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Overview• Chargeability • Non-applicability• Definitions• Incidence of tax• Assets• Deemed Assets• Exempt Assets• Debts
Chargeability (Section 3)
• Wealth tax is chargeable for every assessment year in respect of net wealth on the valuation date for every:– Individual– Hindu Undivided Family– Company
• @ 1 percent of amount by which net wealth exceeds Rs 30,00,000
• The Act applies to the whole of India
Non-applicability (Section 45)• No wealth tax is chargeable in respect of net wealth of:
– any company registered under section 25 of the Companies Act, 1956 (formed for promoting commerce, art, science, religion, etc and applies its profits for the promotion of its objects eg Chamber of Commerce)
– any co-operative society– any social club– any political party– a Mutual Fund specified under section 10(23D) of the
Income Tax Act, 1961 (‘IT Act’)
Definitions (Section 2)...• Assessee - Sec 2(c):– means a person by whom wealth-tax or any other sum of
money is payable under the Wealth-tax Act, 1957 (‘Act’), and includes• every person in respect of whom any proceeding under the Act has
been taken, for determination of wealth-tax payable by him or by any other person or the amount of refund due to him or such other person,
• every person who is deemed to be an assessee under this Act• every person who is deemed to be an assessee in default under this
Act• Assessment Year - Sec 2(d):– A period of 12 months commencing on April 1 every year
falling immediately after valuation date.
Definitions (Section 2)• Valuation date - Sec 2(q):
– Last day of the “Previous Year” as defined in Section 3 of the IT Act • Financial year immediately preceding the Assessment Year• In case of a newly set-up business/ profession or a new source of income - PY commences on the date on which
business/ profession is set up or the source of income comes into existence
– March 31 immediately preceding the Assessment Year
• Net Wealth - Sec 2(m): – means aggregate value of assets, wherever located, belonging to
the assessee, on the valuation date (including deemed assets) LESS– aggregate value of all debts owed by the assessee on the
valuation date, which have been incurred in relation to the said assets
...Definitions (Section 2)• Issues:
– At what point of time is the value of the asset to be considered?Value of the assets to be considered at the last moment on the valuation date - Banarsi Dass v CWT (1970) 76 ITR 104 (All), and Dwarka Nath v CWT (1966) 62 ITR 304 (All)
– What would the term ‘belonging to the assessee’ connote?The expression ‘belonging to the assessee’ means ‘to be the property or rightful possession of’ the assessee. Mere possession or joint possession, unaccompanied by the right to or ownership of property would not bring the property within the definition of ‘net wealth’ as it would not ‘belong’ to the assessee.CWT v Bishwanath Chatterjee (1976) 103 ITR 536 (SC)Nawab Mir Barkat Ali Khan v CWT (1997) 226 ITR 654 (AP)
Incidence of taxation (Section 6)
• Incidence of taxation in the case of
– Individuals - depends upon their citizenship and residential status
– HUF and Companies - depends upon the residential status• Residential status for wealth tax purposes is the status
which the assessee enjoys during the previous year ending on valuation date under the IT Act
Incidence of taxation (Section 6)Category 1 Assesses Category 2 Assesses
Individual:Citizen of IndiaAND
Ordinary Resident
HUF: Ordinary Resident
Company : Resident in India
Global Wealth Only Indian WealthTaxable Wealth
All assets (India/abroad) Assets located in IndiaIncludable Assets
All debts (India/abroad) Debts in IndiaDeductible Assets
Individual: Foreign nationalAND
Not Ordinary Resident
HUF: Not Ordinary Resident
Company : Non resident
Assets (Section 2(ea))...• The following are treated as assets:
– Building or land appurtenant thereto
– Motor Cars
– Jewellery, bullion, furniture, utensils of gold, silver, etc
– Yachts, boats and aircrafts
– Urban land
– Cash in hand
…Assets • Building or land appurtenant thereto
– any building or land appurtenant thereto whether used for commercial or residential purpose or for the purpose of a guest house, or otherwise
– a farm house situated within 25 km from the local limits of any municipality or a cantonment board
• Exceptions: – A residential house if:
• it is meant exclusively for residential purposes, and • it is allotted by a company to an employee/ officer/ director who is in
whole-time employment, and• the gross annual salary of such employee/ officer/director is less than Rs
5,00,000
…Assets• Exceptions (contd): – A house held as stock-in-trade (for residential/
commercial purposes)
– A house (other than a residential house) occupied for own business or profession
– A residential property let out for at least 300 days during the previous year
– Commercial establishments or complexes
...Assets• Motor Cars
– Indian or foreign motor car• Exceptions:
– Motor cars used by the assessee in the business of running them on hire
– Motor cars treated as stock-in-trade
...Assets• Jewellery, bullion, furniture, utensils or any other article of gold,
silver, platinum or any other precious metal or any alloy containing one or more of such precious metals
• Jewellery includes:– Ornaments made of gold, silver, platinum or any other precious
metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel
– Precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel
...Assets• Jewellery excludes:
– Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 (wef AY 2000-01)
• Exception:– Jewellery held as stock-in-trade is not an asset
...Assets• Yachts, boats and aircrafts• Exception:
– Yachts, boats and aircrafts used for commercial purposes
– ‘Used for commercial purposes’ could have a wider intent than ‘used for business purposes’ (eg giving on lease other than in the normal course of business)
...Assets• Urban land - means land situated in:
– any area which is comprised within the jurisdiction of a municipality or a cantonment board having a population of not less than 10,000 (according to the last census figures which have been published before the valuation date)
– in any area within such distance (not being more than 8 km) from the local limits of any municipality or cantonment board referred to above, as the Central Government (‘CG’) may specify
• Issue:– Would ‘land used for agricultural purposes’ also be covered
within the meaning of ‘urban land’?
‘Urban land’ would also cover ‘agricultural land’.
...Assets • Exceptions:– Land on which construction of a building is not
permissible under any law
– Land occupied by any building which has been constructed with the approval of an appropriate authority
– Any unused land held by the assessee for industrial purposes for a period of 2 years from its date of acquisition
– Any land held by the assessee as stock-in-trade for a period of 10 years from its date of acquisition
...Assets• Cash in hand
– In case of individuals and HUF - Cash in hand, in excess of Rs 50,000
– In case of any other person - Any amount not recorded in the books of account
• Issues:– Would cash-in-transit on the valuation date be included ?
Cash-in-transit on the valuation date should be regarded as cash in hand– What about cheques/ demand drafts in hand ?
Cheques/ demand drafts in hand should not be regarded as cash in hand
Deemed Assets (Section 4)...In computing the net wealth of an individual, the following assets are deemed to be included:– Assets transferred to spouse, directly or indirectly, otherwise than for adequate
consideration or in connection with an agreement to live apart
– Assets transferred to the son’s wife
– Assets transferred to a person or an AOP for immediate or deferred benefit of the transferor or transferor’s spouse or son’s wife
...Deemed Assets• Issue:
– Till what point of time should the relationship between the spouses subsist?Relationship between husband and wife should subsist between transferor and transferee both on the date of transfer and on the valuation date
– Where a non taxable asset has been transferred and subsequently converted into an asset, is it required to be clubbed?On a plain reading of Section 4, an ‘asset’ is required to be transferred to attract clubbing provisionsHowever, it has been held in MG Kollankulam v CIT (Kerala) 115 ITR 160 that it is not necessary that property transferred should have been an ‘asset’ on the date of the transfer. The property held by the transferee should be an ‘asset’ as on the valuation date
...Deemed Assets• Assets held by a minor child on the date of valuation
– Minor child includes step child/ adopted child, excludes a married daughter and a minor child suffering from any disability specified in section 80U
– The assets held by minor child will be included in the net wealth of that parent whose net wealth (excluding assets of the minor child) is greater.
– If the marriage of parents does not subsist, the net wealth of the minor child shall be included in the net wealth of the parent who maintains the child during the previous year ending on the valuation date
• Issues (contd):
– What value is required to be clubbed ie value of transferred asset or value of converted asset on the valuation date?Value of the converted asset on the valuation date is to be clubbed - CWT v Kishan Lal Bubna (1993) 204 ITR 600 (SC)
...Deemed Assets• Clubbing of net wealth of minor with the parent
is not applicable in respect of assets which are held by the minor on the valuation date and which have been acquired by him out of the following income:
– income which arises or accrues to him on account of any manual work – income which arises or accrues to him on account of any activity involving
application of skill, talent or specialised knowledge and experience
...Deemed Assets• Value of interest of an assessee being a partner of
a firm or member of an AOP in the assets of the firm/ AOP – to be determined in the manner laid down in Schedule III to the Act – If a minor is admitted to the benefits of the firm, clubbing provisions discussed
earlier will apply
• Conversion or transfer by an individual, being a member of an HUF, of his separate property into joint family property other wise than for adequate consideration – Where the converted property is the subject-matter of a partial or total partition, the
value of the property received by the spouse on partition is clubbed with the individual
...Deemed Assets• Assets transferred to a person or an
association of persons otherwise than under an irrevocable transfer– Value of assets transferred under an irrevocable
transfer are to be clubbed in computing the net wealth of the transferor when the power to revoke arises to him.
…Deemed Assets• Gifts by book entries made by one person to another,
unless it is proved to the satisfaction of the assessing officer that the money had actually been delivered to the other person at the time the entries were made– The above would apply only if the entries are made in the books of account maintained by the
person making gifts, or by an individual, HUF, firm or AOP or BOI with whom he has business or other relationship
• Holder of impartible estate shall deemed to be the owner of all properties comprised in that estate
• Property held by a member of a co-operative society, company or AOP by way of allotment or lease under a house building scheme
...Deemed Assets• Property held by a person in part performance of a
contract – referred to under section 53A of the Transfer of Property Act
• Rights acquired by a person (excluding any rights by way of lease from month to month for a period not exceeding 1 year) with respect to any building or part by virtue of Section 269UA (f) of the IT Act (which defines transfer as sale, exchange, lease for not less than 12 years, etc)
Exempted assets (section 5)...• Any property held by an assessee under a trust or
other legal obligation for any public purpose of charitable or religious nature in India– Property forming part of any business (excluding a business u/s 11(4A) of the IT
Act, business carried on by a trust under section 10(23B) or 10(23C), etc) is not exempt
• Issue:– Can the trust property be claimed as exempt even if there is a breach of trust i.e.
money applied for objects other than the trust’s objects ?
Application of money held under trust is not relevant (as under the IT Act)- CWT v Trustees of JP Pardiwala Charity Trust (1965) 58 ITR 46
...Exempted assets• Coparcenary interest in HUF • Value of one building used for the residence by a
former Ruler of a princely state • Issues:
– Is land appurtenant to the palace building exempt ?Land pertaining to the palace building is to be treated as a part of the palace and is exemptAny excess land (as may be determined by the Urban Land Ceiling Act, etc) would not be exempt - S Wadiyar v Asst. CWT (1994) 48 ITD 550 (Bang)
• Jewellery in possession of a Ruler, not being his personal property, which has been or may be recognised as his heirloom by the CG or the Board, subject to the fulfillment of certain conditions
...Exempted assets• In the case of
– a person of Indian origin or a citizen of India, – who was ordinarily residing in foreign country, and – who has returned to India with the intention of permanently residing
in India, the following shall not be chargeable to tax for 7 successive AYs (commencing with the AY following the date on which such person returned to India):– moneys brought by him into India– moneys standing to his credit in a NRE account in any bank in India on
the date of his return to India– value of assets acquired by him out of money referred to above within
one year prior to the date of his return and at any time thereafter– value of asset brought by him into India– A person is deemed to be of Indian origin if he or either of his parents
or any of his grand parents were born in undivided India.
...Exempted assets• One house or part of house, or
• plot of land not exceeding 500 sq meters in area – exemption is available to individual or HUF (not for Company assessee)
– exemption is available regardless of whether the house is self-occupied or let out
• Issues:– What if the house is co-owned ?
If house is owned by more than one person, exemption is available to each co-owner
Debts...• From the aggregate of all assets (including
deemed assets but excluding exempted assets), deduct the value of debts owed by the assessee on the valuation date
• Conditions:– Only debt owed by the assessee on the valuation date is deductible– Debts have to be incurred in relation to those assets which are included in the
net wealth of the assessee
• Issues:– Can a deduction be claimed for the entire debt incurred in respect of a asset
which is partly exempt?A proportionate deduction can be claimed - Instruction No 1070 dated 28/6/1977
Valuation of a building• Gross Maintainable Rent- Higher of rent received/receivable or annual
value as assessed by the local authority.Expenditure on Municipal Tax and Repairs if borne by tenant should be added. If there is a deposit exceeding three months rent, interest at @ 15% should be added.
• Net Maintainable Rent- GMR-Taxes by local authority-15% of GMR• Capitalise Net Maintainable Rent- NMR x 12.5.If on a lease hold land
NMRx 10.If unexpired period of lease is less than 50 years NMRx8.• If a property has been acquired after 31st March 1974, original cost plus
cost acquisition and the calculation as above whichever will be taken as the value.
• Add premium for excess of Unbuilt area over *Specified areaUpto 5%-Nil, 5-10%-20%,10-15%-30%,15-20%-40%,Above 20% -NA* In case of Mumbai,Calcutta,Delhi,Chennai-60% aggregate area.In case of
other big cities 65% and other places 70%.
Thank You
