Tax Law Assignment WEALTH TAX

Submitted By:Anirudh AroraSemester VIthRoll No: 12

Table of Contents

S. No.ParticularsPg. No.

1.ACKNOWLEDGEMENT3

2.TABLE OF CASES4

3.INTRODUCTION6

4.Incidence of Wealth Tax7

5.MEANINIG OF INDIVIDUAL9

6.MEANING OF HUF10

7.MEANING OF COMPANY11

8.Deemed Assets19

9.Exempt Assets28

10.Debts Owned31

11.Valuation of Assets32

12.BIBLIOGRAPHY34

ACKNOWLEDGEMENTAt the outset, I would like to thank Dr. Kahkashan Y. Danyal, our teacher for Tax Law without whose supervision, the submission could not have been possible in time. I would like to thank librarian, my seniors and all those who directly or indirectly helped me I completing this assignment on Wealth tax.

TABLE OF CASES1. Assam Financial Corporation v. CWT (1974) 94 ITR 404 (Gau.)2. C.I.T v. M.A.R. Rajkumar (1997) 226 ITR 804 (AP)3. C.I.T. v. Rani Bhavaneswari Kuer (1964) 53 ITR 195 (SC)4. C.I.T v. Smt. Neena Jain (2011) 330 ITR 1575. C.W.T v. Giridhar G. Yadalam (2010) 325 ITR 2236. C.W.T v. H.H. Rama Varma (1975) 100 ITR 91 (Ker.)7. C.W.T. v. Khan Saheb Dost Mohd. Alladin (1973) 91 ITR 179 (AP)8. C.W.T. v. Kishan Lal Bubna (1993) 204 ITR 6009. C.W.T. v. M.K. Ananthkumar (1986) 157 ITR 578 (Mad.)10. C.W.T. v. Nawab Fazalyar Jung (1993) 66 Taxman 168 (AP)11. C.W.T. v. S.C. Varshnei (1986) 160 ITR 300 (Pat.)12. Chandlal Shivlal v. C.W.T (1975) 55 ITR 441 (Guj.)13. Garware Wall Ropes Ltd. v. Addl. CIT (2004) 89 ITD 221 (Mum.)14. Ghiasuddin Babu Khan v. CIT (1985) 153 ITR 707 (AP)15. K.K. Porbanderwalla v. CIT (1972) 85 ITR 385 (Bom.)16. M. Ramanamma v. CWT (1986) 157 ITR 555 (AP)17. Mohd. Ali Khan v. CWT (1997) 224 ITR 67218. N.V. Narendra Nath v. CWT (1969) 74 ITR 19019. Ram Saran Das Tondon v. CWT (2007) 292 ITR 54620. S.B.I officers Association v. CWT (1986) 158 ITR 23 (Mad.)21. Sardar C.S. Angre v.CWT (1968) 69 ITR 336 (MP)22. Trustee of K.B.H.M. Bhiwandiwala Trust v. CWT (1977) 106 ITR 709 (Bom.)

INTRODUCTIONWealth tax is an annual tax like income tax. It is another type of direct tax by which tax is imposed on individuals coming within its purview. Pensioners, retired persons or senior citizens have not been accorded any special benefits under this Act. The important provisions concerning the Act are mentioned below Wealth TaxWealth tax is charged for every assessment year in respect of net wealth of corresponding valuation date, inter alia, on every individual Hindu Undivided Family (HUF) and company at the rate of one per cent (1%) of the amount by which net wealth exceeds Rs. 15 lakhs. Valuation Date is 31st March immediately preceding the assessment year [S.2(a)], Assessment year, as under the Income-tax Act, means a period of 12 months commencing from 1st day of April every year falling immediately after the valuation date [S.2(d)]. Net wealth means taxable wealth. It means the amount by which the aggregate value of all assets (excluding exempted assets) belonging to the assessee on the valuation date including assets required to be included in the net wealth, is in excess of the aggregate value of all debts owed by the assessee on the valuation date which have been incurred in relation to the taxable assets.Incidence of Wealth TaxWealth tax is an annual tax. Subject to other provisions of the Act, it is charged foe revery assessment year in respect of net wealth on the corresponding valuation date. The first assessment year begins from 1 April 1957. It is payable only by (i) an Individual, (ii) Hindu Undivided Family, and (iii) Company (w.e.f. 1April 1993).For charge of wealth tax, following points require careful consideration:1. Tax Base. Net wealth, as on the valuation date, is the tax-base for the levy of wealth tax. If there is any change in the wealth of an assessee even on the valuation date by way of transfer, sale or gift, and any asset has changed hands or does not exist on valuation date, the same cannot be included in the net wealth. Similarly, an asset received or purchased by an assessee even in the closing hours of valuation date, is inclusible in net wealth and liable to tax. Thus, a net wealth on the last moment of the valuation date is the tax-base for the levy of wealth tax.2. Charge of Wealth Tax subject to other provisions of the Act. Wealth tax is charged subject to other provisions of the Act. Therefore, other provisions of the Act which either provide exemption from the charge of wealth tax (under Sec. 5) or expand its scope by including the net wealth belonging to any other person (in general law) in the net wealth of the asseessee (under Sec. 4) or exclude certain assets and liabilities while computing net wealth (Sec. 6) are not rendered nugatory.3. Taxable Entities. Wealth tax is payable only by an individual, Hindu Undivided Family and company. No other class of assessee, such as firm, cooperative society or a political party is liable to wealth tax (Sec. 45).4. Rate of Wealth Tax. Wealth tax is chargeable at the rate of 1% of net wealth as its exists on valuation date. It is operative from the assessment year 1993-1994 and subsequent years.5. Exemption Limit. No wealth tax is chargeable if net wealth does not exceed Rs 15,00,000. Where net wealth exceeds Rs 1,50,000, tax is charged on the excess amount of net wealth. Thus, if net wealth on valuation date is Rs 12,00,000, no wealth tax is chargeable. If net wealth on valuation date is Rs 22,00,000, wealth tax is charged on Rs 7,00,000 at the rate of 1%. It is operative from the assessment year 1993-1994.6. Non-applicability of Wealth Tax [Sec.45]. No wealth tax is chargeable on the net wealth of the following persons as Wealth Tax Act does not apply to them:(i) Company without profit motive: A company which is registered under Sec. 25 of the Companied Act to promote art, religion, charity, etc, with no profit motive is not liable to wealth tax.(ii) Cooperative society: It is not taxable entity.(iii) Social club: It is not chargeable for wealth tax.(iv) Political party: It is not assessable under Wealth-tax Act.(v) Mutual fund: A mutual fund which is specified under Sec. 10 (23D) of Income-tax Act is not liable to wealth tax.MEANINIG OF INDIVIDUALThe word individual has a wider connotation than what is understood in the common parlance. The term would include the following:(a) Natural person. Individual includes natural persons, that is, human beings whether male or female, married or unmarried, minor or major, person of sound mind or unsound mind, healthy or weak.(b) Hindu law v. Individual.(i) Holder of impartial estate. Impartial estate is technically HUF property. However, the holder of impartial estate is assessed as individual and not in the status of HUF [Sec. 4(6)].(ii) Sole of surviving member of HUF. Where an HUF is reduced to a sole surviving member, he is to be assessed in the status of individual in respect of erstwhile net wealth of HUF.(iii) Assessment of self-acquired property of a Hindu dying intestate. Under Sec.8 of the Hindu Succession Act, 1956, the self-acquired property of a Hindu dying intestate devolves on his legal heir in his individual capacity. Such property does not constitute an asset of the sons HUF. Thus, Such property cannot be assessed as the HUF property of the legal heir. He is to be assessed in respect of such property as individual.(c) Group of Person forming a Unit. The term individual in Sec. 3 is not restricted to human beings only. It is wide enough to include a group of persons, forming a unit. Thus, a trade Union[footnoteRef:1] or a statutory financial corporation.[footnoteRef:2] [1: SBI Officerss Association v. CWT (1986) 158 ITR 23 (Mad.)] [2: Assam Financial Corporation v. CWT (1974) 94 ITR 404 (Gau.)]

MEANING OF HUFAn entity is taxed as Hindu Undivided Family if the following conditions are satisfied:(i) Plurality of Persons. There should be more than one member to constitute an HUF. An sole coparcener cannot constitute a HUF. Thre must be more than one person before a HUF is constituted. A member taking shares on partition of joint family has the potentiality of becoming a joint family but he cannot constitute an HUF unless he marries. There must be more than one person before a HUF can come into existence.(ii) Applicability of Hindu Religion/Hindu Code/Mitakshara law. The expression HUF under Sec. 3 refers only to such undivided families who profess Hindu religion or families as are governed by the Hindu code (relating to marriage, succession, adoption and maintenance, and minority and guardianship), or families who profess Hindu religion and are governed by the Hindu Mitakshara Law. Jain and Sikh families are Hindu undivided families as they are governed by Hindu code. On conversion from Hinduism to Christianity, the family cannot claim the status of HUF as it ceases to profess Hindu religion.(iii) Scope of HUF. A joint Hindu family consists of all persons lineally descended from a common ancestor and include their wives and unmarried daughters. A married daughter ceases to be a member of her fathers family and becomes a member of her husbands family.A family governed by Dayabhaga law cannot claim the status of HUF of wealth-tax purposes because there is no coparcenary between a father and his sons in relation to ancestral property. The heirs of a Dayabhaga deceased do not spontaneously, by operation of law, become members of an HUF. They remain Co-owners with defined and ascertained shares, unless there is evidence that the heirs voluntarily decide to constitute an HUF amongst themselves.MEANING OF COMPANYCompany has got the same meaning as assigned to it under Sec. 2(17) of the Income-tax Act. The said section defines company as follows:Company means-(i) any Indian company;or(ii) any body corporate incorporated by or under the laws of the country outside India; or(iii) any institution, association or body which is or was assessed as a company for any assessment year under the Indian Income-tax Act, 1922, or which is or was assessable or assessed under this Act as a company for any assessment year commencing on or before 1 April 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 Board to be a company. Such institution or association is deemed to be a company only for such assessment years as specified in the order.A. INDIVIDUAL: Incidence of tax in the case of an individual depends upon his residential status and nationality. Residential status is decided as per the provisions of the Income-tax Act The scope of liability to wealth tax is as follows :a. In the case of an individual who is a citizen of India and resident in India, a residentHUF and company resident in India;Wealth tax is chargeable on net wealth comprising ofi. All assets in India and outside India;ii. All debts in India and outside India are deductible in computing the net wealth.1. Citizen of India and ordinarily resident in India (sec.6). An individual who is citizen of India and ordinarily resident in India on the valuation date is liable to wealth tax in respect of total net wealth wherever located in the world.Net wealth chargeable to wealth tax is the aggregate of: (a) net wealth located in India (i.e. taxable assets located in India-allowable debts payable in respect of said assets + (b) net wealth located outside India (i.e. taxable assets located outside India allowable debts incurre in respect of said assets). He has to pay wealth tax on net wealth on global basis.2. Citizen of India but non-resident or not ordinarily resident in India (sec.6). 3. Not citizen of India but ordinarily resident or not ordinarily resident or non-resident in India (Sec.6). The incidence is the same as discussed in relation to an individual who is citizen of India but non-resident or not ordinarily resident in India. Thus foreign net wealth goes out of tax-net. In computing Indian net wealth, the value of any asset in India represented by any loan or debt owing to him, interest on which exempt from tax under Sec. 10 of the Income-tax Act, is also excluded.b. In the case of an individual who is a citizen of India but non-resident in India or not ordinarily resident in India, HUF, non-resident or not ordinarily resident in India and a company non-resident in India; i. All assets in India except loan and debts interest whereon is exempt from income-tax under section 10 of the Income-tax Act are chargeable to tax.ii. All debts in India are deductible in computing the net wealth.iii. All assets and debts outside India are out of the scope of Wealth Tax Act.c. In the case of an individual who is not a citizen of India whether resident, non-resident or not ordinarily resident in India:Same as in (b)B. HINDU UNDIVIDED FAMILY1. Ordinarily resident in India. Such HUF is taxed on total net wealth wherever located in the world. The taxing provisions are similar to an individual who is citizen of India and resident of India.2. Non-resident or not ordinarily resident in India. Such HUF is chargeable to wealth tax only on taxable net wealth located in India but the value of assets in India represented by loans or debts owing to it, interest on which is exempt from income tax is also excluded.C. COMPANY1. Resident in India. It is assessable on net wealth wherever located in the world. Thus, it is assessable on net wealth located in India as well as net wealth located outside India.2. Non-resident in India. Such company is chargeable on net wealth located in India but the value of assets in India represented by loans or debts owing to it, interest on which exempt from income tax is also excluded.The credit balance in a Non-resident (External) Account is exempt from wealth tax provided the depositor is a person resident outside India as defined in the Foreign Exchange Regulation Act, 1973.Valuation DateWealth Tax is levied on the net wealth of a person as on a particular date. This date is known as valuation date. According to section 2(Q) the valuation date is the last day of the previous year relevant to the assessment year. Hence, valuation date is March 31, immediately proceeding the assessment year.AssetsThe assets liable to wealth tax as per the definition given in section 2(ea) of the Wealth Tax Act are as under :(1) Any building or land appurtenant thereto which shall include :i. commercial buildings;ii. residential buildings;iii. any guest house;iv. a farm house situated within 25 kilometres from the local limits of any municipality (whether known as Municipality, Municipal Corporation or by any other name) or a Cantonment Board.However, the following buildings will not be included to assets:i. a house meant for residential purposes 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 Rs. 3,00,000/-.ii. any house for residential or commercial purposes which forms part of stock-in-trade;iii. any house which the assessee may occupy for the purposes of any business of profession carried on by him.The following buildings shall also not be an asset w.e.f. A.Y. 1999-2000:a. any residential property that has been let out for a minimum period of 300 days in the previous year.b. Any property in the nature of commercial establishments or complexes.Building under construction is an incomplete building which neither falls within the meaning of building nor within the purview of urban land under section 2(ea), and hence, is not an asset chargeable to wealth-tax on the valuation date 31.3.2013.[footnoteRef:3] [3: CIT v. Smt. Neena Jain (2011) 330 ITR 157]

(2) Motor Cars (excluding those used by the assessee in the business of running them on hire or as stock-in-trade).(3) Jewellery, bullion, furniture, utensils or any other, article made wholly or partly of gold, silver, platinum or any other previous metal or any alloy containing one or more of such precious metals (excluding those held as stock-in-trade by the assessee). Jewellery includes:i. ornaments made of gold, silver, platinum or any other precious metal of any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stones, and whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;ii. precious or semi-precious stones, whether or not set in any furniture, utensils or other articles or worked or sewn into any wearing apparel.For the removal of doubts it has been clarified by explanation 2 to section 2(ea) that the term jewellery does not include the Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.(4)Yachts, boats and aircrafts (excluding those used by the assessee for commercial purposes).A different view has been taken, where the airfact used for ones own business is construed as used for commercial purposes and hence not eligible to wealth tax.[footnoteRef:4] [4: Garware Wall Ropes Ltd. v. Addl. CIT (2004) 89 ITD 221 (Mum.)]

(5) Urban land; Urban Land means land situated :i. in any area which is comprised within the jurisdiction of a local authority and which has a population of not less than ten thousand according to the last proceeding census of which the relevant figures have been published before the valuation date; orii. any area within such distance, not being more than eight kilometres from the local limits of a local authority as the Central Government may, having regard to the extent, and scope for urbanisation of that may, and other relevant considerations, specify in this behalf by notification in the Official Gazette.However, the following urban land shall not be included in assets;i. 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;ii. land occupied by any building which has been constructed with the approval of the appropriate authority;iii. any unused land held by the assessee for industrial purposes for a period of two years from the date of its acquisition by him.iv. land held by an assessee as stock-in-trade for a period of five years from the date of its acquisition by him. (Ten years w.e.f. A.Y. 1999-2000).There is an alternate view that only an urban land, on which a completed building stood, is eligible for exemption. According to this view, the urban land, on which building was under construction, is taxable.[footnoteRef:5] [5: CWT v. Giridhar G. Yadalam (2010) 325 ITR 223]

Note: Agricultural land situated in urban area is not liable to wealth-tax.(6) Cash in hand;a. In case of an individual and HUF cash in hand in excess of Rs. 50,000/- shall be included in assets.b. In case of any other person cash in hand not recorded in the books of account shall be included in assets.

Deemed AssetsDeeming provisions are enacted in law to prevent avoidance or reduction of tax liability. An assessee may like to reduce or avoid his wealth-tax liability by transferring his assets to near relatives on or before valuation date. To foil such an attempt, certain deeming provisions have been enacted under Wealth-tax Act.In computing the net wealth of an assessee, the following assets are included as belonging to the assessee by virtue of section 4(l)(a) of the Wealth Tax Act, 1957.a. Assets transferred by one spouse or another.Where the assessee transfers money and the transferee utilizes that money to acquire an assest, it is the value of that asset on the valuation date which is relevant for the purposes of computing the net wealth of assessee. Where, what is transferred by the assessee is an asset and the transferee disposes of the asset on valuation date which is relevant for the purposes of computing the net wealth of the assessee.[footnoteRef:6] [6: CWT v. Kishan Lal Bubna (1993) 204 ITR 600]

If the requisite conditions are satisfied the clubbing will apply even though it may result in lowering the incidence of wealth tax.The following points may be noted for the application of the clubbing provisions:(i) Applicabilty only to individual: The clubbing provision applies only to individuals . Consequently, any transfer by an HUF or by its Karta to a coparceners wife or even to his wife as Karta does not fall within clubbing tax-net. Individual would include male or female.(ii) Relationship of spouse to be there on the date of transfer and on the valuation date: The deeming provision is applicable if the relationship of husband and wife exists at the time of transfer as well as on the relevant valuation date. Transfers effected by the husband to the divorced wife do not fall within the ambit of the deeming provision.The word spouse means lawfully-wedded husband and wife and not the relationship of concubine. The word wife or spouse does not include a female with whom the assessee has an illicit connection for however long a period.The spouse does not include a prospective wife or prospective husband.[footnoteRef:7] [7: CWT v. M.K. Ananthkumar (1986) 157 ITR 578 (Mad.)]

(iii) The deeming provision has no application where the transfer is made for adequate consideration: Where the transfer is made for inadequate consideration, the value of that portion of the asset to the extent to which consideration is found inadequate is to be included in the net wealth of the transferor. The value of whole asset transferred cannot be included in the net wealth of transferor in such a case.[footnoteRef:8] [8: CWT v. S.C. Varshnei (1986) 160 ITR 300 (Pat.)]

The expression adequate consideration cannot be equated to sufficient consideration, good consideration or valid consideration. Adequate consideration is to be construed as valuable consideration capable of being compared and measured in money or moneys worth.[footnoteRef:9] Therefore natural love and affection do not constitute adequate consideration. The value of whole property transferred on account of natural love and affection would fall under clubbing provisions. [9: CWT v. Khan Saheb Dost Mohd. Alladin (1973) 91 ITR 179 (AP)]

Any transfer of an asset in discharge of legal obligation is for adequate consideration. Thus, payment of Meher to the wife by the husband during the life-time is not transfer without adequate consideration.[footnoteRef:10] Therefore, the property purchased out of such meher cannot be included in the hands of the husbands under Sec. 4(1)(a)(i).[footnoteRef:11] [10: Ghiasuddin Babu khan v. CIT (1985) 153 ITR 707 (AP) (F.B.)] [11: CWT v. Nawab Fazalyar Jung (1993) 66 Taxman 168 (AP)]

(iv) Form of transfer: The transfer for inadequate consideration may be direct or indirect. Both fall within the ambit of the deeming provision. Indirect transfer is done through benami intermediaries.(v) Transferred property to be asset on valuation date: For the purpose of the application of the deeming provision, a property may not be an asset [under Sec.2(ea)] at the time of of transfer but it must be an asset [under Sec. 2(ea)] on the valuation date.(vi) Transferred property to be held on validation date: The deeming provision is applicable if the transferred asset exists with transferee spouse on valuation date. If the asset is lost, destroyed, gifted or otherwise not in existed on the valuation date, clubbing ceases to apply.(vii) Deeming provision not to apply to a loan transaction: Loan from one spouse to another is not transfer of property. Loan is contractually repayable. Hence, loan transaction is not covered under deeming provision.(viii) Transfer by one spouse to another under an agreement to live apart not covered by clubbing provisions: Any transfer effected either by the husband to the wife or vice-versa under an agreement to live apart does not fall within the purview of the deeming provision. Accordingly, the transferred asset is to be excluded from the net wealth of the transferor.b. Assets held by minor children.The value of assets which are held on valuation date by a minor, not being (i) a minor tax child suffering from permanent physical disability specified in Sec. 80U of the Income-tax Act or (ii) a married minor daughter, is included in the net wealth of that parent whose net wealth is greater, provided their marriage subsits on the valuation date.If the marriage of the parents does not subsits, assets, held by minor child on valuation date, are included in the net wealth of that parent who maintains the minor child [Third Proviso to Sec. 4(1)(a)]. Once the asset is so included in the net wealth of either parent, the same pattern will continue till it is reversed by the Assessing Officer by a show cause notice.However, no clubbing applies for the assets which are acquired by the minor child out of income earned by application of his skill or manual labor [Second Proviso to (Sec.4(1)(a))].The scheme of clubbing is fully analysed as follows:(i) Meaning of Child: Child means legitimate child. Thus, clubbing provisions do not apply to illegitimate child. Adopted child or step child is a legitimate child.(ii) Condition for clubbing : Subsistence of Minority on Valuation Date: The deeming provision is applicable where minority subsits on the relevant valuation date. Where the child attains majority on the valuation date, the clubbing provisions do not apply.The term minor has not been defined in the Act. A child continues to be minor till he attains age of 18 years. Where guardian has been appointed by the court, the child will continue to be minor till he attains the age of 21 years.[footnoteRef:12] [12: Sec.3 of Majority Act, 1857.]

(iii) Scheme of Clubbing [Third proviso to Sec.4(1)(a)]: The scheme of clubbing has been divided into two parts:(a) Where the marriage of the parents subsits: Where marriage of the parents subsits on the valuation date, the value of assets held by a minor child is to be included in the net wealth of that parent whose net wealth (without including the assets held by minor child) is greater. Once the asset has been included in the net wealth of either parent, the said asset will be included in the net wealth of the other parent in succeeding year after giving that parent an opportunity of being heard, that it is necessary to do so.(b) Where the marriage of the parents does not subsist: Where marriage of the parents does not subsits on the relevant valuation date, the value of assets, held by a minor child is included in the net wealth of that parent who maintains the child during that previous year.Where minor child is maintained by both the parents, the law has not clarified about the mode of clubbing. It seems the clubbing will apply in the net wealth of that parent who happens to maintain the minor child on valuation date.Where none of the parents maintains the minor child, clubbing ceases to apply. In that situation, minor child is assessable through his guardian.(iv) Exclusion from Clubbing Provision: Clubbing provisions do not apply in three cases:(a) Minor child suffering from permanent physical disability (including blindness): Where the minor child suffers from permanent physical disability or blindness, mental retardness which is certified by a physician, a surgeon or an oculist, working in a government hospital, clubbing provision does not apply.(b) Married minor daughter: If the minor child is a married minor daughter, clubbing provision does not apply. Thus, the married minor daughter is separately assessable on her wealth through her guardian, that is, her husband. Where her husband is also minor, her father-in-law/ mother-in-law is assessable as a representative assessee on the net wealth, held by minor daughter-in-law is assessable as a representative assessee on the net wealth, held by minor daughter-in-law. Exclusion is available only for married minor daughter and not for married minor son.(c) Assets acquired by minor out of income earned by him by application of his skill or manual work [Second Proviso to Sec. 4(1)(a)(i)]: The value of assets acquired by minor out of his minor out of his income earned by him by applying his manual or intellectual skill do not fall under clubbing provisions. The value of such assets held by him on valuation date is taxable in the hands of minor child..c. Asset transfer for the Benefit of Spouse [Sec. 4(1)(a)(iii)]Where an individual transfers an asset directly or indirectly without adequate consideration to any person or association of persons for the immediate or deferred benefit of the transferor himself, his/her spouse or both, such asset is deemed to belong to the transferor. Therefore, the value of such asset as in held by the transferee on the valuation date is to be included in the net wealth of the transferor.For invoking clubbing provision, it is not necessary that the ownership of the asset must absolutely vest in the spouse. The expression for the benefit of occurring in the section cannot be restricitively construted to mean that the transfer should vest absolute the ownership of the asset transferred in the spouse. It is sufficient to invoke the clubbing provision if the spouse is given only a right to enjoy the income from the settled property.[footnoteRef:13] [13: Chandlal Shivlal v. CWT (1975) 55 ITR 441 (Guj.)]

Transfer for the benefit of the family of the transferor does not fall within the ambit of the clubbing provision.[footnoteRef:14] Clubbing does not apply to a case where the assets are held not for the benefit of the transferor or his spouse but held for the benefit of the family of the transferor. [14: CWT v. H.H. Rama Varma (1975) 100 ITR 91 (Ker.)1]

The clubbing provision is applicable, provided the relationship of the spouse subsits on the date of transfer as well as on the valuation date. The relationship of spouse must subsits on the date of transfer as well as on the valuation date. If there is divorce between husband and wife on or before valuation date, the provision does not apply. Like-wise, if the transferor spouse dies on or before the valuation date, the provision has no application as the relationship does not subsits on the valuation date.d. Assets transferred under revocable transfer [Sec. 4(1)(a)(iv)]Where an individual transfers an asset to any person or association of persons and the transfer is revocable, such asset is deemed to belong to the transferor. Therefore, the value of such asset as is held by the transferee on the valuation date is to be included in the net wealth of the transferor.If the transfer is irrevocable, the transferred assets are to be assessed in the hands of beneficiary, that is transferee.The transfer is revocable if(i) it is made for a period of 6 years or less; or(ii) the transferor exercises any control either over the asset or its income; or(iii) the transferor drives any benefit there from, directly or indirectly.(iv) the transfer deed does not in any way give the transferor any right to re-assume power, directly or indirectly over the whole or any part of the asset or income thereof.Following points may be noted for the application of deeming provision:(i) Computation of the period of irrevocability: The minimum period or irrevocability, that is, 6 years and one day would be counted from the date of the execution of the deed. If the deed is irrevocable originally for a period of 6 years or less and is made irrevocable for a period of 6 years and one day by executing another extension deed, such transfer cannot be treated as irrevocable even though the extension deed is executed before the expiry of the original deed.(ii) Proportionate clubbing to apply where settler derives benefit from one the assets: Where various assets are settled under an irrevocable transfer, under which settler enjoys direct or indirect benefit from one of the assets, the value of all assets cannot be included in wealth of the settler. The asset from which the settler derives benefit hit by the provision and is inclusible in his wealth.[footnoteRef:15] [15: CIT v. Rani Bhavaneswari Kuer (1964) 53 ITR 195 (SC)]

(iii) Clubbing to apply after irrevocability period is over: The value of any assets transferred under irrevocable transfer is liable to be included in the net wealth of the transferor as and when the power to revoke arises to him [Sec. 4(5)].(iv) Accertions to assets not to be clubbed: When period of irrevocability is over, the asset transferred is included in the net wealth of the transferor. An accretion to such asset is included in the net wealth of the transferee.e. Assets transferred to sons wife [Sec.4(1)(a)(v)]Where an individual transfers an asset directly to his sons wife without adequate consideration on or after 1 June 1973, such asset as is held by the transferee on the valuation date, is to be included in the net wealth of the transferor.The clubbing is applicable if the Relationship Subsits on the Date of Transfer as well as on the Valuation Date. Where the husband gifts an asset to his wife or vice versa, and the donee spouse further gifts the said asset to the daughter-in-law, the clubbing would depend on the nature of the disposition. If it could be proved that the two gifts are part of one and the same arrangement making it one disposition, the gifted asset would be included in the net wealth of the first donor.[footnoteRef:16] [16: K.K. Porbanderwalla v.CIT (1972) 85 ITR 385 (Bom.)]

Exempt AssetsThe following assets are totally exempt from Wealth Tax (Section5).a. Property held under a trust or other legal obligation for any public purpose of a charitable or religious nature in India subject to the satisfaction of the stipulated conditions;Charitable purpose under section 2(15) is defined to include relief of poor, education, medical relief, preservation of environment (including watersheds, forests and wildlife), preservation of monuments or places or objects of artistic or historic interest and the advancement of any other objects of general public utility.The Definition of charitable purposes under section 2(15) has been modified with effect from the assessment year 2009-20. The modified version provides that the advancement of any other object of general public utility shall not be a charitable purpose-a. If it involves the carrying on of-i. any activity in the nature of trade, commerce or business; orii. any activity of rendering of any service in relation to any trade, commerce or business, for a fee or cess or any other consideration, irrespective of the nature of use or application of the income from such activity, or the retention of such income, by the concerned entity; and b. If the total receipts from any such activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business exceeds Rs. 10 lakh in the previous year.For claiming exemption it is not necessary that all the objects should fall within the expression public purpose of a charitable nature. It is sufficient if the trust can be said to be primarily or dominantly for a public purpose of a charitable nature.[footnoteRef:17] [17: Trustee of K.B.H.M.Bhiwandiwala Trust v. C.W.T. (1977) 106 ITR 709 (Bom.)]

b. Coparcenary interest in a HUF property;If a Coparcener not having son but having two minor daughters receive his share in the joint family property on disruption, then, such property would belong to the HUF comprising of himself, his wife and minor daughters and cannot be assessed as his individual property.[footnoteRef:18] [18: N.V. Narendra Nath v. CWT (1969) 74 ITR 190]

Wife of Karta cannot relinquish her status as a member of HUF by a unilateral declaration while retaining her marital tie. And her wealth will be included in the wealth of the HUF.[footnoteRef:19] [19: CIT v. M.A.R.Rajkumar (1997) 226 ITR 804 (AP)]

Any sum received by an individual as a member of a Hindu undivided family either out of income of the family or not out of income of estate belonging to the family is exempt from tax. Such receipts are not chargeable to tax in the hands of an individual member even if tax is not paid or payable by the family on its total income. Exemption is based upon the principle of avoidance of double taxation. Income of a Hindu undivided family is taxable in its own hand. Section 10(2), therefore, exempts income received by a member from his Hindu undivided family. Only those members of a Hindu undivided family can claim exemption under this clause who are entitled to demand share on partition or are entitled to maintenance under the Hindu law.c. One residential building belonging to a former Ruler;Where a palace consisting of a number of buildings was declared to be the official residence of the ruler, and some of the buildings were occupied by the ruler and others were let out to tenants, the exemption will be available only in respect of buildings occupied by the ruler.[footnoteRef:20] [20: Mohd. Ali Khan v. CWT (1997) 224 ITR 672]

d. FormerRulersjewellery(excludinghispersonal jewellery) which has been recognized as a heirloom by the Central Government before 1.4.1957 or by the CBDT after that date;e. Assets belonging to the Indian repatriates for 7 years on fulfillment of the conditions prescribed;f. Onehouseorpartof ahouse(witheffect from 1.4.1999 one house or part of a house or a plot of land) belonging to an individual or HUF is exempt from Wealth Tax.Debts OwnedWealth tax is levied on the net wealth which means that from the aggregate of all assets (including deemed assets but excluding exempt assets) the value of debts owed on the valuation date shall be deducted subject to the satisfaction of the following two conditions viz.a. Only debts which are owed on the valuation date are deductible.b. Debts should have been incurred in relation to those assets which are included in the net wealth of the assessee.Broadly, a debt could be defined as an obligation to pay a liquidated or certain sum of money. A sum which may or may not become due or the payment of which depends upon contingencies which may or may not happen is not a debt.[footnoteRef:21] [21: Sardar C.S. Angre v. CWT (1968) 69 ITR 336 (MP).]

Wealth Tax LiabilityWhether a Debt Owed?Wealth tax liability is not deductible in computing the net wealth liable to tax. This position has been made clear by the amendment of section 2(m) with effect from the assessment year 1993-94. Liability under the Wealth-tax Act has been considered as a debt owed by the assessee incurred in relation to the assets taxable under the Wealth-tax Act. Such a liability has been considered to be the personal liability of the assessee and is not a debt incurred but a debt created by statute. Hence is deduction is not permissible. Valuation of AssetsFor the purpose of Wealth-tax the value of any asset (other than cash) shall be its value as on the valuation date determined in the manner laid down in Section 7(2) and in Schedule III to the Wealth Tax Act.Where an assessee is a member of a co-operative society to whom land was allotted under a house building scheme and he subsequently ceases to be a member of the society and transfers his membership to his spouse or others, he could not be assessed as owner of the property. The value of the property cannot be assessed to wealth tax in his hands subsequent to such transfer of membership.[footnoteRef:22] [22: Ram Saran Das Tondon v. CWT (2007) 292 ITR 546]

Return of Wealth TaxEvery person is required to file a return of net wealth in Form A if his net wealth or net wealth of any other person in respect of which he is assessable under the Act on the valuation date is such an amount as to render him liable to wealth tax. The dates of filing the return are the same as under the Income-tax Act for filing returns. Where wealth tax is payable on the basis of return to be furnished, the assessee is required to pay the tax before filing of the return and such return is to be accompanied by the proof of payment.Few Points regarding Chargeability of AssetsOnce an asset is covered under the defined category, under Sec. 2(ea), it is chargeable to tax. The following points do not affect the chargeability of defined assets.(i) Illegal asset. There is no difference between legal asset and illegal asset. The revenue is not concerned with the illegality of the transaction. Thus, cash-in-hand representing sa;e proceeds of smuggled items is chargeable to wealth tax, provided the statutory condition regarding chargeability is satisfied. Thus, where the assessee is an individual, cash sale of smuggled goods on valuation date amounting Rs 1,20,000 is taxable to the extent of Rs 70,000 (1,20,000-50,000).(ii) System of accounting. System of accounting has no relevance to the assessment under Wealth-tax Act.[footnoteRef:23] For example, a wealth-tax assessee, follows cash system of accounting. He borrowed money to purchase a motor car. Accrued interest on such loan is deducted as a debt owed eventhough it does not appear in books of accounts. [23: M. Ramanamma v. CWT (1986) 157 ITR 555 (AP)]

BIBLIOGRAPHY Direct Taxes (Income tax, Wealth Tax and Tax Planning)Author: B.B. Lal & N. VashishtEdition: 29th Student Guide to Income TaxAuthor: V.K.Singhania & Monica SinghaniaEdition: 44th ICAI notes on wealth tax5 | Page