Class B.Com IV Sem. (Tax)

Transcription

1 SYLLABUS Class B.Com IV Sem. (Tax) Subject Wealth Tax, Entry Tax & Professional Tax Unit I Unit II Unit III Unit IV Unit V Introduction of Wealth Tax, Act 1957, Important Definitions. Analysis of items included in the term Asset u/s 2 (ea). Residential status and Wealth Tax Liability. Exempted assets. Valuation of assets, Rules and Practical problems. Procedure for computation of Net Wealth of individuals. Practical problems relating to computation of Net Wealth. Calculation of Wealth tax Liability. Computation of Net Wealth of non-residents. Computation of net wealth of companies. Provisions relating to Wealth Tax Return, Assessment, Collection and recovery. Wealth Tax Authorities. Provisions relating of M.P. Entry tax. Goods Taxable under Entry Tax and their rates. Calculation of Entry Tax. Main provisions of M.P. Professional Tax Act. Traders, employees and professionals covered under Professional Tax. Rates of Professional Tax for various categories assesses. Depositing liability of Professional Tax. 1

2 UNIT-1 Introduction Wealth Tax is a direct tax. It is imposed on the net wealth of person. A person is liable to pay wealth tax if is Net wealth is in excess of Rs. 30 lacs. Rate of Wealth tas is 1% on excess amount of Rs. 30 lacs. The levy of wealth tax was introduced in India following a suggestion made by Dr. Kaldor in his report on Indian tax reforms. The wealth Tax Act, 1957 came into force on April 1957 & it applies whole of India including Jammu & Kashmir. Features of Wealth Tax Act: 1. Applicability This Act applies to the whole of India, including Jammu & Kashmir, since April 1, Tax payer As per provision of Wealth Tax act, the tax payer is an individual. Hindu undivided Family or such companies, not having substantial public interest. 3. Direct Tax Wealth tax is a direct tax because the burden of wealth tax is to be borne by the Assessee himself. Assessee cannot shift its burden to other. 4. Exemption limit In this Act, there has also been provided an exemption limit of wealth tax, the wealth tax is levied if amount of net wealth exceed 35 lacs. 5. Tax Rate There is no slab in the rate of wealth tax. It is only of one type. Rate of wealth tax is 1% on excess amount of Rs 30 lacs. 6. Basis of charge Wealth Tax is charge on Net Wealth. It is aggregate value of all the assets as computed under the Wealth Tax Act in excess to aggregate value of all debt owned by assessee on valuation date. 7. Administration of the Act There is no provision for the separate appointment the officers for the administration of this act. The administration of the wealth tax Act is governed by income tax department & their authorities. Scope of Wealth Tax Act According to wealth tax act, tax imposed of followings categories of tax payer 1. Individual 2. Hindu Undivided Family 3. Companies Some Institutions exempted from wealth tax According to sec 45 of wealth Tax Act, following institutions are exempted from wealth tax: 1. Companies which are registered under section 25 of company act Cooperative society 3. Social club 4. Political party 5. Mutual fund under section 10 (23D) of Income Tax Act. Meaning of Assets Sec. 2(ea) Wealth Tax is imposed on the Net Wealth which is assessed on the value of assets, sec. 2 (ea) of wealth tax Act, defines assets in a peculiar way. According to it, assets means 1. Guest house, residential house or commercial building The following are treated as assets a. Any building or land appurtenant there to whether for commercial or residential purposes or for the purpose of guest house. b. A farm house situated within 25 kilometers from the local limits of any municipality (whether) known as a municipality, municipal corporation, or by any other name) or a cantonment board. 2

3 Exemptions When a guest house/residential house/farm house or commercial building is not treated as assets. The following are not included in assets: 1) A residential house A house if the following conditions are satisfied is not treated as assets. a. It is meant exclusively for residential purposes. b. It is allotted by a company to an employee or an officer or director who is in whole time employment: c. The gross annual salary of such employee, officer or director is less than Rs. 5,00,000 2) A house held as stock in trade Any house (may be residential house or used for commercial purposes) which forms part of stock in trade of the assessed is not treated as asset. 3) A house used for own business or profession Any house which the assesses may occupy for the purposes of any business or profession carried on him is not treated as asset. 4) A let out property A residential property which is let out for a minimum period of 300 days in the previous year is not treated as an asset. 5) A commercial complex Any property in the nature of commercial establishments or complex is not treated as an asset. 2. Motor Cars Except the following two, any other motor car is an asset a. Motor cars used by the assesses in the business of running them on hire. b. Motor cars treated as stock in trade. 3. Jewellery, bullion, utensils of gold, silver etc. Jewellery, bullion, furniture, utensils and 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 are treated as assets. Meaning of Jewellery For this purpose, Jewellery includes the following a. Ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi precious stones and whether or not worked or sewn into any wearing apparel. b. Precious or semi precious stones, whether or not set in any furniture, utensils or other article or worked or sewn any wearing apparel. Exemptions 1. Stock in trade not as asset Where any of the above assets (i.e., Jewellery), bullion, utensils of gold etc.) is used by an assesses as stock in trade, then such asset is not treated as assets under section 2 (ea). 2. Gold Deposit Bonds are not asset Bond issued under Jewellery does not include the Gold Deposit the Gold Deposit Scheme, Yachts, boats and aircrafts Yachts, boats and aircrafts (other than those used by the assesses for commercial purposes) are treated as assets. 5. Urban land Urban land is an asset. Urban land means land situated in the following areas a. 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 any other name) or a cantonment board and which has a population of not less than 10,000 according to the last preceding census of which relevant figures have been published before the valuation date: or 3

4 b. In any within such distance (not being more than 8 kilometers) from the local limits of any municipality or cantonment board. Exceptions Urban land when not treated as assets In the following cases land is not treated as assets: 1. Land on which construction of a building is no permissible under any law for the time being in force in the area in which such land s situated. 2. Land occupied by any building which has been constructed with the approval of the appropriate authority. 3. Any unused land held by the assesses for industrial purposes for a period of 2 years from the date of its acquisition by him. 4. Any land held by the assesses as stock in trade for a period of 10 years from the date of its acquisition by him. 6. Cash in hand The following is treated as assets. a. Individual and Hindu undivided families Cash in hand on the last moment of the valuation date in excess of Rs. 50,000. b. Any other person, any amount not recorded in books of account i.e., in case of company etc. Assessment Year [Sec.2(d)] Assessment year means a period of 12 months starting from 1 st April and ending on 31 st March. Valuation Date [Sec.2 (a)] 31 st March before assessment is called valuation date. Now for every assesses, Previous year has to be from 1 st April March. Hence valuation date will be 31 st March in each case. For ex., for assessment year valuation dates will be 31 st March Deemed Assets While computing Wealth Tax, besides assets, its ownership is also important. On valuation date i.e., 31 st March, assessee is owner of certain assets which are included in his net wealth but there are certain assets, whose ownership is not with the assessee but then too these are included in his net wealth. These assets are called as deemed assets. According to sec. 4, such assets will be included in net wealth of an assessee, if the same has been transferred by him to his family member without proper or no consideration. This is done to save tax. The transfer in following cases shall be included in the net wealth of the assessee: 1. Asset transferred to spouse If any assessee after March 31 st 1956 transfers to his spouse, any asset directly or indirectly without or for inadequate consideration, such asset shall be included in the net wealth of the original owner or transferor. Exception The following transfers will not be included in the net wealth of the assessee: a. If the transfer is before marriage of after divorce. b. If the transfer is before 1 st April 1956 c. If the transfer is done for reasonable consideration d. If the transfer is done after being decided to live a part. e. If the transfer is made by a Muslim husband to his wife in form of Mehar f. If the assets transfer during the period 1 st April 1963, to 31 st March Assets held by minor child After A.Y , all assets held by minor (except some exceptions), will be included in the net wealth of his parents of a minor child in one s net wealth. The following points should be kept in mind. 1. The wealth of a minor will be clubbed of that parent whose net wealth (except assets of the minor) is greater. 4

5 2. If there is no marital relation between the parents. Then the assets of the minor child will be included in that parent s wealth the minor will be staying on valuation date. 3. If the assets are once included in the net wealth of a parent in first year then generally he will involve fir future years also. 4. In the following conditions, assets of minor will not be included in assesses net wealth. a. If such assets have acquired by a minor child from manual work or from any activity involving has specialized knowledge of experience. b. If the child become major on the valuation date. c. If the minor is physically or mentally handicapped. d. If the transfer is made to the marriage daughter either minor of major. 3. Assets transferred to a Person or Association of Persons for the benefit of spouse Assets transferred by the individual to a person or a group of persons directly or indirectly without or in adequate consideration, for immediate or deferred benefit of the transferor himself, his/her spouse or both, such assets is deemed to belong to the transferor. 4. Revocable Transfer of Asset If any person transfers his assets to an individual or a group of persons for a period of less than six years such property shall be treated as the asset of the transferor. If he transfers the asset for more than six years, but receives the right of receiving income from it with himself, or he has right to break the transfer, such asset shall be included in the net wealth of the transferor. 5. Transfer to Son s wife Assets held by the son s wife of such individual to whom such assets have been transferred by the individual directly or indirectly, on or after June 1, 1973, otherwise then for adequate consideration, such assets will be included in the net wealth of the transfer. 6. Transfer for the benefit of Son s Wife If an assessee transfer his asset after 31 st May, 1973 for the benefit of Son s wife without any consideration to a person or association of persons, such asset shall be treated as asset of the transferor. 7. Interest in Partnership firm If an assessee is a partner in firm or member of an association of person, then his interest it in the firm will be calculated according to the rules and will be included in his net wealth. If a minor is partner in a firm, then his interest will be clubbed with the net wealth of his parent. 8. Transfer by means of Book Entry If any person transfers any asset in the form of gift to any other person, by means of the entries in the books of accounts of his business concern, this asset shall be included in the net wealth of the assessee. 9. Converted Property If any person transfers his self acquired property, after December 31 st, 1969, without any consideration, to HUF, that property shall be included in the net wealth at the transferee. 10. Impartible asset By the term Impartible asset is meant the property of the HUF which, only count of some special law or due to custom, is given to only one of the members instead of the same being divided among its member. To the person whom such property is transferred, the holder of such property is that member and in his net wealth, such property is included. 11. House from a Co-operative Housing Society Where the assessee is a member of a cooperative society and a building or part thereof is allotted or lessed to him, the assessee is deemed to be the owner of such building and the value of such building is includible in computing his net wealth. In determining, the value of such building, any outstanding installments, payable by the assessee to the society outstanding is deductible as debt owned by the assessee. Liability for wealth tax 5

6 Which assessee has to pay wealth tax on which asset, depends upon the place where he lives and his citizenship in income tax, tax liability depends upon following two things: a. Place of living of assessee or residential status of assesse b. Citizenship of assessee. I. Residential status of Assessee In wealth tax, the residential status of the assessee is determined according to income tax act in which there are 3 categories Resident, Not Ordinarily Resident and Non-Resident. Determination of Place of Residential status of an individual A person s place of living is determined by following: 1. Resident A person is treated as resident in previous year if he fulfills any one of basic condition and both of additional conditions. Basic conditions a. He stayed in India for at least 182 days, or b. In four years proceeding previous year, he stayed at least 365 days and 60 days in previous year. Additional Conditions Both the following conditions must be fulfilled: a. He was the resident in India for 2 year out of 10 year before previous year and b. He stayed for at least 730 days in India in 7 years before previous year. 2. Not ordinary Resident If an assessee fulfills any one from basic condition but is unable to fulfill both additional conditions, he will be called as Not ordinarily resident. 3. Non-Resident If a person doesn t fulfill any one of basic condition of resident he will be nonresident. A. Residence of HUF and Firm a. If the management and control of a firm of HUF is situated in India partially of wholly, it will be called as resident. b. If the Karta doesn t fulfill the two other conditions, then HUF will be Not ordinarily Resident. c. If the control and management of a family of firm is situated outside India, it will be called Nonresident. B. Company a. If a company in an Indian Company and its management and control is situated in India, then it will be called as resident. b. If a company s management and control is not situated in India, then it will be Non-Resident. c. A company cannot be not-ordinarily resident. II. Citizenship of Assessee Assessee are of two types according to citizenship a. Indian Citizen A person shall be treated as an citizen of India only when he fulfills the following conditions of being a citizen, as given in the constitution of India. 1. The assessee must be having his domicile in India. 2. He must have been born in India, or Indian origin. Note: If any Indian citizen has willing, obtained the citizenship of any other country, he shall not be treated as Indian citizen. b. Foreign Citizen If any person doesn t fulfill the conditions of Indian citizenship, he shall not be deemed to be an Indian citizen. Thus. He shall be foreign national, i.e., American National, Bangladeshi, British citizen etc. Scope of Liability of Wealth Tax A. In case of Individual assessee 1. In case of Citizen and Resident If the assessee is the citizen of India as well as resident, then he has to pay tax on taxable assets in India as well as outside India. So, in his net wealth a. Assets and debts in India, b. Assets and debts outside India, both will be included. 6

7 2. If he is not citizen or resident or any one If any assessee: a. Is a resident but not a citizen, or b. Is a citizen but not resident, or c. Is a citizen and also not-ordinarily resident, or d. Neither citizen nor-resident Then in his net wealth only assets and debts is India will be included. B. In case of HUF a. if family is resident Assets and debts within and outside India. b. If family is non-ordinarily or nonresident Assets and liabilities in India only. C. In case of Company Computation of net wealth in case of company will be done in following basis: a. If company is resident All assets and liabilities within and outside India. b. If company is nonresident All assets and liabilities within India only. Location of Assets Location plays a very important role in the computation of net wealth. Normally the location is fixed in the following way. a. Visible fixed assets (like land, factory, building) will be deemed as located there where they are situated i.e., if situated in India, the will be called located in India or if in foreign, then will be called as located outside India. b. Any profit, rights on fixed assets will be called as located in due if the assets are situated in India. c. Current assets (like gold, silver, cash) will be called as located in India if they are in India. Exempted Assets Assets exempted from Wealth Tax The burden of providing that the assets of the assessee are exempt from tax is upon the assessee. The following assets are exempt from wealth-tax 1. Property held under a trust Any property held by an assessee under a trust or to her legal obligation, for any public purpose or charitable or religious nature in India, is totally exempt from Wealth-Tax The following conditions should be fulfilled for exception a. Trust must be India b. It must be public trust and not a private trust c. The object of the trust must be public welfare, charitable or religious. d. The use of the trust s property must be in India. 2. Coparcenary Interest in a HUF If the assessee is a member of a HUF, his interest in the family property is totally exempt from tax because HUF is liable to pay wealth tax on its assets separately. 3. Residential Building of a former Ruler Official Residence of a former rule of a state is totally exempt from wealth tax provided that Central Govt. as declared the same as his official residence any one such house is exempt. After the death of the ruler, the successors are not entitled for such exemption. 4. Jewellery of former ruler Jewellery of former ruler will be exempted from wealth tax on the fulfillment of the following conditions: a. Such jewellery should not be personal asset. b. The jewellery shall be permanently kept in India and shall not be removed outside India except for a purpose and period approved by the board. c. Reasonable steps shall be taken for keeping the jewellery in its original shape. d. Reasonable facilities shall be allowed to any officer of board, to examine it whenever necessary. 7

8 e. If any of the above conditions is not fulfilled, then tax is to be paid from the date when Previous abolition Act 1972 came into force. 5. Foreign assets brought into India If an Indian origin citizen who normally lives in foreign and after leaving that country settles permanently in India, then the following assets will be exempted: a. Money or assets brought from foreign country. b. Deposits in Non-resident (External Accounts. c. Assets purchased in India from foreign money d. Assets purchased or money sent to India 1 year before coming to India. The exemption is provided for a period for of 7 successive assessment years commencing with one A. y next following the return to India. Note A person himself or his parents or grandparents born in undivided India is known as of India origin. 6. One house or a part of house Any one from the following will be exempted from A.Y for an individual of HUF: a. One house or part of house b. A plot of land not exceeding 500 sq. meters in area. A. One house or part of house is exempted House means any house i.e., residential house for personal purpose or rented house is exempted u/s 5 (vi). But the term house is not properly defined. In this case the question arises as to which building are included in the term house. The following things are important in this context: a. If the assessee has more than one residential or non-residential building then only one will be exempted for wealth tax purpose and rest will be taxable. b. In the case of more than one house, assessee can choose one house for exemption purposes. c. Rented as well as house for personal purpose both will be included in the term residential house. d. Outstanding debt will not B. Plot of 500 sq. meters An assessee for A.Y can choose a plot of 500sq. meters instead of a house for exemption u/s 5 (vi). For ex. An assessee has a flat valuing 5 lakhs and a plot of 300 sq. meters in Indore valuing 12 lakhs, then he can choose the plot for exemption. 8

9 UNIT 2 VALUATION OF ASSETS Valuation of assets is very important as wealth tax is charged on the value of net wealth as it exists on the valuation date. Section and the schedule III contain the necessary provisions for the valuation of assets. These are discussed in following sections. Valuation of Assets for the assessment of wealth tax, it is essential to know the value of assets as on valuation date i.e., 31 st March. For the purpose of wealth tax, cost is not important but the market value is important. It is not easy to know the market value of certain assets; hence, some rules are made for their valuation. VALUATION OF HOUSE PROPERTY House for own residence of assessee House not for personal residence If house is purchased or constructed before 1 st April, 1971 Assessee If house is purchased or constructed after 31 st March, 1971 If house is purchased or constructed before 1 st April, 1974 If house is constructed or purchased after 1 st April, 1974 Value as on 31 st March, 1971 will be the valuation on 31 st March, st Valuation/ rule 3 after construction or purchase date. Value under rule 3 will be included in net wealth on 31 st March, 2014 Value under rule 3 or cost of house whichever is more 1. Valuation of house (as per rule-3) Valuation of Letout building Except house for self residence, all other houses will be valued in following way under rule 3 Step l - Gross maintainable rent- First from the following whichever is more, will be GMR. Actual Rent received (on annual basis) Or Annual rent decided by Municipal Corporation. A. Received or Receivable Rent - Received or receivable rent from house means the total of the following a. Received Rent (on the basis of 12 months) b. Payment of local taxes by tenant c. 1/9th of the annual rent, in case the tenant has borne the expenses of repairs. d. In case of advance for more than three month's rent has been received, the 15% on it. e. On giving the house on lease, whatever premium or pagri has been received, is divided by the duration of lease and thus whatever amount comes. f. The value of the profit or facility as received from the tenant. Total of the above will be the annual rent. B. Annual Valuation of Municipal Corporation - Local govt. i.e., municipal corporation, or cantonment board fixes the annual rental value of a house for Property tax purpose. 9

10 Step II - Net Maintainable Rent From GMR, the following will be deducted a. Local taxes b. 15% of gross rent for other expenses. After deducting the above, whatever is left is called Net Rent. Step III - Capitalization of NMR - Net Rent will be calculated as above will be capitalized in the following way a. If the house is built on own land NMR x 12.5 b. If the house is constructed on the lease hold land and the remaining period of lease is 50 years or more. NMR x 10 c. If the house is constructed on the lease holds land and the remaining period is less than 50 years: NMR x 8 = Valuation. Step IV - Premium of unbuilt area - If the open area attached with the house is more than the limit given as under, the additional sum will be added to the capitalized value of house. If open area is more than 5% but upto 10% = 20% of value If open area is more than 10% but upto 15% = 30% of value If open area is more than 15% but upto 20% = 40% of value In the above example if open area is 12%, then 30% of the valuation will be added to the computed value. Step V- Adjustment of unearned increase If a house is constructed on a land which is given on lease by central govt. or state govt. or any other Local authority and if the institution has the right to receive any unearned increase on such Land, then it will be deducted from the value of house. In this way, the value computed from 1 to 5 above will be the value of house 2) VALUATION OF ASSETS OF BUSINESS Where the assessee carries on his business and regularly prepares his books of accounts, then valuation of assets of business is done as under Step I - Assets will be taken from the assets side which are u/s (2/ea) of Wealth Tax Act. Step II - Those Assets which are not disclosed in Balance Sheet will also be taken. Step III - Value of the following assets is taken a. Assets on which Depreciation is changed is taken written down value. b. Assets on which depreciation is not charged is taken on original values. c. Closing stock is taken according to Income tax valuation. d. Valuation on undisclosed assets will be done under rules of schedule III. Step IV - After getting the value of assets as above the following debts will be deducted a. If a debt is against any asset, it will be deducted. b. If the amount of debt is not distributable it will be found in the following way Total debt x Value of assets under wealth tax Total value of assets of business 3) VALUATION OF INTEREST IN A FIRM OR ASSOCIATION OF PERSONS It is done in the following way Step I - Assets covered u/s 2(ea) of Wealth Tax Act will be selected from the Balance sheet of the firm on valuation date. Step II - After getting the total value from above, debts associated with these assets will be deducted to get Net Wealth. Step III - Net Wealth of firm is divided between. the partners in the following way a. If net wealth is less than or equal to their capital then it will be divided in their capital ratio. 10

11 b. If the net wealth is more than their capital then it will be divided according to the partnership deed. Note: If a partner is a foreign resident, then assets outside India are not taxable. In such a case, interest of the partner in a firm is calculated as under Total Interest of partner in firm x Net value of assets in India Total Net wealth of firm Valuation of Jewellery Jewellery will be valued as under Step I - Value of Jewellery on valuation date in open market will be the value for Wealth Tax. Step II - If the value of jewellery is not more than Rs. 5 lakhs then assessee will submit form 0-8A with the return. Step III - If the value of jewellery is more than Rs. lakhs then assessee will submit report of a registered value with form 0-8A. 4) VALUATION OF LIFE INTEREST Valuation of life interest in any asset will be done as under Step I - Firstly average annual income of the assessee is derived from the life interest during 3 years ending on the valuation date. Step II - While computing net annual income, expenses incurred on the collection of such income is subject to the maximum of 5% of the average of annual gross income shall be deducted. Step III - Life Interest will be calculated by using the following formula 1 Average net annual income x - 1 P+d Where, P = Annual premium for a whole life insurance without profit on the life for unit sum assured. 1 d = (Interest on 1 Re. for 1 year) 1+C Computation of Net Wealth (For A.Y ) Assets Taxable Amount Value as per va;uation Assets covered under the definition of term assets i.e. farmhouse, except one residential house, Motor cars, Jewellery, Urban land, Boats, Aircrafts etc. Cash in hand Deemed Assets Assets transferred by assessee to other but includible in net wealth Interest in Partnership firm Total Assets Less Debts on taxable Assets Net Wealth Amount more than Rs. 50,000 Value as on valuation date. Self taxable share. Computation of Net Wealth First 30,00,000 NIL Nil Remaining amount 1% ***** 11

12 Unit III The word Assessment means not only the computation of net wealth but also the determination of the tax payable by the assessee or refund, if any, due to him. Assessment includes re-assessment of net wealth escaping assessment. Types of Assessment 1. Self-assessment (Sec. 15B) Where any tax is payable on the basis of any return, required to be furnished under Sec. 14 or 16 (i.e. voluntary of compulsory return) or sec. 15 (belated or revised return) or Sec. 17 (return of net wealth escaping assessment), after taking into account the amount of tax already paid under any provision of this act, the assessee must pay such tax together with interest payable for any delay in furnishing the return before furnishing the return. The return should be accomplished by proof of payment of such tax. The amount paid on self-assessment is adjusted any demand found due on regular assessment. If the assess does not pay such tax of interest he is deemed to be an assessee in default. 2. Summary Assessment From 1 st June 1999, if any tax or interest is found due on the basis of such return, intimation is sent to the assessee, specifying the sum so payable. Such intimation is deemed to be a notice of demand. No intimation for any tax or interest is sent after the expiry of two years from the end of the assessment year in which the net wealth was first assessable. If any refund is due on the basis of such return, it is granted to the assessee and intimation to this effect is sent to him. 3. Scrutiny Assessment Where the Assessing Officer considers it necessary to ensure that the assess has not understated the net wealth or has not underpaid the tax in any manner, he may serve a notice on the assessee requiring him either to attend for his (Assessing Officer) office or to produce or cause to be produced there any evidence on which the assesee may rely in support of the return. Such notice can be issued at any time within 12 months from the end of the month in which the return was furnished. For the purpose of making an assessment, the Assessing Officer may require any person who furnished voluntary return 9under Sec. 14(1)] or belated or revised return [under Sec. 15] or who has been asked to furnish compulsory return [under Sec. 14(1)(i)] to produce or cause to be produced such accounts, records or other documents as he (Assessing Officer) may require. 4. Best Judgement Assessment (Sec. 16(5)] The assessing Officer is empowered to make the best judgement assessment (i.e. ex-parte assessment) in any of the following circumstances. 1. Failure to make return 2. Failure to produce evidence 3. Failure to produce accounts or documents Before making the best judgement assessments, the assessing officer is required to issue a show-cause notice to the assessee. But no notice is required in a case where the assessee fails to furnish a compulsory return [under Sec. 16(4)(i)] or books of accounts or documents [under Sec. 16(4)(ii)]. In making a best judgement assessment the assessing Officer does not possess absolutely arbitrary authority to assess any figure he likes. Although, he is not bound by strict judicial principles he should be guided by rules of justice, equity and good conscience. The Assessing Officer should estimate the proper figure of assessment. Though there must necessarily be guesswork in the matter, it must be honest guesswork. Thus, after taken into account all the material available on the record, the Assesing Officer is required to estimated the net wealth of the assessee to the best of his judgement. He should determine the amount of wealth tax payable by the assessee or the amount refundable to him on the basis of such assessment. 5. Wealth Escaping Assessment (Sec. 17) 12

13 The wealth is said to have escaped assessment when it has not been charged to tax in the original assessment year to which it rightly belongs, it is immaterial that the net wealth was charged to tax in some other assessment year. The net wealth escape assessment by reason of (i) non assessment, or (ii) under-assessment, or (iii) assessment at too low rate, or (iv) otherwise. Wealth tax is imposed on the net wealth of an assessee. Which assessee has to pay how much tax is decided as under 1. Submitting the Return of Wealth Tax [Sec. 14 1)] The person whose net wealth exceeds the exertion limit i.e. 30 Lakhs as on the valuation date or March 31 has to submit the return of his wealth, on the prescribed form 'A in the prescribed manner and duly verified by him. If the assessee is a business man, he has also to submit the copy of his balance sheet or trial balance. If a person is liable to pay tax on the net wealth of some other person he should also submit the return. Various dates for submitting return are a. If assessee is a Company 30th September b. Assessee other then company whose account are audited according to law 30th September c. Other Assessees 31st July 2. Notice for submitting the Return [Sec. 14 (2)] When the Wealth Tax Officer is convinced that some person possesses wealth more than the minimum taxable limit as prescribed, and still he has not filed the return of wealth tax, he may issues notice to such person to submit the return for wealth tax. 3. Submitting revised Return [Sec. 15] After submitting the return of net wealth, if an assessee feels that there has so signed some mistake in the return, or some facts have been left or omitted, he may, before the assessment, submit the revised return. 4. Signatures on the Return a. In the case of an Individual 1. The individual should himself sign it. 2. If the individual has gone out of the country, the signature of the person authorized by him must be there. 3. If the person is of unsound mind in that case, it must be signed by his guardian or by some such person who is just competent to work on his behalf. 4. If for any reason, it is impossible for that person to sign, in that case, the person competent to work on his behalf may sign. b. In case of HUF 1. The Karta of the family will sign. 2. If the Karta has gone out of India, or is of unsound mind, any other adult member of the family will have to sign. c. In case of a Company 1. The managing director, or 2. If there is no managing director, any other director may sign the return. Provision of furnishing the wealth Tax Return Wealth tax is imposed on the net wealth of an assessee. Which assessee has to pay how much tax is decided as under 5. Submitting the Return of Wealth Tax [Sec. 14 1)] The person whose net wealth exceeds the exertion limit i.e. 30 Lakhs as on the valuation date or March 31 has to submit the return of his wealth, on the prescribed form 'A in the prescribed manner and duly verified by him. If the assessee is a business man, he has also to submit the copy of his balance sheet or trial balance. If a person is liable to pay tax on the net wealth of some other person he should also submit the return. Various dates for submitting return are 13

14 d. If assessee is a Company 30th September e. Assessee other then company whose account are audited according to law 30th September f. Other Assessees 31st July 6. Notice for submitting the Return [Sec. 14 (2)] When the Wealth Tax Officer is convinced that some person possesses wealth more than the minimum taxable limit as prescribed, and still he has not filed the return of wealth tax, he may issues notice to such person to submit the return for wealth tax. 7. Submitting revised Return [Sec. 15] After submitting the return of net wealth, if an assessee feels that there has so signed some mistake in the return, or some facts have been left or omitted, he may, before the assessment, submit the revised return. 8. Signatures on the Return d. In the case of an Individual 5. The individual should himself sign it. 6. If the individual has gone out of the country, the signature of the person authorized by him must be there. 7. If the person is of unsound mind in that case, it must be signed by his guardian or by some such person who is just competent to work on his behalf. 8. If for any reason, it is impossible for that person to sign, in that case, the person competent to work on his behalf may sign. e. In case of HUF 3. The Karta of the family will sign. 4. If the Karta has gone out of India, or is of unsound mind, any other adult member of the family will have to sign. f. In case of a Company 3. The managing director, or 4. If there is no managing director, any other director may sign the return. Types of Return of Wealth 1. Voluntary return Where the net wealth of any person on the valuation date exceeds the exemption-limit, he is bound to furnish to the assessing officer the return of n et wealth as on that valuation date. Similarly, a person has also to file a return in respect of net wealth if any other person in respect of which he is assessable. In either case, the return is to be furnished in the prescribed form [i.e. form BA]. The return of net wealth should be furnished on or before the due date as applicable under the Income-tax Act [under Explanation to Sec. 139(1). A return showing net wealth below the exemption -limit is not be treated return but it will not apply to a return furnished in respect of a notice for net wealth escaping assessment. 2. Compulsory return If any person has not furnished the return of net wealth within the time prescribed under Sec. 1391) of the Income Tax Act, the assessing officer may serve a notice on him requiring him to furnish the return of net wealth. Such return should be furnished within the time allowed in the notice. 3. Belated return (Sec. 15) If a person, liable to furnish the return of net wealth, has not furnished it within the prescribed time, he may furnish it at any time before the expiry of one year from the end of the relevant assessment year of before completion of the assessment, whichever is earlier. 4. Revised return (Sec. 15) If any person furnished a voluntary return [under Sec 14(1)], or a compulsory [under sec. 16(4), and if he discovers any omission or wrong statement therein, not made knowledge or deliberately, he may furnish revised return. A belated return cannot be revised. 14

15 Interest for Defaults in Furnishing the Return (Sec. 178) Where the return of net wealth is furnished after the due date, the assessee is liable to pay for every month or part thereof as comprised in period of delay. Part of the month is taken as full month. Period of default is counted after the due date and will end on the date of furnishing the return. Where no return is furnished, it will end on the date of completion of the assessment. Interest is payable on the amount of tax payable net wealth as determined on assessment. Signing the Return A return which is not signed and verified is not merely an inaccurate or incomplete return but also it is not a return at all. Therefore, a return must be signed by the assessee or any other person competent to act on his behalf. Penalties [Sec. 18 and Sec. 18A] Important penalties under wealth-tax Act, 1957 are given at a glance S. No. Nature Minimum Penalty Maximum Penalty 1 Failure to produce evidence in support of Rs. 1,000 for each such Rs. 25,000 for each return or attend to the office of the failure [Sec. such failure [Sec. Assessing Officer in response to a notice issued under Sec. 16(2) 18(1)(b)(ii)] 18(1)(b)(ii)] 2 Failure to produce case to be produced, Rs. 1,000 for each such Rs. 25,000 for each accounts, records, or other documents in failure [Sec. such failure [Sec. response to a notice issued under Sec. 16(4) 18(1)(b)(ii)] 18(1)(b)(ii)] 3 Concealment of the particulars of any assets 100% of the tax sought 50% of the tax sought or furnishing inaccurate particulars of any to be evaded* [Sec. to be evaded* [Sec. assets or debts 18(1)(c)(iii)] 18(1)(c)(iii)] 4 Refusal to answer question, or sign statements or give evidence or produce books of accounts or other information 5 Failure to furnish statement or information in response to a issued under Sec Penalty for non-payment of tax [Sec. 32 r.w. Sec. 221 of the income tax Act] Rs. 500 for each such [Sec. 18 A(1)] Rs. 100 for every day during which failure continues [Sec. 18 A (1)] Rs. 10,000 for each such [Sec. 18 A(1)] Rs. 200 for every day during which failure continues Not exceeding 100% of tax in arrears [Sec.32] Appeal to the Commissioner (Appeals) [Sec. 23A] 1. Appeal against assessment In an appeal against assessment the assessee may object to the amount o fnet wealth determined or the amount of wealth tax determined as payable. He may also deny his liability to be assessed. 2. Appeal against penalty The assessee may prefer an appeal against penalty imposed on him under Sec A and Sec Appeal against refusing partition of HUF the assessee may prefer an appeal against the order of the Assessing Officer Refusing to record total partitions of HUF under Sec. 20(2) 4. Appeal against an order treating person as agent of non-resident Any person may prefer an appeal against treating turn agent of a person residing outside India under Sec Appeal against rectification Any person may prefer an appeal against any order of the rectification passed by Assessing Officer or Valuation Officer which has the effect of enhancing the assessment or reducing a refund. He may also file an appeal against order refusing to allow the claim of the assessee. 15

16 COLLECTION AND RECOVERY OF TAX Whenever assessment of tax is completed of an assessee, en wealth t officer issues notices to deposit tax or penalty or interest. 1. Time-Period of tax payment - Assessee has to deposit the amount mentioned in notice within 30 days of receiving such notice. This amount should be deposited to mentioned person at mentioned place. Assessment officer can decrease or increase the time period if he thinks that it doesn't cause any harm to state revenue. 2. Payment of Interest - If an assessee doesn't make the payment of the amount as mentioned in the notice of demand within the specified period, he will also have to pay the 1% for every month. 3. Canciliation or Reducing the Interest - On confirmation of the following, the amount of interest may be reduced or cancelled by the chief commissioner or the commissioner a. When the accessee is finding it difficult to make the payment of the interest. b. Due to the reason beyond the control of the assessee. c. The assessee has given due co-operation in the assessment and its collection. 4. Default in payment - If the assessee has not paid the said amount in time he will be a defaulter and has to pay penalty in the following way a. Penalty on default. b. Increase in penalty after continuous default. c. If there is a genuine reason for default, assessment officer may cancel the penalty. 5. Types of collection- Collection of tax, interest, penalty or any other amount is done in the following way a. By sending Certificate to the tax-recovery officer. b. Collection by state government. c. Collection under foreign agreement. d. Collection by suing in court. Tax should be collected within 3 years of financial year in which tax is demanded. RECOVERY OF TAX According to sec. 22, if assessee is unable to pay tax, then wealth tax officer issues a certificate duly signed by him mentioning the amount of tax to the tax-collection officer. That officer can collect tax in the following way a. By selling movable or immovable assets of assessee. b. By, appointing a receiver to manage the assets of assessee. c. By arresting the assessee and sentencing them. Tax-assessment officer can himself, even after sending certificate to the collection officer, can collect tax in the following way- 1. By sending a notice to the employer of the tax payer. 2. By sending a notice to the persons who have the amount of tax payer. 3. By applying in the court. 4. By selling movable assets of the tax payer. 5. By State Government. 6. By giving the facility to pay the amount of tax in instalments. 7. By making the assessees pay tax in case the assessee appeals in high court or Supreme Court. 8. He can postpone the payment of tax if the assessee has appealed against his assessment to commissioner (Appeals) WEALTH TAX AUTHORITIES 16

17 Central Govt. has not appointed separate officials for wealth tax purpose; authorities of income tax department also see the matters related to wealth tax. Only their names of post are changed for wealth tax purpose. Therefore, in WTA, different Income Tax authorities work in following posts 1. Board of Direct taxes This Board is the highest authority regarding the administration of Wealth Tax. It is appointed by Central govt. Rights of Board - The Board has been give) the following rights a. For proper fulfillment of W.T.A., Board can order other officers. b. For proper fulfillment, recovery and collection of tax, Board can order other officers. c. Board can authorise wealth tax Commissioners or Wealth tax Authority to solve any matter relating to Wealth Tax. d. The Board is authorised to frame rules relating to wealth tax. Board can frame rules in following cases i. Procedure of Valuation of assets, ii. Format of Wealth tax Return, iii. To decide format of notice, iv. To decide rules regarding rights for valuation officers, tax assessing officers etc. e. Board is entitled to appoint the Wealth tax officials below the rank of Assistant Commissioner. 2. Chief Commissioner He works under the Central Board of Direct Taxes. His rights are as follows a. To interrogate in any case. b. Rights of court for Checking, rights relating presentation of books of accounts etc. 3. Wealth Tax Commissioner The Wealth Tax Commissioner is appointed by the Central govt. He works under the central Board of direct taxes and carries out the Board's orders, directives and suggestions etc. Ordinarily one commissioner is appointed for a state but sometimes in a state there might also be more than one commissioner. Rights of WTC - Wealth-Tax Commissioner has following rights a. To appoint second grade Wealth tax officer, Wealth Tax Inspector and Clerk. b. He can order in special case that right of wealth tax officer will be used by Inspecting Assistant Commissioner. c. He can order Wealth Tax officer to work with Assistant Commissioner. d. He may transfer the cases pertaining to any assessee from one assessment officer to the other, working under his charges. 4. Assessing Officer The tax- assessment officer is the most important officer concerned with the wealth tax office, because it is his work to assess the tax and collecting it from the assessees. His appointment is made by the central govt. Rights of Assessing Officer - a. To assess tax - Assessing officer demands the statements of wealth from the assessees and then assess the tax. b. To issue notice for return - He can issue notice to a person who keeps net wealth more than tax free limit and didn't submit the return. c. To demand for proof - He can demand for proof regarding assets mentioned in the statement of net wealth. d. To Valuate - If the assessing officer is not satisfied with the valuation of any asset, he can revaluate it. e. To check books of accounts - He can check any books of accounts. f. To Order - He can order his sub-ordinates to work delegated. g. To collect taxes - He assesses the tax and order to deposit and collect the taxes. He also orders for various penalties. 17

18 5. Valuation Officer For assessing the value of assets, there is needed the valuation officer. By valuation officers meant that person who under this Act, is appointed by the designation of valuation officer. Within it are included the Regional Valuation Officer, District Valuation officer and the Assistant valuation officers. The Central govt. as it deems necessary per the need, may appoint the valuation officers. For the help of the valuation officer, wealth tax officer-in-charge, may appoint as per need, the overseer, surveyors and the valuers. Rights of Valuation Officer - a. He may re-value the valuation performed by the certified and registered valuers. b. Valuation officer may enter any such premises be coming to the person whose property (assets) is to be values. c. The valuation officer may enter any premises, building or any other property whose tax has been assessed. d. He may inspect any of the books of accounts or documents which he deems necessary for the purpose of valuing. But he cannot enter any premises or buildings, properties etc. Unless at least two days before a notice in writing has been given to the concerned person in this regard. 6. Wealth Tax Inspector Its appointment is made by the Wealth Tax Commissioner. He works under the charge of assessment officer. Rights and Duties OF Wealth Tax Inspector - a. His main duty is to find out new assessees. b. To conduct enquiries and investigations as per orders from the tax assessment officers. c. After being authorised by the Wealth Tax officer, he came any premises in his area and can use the rights of the wealth tax officer. Besides above mentioned officials, there are several other offices regarding appeals etc. APPEALS BEFORE THE APPELLATE TRIBUNAL The right fling appeal before the Appellate Tribunal is available to both the assessee and the assessing authority. Cases for which the Appeal may be filed a. Regarding the judgment given u/s 23. b. Regarding the penalties imposed u/s 18 and 18 (a). c. Regarding the enhanced liability of tax, as increased by the Commissioner. d. Regarding the penalty imposed u/s 37 (2). Procedure for Appeal before Appellate Tribunal a. If the assessee is not satisfied with the decision of Commissioner (Appeals) he can file an appeal before the Appellate Tribunal within 60 days of decision. b. If the commissioner is not satisfied with the decision of Deputy-Commissioner (Appeal), he may direct the assessing officer to appeal against such order. The assessing officer can appeal within 60 days of such order. c. Appeal must be submitted on a prescribed form F certified in a prescribed manner. d. If the appeal is done by the assessee, he has to deposit a fees of Rs