Wealth Tax (33)

Applied Direct taxation406

Wealth Tax

STUDY NOTE - 33

WEALTH TAX

This Study Note includes

• Definition under the Wealth-Tax Act, 1957

• Various Provisions relating to computation of Wealth under the Wealth Tax Act,1957

INTRODUCTION

Wealth-tax is a tax on wealth. The provisions relating to the levy of wealth-tax are contained inthe Wealth-tax, 1957. The Act was introduced into the Indian tax system on the recommenda-tions of Prof. Nicholas Kaldor, an eminent Economist of Sweden. The Act came into force onthe 1st day of April, 1957 and became effective for the first time in respect of assessment year1957-58. This Act is administered by the same hierarchy of officers as for Income-tax. TheWealth-tax Act, 1957 extends to the whole of India.

DEFINITION

Section 2 of the Wealth-tax Act, 1957 defines the important terms used in the Act and some ofthese are briefly discussed below :

(a)Assessee [Sec. 2(c)]

“Assessee” means a person by whom Wealth-tax or any other sum of money is payable underthe Act, and includes—

(i) every person in respect of whom any proceeding under this Act has been taken for thedetermination of Wealth-tax payable by him or by any other person or the amount ofrefund due to him or such other person.

(ii) every person who is deemed to be an assessee under this Act.

(iii) every person who is deemed to be an assessee in default under this Act.

(iv) legal representative of the deceased person. [sec. 19(1)]

(v) every member of AOP. [sec. 21AA(4)]

(b)Assessment year [sec. 2(d)]

“Assessment year” means the period of twelve months commencing on the 1st day of April,every year falling immediately after the valuation date.

407Applied Direct taxation

c)Assets [sec. 2(ea)]

“Assets” in relation to the assessment year commencing on the day of April, 1993, or any sub-sequent assessment year, means —

(i) any guest house and any residential house or commercial house including a farm housesituated within twenty-five kilometres from the local limits of any municipality (whetherknown as a municipality, a municipal corporation, notified area committee, town areacommittee, town committee or by any other name) or a cantonment board, but does notinclude —

a house meant exclusively for residential purposes and which is allotted by a com-pany to an employee or an officer or a director who is in whole time employment,having a gross annual salary of less than five lakh rupees.

any house for residential purposes or commercial house which forms part of stock-in-trade.

any house occupied by the assessee for the purposes of his Business or Profession ;

any residential property let out for at least 300 days in a previous year

any property in the nature of commercial establishments or compliances.

(ii) motor cars (other than those used by the assessee in the business of running them on hireor as stock-in-trade);

(iii) jewellery, bullion and furniture, utensils or any other article made wholly or partly ofgold, silver, platinum or an other precious metal or any alloy containing one or more ofsuch precious metals:

Provided that where any of the said assets is used by the assessee as stock-in-trade, suchassets shall be deemed as excluded from the assets specified in this sub-clause. However,jewellery shall not include Gold Deposit Bond 1999.

(iv) yachts, boats and aircrafts (other than those used by the assessee for commercial pur-poses);

(v) urban land;

(vi) cash in hand, in excess of fifty thousand rupees, of individuals and Hindu UndividedFamilies and in the case of other persons any amount not recorded in the books account.

Case Law:

Building let out to tenant for commercial purposes cannot be treated to be an asset taxableunder section 3 Mayank Poddar (HUF) v. WTO 130 Taxman 500/262 ITR 633.

Right to receive compensation on acquisition of property by Government and interest accruedthereon, is ‘an asset’ within meaning of section 2(ea) – P.V.Jacob v. CWT 131 Taxman 313.

‘Jeep’ can be treated as ‘motor car’ – CWT v. Karnataka Minerals & Mfg. Co. ltd. 159Taxman 18.


Wealth Tax

(a) “Jewellery” includes —

(i) ornaments made of gold, silver, platinum or any other precious metal or any alloycontaining one or more of such precious metals, whether or not containing anyprecious or semi-precious stones, and whether or not worked or sewn into any wear-ing apparel;

(ii) precious or semiprecious stones, whether or not set in any furniture, utensils or otherarticle or worked or sewn into any wearing apparel;

(b) “Urban land” means land situate —

(i) in any area which is comprised within the jurisdiction of a municipality (whetherknown as a municipality, municipal corporation, notified area committee, town areacommittee, town committee or by any other name) or a cantonment board and whichhas a population of not less than ten thousand according to the last preceding censusof which the relevant figures have been published before the valuation date; or

(ii) any area within such distance, not being more than eight kilometres from the locallimits of any municipality or cantonment board referred to in sub-clause (i), as theCentral Government may, having regard to the extent of, and scope for, urbanisationof that area and other relevant considerations, specify in this behalf by notification inthe Official Gazette.

But does not include land on which construction of a building is not permissible under any lawfor the time being in force in the area in which such land is situated or the land occupied by anybuilding which has been constructed with the approval of the appropriate authority or anyunused land held by the assessee for industrial purposes for a period of two years from thedate of its acquisition by him or any land held by the assessee as stock in trade for a period often years from the date of acquisition by him.

(d)“Net wealth” [sec. 2(m)]

It is aggregated of the value of all assets ‘belonging to’ the assessee (and including deemedassets) on the valuation date, as reduced by the aggregate value of the debts/liabilities ownedon the valuation date. In brief net wealth is the value of the excess of assets over liabilities.

All debts owed by the assessee, which have been incurred in relation to assets chargeable totax, shall be deductible. Thus, Wealth-tax shall not be a deductible liability.

Case Law:

The expression ‘belong’ means ‘to be the property or rightful possession of ‘. So it is the prop-erty of a person or that which is in his possession as of right which is liable to the wealth-tax. Inother words, the liability to wealth-tax arises out of ownership of the asset, and not otherwise.Mere possession, or joint possession, unaccompanied by the right to or ownership of propertywould therefore not bring the property within the definition of ‘Net Wealth’ for it would notthen be an asset ‘belonging‘ to the assessee. – CWT v. Bishwanath Chatterjee 103 ITR 536.

The system of accounting, mercantile or cash or hybrid, is of no relevance for the purpose ofdetermining the assets of the assessee. All the assets of the assessee, barring those excepted bythe statute, are to be taken into account and it is immaterial whether the assessee employes one


system of accounting or another – CWT v. Vysyaraju Badreenarayana Moorthy Raju 152ITR 454.

Debts are of two kinds: solvendum in praesenti and solvendum in futuro. A sum of moneywhich is certainly and in all events payable is a debt, without regard to the fact whether it ispayable now or at a future time A sum payable upon a contingency, however, is not a debt ordoes not become a debt until the contingency has happened. If there is a debt, the fact that theamount is to be ascertained does not make it anytheless a debt if the liability is certain andwhat remains is only the quantification of the amount. In short, a ‘debt owed’ within the mean-ing of section 2(m) can be defined as a liability to pay in praesenti or in futuro an ascertainablesum of money. The word ‘owe’ means, to be under an obligation to pay ; it does not really addto the meaning of the word ‘debt’. – Kesoram Industries & Cotton Mills Limited v. CWT 59ITR 767.

(e) Valuation date [sec. 2(q)]

For the purpose of the Wealth-tax Act, “Valuation date” is very important as Wealth-tax islevied only on the net wealth of an assessee as on the valuation date.

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 assess-ment were to be made under that Act for the year. Thus in respect of assessment year 2008-09,the valuation date will be 31st March, 2008.

Provided that :

(i) In the case of a person who is not an assessee within the meaning of the Income-tax Act,the valuation date for the purposes of this Act shall be the 31st day of March, immediatelypreceding the assessment year.

(ii) Where an assessment is made in pursuance of sec. 19(A) the valuation date shall be thesame valuation date as would have been adopted in respect of the net wealth of the de-ceased if he were alive.

CHARGE OF WEALTH-TAX [Sec. 3]

Wealth-tax is charged for every assessment year in respect of the net wealth on the correspond-ing valuation date of every individual, HUF, and company at the flat rate of 1% on net wealthexceeding Rs. 15 lakhs.

Partnership firm, association of persons or body of individuals is not liable to wealth tax. How-ever, wealth belonging to a partner or member in firm, AOP or BOI is included in his netwealth.

Case Law:

The term ‘individual’ in section 3 includes within the ambit Mapilla MarumakkattayamTarwad’s, and they are well within the purview of the taxing provisions of the Act - WTO v.C.K.Mammed Kayi 129 ITR 307.


Wealth Tax

The Jains are governed by all the incidents relating to a Hindu undivided Family, and arehence assessable as ‘HUF’. – CWT v. Smt. Champa Kumari Singhi 83 ITR 720.

Under the Hindu system of law, a joint family may consist of a single male member and hiswife and daughters and there is nothing in the scheme of the Act to suggest that an HUF as anassessable unit must consist of at least two male members – N.V.Narendranath v. CWT 74ITR 190.

ASSETS BELONGING TO OTHERS INCLUDED IN THE NET WEALTH OF THE ASSES-SEE UNDER CERTAIN CIRCUMSTANCES i.e. DEEMED ASSETS [Sec. 4]

In some cases the assets belonging to other persons are also to be included in the net wealth ofan individual assessee. This is similar to “clubbing of income” under the I.T. Act.

The following assets transferred by an assessee on or after 1st April, 1956, are includible in hisnet wealth u/s. 4 of the Act.

The assets so transferred may be held by the transferee in the same form or it may be sold orconverted into any other asset. In the latter cases, its sale proceeds or the value of such con-verted asset, shall be included in the transferor’s wealth.

1. Assets held by the spouse of an individual where such assets have been transferred, di-rectly or indirectly, by the individual, without adequate consideration or in connectionwith an agreement to live part. [sec. 4(a)(i)]

2. Assets held by a minor child, not being a married daughter of such individual. If the childattains majority or daughter gets married before the valuation date, then this section willnot apply. [Sec.4(1)(a)(iii)].

However, assets acquired by a minor child out of his income derived from manual work orfrom any activity involving his skill, talent, specialised knowledge or experience, shall not beincluded in the net wealth of his parent.

The assets held by a minor child, shall included in the net wealth of that parent whose netwealth is greater. In case the marriage does not subsist, it will be added to the wealth of thatparent who maintains the minor. Once these assets are included in the wealth of either ofparents, they will not be included in the wealth of other parent unless the Assessing officer issatisfied after giving the parent an opportunity of being heard that it is necessary so to do. [sec.4(1)(a) third proviso]Assets held by a person or association of persons to whom such assets have been transferredby an individual, directly or indirectly, without adequate consideration for the immediate ordeferred benefit of such individual, his or her spouse. [sec.4(1)(a)(iii)]


Assets held by person or association of persons to whom such assets have been transferred byan individual, otherwise than under an irrevocable transfer. If transferor has reserved the rightto resume power directly or indirectly of the whole or any part of the assets or income there-from the value of such assets will be included in the net wealth of the transferor. [sec. 4(1)(a)(iv)]

3. Assets held by an individual’s son’s wife, to whom such assets have been transferred bysuch individual, directly or indirectly, on or after 1.6.1973, without adequate consider-ation. [sec. 4(1)(a)(v)]

4. Assets held by any person or association of persons to whom such assets have been trans-ferred by an individual, directly or indirectly, after 1.6.1973 for the benefit of his son’swife. [sec. 4(1)(a)(vi)]

5. If an individual after 31.12.1969, transfers his self acquired property to the joint family ofwhich he is a member by making a gift to it or by throwing it in common stock or in anyother way, without adequate consideration, which property shall continue to be includedin net wealth of that individual. Where the converted property has been partitioned, whollyor partially, amongst the members of family then such converted property or any partthereof which is received by the spouse of the individual on such portion, shall be deemedto be assets transferred indirectly by the individual to the spouse. [sec. 4(1A)]

Thus, no deduction shall be allowed for any debt referable to assets of other persons liable tobe clubbed u/s. 4(1)(A) OR 4(1A). Nor any exemption u/s. 5 shall be allowed against any suchassets.

6. (a) Where the assessee is partner of a firm or a member of an association of persons, thevalue of his interest in the firm or association shall be included in his net wealth. Theassociation of person does not include a cooperative housing society.

(b) Where minor is admitted to benefits of partnership, his interest in the firm, shall beincluded in wealth of the parent whose net wealth is greater. [Sec. 4(1)(b)]

7. The value of any assets transferred under the revocable transfer shall be liable to be in-cluded in computing the net wealth of the transferor as and when the power to revokearises to him. [sec. 4(5)]

8. Where a gift of money from one person to another is made by means of entries in thebooks of accounts maintained by the persons making the gift, the value of such gift shallbe liable to be included in computing the net wealth of persons making the gift unless heproves to the Wealth-tax Officer that money of such gift has actually been delivered toperson concerned at the time when entries were made. [sec. 4(5A)]

9. The holder of an impartible estate shall be deemed to be the individual owner of all theproperties comprised in the estate. [sec. 4(6)]

10. Where the assessee is a member of an association of persons, being a cooperative housingsociety, and a building or a part thereof is allotted or leased to him under the house build-


Wealth Tax

ing scheme, the assessee shall be deemed to be the owner of such building or part shall beincluded in computing the net wealth of the assessee, and in determining the value ofsuch building, the value of any out standing installments of amount payable by the asses-see towards the cost of such building, shall be deducted as a debt owed by him in relationto such building. [sec. 4(7)]

11. Any person who is in possession of any building or part thereof in part performance of acontract of the nature referred to in sec. 53A of the Transfer of Property Act, i.e. those whohave acquired a property under a ‘Power of Attorney’ transaction, or who acquires rightsu/s. 269UA(f), by way of sale of exchange or under a long lease extending to 12 years ormore, shall be deemed to be the owner of that building or part thereof, and its value shallbe included in his net wealth. [sec. 4(8)]

Case Law:

It is not correct to contend that section 4 has introduced a legal fiction and therefore even if theasset does not exist in reality, it is deemed to be in existence by virtue of the deeming provision.The only fiction which has been introduced in the section operates to make the asset held bythe minor as the asset of the assessee, it has been transferred by the assessee to the minorotherwise than for adequate consideration. The fiction does not operate to bring into existenceany asset. It only brings about a change in the ownership of an existing asset. – CWT v. KrishanMohan 96 ITR 432

Where transferred asset is converted into some other asset, value of such converted asset onvaluation date must be treated as value of the deemed wealth CWT v. Kishan Lal Bubna - 204ITR 600.

ASSETS EXEMPT FROM WEALTH-TAX [Sec. 5]

Wealth-tax shall not be payable by an assessee in respect of the following assets and such assetsshall not be included in the net wealth of the assessee.

1. Property held under trust — any property held by assessee under trust or otherlegalobligation wholly for public purpose of a charitable/religious nature. [sec. 5(i)]

Case Law :

For purpose of exemption u/s 5(1)(i), the situs of the property is irrelevant; what is relevant isthat public purpose of charitable/religious nature should be in India – Trustees of H.E.H. TheNizam’s Pilgrimage Money Trust v. CIT - 111 Taxman 228 / 243 ITR 676.

2. Interest on coparcenary property — the interest on an assessee in coparcenary property ofa HUF of which he is a member as the family itself is liable to Wealth-tax. [sec. 5(ii)]


3. Official residence of Indian Ruler — any one building in the occupation of a Ruler of anerstwhile Indian State where it is declared as his official residence by the Central Govern-ment . [sec. 5(iii)]

Case Law :

Buildings, forming part of palace declared as official residence of Ruler under Merged States(Taxation Concessions) Order, 1949, which were let out on rent, could not said to be in occupa-tion of Ruler within meaning of section 5(1)(iii) and, hence, value thereof was includible in hisnet wealth – Mohammad Ali Khan v. CWT - 92 Taxman 52 / 224 ITR 672

4. Jewellery of Ruler — provided it is in the possession of the Ruler but is not his personalproperty and that it has been recognised by the Central Government as his heirloom. [sec.5(iv)]

5. Value of Assets brought by persons of Indian origin — In the case of an assessee, beinga person of Indian origin or a citizen of India (hereafter in this clause referred to as suchperson) who was ordinarily residing in a foreign country and who, on leaving such coun-try, has returned to India with the intention of permanently residing therein, moneys andthe value of assets brought by him into India and the value of the assets acquired by himout of such moneys. Such exemption is available for 7 successive assessment years fromthe date of his arrival in India. [sec. 5(v)]

6. One residential house — In case of an individual or a HUF (a) one house or part of ahouse; (b) a plot of land comprises of an area upto 500 sq. metres. [sec. 5(vi)]

Case Law :

For the purpose of section 5(1)(iv) [clause (vi) from 01-04-1993], a person who has come intopossession of property on payment of the full consideration, is entitled to exemption eventhough in the relevant years such property had not been conveyed to him under a registereddocument – CWT v. P. Babul Reddy – 85 Taxman 627 / 28 ITR 625

7. Exemption in case of non-residents — In case of an individual who is not a citizen ofIndia, or of an individual or a HUF not resident in India, or resident but not ordinarilyresident in India, or of a company not resident in India during the year ending on thevaluation date—

(i) the value of assets and debts located outside India is totally exempt.(ii) the value of any assets in India, the income from which is exempt u/s. 10 of the In-

come-tax Act, is fully exempt. [sec. 6]


Wealth Tax

ASSETS AND DEBTS SPECIALLY EXCLUDED OWING TO CITIZENSHIP AND RESI-DENTIAL STATUS [Sec. 6]

Citizen persons: A person is a citizen if he has been domiciled in the territory of India andsatisfies any one of the following conditions :–

(i) he must have been born in India, or(ii) either of his parents must have been born in India, or(iii) he must have been ordinarily resident in India for more than 5 years before 26.1.1950.

A person will not be a citizen if he has voluntarily acquired the citizenship of any foreign state.Residential status of a person will be determined as per the Income-tax Act, 1961.

INCIDENCE OF TAX

Persons exempt from Wealth-tax : From assessment year 1993-94 the following persons areexempt from the payment of Wealth-tax —

a company solely engaged in business of transporting goods or passengers by ships –[sec. 45]

a cooperative society – [sec. 45(g)]

a political party – [sec. 45(i)]

a social club – [sec. 45(h)]

a mutual fund specified u/s. 10(23D) of the Income-tax Act- [sec. 45(j)]

DETERMINATION OF VALUE OF ASSETS [Sec. 7]

Subject to the provision of sub-section (2), the value of any asset, other than cash, for the pur-pose of this Act shall be its value as on the valuation date determined in the manner laid downin Schedule III to the Wealth-tax Act.The value of a house belonging to the assessee and exclusively used by him for residentialpurposes 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 downin Schedule III as on the valuation date next following the date on which he became the ownerof the house or the valuation date relevant to the assessment year commencing on the 1st dayof April 1971, whichever valuation date is later. [Sec. 7(2)]

VALUATION RULES

The value of any asset as on the valuation date is determined as per the valuation rules laiddown in Schedule III of the Wealth-tax Act. The valuation rules for some of the assets havebeen briefly outlined below :-


VALUATION OF IMMOVABLE PROPERTY [RULE 3 TO 8 OF SCHEDULE III OFWEALTH-TAX ACT]

Annual Rent (Expl. 1 to Rule 5):

It means :-

where the property is let throughout the year ending on the valuation date i.e., theprevious year, the actual rent received or receivable by the owner in respect of suchyear.

where the property is let for only a part of the previous year, the amount which bearsthe same proportion to the amount of actual rent received or receivable by the ownerfor the period for which the property is let as the period of twelve months bears to thenumber of months (including part of a month) during which the property is let duringthe previous year.

Actual Rent : For determination of annual rent actual rent received or receivable shall beincreased as follows :—

Rs.

Actual rent received or receivableAdd:

The amount of taxes borne by the tenant if any ***If the repairs are borne by tenant – 1/9th of actual rent ***If any deposit is accepted (not being rental advance, if any, for3 months or less) amount calculated at 15% p.a. as reduced byactual interest paid ***If premium is received – amount obtained by dividing the premiumby the number of years of the period of lease ***the value of any benefit or perquisite derived as considerationfor leasing of the property ***Any sum paid by a tenant or occupier in respect of anyobligation payable by the owner ***Annual rent ***

Property acquired / constructed after 31.3.1974 : Such properties shall be valued as per Rule 3(as above) or at ‘actual cost’ (including cost of acquisition/construction/ improvement uptothe valuation date), whichever is higher. [Rule 3 First Proviso]However, this rule shall not apply to any one property which is used exclusively for the resi-dence of the assessee throughout the year, and its ‘actual cost’ does not exceed Rs. 50 lakhs, ifthe house is situated at Delhi, Bombay, Kolkata or Madras, or Rs. 25 lakhs, if situated at anyother place.


Wealth Tax

Step- IV : Adjustment for unbuilt area [Rule 3 to 7]

If the unbuilt area of the plot of land on which property is constructed exceeds the specified thearea, addition is to be made to the valuation as determined in Step-III if the specified area ismore than unbuilt area as follows:

Addition(Unbuilt area – specified area)= Not more than 5% of aggregate area Nil

(Unbuilt area – specified area)= More than 5% but upto 10% of 20% of the value asaggregate area per Step III(Unbuilt area – specified area)= More than 15% but upto 15% of 30% of the value asaggregate area per Step III

(Unbuilt area – specified area)= More than 15% but upto 40% of the value as20% of aggregate per Step III

(Unbuilt area – specified area)= More than 30% of the Nilaggregate area

Specified area : It means —

Location of property Specified Area

1. Mumbai, Kolkata, Delhi or Channai 60% of the aggregate area

2. Agra, Ahmedabad, Allahabad, Amritsar,Bangalore, Bhopal, Cochin, 65% of the aggregate areaHyderabad, Indore, Jabalpur,Jamshedpur, Kanpur, Lucknow, Ludiana,Madurai, Nagpur, Patna, Pune, Salem,Sholapur, Srinagar, Surat, Trichirappalli,Trivendum, Vadodara (Baroda) orVaranashi (Benaras)

3. Any other place 70% of the aggregate area

Where, under any law inforce, the minimum area of the plot of land required to be kept as openspace for the enjoyment of the property exceeds the specified area, such minimum area shall bedeemed to be the specified area.

Aggregate Area : It means 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 unbuilt area.

Unbuilt Area : It means in relation to the aggregate area of the plot of land on which theproperty is constructed, means that part of such aggregate area on which no building has beenerected.


STEP- V : Adjustment for unearned increase in value of land [Rule 7]

If the property is constructed on lease hold land obtained from the Government or the localauthority or any other authority refer to in sec. 10(20A) of the Income-tax Act and if the leaseprovides for claim and recovery of a specified part of the unearned increase in the value of landat the time of transfer such property then a deduction is to be made from the value as arrived atin Step-IV as below:

50% of the value arrived at in Step-IV (or) amount so liable to be claimed and recovered, which-ever is less.

STEP- VI : Value of immovable property for Wealth-tax purpose :

Value as in Step-IV (–) Value as in Step-VValuation Rule 3 to 7 when not applicable : The mode of valuation prescribed in rule 3 ofSchedule III shall not apply in the following cases [Rule 8] :

Where, having regard to the facts and circumstances of the case, the Assessing officer,with the previous approval of the Joint Commissioner, is of opinion that is is not practi-cable to apply the provisions of the said rule to such case; or

Where the difference between the unbuilt area and the specified area exceeds 20% of theaggregate area; or

Where the property is constructed on leasehold land and the lease expires within a periodnot exceeding fifteen years from the relevant valuation date and the deed of lease does notgive an option to the lessee for the renewal of the lease.

In the above cases, the value of the property shall be determined in manner laid down in rule 20.

Valuation of Business Assets [Rule 14]

1. Closing stock at value adopted for income-tax purposes.

2. Depreciable assets at the written down value.

3. Other assets at the book value.4. Assets not disclosed in the balance sheet at the value determined as per the Schedule III.

Where the value of any assets determined according to the provisions of Schedule-III exceedsthe value given above by more than 20% of the above value, then higher value shall be taken asthe value of the asset.

Valuation of interest in firm or AOP [Rule 15 & 16]

The net wealth of the firm or AOP is determined as per the valuation rule for business assets(discussed above). The net wealth so computed is then allocated amongst the partners/mem-bers as under :


Wealth Tax

Amount of net wealth equal to the capital of the firm/AOP is allocated in the proportionof capital contributed by each partner/member.

Amount of net wealth in excess of the capital of the firm/AOP, is allocated in the ratio inwhich the assets are to be distributed in the event of dissolution as per the terms of agree-ment, or in the absence of any such agreement in profit-sharing ratio.

Value of assets exempt u/s. 5 (included in net wealth) is also allocated amongst the part-ners/members in the aforesaid manner.

Valuation of life interest (Rule 17)

The value of the life interest of an assessee shall be arrived at by multiplying the average an-nual income that accrued to assessee from the life interest by the fraction1/(P+d) minus 1, where ‘P’ represents the annual premium for a whole life insurance withoutprofits on the life of the life tenant for unit sum assured as specified in the Appendix to theserules, and ‘d’ is equal to 1/(1+i) ‘i’ being the rate of interest.

Valuation of Jewellery [Rule 18]

Jewellery is valued at its fair market value i.e. that price it would fetch if sold in the openmarket, on the valuation data. [Rule 18(1)]

If the value of jewellery does not exceed Rs. 5 lakhs, the assessee should furnish a statement inForm 0-8A alongwith the return of net wealth. If the value of jewellery exceeds Rs. 5 lakhs, itshould be supported by a report of a registered valuer in Form 0-8. [Rule 18(2)]

Reference to Valuation Officer [Rule 3B of Wealth-tax Rules, 1957, Rule 18(3) of ScheduleIII and Sec. 16A of the Wealth-tax Act]

If the value of jewellery declared in the return is less than its fair market value by 33-1/3% orRs. 50,000, the Assessing officer shall refer its valuation to a Valuation Officer, and in such caseits value shall be the value as estimated by Valuation Officer.Adjustment in value of jewellery [Rule 19]

The value advance tax determined for an assessment year, shall be accepted for four subse-quent assessment years after making adjustments for the change in rate of gold or silver or anyalloy of gold or silver, as on the valuation date for the concerned assessment year and for thevalue of jewellery sold or acquired during the concerned assessment year. [Rule 19]

However, where the value of jewellery exceeds Rs. 5 lakhs, the report of the registered valuerobtained for one assessment year can also be used in subsequent four assessment years subjectto the aforesaid adjustments. [CBDT’s Circular No. 646, dt. 15.3.1993]


Value of assets in other cases [Rule 20]

1. The value of any asset, other than cash, being an asset which is not covered by rules 3 to19, for the purposes of this Act, shall be estimated to be the price which, in the opinionof the assessing officer, it would fetch if sold in the open market on the valuation date.

2. However, where the valuation of any asset referred to in that sub-rule referred by theAssessing officer to the Valuation Officer u/s. 16A, the value of such asset shall beestimated to be the price which, in the opinion of the Valuation Officer and not theAssessing officer, it would fetch if sold in the open market on the valuation date.

3. Where the value of any asset cannot be estimated under this rule because it is not salablein the open market, the value shall be determined in accordance with such guidelines orprinciples as may be specified by the board from time to time by general or specialorder.

Restrictive covenants to be ignored in determining market value [Rule 21]

For the removal of doubts, it is declared that the price or other consideration for which anyproperty may be acquired by or transferred to any person under the terms of a deed of trust orthrough or under any restrictive covenant in any instrument of transfer shall ignored for thepurposes of determining under any provision of this Schedule, the price such property wouldfetch if sold in the open market on the valuation date.

Assessment Procedure

The due date for filing the Wealth-tax return shall be the same due date applicable to an asses-see for filing the Income-tax return under section 139(1) of the Income-tax Act. [sec.14(1)]

If a person files a return of net wealth below exemption limit, shall be deemed never to havebeen furnished. However, a return furnished u/s. 17 shall be a valid return even if the netwealth disclosed therein in not exceeding the basic exemption limit. [sec. 14(2)]

Belated and Revised return : The provisions relating to filing of belated/revised return are simi-lar to that of the provision of sec. 139(4)/139(5) of the Income-tax Act. [s. 15]

Return by whom to be signed : The provision of sec. 15A are similar to that of the provisionof sec. 140 of the Income-tax Act. [sec. 15A]

Self assessment : The provision of sec. 15B are similar to that of the provision of sec. 140A ofthe Income-tax Act. [sec. 15B]

Assessment : Summary, scrutiny and best judgement assessment [Sec. 16(1), 16(3), 16(5) aresimilar to that of Income-tax Act subject to certain modifications.

Reference to Valuation Officer : The assessing officer may refer the valuation of any asset toa Valuation Officer only if the following requirements are fulfilled. [sec. 16A]


Wealth Tax

(a) The valuation is necessary for the purpose of making an assessment.

(b) The market value of the asset is required to be adopted while making suchassessment.

1. The Assessing officer may refer valuation of any asset under the following circumstances:-

(a) In a case where the value of the asset is returned (adopted) on the basis of the estimateby a registered valuer which in the opinion of the Assessing officer is than the fairmarket value (FMV).

(b) In any other case, if the Assessing officer is of the opinion :

that the fair market value of the asset exceeds by 33-1/3% or Rs. 50,000 over the valueof such asset as adopted by the assessee ; or

that having regard to the nature of the asset and the other relevant circum stances, itis necessary to make a reference.

2. The Valuation Officer, after hearing the assessee and the evidence furnished by him insupport of his objections, if any shall pass an order in writing, d termining the value of theasset and forward a copy to the Assessing officer and the assessee.

3. On receipt of the report from the Valuation Officer, The Assessing officer shall adopt thevalue determined by the Valuation Officer while making the assessment.

Wealth escaping assessment [Sec. 17]. It means :–

(i) Where no return of net wealth has been furnished by the assessee though the net wealthexceeds the maximum amount which is not chargeable to tax.

(ii) Where a return of net wealth has been furnished but no assessment has been made but theassessee has under stated the net wealth or has claimed excessive exemption or deductionin the return.

In case of wealth escaping assessment, the Assessing officer after recording reasons thereof,shall serve a notice under section 17 on such person requiring him to furnish a return of netwealth within a specified period, not being less than 30 days to assess/reassess such net wealthwhich has escaped assessment.

Time limit for issue of notice under section 17

The time limits for issuing notice under section 17 and the approvals subject to which an As-sessing officer can issue such notice are summarised as follows :–

If 4 years have expired, notice u/s. 17 can be issued in a case only if the wealth chargeable to taxwhich has escaped assessment amounts to or is likely to amount to Rs. 10 lakhs or more for thatyear.


Time limit for completion of assessment and reassessment [Sec. 17A]

The time limit for completion of assessment u/s. 16 and reassessment u/s. 17 are the same asthe time limit prescribed u/s. 153(2) of the Income-tax Act.

Case Law :

Reassessment wipes out original assessment and the reassessment must be in respect of notonly the items that escaped assessment but the entire assessment for the year. The assessingauthority has a statutory duty and obligation apart from having jurisdiction to include all itemsthat have escaped assessment notwithstanding the fact that he had mentioned in the noticeonly some of the items, and to complete the assessment as if the reassessment proceedings arede novo afresh – CWT v. Subakaran Gangabhishan - 121 ITR 69

Interest for defaults for furnishing return of net wealth [Sec. 17B]

The provisions for charging interest u/s. 17B are similar to the provisions after suitable modi-fications applicable to sec. 234A of the Income-tax Act.

Rectification of mistakes

Any mistake apparent for record may be rectified by the Wealth-tax authority/Appellate au-thority/Valuation officer with respect to any order passed by them either on its own motion oran application made by the assessee.

Penalties & ProsecutionDefault for nonpayment of tax : Not exceeding the amount of assessees. [Sec.32]Power to reduced Penalty or waive penalty : The power of the Commissioner are similar tothe provisions of Sec. 273A of the Income-tax Act. [sec. 18B]

Prosecutions

Section 35A to 35N deal with prosecutions for offences under the Wealth-tax Act.The nature of the offences and the quantum of penalty or other punishment prescribed arebriefly indicated below in a tabular form :


Wealth Tax

Section Nature of offences Quantum of fine or other punishment

35A(1) Willful attempt to evade tax, penalty - In a case, where the amount sought tobe evaded exceeds Rs. 1 lakh ,rigorousimprisonment for a minimum term of6 months upto a maximum term of 7years and fine

- In any other case, rigorousimprisonment for a minimum term of3 months upto a maximum term 3years and fine.

35A(2) Wilful attempt to evade payment

of tax, penalty or interest.

Rigorous imprisonment for aminimum term of3 months upto amaximum term of 3 years and in thediscretion of the Court also with fine.

35B Wilful failure to furnish return ofnet wealth u/s. 14(1) or 14(2) or17(1).

- In a case, where the amount sought tobe imprisonment for a minimum termof 6 months upto a maximum term of 7years and fine.-In any other case,rigourousimprisonment for a minimum term of3 months upto a maximum term of 3years and fine.

-Fine or prosecution under this sectionwill not be attracted if the return isfurnished by the assessee before theexpiry of assessment year and the taxpayable on the wealth determined onregular assessment does not exceedRs. 3,000.

35C Wilful failure to produce accounts,

records, etc. on or before the date

specified in sec. 16(4)

Rigorous imprisonment upto 1 year orwith fine equal to a sum calculated at arate which shall not be less than Rs. 4or more than Rs. 10 for every dayduring which the default continues orwith both.


35D False statement in a verification

(other than u/s. 35AB) under the

Act or under any rule.

-In a case, where the amount sought tobe evaded exceeds Rs. 1 lakh rigorousimprisonment for a minimum term of6 months upto a maximum term of 7years and fine.

-In any other case, rigorousimprisonment for a minimum term of3 months upto a maximum term 3years and fine.

35E False statement in a verification mentioned in sec. 35AB (registration of valuers)

Imprisonment for a term which mayextend to 6 months or with fine or withboth.

35EE . 35EE Failure by a registeredvaluer, without reasonable cause orexcuse to intimate to the Boardparticulars of conviction or findingreferred to in sec. 35ACC.

Imprisonment upto two years and fine.

35EEE Contravention of order issued toeffectconstructive seizure as per second proviso to sec. 37A or sec. 37(3A).

If a person makes any contravention ofthe above mentioned order, he shall bepunishable with rigorousimprisonment for a term which mayextend to two year and with fine.

35F Abetting or inducting anotherperson to deliver a false account, statementor declaration in relation to anyreturn of wealth or to commit anoffence u/s. 35A(1). (wilful attemptto evade tax, etc.)

g If a person convicted of an offence u/s.35A or 35B or 35D or 35F is againconvicted under any of these sections,he shall be punishable for the secondand subsequent offences with rigorousimprisonment for a minimum term of6 months and upto a maximum of 7years and with fine.

Case Law :

Power vested in Tribunal by section 35 is only to amend order to rectify any mistake apparentfrom record and not to review its order – CIT v. McDowell & Co. Ltd. – 136 Taxman 716.

Liabilities of assets in special cases [Sec. 19(2)]

Where a person dies without having furnished a return under the provisions of section 14 orafter having furnished a return which the Assessing Officer ahs reason to believe to be incorrect


Wealth Tax

or incomplete, the Assessing Officer may make an assessment of the net wealth of such personand determine the wealth-tax payable by the person on the basis of such an assessment, and forthis purpose may, by the issue of the appropriate notice which would have had to be servedupon the deceased person if he had survived, require from the executor, administrator or otherlegal representative of the deceased person any accounts, documents or other evidence whichmight under the provisions of section 16 have been required from the deceased person.

Case Law :

(i) No penalties could be levied under section 18(1)(a) on legal heir after death of assessee –CWT v. H.S.Chauhan 113 Taxman 630 / 245 ITR 704

Appeals, Revision & References [Secs. 23 to 29] Settlement Commission [Sec. 22A to 22L]

The provisions regarding appeals, revision, references and Settlement Commission under theWealth-tax Act are analogous to the provisions contained in the Income-tax Act, the studentsare required to study the Income-tax Study Note of this study note and Wealth-tax Act, 1957.

Presumption as to assets, books of account, etc [Sec. 42D]

Where any books of account or other documents, articles or things including money arefound in the possession or control of any person in the course of a search under section 37A,it may, in any proceeding under this Act, be presumed that—

(i) such books of account or other documents, articles or things including money belong tosuch person;

(ii) the contents of such books of account or other documents are true; and

(iii) the signature and every other part of such books of account or other documents whichpurport to be in the handwriting of any particular person or which may reasonably beassumed to have been signed by, or to be in the handwriting of, any particular person, arein that person’s handwriting, and in the case of a document stamped, executed or attested,that it was duly stamped and executed or attested by the person by whom it purports tohave been so executed or attested.”

Documents

Wealth Tax (33)