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  Wealth Tax - Deemed Assets

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Deemed Asset [Sec. 4]

Following assets are deemed to be the wealth belonging to the assessee even though he is not the legal owner of such assets:

Applicable in case of individual only

Transfer to spouse [Sec. 4(1)(a)(i)]

Where an assessee transfers his asset to spouse without adequate consideration (or without an agreement to live apart) then such transferred asset shall deemed to be the wealth of the transferor.

Exceptions

  • Where such transfer was made before 1-4-1956 , the clubbing provisions shall not apply.

  • Where such transfer is either taxable under Gift Tax Act, 1958 or is exempted u/s 5 of the Gift Tax Act between A.Y. 1964-65 to A.Y. 1971-72, the clubbing provisions shall not apply.


Assets held by minor child [Sec. 4(1)(a)(ii)]

Assets held by a minor child are deemed to be the wealth of parent, whose net wealth (excluding the assets of the minor) is higher.

Exceptions 

  • Assets held by -

    1. Married daughter; or

    2. Handicapped minor child (suffering from the disability of nature specified in sec. 80U of the Income Tax Act) are not to be clubbed.

  • Any asset acquired by a minor child out of the income arising to him from manual work or from any activity involving his specialised knowledge or experience, is not to be clubbed.

Tax Point

  • Where assets of minor child are once deemed as wealth of either parent, such assets shall continue to be clubbed in the net wealth of the same parent in any succeeding year, unless the WTO is satisfied that it is necessary to do so after giving a reasonable opportunity of being heard to the other parent.

  • Where the marriage of the parents does not subsist, assets held by a minor child are deemed to be wealth of that parent who maintains the child in the previous year.

  • Child includes a step child and adopted child. Child does not include illegitimate child [ CWT vs Nawab Sir Mir Osman Ali Khan Bhadur ]

  • Where it is provided under a trust deed that so long as the beneficiaries are minor, the asset are not being held for their benefit but for the benefit of a charitable trust, the aforesaid clubbing provision are not attracted [ CWT vs H.H.Yeshwant Rao Ghorpade ]


Assets transferred for immediate or deferred benefit of the transferor or his/her spouse [Sec. 4(1)(a)(iii)]

Where any asset is transferred, without adequate consideration, by an individual to another individual or an AOP for immediate or deferred benefit of the transferor or his/her spouse, such asset shall be deemed to be the wealth of transferor.

Exceptions

  • Where such transfer was made before 1-4-1956 , the clubbing provisions shall not apply.

  • Where such transfer is either taxable under Gift Tax Act, 1958 or is exempted u/s 5 of the Gift Tax Act between A.Y. 1964-65 to A.Y. 1971-72, the clubbing provisions shall not apply.  


Asset transferred to son's wife [Sec. 4(1)(a)(v)]

Where an assessee transfers his property, without adequate consideration, to son's wife then it is deemed to be the wealth of the transferor.

Tax Point 

  • Asset transferred by an individual to son's wife before 1-6-1973 , is not subject to clubbed.

  • Relationship of father in law / mother in law and daughter in law must exist between the transferor and transferee both on the date of transfer and as on the valuation date


Assets transferred for immediate or deferred benefit of his/her son's wife [Sec. 4(1)(a)(vi)]

Where an assessee transfers his property, without adequate consideration, for immediate or deferred benefit of his/her son's wife, then such property is deemed to be the wealth of the transferor.

Tax Point 

  • Asset transferred by an individual to son's wife before 1-6-1973 , is not subject to clubbed.


Revocable Transfer [Sec. 4(1)(a)(iv)]

Where an asset is transferred under a revocable transfer it shall be deemed to be the wealth of the transferor.

Irrevocable transfer includes a transfer of assets which, by the terms of the instrument effecting it, is not revocable for a period exceeding six years or during the lifetime of the transferee, and under which the transferor derives no direct or indirect benefit, but does not include a transfer of assets if such instrument - 

  • contains any provision for the retransfer, directly or indirectly, of the whole or any part of the assets or income there from to the transferor; or

  • in any way gives the transferor a right to reassume power, directly or indirectly, over the whole or any part of the assets or income there from.

Note : The value of any assets transferred under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor as and when the power to revoke arises to him [Sec. 4(5)]

Exceptions

  • Where such transfer was made before 1-4-1956 , the clubbing provisions shall not apply.

  • Where such transfer is either taxable under Gift Tax Act, 1958 or is exempted u/s 5 of the Gift Tax Act between A.Y. 1964-65 to A.Y. 1971-72, the clubbing provisions shall not apply.


Impartible Estate [Sec. 4(6)]

The holder of an impartible estate shall be deemed to be the owner of the properties comprised in the estate.


Transfer to HUF [Sec. 4(1A)]

Where an assessee transfers his property (on or after 1-1-1970 ), without adequate consideration to HUF of which he is a member, then it shall be deemed to be the wealth of the transferor.

Effect of partition

Where partition (total or partial) of HUF takes place, the converted asset or any part thereof received by the spouse of the assessee shall be deemed to be the wealth of the assessee.

Note : The share of minor child in the asset on partition shall be deemed as the wealth of the assessee as per Sec. 4(1)(a)(ii) and not as per this section.

Tax Point

  • Relationship of husband and wife must exist between the transferor and transferee both on the date of transfer and as on the valuation date [CWT vs Khan Saheb Dost Mohd. Alladin].

  • Section 4(1) applies to the transferred assets but not to accretions thereto [CWT vs T. Saraswathi Achi].

  • An agreement to live apart includes even the voluntary agreement to live apart.

  • The value of assets transferred by the assessee, which is included in his net wealth, is the value of the asset held as such as on the valuation date and not the value of the asset as it was on the date of transfer [CWT vs Kishanlal Bubna (SC)].

  • Transferred property may not be an asset as per sec. 2(ea), still it shall be deemed as wealth of transferor if later on such property is converted into asset within the meaning of Sec. 2(ea) [M.G.Kallankulam vs CIT]


Applicable in case of all assessee

Interest in the assets of the Firm or AOP [Sec. 4(1)(b)]

The value of interest of a partner or member (whether individual or other assessee) in the assets of the Firm or AOP shall be deemed to be the wealth of the assessee and its value shall be computed as per Schedule III (discussed later in this chapter).

Tax Point

  • Where minor is a partner in a firm the value of his interest in the firm shall be deemed as wealth of his parent as per provision of sec. 4(1)(a)(ii).

  • Where share of partners or member is unknown, then AOP itself shall be assessed as an individual.


Gift merely by book entries [Sec 4(5A)]

Where a gift of money is made by one person to another by means of mere entries in the books of account, the value of such gift would be included in the net wealth of the donor.

Such books of accounts may be maintained -

  • by the person making the gift; or

  • by an individual/HUF/Firm/AOP with whom the donor has business or other relationship.

However, where donor proves to the satisfaction of the Assessing Officer, by following means, that the money has actually been delivered to the other person at the time of making the book entry, the clubbing provision shall not be attracted -

  • on the date of gift, there must have been sufficient cash & bank balance in the books of the person concerned; &

  • such gift was made by the donor and accepted by the donee


Property held by a member of a housing society [Sec. 4(7)]

  • Where the assessee is a member of a co-operative society, company or any other AOP; and

  • a building or part thereof is allotted or leased to him under a house building scheme of the society, company, etc.,

then, the value of such building or part thereof as reduced by any installments outstanding from the assessee under such scheme shall be deemed to be the wealth of the assessee.

Note : Any outstanding installments payable by the assessee towards the cost of such house is deductible as debt.   


Assets held by a person on part-performance of a contract [Sec. 4(8)(a)]

A person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in sec. 53A of the Transfer of Property Act, shall be deemed to be the owner of that building or part thereof and charged accordingly. 


Assets held by a person on lease [Sec. 4(8)(b)]

A person who acquires any right (excluding any right by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or part thereof, by way of sale, exchange or lease agreement [covered u/s 269UA(f) of the Income Tax Act], shall be deemed to be the owner of that building or part thereof.

  • The lease period should be for 12 years or more [as per Sec. 269UA(f) of Income Tax Act], including extension period (excluding lease extended from month to month or for a period not exceeding one year).


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