Transcript Wealth Tax Act, 1957

Computation of Wealth Tax Liability
CA Rajesh C. Shah
1]
Applicability
 Sec. 1
(1) This Act may be called the Wealth-tax Act, 1957.
(2) It extends to the whole of India.
(3) It shall be deemed to have come into force on the 1st day
of April, 1957.
CA Rajesh C. Shah
Sec. 2(ea) Assets means
(i) any building or land appurtenant thereto
whether used for residential or commercial purpose or
• for the purpose of maintaining a guest house or
• including a farm house situated within 25 kms from
local limits of any municipality or a Cantonment
Board
•
CA Rajesh C. Shah
Exclusions from building or land appurtenant
thereto
1. A house meant exclusively for residential purpose and
2.
3.
4.
5.
allotted by a company to whole-time officer having gross
annual salary less than Rs. 10 lakh
Any house for commercial or residential purpose which
forms part of stock-in-trade
Any house occupied by the assessee for his own business
or profession
Any residential property let out for >= 300 days
Any property in the nature of commercial establishments
or complexes
CA Rajesh C. Shah
Sec. 2(ea) Assets means
(ii) Motor Cars
other than those



used by the assessee in the business of
running them on hire
As stock in trade
Case Law : In the case of Southern Roadways Ltd. Vs.
CWT[2002] 122 Taxman 126 (Mad.), it was held that
“Motor Car” does not cover Heavy Vehicles”
CA Rajesh C. Shah
Sec. 2(ea) Assets means
(iii) Jewellery, bullions, furniture, utensils or any other article
made wholly or partly of gold, silver, platinum or any other
precious metal or any alloy containing one or more of such
precious metals
Provided that
where any of the said assets is used by the assessee as stock
in trade, such asset shall be deemed as excluded from the
assets specified in this sub-clause
Note : Gold Deposit Bond is not an Asset
CA Rajesh C. Shah
Sec. 2(ea) Assets means
 (iv) Yachts, boats and aircrafts
(Other than those used by the assessee for
commercial purposes)
Case Law : In the case of Amalgamated Electricity Co. Ltd.
V State of Rajasthan AIR 1983 Raj. 154, it was held that if
the asset is used for doing business, the object of which is
to make profit, then the asset is said to be used for
“Commercial Purposes”. It is nowhere laid down that in
order to satisfy the requirements of Commercial Purpose,
aircraft should be used as air taxi.
CA Rajesh C. Shah
 (v) Urban Land
Urban Land means land situated—
- In jurisdiction of Municipality or Cantonment Board
with population >= 10000
- In any area with in
Distance from
Population
Local Limits of Municipality
or Cantonment Board
- 2 Kms
>10000<=100000
- 6 Kms
>100000<=1000000
- 8 Kms
>1000000
(w.e.f. 01/04/2014 amendment made -distance is to be
measured aerially)
CA Rajesh C. Shah
 Exclusions from Urban Land
Agriculture Land used for Agriculture Purpose
2. Land on which Construction of Building is not
Permissible
3. Land occupied by any Building which has been
constructed with approval of appropriate authority
4. Unused Land held by assessee for Industrial Purpose for
2 years from the date of Acquisition
5. Any Land held by assessee as Stock In Trade for 10 Years
from the Date of Acquisition
1.
CA Rajesh C. Shah
 (vi) Cash in Hand
- For Individuals & HUF : >Rs.50000/- For other Persons : Amt. not recorded in
books of account
CA Rajesh C. Shah
Sec. 3(2) – Charging Section
 There shall be charged
 for every assessment year,
 wealth tax in respect of net wealth on corresponding
Valuation Date
 Of every Individual, HUF and Company
 @ 1%
 Of the amount by which net wealth exceeds Rs. 30 Lacs
CA Rajesh C. Shah
Exclusions from Applicability of Wealth Tax Act,
1957
 By virtue of Sec. 45 of the Act No tax shall be levied in
-
-
respect of Net Wealth of
Any Company registered u/s 25 of the Companies Act, 1956
Any Co-Operative Society
Any Social Club
Any Political Party
A Mutual Fund specified u/s 10(23D) of the Income Tax act
The Reserve Bank of India
CA Rajesh C. Shah
Sec. 4 Net Wealth to Include Certain Assets
(Clubbing of Assets)
 In computing the net wealth
- Of an individual
1. Assets transferred to spouse[Sec. 4(1)(a)(i)]
2. Assets held by a minor child[Sec. 4(1)(a)(ii)]
3. Assets transferred to a person or AOP for the benefit of
the Individual or his/her spouse[Sec. 4(1)(a)(iii)]
4. Assets transferred to a person or AOP under revocable
transfer[Sec. 4(1)(a)(iv)]
5. Assets transferred to sons’ wife[Sec. 4(1)(a)(v)]
6. Assets transferred to a person or AOP for the benefit of
son’s wife[Sec. 4(1)(a)(vi)]
CA Rajesh C. Shah
 Exclusions from Clubbing of Wealth in the Case of an
Individual
Where the transfer of assets is chargeable to Gift Tax or
the assets are not chargeable to tax u/s 5 of that Act.
2. Assets acquired by the Minor Child out of his own
income and which are held by him on the valuation date.
Note :
1.Assets held by Minor should be added to the wealth of
that parent whose net wealth is greater(excluding the
assets of Minor Child)
2. Assets held by Minor should be added to the Net
Wealth of the Parent who maintains the child in case the
marriage of his parents does not subsist
1.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
(i) Property held under a Trust for any public purpose of
charitable or religious nature in India
However, the exemption is not available in respect of
business assets of the above trust except where
the business is referred to in clause (a) or (b) of Sec.
11(4A) of the I.T. Act ,1961 in respect which
separate Books of Accounts are maintained
or
the business is carried on by an institution, fund or
trust referred to in 10(23B) or 10(23C) of the I.T. Act
,1961
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
 Case Laws :
1. In order to avails the exemption u/s 5(i), it is not
necessary to hold the property in India but it is necessary
that the public purpose of charitable or religious nature
should be in India. [Trustees of H.E.H. The Nizam’s
Pilgrimage Money Trust vs. CWT (2000) 243 ITR 676
(SC)]
2. If Under a Trust Deed the purposes for which the trust
property could be put to use are not confined to religious
or charitable use and they can be used for social, cultural
and other allied purpose at the discretion of the trustees
then the exemption is not available u/s. 5(i). [Gangabai
Charities vs. CWT (2001) 250 ITR 666 (SC)]
Sec. 5 Exemption in respect of certain assets
(ii) Interest in Co-parcenary Property of HUF
(iii) Any one building (being official residence) occupied by a
former ruler of a princely state
Case Law :
1. An ex-ruler can not have the benefit u/s 5(vi) if he has
opted for exemption u/s 5(iii) of the Act.[ Gaj Singh Vs.
Settlement Commission (2000) 113 Taxmann 32 (SC)]
2. U/s 5(iii), the assessee is entitled to exemption only in
respect of those building or palaces which were occupied
by the ruler and not in respect of the buildings let out to
tenants.[Mohd. Ali Khan Vs. CWT(1997) 224 ITR 72
(SC)]
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
(iv) Jewellery in possession of a former ruler of a princely
which has been state Recognised as heirloom
 Conditions for recognition as heirloom
1. Jewellery must be kept in India except approved by Board.
2. Reasonable steps should be taken so as to keep jewellery
substantially in original shape.
3. Reasonable facilities to be allowed to officer of the
government to examine the jewellery.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
The recognition can be withdrawn with retrospective
effect from 09/09/1972 and wealth tax is payable for all
A.Y. commencing from the A.Y. relevant for the valuation
date falling after 9/9/1972 for which the jewellery was
exempted on account of such recognition subject to
following conditions.
a. FMV on the date of withdrawal of recognition shall be
deemed to be FMV for all successive valuation date
relevant for A.Y.s referred to above.
b. The aggregate W.T. payable can not exceed 50 % of
FMV on valuation date relevant to the AY in which
recognition was withdrawn.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
(v) Assets belonging to Indian Repatriates
Conditions for Exemption:
1. Assessee should be a person of Indian origin or a citizen
of India.
2. He was ordinarily residing in a foreign country.
3. Such person has returned to India with the Intention of
permanently residing in India.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
If above conditions are satisfied then following shall not be
chargeable to tax for 7 successive A.Y.(commencing with
the A.Y. next following to the date on which such person
returned to India.)
a. moneys brought by him into India.
b. Value of asset brought by him in to India.
c. Balance of a Non-resident(External) Account in any bank
in India on the date of his return to India.
d. value of assets acquired by him out of money referred to
in (a) and (c) supra within one year prior to the date of his
return and at any time thereafter.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
 Case Laws :
Even if assessee has converted assets, which were brought
by him from outside India into money, and used that
money for acquisition of other assets, the asset which is
acquired with sale consideration of original asset, is also
eligible for exemption.(CWT vs. K.O. Mathews [2003] 133
Taxman 418 (Ker)
2. The exemption does not extend to the income or interest
earned out of the use of the aforesaid funds in India after
the date of Return.( CWT vs. Dr.(Mrs.) Issac[2002] 125
Taxman 417(Mad.))
1.
CA Rajesh C. Shah
Sec. 5 Exemption in respect of certain assets
 (vi) One house or Part of a house
- Applicable to Individual or HUF
- Either a house or a part of house
OR
- a pot of land up to 500 Sq. Meters in area.
Note :
A house eligible for exemption whether it is self
occupied or let out.
In case a house is owned by more than one person,
exemption is available to each co-owner oh the house.
CA Rajesh C. Shah
Computation of Net Wealth(Sec. 2(m))
 Particulars
Rs.
Value of Assets u/s 2(ea) as on 31-3
XX
+ Value of Deemed Wealth u/s 4
XX
Total Wealth
XX
- Debt in relation to assets included
(XX)
Net Wealth
XX
Net Wealth in excess of Rs. 30 Lacs is charged to tax @
1%.
Note : No deduction shall be allowed for the wealth Tax
Liability in the computation of the Taxable Net Wealth of
the assessee. Cirular No. 663, dated 28-9-1993
CA Rajesh C. Shah
Sec. 6 : Exclusion of assets and debts outside
India
Particulars
R&OR
RBNOR
NR
1. In the case of an
Indiavidual who is
an Indian
National, HUF and
Company
Taxable
Wealth=All
Assets-All
Liabilities
Taxable
Wealth=All Assets
located in IndiaAll Liabilities
located in India
Taxable
Wealth=All Assets
located in IndiaAll Liabilities
located in India
Taxable
Wealth=All Assets
located in IndiaAll Liabilities
located in India
Taxable
Wealth=All Assets
located in IndiaAll Liabilities
located in India
2. In case of an
Taxable
Individual who is a Wealth=All Assets
foreign national
located in IndiaAll Liabilities
located in India
CA Rajesh C. Shah
Sec. 7 : Valuation of assets
(1) The value of any assets other than Cash should be
determined in the manner laid down in Sch. III as on
the Valuation date.
CA Rajesh C. Shah
Rule 3 : Part B Schedule III : Valuation of
Immovable Property
 Value of Free-hold Property = Net Maintainable Rent * 12.5
 Value of Lease-hold Property
1. Where unexpired period of lease >=50 yrs
Value of Property = Net Maintainable Rent * 10
2. Where unexpired period of lease <50 yrs
Value of Property = Net Maintainable Rent * 8
Properties acquired/constructed after 31/03/1974 :
If the value so arrived at is lower than the cost of
acquisition/construction of property then cost of
acquisition is taken as capitalized value.
CA Rajesh C. Shah
Rule 4 : Part B Schedule III : Computation of Net
Maintainable Rent
 Particulars
Amount
Gross Maintainable Rent
Less :
1. Municipal Taxes
2. 15 % of GMR
Net maintainable Rent
CA Rajesh C. Shah
XX
(XX)
(XX)
XX
Rule 5 : Part B Schedule III : Computation of Gross
Maintainable Rent
 A. If the Property is Let Out
Annual Rent received/receivable by the owner or
annual value of the property as assessed by local
authority, whichever is higher
 B. If the Property is Not Let Out
Annual Rent assessed by the Local Authority or if
the property is situated outside the jurisdiction of
a local authority, the amount which the owner can
reasonably be expected to receive as annual rent
had such property been let
CA Rajesh C. Shah
Rule 5 : Part B Schedule III : Computation of Gross
Maintainable Rent
 Annual Rent : Annual rent is nothing but the actual rent
received or receivable, had the property been let out for 12
months.
Case Law : Where the tenant commits default in the
payment of rent and makes part payment of the rene, then
the GMR shall not be determined on the basis of the actual
rent received but on the basis of the amount payable under
the agreement. ( CIT vs. Bhagawati Ammal 262 ITR 622
(mad.))
CA Rajesh C. Shah
Rule 5 : Part B Schedule III : Computation of Gross
Maintainable Rent
 Annual Rent shall be increased in the manner specified below :
1.
2.
3.
4.
5.
Municipal Taxes borne by the Tenant
If Repairs in respect of property is borne by the tenant then
1/9th of the Actual rent
Notional Interest @ 15% p.a. ( If any interest paid then the
increase should be limited to 15% p.a.) on the amount of
deposit ( not on advance payment towards rent for a period of
three months or less )
Amount equivalent to Lease Premium divided by number of
years of the lease
Any Benefit or perquisite whether convertible in to money or
not received as consideration for leasing the property.
CA Rajesh C. Shah
Rule 6 : Part B Schedule III : Add Premium to NMR as
calculated under Rule 3, for unbuilt area of plot of land
The excess of unbuilt area over
specified area
Premium
<= 5 % of Aggregated Area
NIL
> 5% but <=10% of Aggregated Area
20% of Capitalized Value
> 10% but <=15% of Aggregated Area
30% of Capitalized Value
> 15% but <=20% of Aggregated Area
40% of Capitalized Value
> 20% of Aggregated Area
Rules given in Part B of Schedule III are
not applicable.
CA Rajesh C. Shah
Rule 6 : Part B Schedule III : Add Premium to NMR as
calculated under Rule 3, for unbuilt area of plot of land
 1.Aggregate Area = Area on which property is Built +
Unbuilt Area
 2.Unbuilt Area means that part of such aggregate area
on which no building has been erected
 3.Specified Area is
a. In Metro city, it is 60% of aggregate area
b. In Other Specified Cities, it is 65% of aggregate area
c. In other cities, it is 70% of aggregate area
CA Rajesh C. Shah
Rule 7 : Part B Schedule III : Adjustment for
unearned increase in the value of the land
 If the property is built on land obtained on lease from the
local authority or any authority referred to in Sec. 10(20A)
of the Income Tax Act, 1961 and if the lease provides for
claim or recovery of a specified part of unearned increase in
the value of the land at the time of transfer of the property,
then areduction is to be made by the LEAST of the
following :
1. Amount so liable to be claimed or recovered by the
concerned authority
2. 50% of the Value arrived at after giving effect of rule 6
CA Rajesh C. Shah
Rule 8 : Part B Schedule III : Rule 3 not to apply in
certain cases
 If the AO, with prior approval of Dy. Commissioner, is of
the opinion that it is not practicable to apply aforesaid
provisions to a particular case or
 Where the unbuilt are exceeds the specified area by more
than 20% of the aggregate area or
 Where the property is built on lease land and the lease
expires within a period not exceeding 15 years from the
relevant valuation date and the lease deed does not give an
option to the lessee for renewal of the lease.
CA Rajesh C. Shah
Rule 18: Part G Schedule III : Valuation of
Jewellery
 The value of the jewellery shall be estimated to be FMV.
 FMV shall be determined in the following manner:
1.
A statement in the prescribed form, where the value of
the jewellery on the valuation date is <=Rs. 5 lakhs.
If AO is of the opinion that that FMV of the jewellery
exceeds the value of the jewellery declared by the
assessee in his return by more than 33.33% of the
returned value or Rs. 50000, he may refer such valuation
to the V.O. u/s 16A(1) and the value of the jeweleery in
such case shall be the FMV as estimated by the V.O.
CA Rajesh C. Shah
Rule 18: Part G Schedule III : Valuation of
Jewellery
2. A report of registered valuer in the prescribed form where
the value of the jewellery on the valuation date is
>Rs. 5 lakhs.
If AO is of the opinion that that FMV of the jewellery
exceeds the value of the jewellery declared by the
assessee in his return, he may refer such valuation to the
V.O. u/s 16A(1) and the value of the jewellery in such case
shall be the FMV as estimated by the V.O.
CA Rajesh C. Shah
Rule 19: Part G Schedule III : Adjustment in the
Value of the Jewellery for subsequent A.Y.
 The value of the jewellery determined in accordance
with Rule 18 for any A.Y., shall be taken to be the value
of such jewellery for the subsequent FOUR years
subject to following adjustments:
a) Rate Adjustment
b) Quantity Adjustment
CA Rajesh C. Shah