16A
 Where the assessment is pending;
 The A.O. may refer the matter to Valuation Officer
 In case where Value of Asset has been estimated by a
Registered Valuer – if the A.O. considers that the estimate
made by the Registered Valuer is less than its fair market
value,
 In other cases – if the A.O. considers its necessary to do so on
account of the nature of the asset and other relevant
considerations;
Or, if he is of the opinion that the fair market value of the asset
exceeds the value of the asset as returned by more than 33%
of the assets as returned or more than Rs.50,000
Reference to Valuation Officer –
Section 16A
 Valuation Rules are binding on Valuation Officer to
follow
 Assessing Officer shall complete the assessment in
conformity with the estimate of the Valuation officer.
Queries, if any…
-------------------------------------------------------------------------------------------------Disclaimer & Acknowledgements–
•Views expressed in the presentation are personal and can not be construed of
ICAI or Branch or any other authority …
• These views do not and shall not be considered as professional advice…
• Acknowledge the efforts and inputs given in by CA Jagat Bajaj in the FAQs…
•Acknowledge the Branch for giving me opportunity to share my views…
• Thank you all the for the patience hearing …
CA. Abhijit Modi
Reach me at – 0253 2311716
Or
Mail me at – [email protected]

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