Wealth Tax Valuation

Purpose Of Wealth Tax Valuation
Valuation to Determine the Fair Market Value for levying of wealth tax on an individual, Hindu Undivided Family (HUF)

A. PAPER PRESENTED BY ANUP A. MOHABANSI AT CEP NAGPUR , AUG. 2004

B. PAPER PRESENTED BY-S.A.MAHADEVIA AT CEP AHMEDABAD ON WEALTH TAX ACT

A. PAPER PRESENTED BY ANUP A. MOHABANSI AT CEP NAGPUR , AUG. 2004

1. Assets

The expression "Assets" has been defined by Section 2(e) for the assessment up to 1992-93. However, from the Assessment Year 1993-94, the expression "Assets" has been defined by a new sub clause (e a) of Section 2 of the Wealth Tax Act. For the sake of convenience, the definition as given in the said section is reproduced below:

"Section 2(ea), "assets", in relation to the assessment year commencing on the 1st day of April, 1993, or any subsequent assessment year till the A.Y. 1996-97 means-

(i) any gust house and any residential house including a farmhouse situated within twenty-five kilometers form the local limits of any 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), but does not include - (a) 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 tow lakh rupees; (b) any house for residential purposes which forms part of stock-in-trade;

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

(iii) jewellery, bullion, 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 assets shall be deemed as excluded from the assets specified in this sub-clause;

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

(v) urban land:

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

Explanation. - For the purposes of this clause - (a) "jewellery" includes - (i) ornaments made of gold, silver, platinum or any other precious metals, or any alloy containing one or more of such precious stones, and whether or not worked or sewn into any wearing apparel; (ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wering apparel;

(b) "Urban land " means land situated -(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 according to the last preceding census of which the relevant figures have been published before the valuation date; or (ii) in any area within such distance, not being more than eight kilometers from the local limits of any municipality or cantonment board referred to in sub-clause (i), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant consideration, specify in this behalf by notification in the Officials Gazette, but does not include land on which construction of a building is not include permissible under any law for the time being in force in the area in which such land is situated or the land occupied by any building which has been constructed with the approval of the appropriate authority or any unused land held by the assessee for industrial purposes for a period of tow years from the date of its acquisition by him (or any land held by the assessee as stock -in -trade for a period of five years (from the A.Y. 1995-96) from the date of its acquisition by him.;

Thus, broadly speaking, the six types of assets alone are liable to wealth tax and not any other assets from the Assessment Year 1993-94 under the Wealth Tax Act: (i) Guest house /farmhouse and a residential house subject to certain condition; (ii) Motor cars; (iii) Jewellery, bullion, etc.; (iv) Yachts, boats and aircraft; (v) Urban land; and (vi) Cash in had.

The taxability of above assets to wealth tax is also subject to certain condition given in the definition of assets. It is, therefore, clear that items of wealth, like bank fixed deposits, units, shares, commercial assets, etc. are not liable to wealth tax as they are not included in the expression "assets".

The Finance (No. 2) Act, 1996 had amended the definition of the expression "assets" in Section 2(ea). Sub clause (i) of Section 2(ea) has been substituted with effect with effect from the assessment year 1997-98 by the the following sub-clause: -

New Sub -clause (i) of section 2(ea): "any building or land appurtenant thereto (hereinafter referred to as "house"), whether used for residential or commercial purposes or for the purpose of maintaining a gust-house or otherwise including a farmhouse situated within twenty-five kilometers from local limits of any municipality (whether known ass municipality, municipal corporation or by any other name) or a cantonment board, but dose not include -(1) a house meant exclusively for residential purposes and which is allotted by a company to an employment, having a gross annual salary of less than two lakh rupees; (2) any house for residential or commercial purposes which forms part of stock-trade; (3) any house which the assessee may occupy for the purposes of any business or profession carried on by him."

Thus, the most important amendment which should be noted by the taxpayers is that if any commercial house property is let out, it will no longer be regarded as a commercial property is let out out, it will no longer be regarded as a commercial property I exempt from wealth-tax from the A.Y. 1997-98. Thus, any house (Whether residential or commercial) which the assessee may occupy for the purposes of any business or profession carried on by him would be exempt from wealth-tax from the A.Y. 1997-98. and not every commercial house or flat.

The Finance (No2) Act, 1998 has drastically amended the definition of "assets" as appearing in Section 2(ea) w.e.f. a.y. 1999-2000. Sub-clasue: - (i) of Section 2(ea) has been substituted by the following sub-clause: -

"New Sub-clause (i) Section 2(ea)"

Any building or land appurtenant thereto (hereinafter referred to as "house"), whether used for residential or commercial purposes or for the purpose of maintaining a gust house or otherwise including a farm house situated within twenty-five kilometers from local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board, but does not include-

(1) 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 five lakh rupees;

(2) any house for residential or commercial purposes which froms part of stock-in-trade;

(3) any house which the assessee may occupy for the purposes of any business or profession carried on by him;

(4) any residential property that has been let-out for a minimum period of three hundred days in the previous year;

(5) any property in the nature of commercial establishments or complexes;"

The Finance act, 1999 has, from the a.y.2000-2001 inserted Explanation 2 in Section 2 (ea) to provide that "jewellery" does not include the Gold Deposit Bonds.

2. Building

A building could be residential, commercial, industrial or it may simply represent a building or structure of a farmhouse. A residential, commercial or industrial building which the assessee may occupy for the purposes of any business or profession carried on by him is completely exempt from tax. A residential building with some exceptions is liable to wealth tax as a part of the "assets" as explained under the heading ASSETS. With effect from the case of an individual or HUF.

3. Building: Factory

This is an item of wealth, which is outside the definition of "Assets" as per Section 2 (ea) of Wealth Tax Act, 1957. It is not regarded as non-productive asset from the Assessment Year 1993-94 and is, therefore, completely outside the purview of wealth tax. It is thus completely exempt from wealth tax without any monetary limit.

4. Bullion

This item of wealth is considered as a part of "Assets" within the meaning of Section 2 (ea) of the Wealth Tax Act, 1957 from the Assessment Year 1993-94. Thus, this item of wealth is considered as a non-productive asset and is made liable to wealth tax. However, this item of wealth (other than stock-in -trade) along with other non-productive assets is liable to wealth tax only if the total value as on the valuation date exceeds the exception limit of Rs. 15 lakh. Thus, if the value of this item of wealth along with other non-productive assets amount within not be liable to any wealth tax even on such non-productive assets.

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5. Car

From A.Y. 1993-94, car is considered as a part of ASSETS WITHIN THE MEANING OF section 2 (ea) of the Wealth Tax Act, 1957. Thus, this item of wealth (other than those used by the assessee in the business of running them on hire or as stock-in-trade) is considered as a non-productive asses and is made liable to wealth tax. However, along with other non-productive assets is liable to wealth tax only if the total value as on the valuation date exceeds the exemption limit of Rs. 15 lakh. If the value of item of wealth along with other non-productive assets comes within Rs. 15 lakh as on the valuation date, the taxpayer would not be liable to any wealth tax even on such non-productive assets.

If, however, cars are held by a person as stock-in-trade or for hiring, than the cars are not considered to be liable to to wealth tax and are excluded from the taxable "Assets".

6. Car (personal)

A personal car is liable to wealth tax as part of taxable "Assets" if the values on the valuation date of all the items of taxable items of wealth exceeds Rs. 15 lakh. For example, Mr. 'A' has only one Mercedez car valuing Rs. 20 lakh which is used by him as a personal car. He has no other taxable wealth. He would be liable to wealth tax in respect of the one Mercedez car on Rs. 5 lakh (Rs. 20 lakh- Rs. 15 lakh) @ 1%, I.e., wealth tax payable by him would be Rs. 5,000.

7. Cash in Hand

Cash in hand constitutes a taxable a taxable item o wealth and is a part of "Assets " within the meaning of Section 2(ea) of Wealth Tax Act, 1957 from the Assessment Year 1993-94. However, it is only in excess of Rs. 50,000 in the case of individuals and Hindu undivided families that cash in hand on the valuation date is made liable to wealth tax. Thus, if cash in hand in the case of individuals and Hindu undivided families is less than Rs. 50,000 than it is not liable to wealth tax at all. In the case of other persons including companies any amount of cash in hand which is not recorded in the books of account is liable to wealth tax and is part of the expression "Assets". However, where the value of non-productive assets including cash in hand not recorded in books of account of an assessee exceeds Rs. 15 lakh, than only the excess amount of assets would be liable to wealth tax from the Assessment Year 1993-94

8. Change of Land Use

Sometimes an agricultural land may be required to be changed to industrial land or commercial land. In such a case the necessary formalities as per the laws of the relevant State have to be complied with. From the point of view of the incidence of wealth tax, it should be remembered that change of land use to industrial land, or an agricultural land to industrial land results in complete exemption of the industrial land from wealth tax, provided the industry is set up within 2 years from the grant of the change of land use. Similarly, where a taxpayer holds open land as stock-in-trade, he can hold the same only for a period of 5 years from the date of its acquisition with change of of land use by him for the A.Y. 1998-99. This is as per the Explanation to Section 2 (ea) of Wealth Tax Act. Dealing with the definition of the expression "Assets" as amended by the Finance Act, 1994, with effect from the Assessment Year 1995-96. The Finance (No. 2 ) Act, 1998 provides that a person can hold open land as stock-in -trade for a period of 10 years.

9. Charge of Wealth Tax

The charge of wealth tax for the assessment years up to 1992-93 is as per the rates of wealth tax given in Schedule I. However, for the Assessment Year commencing on and fromv1993-94 as per Section 3(2) there is one uniform rate of wealth tax, i.e. 1% on net wealth (namely non-productive assets as specified in the Wealth Tax Act ) in excess of Rs. 15 LAKH IN THE CASE OF INDIVIDUALS, Hindu undivided family and companies only.

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10. Charitable and Religious Trusts

See TRUSTS CHARITABLE AND RELIGIOUS.

Chief Commissioner

The Chief Commissioner for the purpose of income tax is also treated as the Chief Commissioner for the purpose of wealth tax. The Chief Commissioner is generally the Chief Administrator of Income Tax & other direct taxes for particulars charge or charges as may be notified by the Central Government from time to time The Chief Commissioner also enjoys the powers to reduce or waive penalty or interest under Section 18 B and 31. He also enjoys powers to compound an offence as per Section 35-I (2). He can also take evidence of an assessee on oath as per Section 37 (1). The Chief Commissioner has the power to search and seizure under Section 37 A and to requisition books of account under Section 37 B. It is also provided in Section 35 I (1) of the Wealth Tax Act that the prosecution has to be at the instance of Chief Commissioner. Where there is no Chief Commissioner the powers of Chief Commissioner are enjoyed by the Commissioner, as may be notified.

11. Clubbing of Wealth

The provisions for clubbing the wealth of one person in the hands of another are contained in Section 4 of the Wealth Tax Act. It is provided in Section 4 (1) (a) that in computing the net wealth of an individual, the value of assets on the valuation date held by the following persons are to be included, as belonging to that person:

(i) by the spouse of such individual to whom they have been gifted, i.e., the spouse of the individual to whom such assets have been transferred by individual to directly or indirectly otherwise than for adequate consideration or in connection with an agreement to live apart,

(ii) by a minor child not being a married daughter of such individual,

(iii) by a person or association of persons to whom such assets have been transferred by the individual directly or indirectly otherwise than for adequate consideration for the immediate or deferred benefit of the individual and his or her spouse,

(iv) by a person or association of person to whom such assets have been transferred by the individual otherwise than under an irrevocable transfer,

(v) by the son's wife (i.e., daughter-in-law) of such individual to whom such assets have been gifted, i.e., to whom such assets have been transferred by the individual directly or indirectly on or after 1.6.1973 otherwise than for adequate consideration, and

(vi) by a person or association of persons to whom such assets have been transferred by the individual directly or indirectly on or after 1.6.1973, otherwise than for adequate consideration for the immediate or deferred benefit of the son's wife (i.e., daughter-in -law) of such individual or both.

It is also provided in the section that this clubbing provision is applied whether the assets are held in the form in which they were transferred or otherwise. Assets are held in the form in which they were transferred or otherwise. Where a minor child acquires assets out of this income referred to in proviso to Section 64 (IA) OF THE Income Tax Act, namely, by exercise of his manual labour or by exercise of his skill, knowledge and experience than the clubbing provision would not apply in respect of the value of such assets.

As regards, the clubbing provision applicable in the case of wealth of a minor child, it is provided that the same is to be included in computing the net wealth of the father or mother, whose net wealth (including the assets of the minor so includible) is greater. Where the marriage of the parents not subsist the clubbing of the minor's wealth is to be done in the net wealth of that parent who maintains the child in the previous year. Normally, where any such assets are once included in the net wealth of any of the parent in the succeeding year unless the Assessing Officer is satisfied after giving the parent an opportunity of being heard that it is necessary so to do. Section 4 (1) (b) of the Wealth Tax Act provides that in computing the wealth of an assessee who is a partner in a firm or a member of an association of persons, i.e., AOP (not being a Cooperative Housing Society), the value of his interest in the assets of the firm or AOP ascertained in the manner laid down in Schedule III to the Wealth Tax At, 1957 would be included as belonging to the assessee. Where a minor is admitted to the minor as per the provisions mentioned above. The Finance Act, 1994 has amended Section 4(1) (a) (ii) with effect from the Assessment Year 1995-96 that the wealth of a minor child who is suffering from any disability as is mentioned in Section 80-U of the I.T. Act., 1961 will not be so clubbed.

As regards the conversion of the individual property into the hotchpotch of Hindu undivided family, by an individual after 31.12.69, the provisions of clubbing of wealth of such converted assets are contained in Section 4(1A) of the Wealth Tax Act. It is also mentioned in Section 4(5) that the value of any assets transferred under an irrevocable transfer would be liable for inclusion in computing the net wealth of the transfer as and when the power to revoke arises to him.

Regarding the gift of money by book entries, the provisions of clubbing are mentioned in Section 4 (5A) which provides that where a gift of money from one person to another is made by means of entries in the books of account maintained by a person making the gift or by an individual or Hindu undivided family or a firm or an association or body of individuals with whom or with which he has business or other relationship, the value of such gift would be liable to be unless he proves to the satisfaction of the Assessing Officer that the money has actually been delivered to other person at the time the entries were made. As regards the assessee who is a member of an Association of Persons, being a Cooperative Housing Society, the rules of clubbing, etc., and the deemed ownership are contained in Section 4 (7). Thus, it is provided that where an assessee is a member of AOP being a Cooperative Housing Society and a building or a part thereof is allotted or leased to him under a house building society, the assessee would be deemed to be the owner of such building or part, and value of such building or part would be included in computing the net wealth of the assessee. However, in determining the value of such building or part, the value of any outstanding instalment of the amount payable under such scheme by the assessee to the society towards the cost of land, building or part and land appurtenant thereto shall, where the amount payable is described as such in any other manner, be deducted as debt owed by him in relation to such building or a Section 4 provides that the expression "Transfer" include any disposition, settlement, trust, covenant, agreement or arrangement.

12. Commercial Flats and Offices

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (ea) of the Wealth Tax Act, 1957. From the A Assessment Year 1993-94 till 1996-97 it is not regarded as nonproductive asset and is, therefore, completely exempt from wealth tax without any monetary limit. However, for the A.Y. 1997- 98 and A.Y. 1998-99 it would be so exempt only if it is occupied for the purposes of any business or profession carried on by him. The Finance (No.2) would be completely exempt from wealth tax without any condition of its use by the owner.

13. Commercial Freehold Property

This is an item of wealth which is outside the definition of "Assets" as pr Section 2(e a) of Wealth Tax Act, 1957. From the Assessment Year 1993-94 it is not regarded as non-productive asset and is, therefore, completely outside the purview of wealth tax. It is thus completely exempt from wealth tax without any monetary limit provided the same is occupied for the purposes of any business or profession carried on by him for the A.Y. 1997-98 w.e.f. the A.Y. 1997-98 and A.Y. 1999-2000 these assets would be completely exempt from wealth tax without any condition of its use by the owner.

14. Commercial Land

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (ea) of the wealth Tax Act, 1957, being regarded as non-productive asset and from the Assessment Year 1993-94 completely exempt from wealth tax without any monetary limit.

15. Commercial Leasehold Property

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (e a) of the Wealth Tax Act, 1957. From the Assessment Year 1993-94 it is not regarded as non-productive asset and is therefore completely exempt from wealth tax without any monetary limit provided it is occupied for one's own business or profession for the A.Y. 1997-98 and A.Y.1998-99. The Finance (No. 2) Act, 1998 provides that w.e.f. A.Y. 1999-2000 these assets would be completely exempt from wealth tax without any condition of its use by the owner.

16. Commercial Property

This is an item wealth which is outside the definition of "Assets" as per Section 2 (ea) of the Wealth Tax Act, 1957. From the Assessment Year 1993-94 it is not regarded as non-productive asset, and is therefore completely exempt from wealth tax without any monetary limit provided its occupied for one's own business or profession for the A.Y. 1997-98 and A.Y. 1998-99. The Finance (No.2) Act, 1998 provides that w.e.f. the A.Y. 1999-2000 these assets would be completely exempt from wealth tax without an condition of its use by the owner.

17. Commissioner

Commissioner or Commissioner of wealth tax has the same meaning as is assigned to the expression Commissioner of Income Tax under Section 2(16) of the Income Tax Act. He enjoys several powers under the Wealth Tax Act, including the power to transfer the cases and to make enquiries in certain matters. He also enjoys power to reduce or waive penalty or the interest under Section 18 B of the Wealth Tax Act. He can also exercise the powers to revise order of subordinate authority, if he considers the same as prejudicial to revenue under Section 25. He can also take evidence on oath under Section 37(1) and compound offences as per Section 35 I(2). In addition he can authorize a search and seizure as per the provisions contained in Section 37A. The Commissioner also enjoys the power to requisition books of account in certain cases as per Section 37B. A prosecution of an assessee for offence under the Wealth Tax Act to be launched under Section 35I (1). A new post of Additional Commissioner has been created.

The Commissioner has the powers to hear the powers to hear the 'Revision Petitions' filed by the assessee. However, the Finance (No.2) Act, 1998 provides that in respect of the "Revision Petitions" the Commissioner shall pass an order within one year from the end of the financial year in which such application is made by the assessee for revision.

18. Companies

A company is treated as an assessee under the Wealth Tax Act from the Assessment Year 1993-94 like an individual or an HUF. The definition of company as per Section 2(17) of the Income Tax Act is the same for Act. Under the purpose the provisions of Section 2(17) of the Income Tax Act "Company" means:

(i) Any Indian Company ;or

(ii) Anybody corporate incorporated by or under the laws of a country outside India; or

(iii) Any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the old Indian Income Tax Act, 1922 or which is or was assessable or was assessed under the Income Act, 1961 as a company for any assessment year commencing on or before 1.4.1970; or

(iv) Any institution, association or body, whether incorporated or not and whether Indian or non-Indian which is declared by general or special order of the Central Board of Direct Taxes to be a company.

However, it is provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years, as may be specified in the declaration.

Thus the definition of a company is very relevant since of the 3 main entities liable to wealth tax under the Wealth Tax Act, company is an important category of assessees. Companies registered under Section 25 of the Companies Act, are exempt from payment of wealth tax the provisions of Section 45 (f).

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19. Cooperative Housing Society

If an assessee is member of a Cooperative Housing Society and a building or part thereof is allotted or leased to him under housing building scheme of the society, as per provisions of Section 4(7) of Wealth Tax Act, he would be deemed to be the owner of the such building or part. The value of such building or part would be included in computing the net wealth of the assessee, provided such item of wealth is considered a non-productive asset. For example, if the assessee is owner of only one such flat or house leased by the Cooperative Housing Society, then the value of the such house would be completely exempt from wealth tax from the Assessment Year 1994-95.

As regards the tax liability on the Cooperative Housing Society, it may be mentioned here that Section 45(g) of the Wealth Tax Act, 1957 stipulates that it is not applicable to any Cooperative Society.

20. Factory Building

See BUILDING: FACTORY

Factory land

See LAND: FACTORY

FARM: Vegetable

Investment in a vegetable farm normally constitutes agricultlural land. However, with effect from Assessment Year 1993-94 if the farm is situated in an area which is known as 'urban land ' as per the definition given in Section 2 (e a) of the Wealth Tax Act as explained in detail under the heading ASSETS the value of the farm would be included in the taxable net wealth of the assessee concerned. If, however, the vegetable farm is situated outside the municipal limits, etc. in such a manner that it dose not constitute urban land, it is absolutely exempt from wealth Tax Act without any monetary limit.

21. Farmhouse

From the Assessment Year 1993-94 a farmhouse situated within 25 Kilometers from the local the limits of any municipality (whether known as Municipal Corporation, Notified Area Committee, Town Area Committee, Town Committee or by any other name) or a Cantonment Board is liable to wealth tax. The only exception in such a case is where a farmhouse forms part of the stock-in-trade of the assessee, then it is not liable to wealth tax. The other exception could be a farmhouse which is exclusively meant 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 gross annual salary of less than Rs. 2 lakh then it would not be considered to be liable to wealth tax. This item of wealth is normally considered as a part of "Assets" within the meaning of Section 2(ea) of the Wealth Tax Act, 1957 from the Assessment Year 1993-94 this item of wealth is considered as non-productive asset and is made liable to wealth tax. However this item of wealth along with other non-productive assets is liable to wealth tax only if total value value as on the valuation date exceeds the exemption limit of Rs. 15 lakh. Thus, if the value of this item of wealth along with other non-productive assets come within Rs. 15 lakh as on the valuation date, then the taxpayer would not be liable to any wealth tax even on such non-productive assets.

22. Farming: Cooperative

If an assessee is a member of Cooperative Farming Society, he would not be demand to be considered as the owner. The share in the Cooperative Farming Society is considered as an item of wealth which is a productive asset and is totally exempt from wealth tax without any monetary limit.

23. Farming: Fish

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (ea) of the wealth tax Act, 1957. Form the Assessment Year 1993-94 it is not regarded as non-productive asset and is, therefore, completely outside the purview of wealth tax. It is completely exempt from wealth tax without any monetary limit.

24. Farming: Poultry

The normal tools, implements, building and the lands used for poultry farming and the poultry chicken, eggs, etc. do not constitute taxable wealth of an assessee. This is because these are outside the ambit of "Assets" which along are liable to wealth tax have been described in detail under the heading ASSETS. Thus, if any of the assets or item of wealth of the owner of a poultry farm comprises of assets like farmhouse, guest house, or a motor car or personal boat, yacht, aircraft or jewellery then certainly those item of assets would be liable to wealth tax. Thus what ever assets are purely for poultry farming would not be liable to wealth tax.

25.Farmland

Farmland, generally considered to be agricultural land, was outside the levy of wealth tax till the Assessment Year 1992-93. However, from the Assessment Year 1993-94 even farmland is liable to wealth tax if it is included in the definition of the expression "Urban Land". Where a farmland is outside the jurisdiction of a municipality or cantonment board and has a population of not less than 10,000 or outside a distance being more than 8 kms from the local limits of a municipality which has been notified in the Official Gazette, then it is not considered as urban land and would be considered as exempt from tax. However, farmland which is included within the jurisdiction of a municipality, etc., would be liable to wealth tax within the overall limit of Rs.15 lakh for the taxable net wealth. If the other taxable assets exceeds Rs. 15 lakh, it would be liable to wealth tax @ 1%.

26. FVNR Bank Account

This is am item of wealth which is outside the definition of "Assets" as per Section 2 (e a) of the Wealth Tax Act, 1957. Thus this item of wealth is completely exempt from wealth tax without any monetary limit.

27. Fixed Deposit with Banks and Cooperative Banks

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (e a) of the Wealth Tax Act, 1957. Thus, this item of wealth from the Assessment Year 1993-94 is completely exempt from wealth tax without any monetary limit.

28. Fixed Income Schemes of Banks, etc.

This is an item of wealth which is outside the definition of "Assets" as per Section 2 (ea) of the Wealth Tax Act, 1957. Thus this item of wealth from the Assessment Year 1993-94 is not regarded as non-productive asset and is completely exempt from wealth tax without any monetary limit.

29. Flats and Apartments: Ownership

Ownership flats and apartments which are used for commercial or industrial purposes are completely exempt from wealth tax. Where an ownership flat or apartment is used by the assessee being an individual or a HUF for residence either of the assessee and his family, then one such flat or apartment or house would be completely exempt from wealth tax under Section 5(1) (vi) of the Wealth Tax Act from the Assessment Year 1994-95. As regards a company ownership flat and apartment allotted by a company to an employee, officer or a director who is in whole time of employment having a gross annual salary of less than Rs 2 lakh would not be considered to be taxable. Thus an ownership flat or apartment owned by a company and used for residential purpose by an employee or a company and used for residential purpose by an employee or a director drawing salary of more than Rs. 2 lakh would be liable to wealth tax from the Assessment Year 1993-94 From the A.Y. 1999-2000 as per the amendment by the Finance (No.2 ) Act, 1998 the company ownership flat and apartment allotted by a company to an employee, etc., would be exempt from wealth tax if the employee is having gross salary of less than Rs. 5 lakh. Similarly, from the A.Y. 1999-2000 the flats and apartments without any restriction about their use would be fully exempt from wealth tax from the a.y.1999-2000.

30. Flats, Apartment and Buildings (Residential)

A residential building as a general rule is a part of the expression "Assets" which are liable to wealth tax under the Wealth Tax. Act from the Assessment Year 1993-94. However, certain residential buildings, apartment or flats are fully exempt from wealth tax. For example, a house meant exclusively for residential purposes and allotted by a company to an employee or an officer or a director who than Rs. 2 lakh would not be liable to wealth tax. Likewise, any house for residential purposes which forms part of stock-in-trade of an assessee is not liable to wealth tax. From the Assessment Year 1994-95 one house of an individual or a Hindu undivided family would be completely exempt from wealth tax, without any monetary limit as per the amended provisions of Section 5(1) (vi) of the Wealth Tax Act. The Finance (No.2) Act, 1998 w.e.f. the A.Y. 1999-2000 provides that the flats, apartments & buildings (residential) would be exempt from wealth from wealth tax if they are given on for more than 300 days in year.

 


B. PAPER PRESENTED BY-S.A.MAHADEVIA AT CEP AHMEDABAD ON WEALTH TAX ACT

Apparently as asset, but technically not: Interpretation of the phrase: "any interest in property where the interest is available to an assessee for a period not exceeding six years." In f s Gandhi v CWT [1992] 184 ITR, the SC delivered its judgement, details of which Are as follows:-

The appellant, F. S. Gandhi (hereinafter referred to as "the assessee"), Owns properties situates as Mahatma andhi Marg and Sardar Patel Marg in civil Lines area at Allahabad . The lands on which these building stand were leased out to the assessee by the Government of Uttar Pradesh . the leased in respect of these prop-erties exprct of these roperties expired in 1958 except in respect of the property situ-ate at 30A, Mahatma Gandhi Marg, which expired n 1963. The Government of Uttar Pradesh issued notices to the assessee to hand over vacant possession of the leasehold Lands.The properties are let out to tenants and the assessee was receiving rental inco-me from the same . For the assessment years 1971-72 ,1972-73 ,1973-74 and1974-75 , the assessee submitted wealth-tax returns wherein he valued the properties at ten times the annual rental income .

The WTO, the AAC and the Tribunal, valued the properties at 15, 12.5 and ten times the annual rental income, respectively.

At the request of the assessee, the Tribunal referred the following question of law to the High court:

"1. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that properties in respect of which leases had expired in 1958 and 1963, and notices had been received to hand over the possession were assets within the meaning of section 2(e)(v) of the Wealth-tax Act and its value was liable to be included in the net the wealth of the assessee ?

2.Whether,on correct interpretation of section 2(e)(v)and the relevant provisions of the Transfer of property Act, the tribunal was right in holding that the interest of the appellant in respect of properties in dispute was for a period over six years?

3.Whether there was any material before the Tribunal to hold that, on the relevant valuation date , the property situated at 30A, Mahatma Gandhi Marg, was worth ten times its annual rental income whilein previous years the value of the said property was shown and accepted at Rs. 1,19,000 ?

4. Whether the Tribunal was right in holding that the property at 30A, Mahatma Gandhi Marg , was to be valued on the basis of its annual income along with other properties notwithstanding that the property in question was commercial property while other properties, were residential houses and whether the multiple upheld by the Tribunal is justified in law and on facts ?

5. Whether, on the facts and circumstances of the case, the multiple of ten time the rental income in respe ct of property at 30A,Mahatma Gandhi Marg, is not excessive and wholly unjustified?"


The High Court answered the said question in the affirmative, i.e.,in favour of the Departmen ,also granted certificate of fitness, on request by the assessee, on the view That the first question is a question of law which is of general importance and as such This was a fit case in which an appeal could be filed before the sc, and also observed;" on the determination of a lease by efflux of time or by notice, it is the duty of the less ee to deliver vacant possession of the demised premises to the lessor. If he continues in possession even after the determination of the lease, his possession is secured inasmuch as the lessor cannot evict him otherwise than in due course of law and if he continues in possession without the assent or dissent of the landlord,he would be tenant at sufferance. His possession would be wrongful but not unlawful. It is wrongful because the erstwhile tenant continues in possession bevond the expiry of the period fixed in the lease.It is not unlawful because the landlord cannot take the law into his own hands and evict him.But in case the landlord expresses his assent by acceptance of rent or otherwise to his continuing in possession, his wrongful possession would be converted into a lawful one. The landlord's assent may be expressed or implied. "Taking into consideration the facts of the present case,the High Court has found that the leases of the properties expired in 1958 and that of 30-A, Mahatma Gandhi Marg in 1963. The high court has observed :" There is nothing on record to show that any attempt was made whatsoever by the state Government to enforce that notice.The assessee had continued in peaceful possession and enjoyment of these properties all along. In our opinion, therefore, the assent of the landlord to the assessee's continuing in possession of these properties can be inferred and that being so the assesee would be treated to be a tenant of the same by holding over."

According to the High court, after determination of the earlier leases, the assessee is a lessee of the properties under a new contract of tenancy and this tenancy from month to month under section 116 read with section 106 of the Transfer of property Act. The High court has further held that the present tenancy is a tenancy from month to month for an unstated period and it could not be said to be precarious in nature. The High Court was of the view that the said tenancy is an asset as defined in section 2(e) of the Act and is not excluded under sub-clause (v) because the said interest has been available to the assessee for aperiod exceeding six years from the date the new contract of tenancy came into existence. (upto here 6 7 05) In the Act, as originally enacted, section 2(e)(v) reads as under;

"In this Act, unless the ,context otherwise requires,- ... (e) 'assets' includes property of every description, movable or immovable, but does not include-...(v)any interest in property where the interest is available to an assesse for a period not exceeding six years."

By effect from April 1, 1965, thewords "from the date the interest vests in the assessee "were inserted at the end of sub-clause (v) and thereafter sub-clause (v) read as under :

"any interest in property where the interest is available to an assessee for a period not exceeding six years form the date the interest vests in the assessee." By the Finance act , 1969, clause (e) of section 2 of the Act was ubstituted by the following Provision : "(e) 'assets' includes property of every description, movable or Immovable, but does not include, (1) in relation to the assessment year commencing on the 1st day of April, 1969, or any earlier assessment year (i) agricultural land and growing crops, grass or standing trees on such land; (ii) any building owned or occu ied by a cultivator of, or receiver of rent or revenue out of, agricultural land Provided that the building is on or in the immediate vicinity of the land and Is abuilding which the cultivator or the receiver of rent or revenue by reason of his
connection with the land requires as a dwelling house or a store-house or an outhou se; (iii) animals; (iv) a right to any annuity in any case where the terms and condition relating there to preclude the commutation of any portion there of into a lump sum grant; (V) any interest in property where the interest is available to an assessee for a period not exceeding six years from the interest vests in the assessee (2) in relation to the assessment year commencing on the 1 st day of April, 1970, or any subsequent assessment year (i) animals; (ii) a right to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion thereof into
a lump sum grant; (iii) any interest in property where the interest is available to an assessee for a period not exceeding six years from the date interest vests in the assess-ee."

As a result of the aforesaid amendment, the provision which is application in relation to the assessment years commencing on the 1st day of April, 1970, and subsequent assessment years is sub-clause (2)of clause (e) of section 2.Since the assessment in questi on relate to the assessment years 1971-72 to 1974-75, the matter has to be considered in clause (e) of section 2 of the Act as substituted by the finance Act, 1969. In framing quest ion Nos. 1 and 2 for reference to the High Court, the Tribunal has erroneously made a reference to subclass (v)of clause(e) of section 2 as it stood prior to the 1969 amendment The High Court, while answering these questions and granting the certificate of fitness for appeal to this court, did not notice this error. The provisions of section 2(e) (v) as amended in 1964 are identical with the provision of section 2(e)(2)(iii), as substituted by the 1969 amendment . The error is, therfore, of no consequence and the matter has been examined by us in the light of the provisions ontained in clause (e) of section 2, as substituted in 1969,

According to the High Court, after determination of the earlier leases, the assessee is a Lessee of the properties under a new contract of tenancy and this tenancy frpm month to month under section 116 read with section 106 of the Transfer of Property Act. The High court has further held that the present tenancy is a tenancy from month to month for an unstated period and it could not be said to be precarious in nature. The High Court was of the view that the said tenancy is an asset as defined in section 2(e) of the Act and is not excluded under sub-clause (v) because the said interest has been available to the assessee for a period exceeding six years from the date the new contract of tenancy came into exi-stence.

In the Act, as originally enacted, section 2(e)(v) read as under; " In this Act. Unless the ,context otherwise requires,.... (e) 'assets' includes property of every description, movable or immovable , but does not include-... (v) any interest in property where the interest is available to an assessee for a period not exceeding six years." By the Wealth-tax (Amendment) Act, 1964,which came into force with effect from April 1, 1965, the words "from the date the interest vests in the assessee" were inserted at the end of sub-clause (v) and therafter sub-clause shri R.R. Agarwal,learned counsel for the appellant, has not disputed the finding recorded by the High Court that the assessee was in possession of the leasehold propertie-s as a tenant holing over and that the said tenancy was a enancy from month to month for an unstated period. The submission of shri Agarwal is that the interest of the assessee under the said tenancy could not be regarded as an "asset" under section 2 (e) of the Act and that it has to be excluded because the said interest cannot be regarded as an interest available to the assessee for a period exceeding six years from the date the interest vests in the assessee.

The aforesaid contention of shri Agarwal involves the interpretation of the words "where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee" contained in section 2(e) 2(iii) of the Act . the word "available" is preceded by the word "is" and is followed by the words "for a period not exceeding six years". The word "is", although normally referring to the present, often has a future meaning. It may also have a past signification asin the sense of "has been" (See Blak's law Dictionary, 5th Edn. P. 745). We are of the view that, in view of the word "for a period not exceeding six years" which follow the word "available" the word "is" must be construed as referring to the present and the future. In that sense, it would mean
that the interest is presently available and is to be available in future for period not excee-ding six years.The High Court has construed the word "is" to mean "has been".As per the construction placed by the High Court, in a case where an interest has been created for a period exceeding six years,it would be included in the assets of the assessee under section 2(e) of the Act only after the expiry of the period of six years even though the interest is
available to the assessee for a period exceeding six years from the date the interest vests in the assessee. The construction placed by the High Court instead of placing emphasis on the nature of the interest attaches importance to the enjoyment of the interest. We are unable to subscribe to that view. In our opinion, the question whether the interest .

Page No: 0042 Should be included or excluded from the assets of the assessee under section 2(e) (2) (iii)
of the Act has to be considered in the light of the nature of interest on the relevant date. Under the said provision the relevant date is the date on which the interest vests in the Assessee. Therefore, the matter has to be onsidered by examining the nature of the inte-rwst on the date the interest vests in the assessee. Shri R.R.Agarwal, learned counsel for the appellant, has not disputed the findings record-ed by the High Court that the assessee was in possession of the leasehold properties as a tenant holding over and that the said tenancy was a tenancy from month to month for an unstated period. The submission of Shri Agarwal is that the interest of the assessee under the said tenancy could not be regarded as an "asset" under section 2(e) of the Act and that it has to be excluded because the said interest cannot be regarded as an interest available to the assessee for a period exceeding six vears from the date the interest vests in the ass-essee. The aforesaid contention of shri Agarwal involves the interpretation of the words "where the interest is available to an assessee for a period not exceeding six years from the date the interest vests in the assessee" contained in section 2(e)(2)(iii) of the Act The word "available" is preceded by the word "is" and is followed by the words "for a Period not exceeding six years".The word "is", although normally referring to the present.