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V. K. Subramani

The concept of charging assets to wealth tax has undergone radical changes over the years. Assets liable for wealth tax were previously defined in an exclusive manner by listing out those thatfell outside the tax net.

However, the term ‘assets’ has been given a comprehensive definition from the assessment year 1993-94, providing some relief from litigation on this aspect of law.

Building or land appurtenant thereto is the first item in the definition of ‘assets’. The exclusion of building from wealth tax levy is given for five categories of buildings. Of them, two merit a closer look, namely:

any house which is occupied for the purpose of business or profession;residential property let out for a minimum period of 300 days in the previous year;

Wealth tax is payable on the value of net wealth computed on the valuation date which means the last day of the financial year.

Hence, the asset holding on the valuation date is only considered for the purpose of levy or non-levy of tax. The following situations would show how the provisions are activated for and against the taxpayers.

A let out residential building, the construction of which is completed during the year and let out for less than 300 days during the year of completion of construction, will not fall within the exclusion and is, hence, liable for wealth tax.

Any building, if it becomes stock-in-trade on the valuation date, then regardless of its character preceding the valuation date, it is exempt from wealth tax.

Allotment of house to an employee or a whole-time director, whose annual salary is less than Rs 5 lakh, would enable exclusion of such building in net wealth computation. The status of the asset only on the valuation date is reckoned and not its nature or character preceding that date.

A property in the nature of commercial establishment or complex on the valuation date is exempt from wealth tax without considering the date or cost or mode of acquisition.

A house that is used for most part of the year for business or profession, when let out for residential purpose before the valuation date, the taxability of such asset for wealth tax became an issue in Tracstar Investments (P) Ltd vs Dy. CIT (23 SOT 290).

The assesee used the building for business purpose for part of the year and later let out the same for residential purposes for 270 days during the year. The tribunal held that the assessee had not kept the asset as meant for business use on the valuation date and, therefore, it is not exempt from tax.

The other category — let out for residential purpose during the year for 300 days — could not be satisfied as it was let out only for 270 days during the year. Hence, the tribunal held that the building fell within the definition of asset liable to wealth tax.

It is a classic case of a taxpayer subject to tax for no fault or default on his part except the provisions of law which did not address such a situation. A taxpayer, for having let out a business asset for residential use for less than 300 days during the year, is subjected to tax as per the text of legal provision. In legal maxim, it is a case of casus omissus — an omission from the language of the statute.

More Stories on : Income Tax | Real Estate & Construction

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