ASSETS CHARGEABLE UNDER WEALTH TAX ACT, 1957
CA. V RAMNATH, B COM, FCA
COIMBATORE
[email protected]
1.
Introduction:
1.1
The concept of charging wealth tax on assets underwent a change in the year
1992. Tax was sought to be levied on non-productive six assets instead of
taxing all the assets subject to certain exemptions. By doing so, it was
expected that the assessee would be compelled to either make the assets
productive or dispose of the assets. The buyer also, would be compelled to do
the same. This would ultimately, at the macro level, put those assets into best
use.
1.2
In this paper an attempt is made to discuss the taxability of the assets held by
an assessee on the valuation date (i.e., on 31st day of March of the previous
year)
2.
Certain basics:
2.1
Wealth tax is leviable only on individual, HUF and Companies.
2.2
Upto Rs.30 lacs of net wealth, no tax is payable. Where net wealth exceeds
Rs.30 lacs, for such excess, wealth tax is leviable @ 1%.
2.3
There is no surcharge or education cess in respect of wealth tax.
2.4
Charitable or religious trusts would be exempt from levy of wealth tax so long
as the provisions of sec 13(1)(c ) or 13(1)(d) of the Income tax Act are not
attracted.
2.5
For a member of HUF, any interest in coparcenary property of HUF is also
exempt u/s. 5
2.6
Further, one must note that sec 45 of the Wealth tax Act specifically provides
that the provisions of the Wealth Tax Act would not apply in respect of the
following entities, namely,
a)
Mutual fund specified u/s 10(23D) of the Income tax Act, 1961
b)
Political party
c)
Co op society
d)
Social club
e)
A company having licence u/s. 25 of the Companies Act, 1956
f)
Reserve Bank of India
3.
Definition of asset:
3.1
Sec 2(ea) of the Wealth Tax Act, 1957 defines assets means six assets only.
One has to note that the assessee must be owner of these assets on the last
day of the previous year. In other words, the assessee would not be liable for
wealth tax even if he holds the assets for 364 days in the previous year and he
sold the said asset on the last day of the previous year.
3.2
Sec 2(ea) itself provides for exception to each type of assets mentioned in the
said clause. If an asset falls under this exception, then the said asset is not an
asset within the meaning of sec 2(ea) and consequently not liable for wealth
tax. Also, sec 5 of the Wealth tax Act, 1957 provides for exemption for levy of
wealth tax in respect of certain assets. In case a particular asset does not fall
under any of the exception provided in sec 2(ea) of the Act, but falls under the
exemption provided u/s. 5 of the Act, then also, one need not pay any wealth
tax on such exempt asset.
3.3
The type of assets covered in the definition and exemption u/s. 5 provided in
relation to such type of assets are given in the table below:
Type of asset
Urban land
Motor Cars
Cash in Hand
Additional
conditions
Situated in
specified
area
Exception (sec.2 [ea])
Exemption – sec.5
a) On
which
construction
not
permissible
b) On which building
constructed
with
approval
c) Held for industrial
purpose for 2 years
from the date of
acquisition
d) Held as stock in
trade for 10 years
from the date of
acquisition
e) Classified
as
agricultural land in
the records of the
government
and
used for agricultural
purposes
a) Used in the business
of running on hire
b) used as stock in
trade
a) For Individuals and
HUF - upto
Rs.50000/b) For others – amount
recorded in the
books
For NRI - see note
below
For
individual,
plot of land not
exceeding 500 sq
meters in area
(alternatively see
note in building
column below)
For NRI - see note
below
Type of asset
Yachts,
boats, and
aircrafts
Jewellery &
bullion
Building or
land
appurtenant
thereto
Additional
conditions
Exception (sec.2 [ea])
a)
Includes
Furniture
utensils or
article made
of gold,
silver,
platinum etc
Used for
residential
purpose
Used for
commercial
purposes
Used as
guest house
Used as
Farm house
(within 25
KM from
municipality)
Exemption – sec.5
Used for commercial For NRI - see note
purposes
below
a) Used as stock in
trade
a) Gold deposit bonds
a) Used
for
own
business
or
profession
b) Forming
part
of
stock in trade
c) Let out for more
than 300 days pa
d) Allotted
by
a
company
to
its
employees or officers
or director in whole
time
employment
having gross annual
salary of less than
Rs. 10 Lac
a) Used
for
own
business
or
profession
b) Forming
part
of
stock in trade
c) In the nature of
commercial
complexes
or
establishments
a) Used
for
own
business
or
profession
b) Allotted
by
a
company
to
its
employees or officers
or director in whole
time
employment
having gross annual
salary of less than
Rs. 10 Lac
a) Used
for
own
business
or
profession
For former Ruler,
Jewellery in his
possession
recognized as his
heirloom
For NRI - see note
below
For Individual, a
house or part of a
house (alternative
to the note given
in
urban
land
column above)
For former ruler,
any one building
being
official
residence in his
occupation
For NRI - see note
below
For NRI - see note
below
For NRI - see note
below
Note:
As per sec 5 of the Wealth Tax Act, for Indian Citizen or Person of Indian Origin
returning from abroad for permanent residence, the following would not be
chargeable to wealth tax for a period of 7 successive assessment years from the
date of arrival in India
a)
Assets purchased out of the moneys brought into India within one year before
the return to the country or at any time later
b)
Assets purchased out of the money standing to the credit of NRE A/c.
c)
Assets brought into India at the time of return
d)
Assets purchased out of the sale proceeds of the assets brought into India
4.
Case laws:
4.1
Aircraft used for personal purposes would alone be chargeable to wealth tax.
However, aircraft used for the purpose of business or profession would not be
chargeable to wealth tax because it is construed as used for commercial
purposes – Garware Wall Ropes Ltd - 89 ITD 221 (Mum)
4.2
However, such an analogy is not applicable in respect of motor cars because
of the language used in the definition. In view of the specific language used,
the motor cars used for own business or profession would be chargeable to
wealth tax.
4.3
In case of individual or HUF, cash in hand in excess of Rs.50000 is assessable
to wealth tax. Even if the cash is found to be in the business of the assessee,
the levy of wealth tax is not avoidable. One cannot argue that levy of wealth
tax is only on non-productive assets and money kept in business is productive
one and therefore non wealth tax should be levied on it – Smt K R Ushasree –
332 ITR 75 (Ker)
4.4
Urban land is chargeable to tax subject to the exceptions provided. A land
occupied by any building which has been constructed with the approval of
appropriate authority is one of the exceptions provided in the Statute. A
question arises whether the land on which building is under construction as
on the valuation date is liable for wealth tax. One view would be that as on the
date valuation date, the land is not occupied by a building and therefore, the
land must be subjected to wealth tax till the completion of the building on
such land. The other view would be that the land is put to productive use
moment the construction is started on the land and hence the land is not
chargeable to wealth tax. An incomplete building is not building within the
meaning of Sec 2(ea) of the wealth tax Act and consequently, the incomplete
building is also not liable for wealth tax Act. The latter view seems more
reasonable and found favour by the Honourable Punjab and Haryana High
Court in the case of Smt Neena Jan – 330 ITR 157 and by Honourable Delhi
High Court in the case of Prem Nath Motors P Ltd – 238 ITR 414
4.5
Only Individual, HUF and Company are liable for wealth tax. The term
Individual includes individuals as well in view of the General clauses Act. The
trustees of the trust, would be assessable for wealth tax – Trustees of
Gordhandas Govindram Family Charity Trust – 88 ITR 47 (SC)
4.6
Urban land situated in a specified area is chargeable to wealth tax. The
definition of specified area is amended in line with the amendment made in
sec 2(1A) and sec 2(14) of the Income tax Act, 1961. Consequently, the
distance of specified kilometres from the local limits of the municipality is to
be measured aerially and notification of such distance is dispensed with.
5.
Other points:
5.1
Sec 4 of the Wealth Tax Act, 1957 deems certain assets as that of the assessee
even though the assessee is not the owner of such assets on the valuation
date.
5.2
There are 10 such deemed assets contemplated u/s. 4 of the Act. Those 10
assets could be classified into two categories, viz., assessee wise and asset
wise. Following table lists out those 10 deemed assets
ASSESSEE WISE
1. Interest in AOP/ Firm
2. Transfer to Spouse /
Son’s wife
3. Transfer or conversion by
Member of HUF
4. Assets transferred under a
revocable transfer
5. Gift by book entries
6. Impartiable Estate
7. Minor’s wealth
ASSET WISE
8. Building allotted by Housing Society
9. Rights acquired in building by way of
any agreement or arrangement
10. Possession of building by a contract
u/s. 53A of Transfer of Property Act
5.3
Unlike sec 64 of the Income tax Act, as per sec 4 of the Wealth Tax Act, the
clubbing provisions would not operate in case of minor married daughter.
6.
Conclusion:
6.1
The concept of levying wealth tax on non-productive assets was a very
welcome move by the Government which had compelled the assessees to
convert the non-productive assets into productive assets.
6.2
Until recently, a controversy was going on as to the taxability of the
agricultural land situated in the specified area. This controversy was
addressed by making a retrospective amendment in sec 2(ea) of the Act
whereby the agricultural lands situated in the specified area is excluded from
the definition of asset itself.
6.3
However, taxing the motor cars even if used for productive purposes would be
against the fundamental principle on which the entire levy of wealth tax is
contemplated. Similarly, taxing cash balance exceeding Rs.50000 held on the
valuation date in the case of money lender would be creating genuine
hardship.
If these genuine hardships are addressed, the levy of wealth tax would achieve
its purpose and would contribute for the development of the nation at the
macro level.
©©©©©©©©©
6.4