Wealth tax

WEALTH-TAX
CA Paras Savla05-05-2013
BORIVALI CENTRAL STUDY CIRCLE
OF WIRC OF ICAI

Does wealth-tax has relevance?
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Paras Savla Wealth-tax 5/5/2013

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Legal background
 Wealth-tax Act, 1957
 Eight chapters
 47 main sections
 Three Schedules
 Wealth-tax Rules, 1957
 13 main rules
 Various forms
 Act extents to whole of India
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Wealth-tax on whom
 Persons not liable for wealth-tax
 Company Registered S. 25
 Co-op Society
 Social Club & Incorporated Club – Willingdon Sports Club v. WTO (1982)
137 ITR 83 (Bom)
 Political Party
 Mutual Fund
 RBI
 AOP (Shares are determinate)
 Local Authority
 AJP
 Public or religious Charitable trust
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Wealth-tax on whom (Cont.)
 Wealth is payable by
 Individual
 HUF
 Company
 Partners of Firm or members of AOP on
their respective share in net wealth of
firm/AOP
 AOP – Shares of whom are indeterminate
or unknown
 Trust – if trust diverts its income as
referred in S. 21A
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Valuation date
 Last date of the previous year ie 31st
March of every previous year
 31st March 2013 for AY 2013-14
 Net wealth on last movement of last date
should be assessed and not the net wealth
at the first movement of the last date –
Banarasi Das v CWT (1970) 76 ITR 104
(All); Dwarkanath v. WTO (1982) 137 ITR
83 (Bom)
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Valuation date - case
 Mr M’s cash of Rs. 0.5 crs was seize and Gold of Rs. 1 cr
was confiscated by Government authorities on 31-3-2013
 What is taxability?
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Compliance
 Rate of wealth tax – 1% on assets exceeding Rs.
30,00,000
 No Surcharge & Education cess is payable
 Due date of return of wealth is due date of filing return of
income
 Return Forms
 Form A – Individual & HUF
 Form B – Company
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Wealth-tax on what
Productive Assets
Generates Active Income
No wealth Tax
Non-productive Assets
Generates no income /
passive income
Wealth–
tax
W
E
A
L
T
H
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What is wealth
Wealth
S. 2(ea)
Building &
Land
Motor Car
Jwellery
Yatchs
Boats
Aircrafts
Urban
Land
Cash
>50K
(Individual)
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Building & Land appurtenant
 Any building or land appurtenant
thereto (house), whether used for
residential or commercial purposes or
otherwise such as farm house situated
within 25 km from local limits of any
municipality or a cantonment board
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Building & Land appurtenant-Cont.
 Scope excludes
 House meant exclusive for residential purpose & allotted by a
Company to an employee or an officer or a director who is in whole-
time employment, having gross annual salary lf less than Rs.
10,00,000 (w.e.f. AY 2013-14), Rs. 5,00,000 (up AY 2012-13)
 House for commercial / residential purpose held as stock-in-trade
 Any house occupied for the purposes of the business / profession of
assessee
 Any house property that is let out for minimum period of 300 days in
previous year
 Any property in the nature of commercial establishment or complexes
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House – Case 1
 Assessee is a professional owning 2 flats in residential
building
 One used for his residence and another used for meeting
 One flat used for residence exempt u/s 5(vi)
 Another flat since used for purpose of business or
profession is not an asset
 Issue – Depreciation – Short term capital gains
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House – Case 2
 Assessee owning house
 Occupied for his business for 100
 Rented 265 days
 What would be taxability?
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House – Case 3
 Assessee individual owning factory building
 Granted an lease to the company in which he is director or
shareholder / firm in which he is partner
 Market rent was charged
 What is the taxability?
 Whether it is an asset 2(ea)(1)(3)/(4)/(5)?
 Whether exemption can be claimed u/s 5(vi)?
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House – Case 4
 Assessee individual owns residential accommodation
 It has granted rent free accommodation to its employees
earning annual salary of Rs. 200,000
 Whether it is a wealth?
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House – Case 5
 Housing limited is in business of construction. During the year
it has constructed residential building ‘A’, intend to sell,
residential building ‘B’, intends to give on rent and
Commercial Complex also intent to be given on rent.
 Unsold flats in building ‘A’ were let on rent on 30 Sep 2012
and few on 2 Feb 2013
 Flats in building ‘B’ were given on rent to an Multinational
company 15 Jan 2013
 Commercial Complex was ready for giving on rent on 31-1-
2013, but no licensee were available
 Whether these are asset for wealth-tax?
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House – Case 6
 M Limited engaged in services of electronics is holding shop
in a building. Building comprises of 2 shops and 25 flats.
 Shop has been given on rent on 5 May 2012
 Whether it is taxable to wealth-tax?
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Motor Car
 Motor car other than used by the assessee in the business of
running them on hire or as stock in trade
 Motor Car includes
 Jeep
 Sport Utility Vehicle (SUV)
 Multi Utility Vehicles (MUV)
 Motor car excludes
 Buses
 Trucks
 Tempo etc
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Motor car – Case 1
 Cer Leasing Limited is in business of car leasing.
 As on 31 March 2013 it owns 100 cars which are given in
lease
 Whether it would be assets?
 Would answer be different in case motor vehical is given on
hire purchase?
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Jewellery
 Jewellery includes ornaments made of
 Gold
 Silver
 Platinum or
 Any precious metal or any alloy containing one or more of such
precious metals
 Precious or semi-precious stones whether or not set in any
furniture, utensils or other article or worked or woven into any
wearing apparel
 Bullion
 Furniture, utensils or any other article made wholly or partly
of above
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Yatchs, Boats, aircrafts
 Yatchs, Boats and aircrafts (other than those used by the
assessee for commercial purposes).
 What commercial purposes means?
 Whether ships & vessels covered?
 Motor car v/s aircrafts
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Urban land
Up to from Ay 2013-14 Urban land means land situate :
 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 10,000
or
 In any distance measured - Not more than 8 km from the
limits of local authority and has been notified by Central
Government
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Urban land (Contd.)
W.e.f. from Ay 2014-15 (as per Finance Bill 2013) Urban land
means land situate —
 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 10,000 or
 In any distance measured aerially
 Not more than 2 km from the limits of local authority and has a
population between 10,000 and 1,00,000
population between 1,00,000 and 10,00,00
population exceeding 10,00,000
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Urban land (Contd.)
 It excludes –
 land classified as agricultural land in the records of the
Government and used for agricultural purposes (as per Finance
Bill 2013) or
 land on which construction of a building is not permissible under
any law for the time being in force in the area in which such
land is situated
 the land occupied by any building which has been constructed
with the approval of the appropriate authority
 any unused land held by the assessee for industrial purposes for
a period of two years from the date of its acquisition
 any land held by the assessee as stock-in-trade for a period of
ten years from the date of its acquisition
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Urban Land – Case 1
 M Industries Ltd. has purchased land for construction of
factory building on 1-4-2007
 Necessary permission for constructions were granted on 1-
1-2010
 Construction of factory building commenced on 1-4-2012
 What is wealth-tax liability?
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Urban Land – Case 2
 C Builders Ltd has acquired land for construction on 1-4-
2002
 Property was in litigation and permission could not be
obtained in time
 Necessary permission were granted on 1-4-2012
 Development of property began on 10-4-2012
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Cash
 In case of individual & HUF cash exceeding Rs. 50,000 to
be included in assets
 In case of other persons cash not recorded in books of
accounts to be treated as an asset.
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Clubbing when (Deemed Assets)
 Assets transferred to spouse / minor child / son’s wife for
inadequate consideration
 Assets transferred to person or AOP for the benefit of such
person or his/her spouse or son’s wife for inadequate
consideration
 Assets transferred to person or AOP for inadequate
consideration, under an irrevocable transfer
 Property converted into family property
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Deemed Assets
 Holder of impartial estate
 House in a co-operative society, company, AOP
 Building on lease
 Retain possession of building under part performance of
contract u/s 53A of TOPA, 1882
 Building on lease
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Clubbing - Case 1
 J transfer to his spouse
 Shares on 31-3-2010
 House on 31-3-2011
 On 31-3-2012 Mrs J sold shares and purchased Diamonds
 On 31-3-2013 Mrs J sold house ans invested money into
Government Bonds
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Clubbing – Case 2
 Mr P transferred house to his wife on 31-3-2001
 Said house is let on rent yielding annual rent of Rs. 150,000
pa
 Out of rent for past 13 years Mrs P purchases jewellery of
Rs. 15,00,000
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Let’s talk?
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Thank you!
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