Wealth-Tax-Act_1957_ 17-07

Report
A BIRD’S EYE VIEW OF
WEALTH TAX ACT,1957
By: CA Sanjay Agarwal
Assisted by: CA Jyoti Kaur
Email id: [email protected]
Recent Developments….
Ist Amendment to the Wealth‐tax Rules, 1957….
3
The Central Board of Direct Taxes (‘CBDT’) has notified
• Form
• Manner
of filing return of net wealth
by notifying the Wealth‐tax (1st 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.
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.
Section 14 - Return of wealth…
5
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.
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.....
6
Section 44AB of the Income Tax Act, 1961
Applicable
Individual/ HUF/ Company
Not Applicable
Individual/ HUF
Company
Option
Shall
file
return
electronically
under
digital signature
In Paper form
E-File under
digital
signature
available only for AY 2014-15.
Shall file return
electronically
under
digital
signature
7
Form-BB
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
Form- BB…..
19
Note 1: OPR;
Form- BB…..
20
Form- BB…..
21
Schedule OPR - Additional information regarding
other assets -Form BB- ….
22
*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.
23
Steps for e-Filing of Form BB
Steps for e-Filing…..
24
Steps for e-Filing…..
25
FORMBB_ AY201415_
PR1
Steps for e-Filing…..
26
Steps for e-Filing…..
27
28
Amendments by Finance Act, 2013



Insertion of Section 14A & 14B
Amendment to section 46 (2)
Amendment in meaning of Urban land in
Section 2(ea)
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
wealth
The 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 form
The 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)…..
Contd….
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.
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;
Amendment in meaning of Urban land in Section
2(ea)…..
Contd….
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.
W.e.f. 01-04-2014, Distance to be measured aerially……
34
 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.
35
Relevant Sections of Wealth Tax Act, 1957
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
15
Return after due date and amendment of return
Contd….
Relevant Sections of Wealth Tax Act, 1957
36
Section
15A
Brief
Return by whom to be signed
16
Assessment
16A
Reference to Valuation Officer
17
Wealth escaping assessment
17A
Time limit for completion of assessment and reassessment
17B
Interest for defaults in furnishing return of net wealth
Penalty for failure to furnish returns, to comply with notices and
concealment of assets, etc.
Penalty for failure to answer questions, sign statements, furnish
information, allow inspection, etc.
Power to reduce or waive penalty in certain cases
18
18A
18B
Contd….
Relevant Sections of Wealth Tax Act, 1957
Section
Brief
18BA
Power of Commissioner to grant immunity from penalty
Procedure when assessee claims identical question of law is pending
before High Court or Supreme Court
Tax of deceased person payable by legal representative
18C
19
19A
Assessment in the case of executors
20
Assessment after partition of a HUF
20A
21
21A
21AA
22
Assessment after partial partition of a HUF
Assessment when assets are held by courts of wards, administratorsgeneral, etc.
Assessment in cases of diversion of property, or of income from
property, held under trust for public charitable or religious purposes
Assessment when assets are held by certain associations of persons
Assessment of persons residing outside India
Relevant Schedules of Wealth Tax Act, 1957
38
Schedule
Brief
Schedule I
Rates of Wealth-tax
Schedule III
Rules for determining the value of assets
The Wealth Tax Act extends to whole of India and
came into force on 1st April 1957.
39
Applicable to




Individual
Company
HUF
AOP chargeable u/s 21A
Wealth Tax Act
Not Applicable





Company registered u/s
25
Social Club
Mutual Fund u/s 10(23D)
of the Income Tax Act,
1961
Co-operative society
Political Parties
Basis of Computation
40
S. No.
PERSON
BASIS
1
Individual a) Legal heirs of an individual
u/s 3
b) Holder of an impartible estate.
Nationality &
residential
status
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………….
41
S.
No.
Citizenship /
Residential
Status
Asset located
Debts Located
In India
Outside India
In India
Outside India
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
Individual foreig
n national
Taxable
Not Taxable
Deductible Not Deductible
a.
Resident
Company
Taxable
Taxable
b.
Non-resident
Company
Taxable
Not Taxable
1.
Individual Indian
national and HUF
2.
3.
Deductible
Deductible
Deductible Not Deductible
Definitions
42
 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.
Definitions
43
 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.
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)
Assets covered u/s 2(ea) of Wealth Tax Act, 1957
44
Any Building or
land
appurtenant
thereto
Cash in
hand
Cars
Assests
Jewellery,
bullion,
Gold/Silver
utensils etc
Urban land
Yachts, boats
& aircrafts
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.
Section 2(ea)(i) - Any Building or land appurtenant
thereto……
Contd….
46
But does not include—
1)
2)
3)
4)
5)
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]
any house for residential or commercial purpose which forms part of
stock-in-trade;
any house occupied by the assessee for his business or profession.
any residential property let-out for a minimum period of 300 days in
the P.Y.
any property in the nature of commercial establishments or
complexes.
Section 2(ea)(ii) - Motor cars
47
All motor cars whether Indian or imported
Except
 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 hand
51
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
Issue - Section 2(ea) …..
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) …..
Contd….
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)]
Contd….
Issue - Section 2(ea) - commercial establishments or complexes ..
Naturell (India) (P.) Ltd. v. Asstt. CWT [2012] 23 taxmann.com 142 (Mum.)
54

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).
Contd….
Issue - Section 2(ea) - commercial establishments or complexes ..
Dy. CWT vs G. Girijapathi Reddy [2014] 42 taxmann.com 507 (Hyderabad - Trib.)
55 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.
Contd….
Issue - Section 2(ea) - commercial establishments or complexes ..
Dy. CWT vs G. Girijapathi Reddy [2014] 42 taxmann.com 507 (Hyderabad Trib.)…….
56




"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.
Contd….
Issue - Section 2(ea) …..
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….
59


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 nonagricultural 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.)]
Section 4 - Deemed Assets
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)
d)
e)
f)
Transferred to person or AOP for the benefit of individual/spouse
Transferred otherwise than under irrevocable transfer.
Transferred to son’s wife without adequate consideration.
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
included in the net wealth of parents.
and
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.
Issues-Section 4…….
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).
Section 5 - Exempted Assets
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
Contd….
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.
Section 5 - Exempted Assets
v.
Contd….
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.
Section 5 - Exempted Assets
Contd….
69
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.
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.)
Issues…….
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.)
Section 2(m) -Debt
71
 Debt should be outstanding on
valuation date.
 Debt in relation to assets included in
net wealth
• 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.)]
 Circular no. 663 dated 28.09.1993 : Liability under the Wealth Tax Act is not a debt.
Issues-Section 2(m) -Debt
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)]
Schedule III - Valuation of Assets
74
S. No.
Nature of valuation
Rule No.
1.
2.
Valuation of Immovable property
Global valuation of Business
3 to 8
14
3.
Valuation of Interest in firm / AOP
15 & 16
4.
5.
Valuation of life interest
Valuation of Jewellery
17
18 & 19
6.
7.
Valuation of other assets
Restrictive Covenants to be ignored
20
21
Section 7 of Wealth Tax Act- Value of assets, how
to be determined.
75 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.
Schedule III - Valuation of Immovable Assets- Rule 3 to 8
76
A.Valuation as per Rule 3, 4, & 5
Step 1 - Gross maintainable rent (Rule 5):
 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.
XXX
Actual rent received or receivable
Add:
a) The amount of taxes borne by the tenant, if any
b) If the repairs are borne by tenant then 1/9 of actual rent
XXX
XXX
Contd….
Step 1 - Gross maintainable rent…….
77
c)
If any deposit is accepted (not being rental advance; XXX
if any, for 3 months or less) amount calculated at 15%
per annum as reduced by actual interest paid.
XXX
d) If premium for leasing of the property is received,
amount obtained by dividing the premium by the XXX
number of years of the period of lease.
e)
The value of any benefit or perquisite derived as
XXX
consideration for leasing of the property.
f)
Any sum paid by a tenant or occupier in respect of
any obligation payable by the owner.
XXX
Annual Rent.(GMR)
XXX
Contd….
Step 2 – Net Maintainable Rent (NMR) (Rule 4):
Gross Maintainable Rent
Less:
a) Municipal tax levied by local authority
b) A sum equal to 15% of the gross maintainable rent
78
Net maintainable rent (NMR)
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
XXX
XXX
XXX
XXX
B. Rule 6- Further adjustments to be made
Contd….
Step 4:
79
Value as computed under step III :
XXX
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)
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 value
30% of the above value
40% of the above value
This rule is not applicable
b) Adjusted Net Maintainable Rent
XXX
XXX
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
Contd….
‘Specified area’ is determined as under:

80
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
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….
Rule 7-Deduction of unearned increase
81
Step 5:
Adjusted Net Maintainable Rent
XXX
Less: lower of the following:
1. Amount liable to be claimed and recovered as
unearned increase or
XXX
2. An amount equal to 50% of the value arrived in
Step 4 (i.e value as per Rule 3,4,5 & 6)
XXX
Value of immovable property as per Wealth Tax
Act.
XXX
XXX
Contd….
Building
Only one house property
Self occupied
Throughout the 12
months
Property acquired
before 01.04.74
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).
Property acquired
after 31.03.74
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.
Other Properties
Property acquired
before 01.04.74
Property acquired
after 31.03.74
Schedule III Value
as on the relevant
valuation date shall
be adopted.
Schedule III value
as on the relevant
valuation date (or)
the
cost
of
acquisition
together
with
improvement,
whichever
is
higher shall be
adopted.
*Acquisition includes Construction
Contd….
Some Points to be considered…….
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
Issues –Section 7
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)]
Rule 14 – Valuation of Business Assets
85
Step-1
Nature of Assets
Depreciable assets
Value To Be Considered
Written down value as on the valuation
date
Non- Depreciable assets
Book value as on valuation date
Urban land held as SIT after 10 Value adopted for IT purpose for that
years from the date of its acquisition. previous year
Value of the asset not disclosed in Determined
the Balance sheet
in
accordance
provisions of schedule III
Note: Only Assets as defined in Section 2(ea) should be taken.
with
Contd….
Step-2
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,
-
Rule 20 (FMV)

Yachts, boats & Air crafts
If the value
 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.
Rule 15 & 16 – Interest in firm and association of persons
87
a)
b)
c)
d)
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.
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.
The residual net wealth to be allocated in dissolution ratio. If there is no
dissolution ratio then in profit sharing ratio.
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
As computed under
Rule 15 & 16
Asset of the firm
X
located outside India
_ Debt incurred in
respect of such asset
Net wealth of the Firms
Rule 17 – Valuation of life interest
88

Life interest = Average annual income X capitalisation factor

Average annual income = Average gross – Average expenses
(last 3 years)

1.
2.
income
Note:
The expenses shall not exceed 5% of the average of the annual gross
income.
The value of life interest shall, in no case, exceed the market value of
the trust corpus on the valuation date.
Rule 18 & 19 – Valuation of Jewellery
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 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.
Rule 20 & 21
90

Rule 20 – Valuation of other assets
The value of other assets shall be the value it will fetch if sold in open
market.

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.
Section 14 - Return Of Wealth Tax
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 14A & 14B – Power of Board
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.
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.
Contd….
Section16A - Reference to Valuation Offer…….
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….
Issues- Reference to Valuation Offer u/s 16A
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.)
Section17 - Wealth Escaping Assessment
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.
Issues….
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.)]
Contd….
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.)
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]
Contd….
Section 17(1A) –Time limit for Notice
101
Explanation 1
For 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.
Assessment Procedure under Wealth Tax Act
102
Provisions of
Corresponding Provisions
Wealth Tax Act, of Income Tax Act, 1961
1957
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
Contd….
Assessment Procedure under Wealth Tax Act
103
Provisions of
Wealth Tax
Act, 1957
Corresponding
Provisions of Income
Tax Act, 1961
17
147 to 152
17A
153
Time limit for completing assessment or
reassessment.
17B
234A
Interest on late filing of return
18(1)(c)
271(1)(c)
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
Particulars
Income escaping assessment
Penalty for concealment
Note: There is no provision for payment of advance tax in the Wealth Tax Act,1957
Other Specific provisions of wealth Tax different form
Income Tax Act……
104
Section
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)
Penalty for concealment of wealth: 100% to 500% of tax sought
to be evaded.
Explanation
4 to Section Where value of asset returned is less than 70% of value of assets
18(1)(c)
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.
105
Miscellaneous Issues
Exemption from Wealth Tax - Reserve Bank of India
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.

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……..
Contd….
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.)
THANK YOU!!!
By: CA Sanjay Agarwal
Assisted by: CA Jyoti Kaur
Email id: [email protected]

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