Indian Trust

Trust: (meaning): A trust is an obligation annexed to the ownership of the property and arising
out of a confidence reposed in and accepted by the owner for the benefit of another.

Author of the trust: Person who declares the confidence is called author of the trust or settler of
the trust.

Trustee: Person who accepts the confidence is called trustee.

Beneficiary: The person for whose benefit the trust is accepted is called beneficiary.

Breach of trust: A beach of any duty imposed on a trust, as such, by any law for the time being
in force, is called “breach of trust”. Breach of trust consists in some improper act,
neglect, default or omission of a trustee in respect of trust property or beneficiary’s
interest in it.

Creation of trust: A trust is created when the author of the trust indicates that the reasonable
certainty by any word or act: -
a) an intension to create thereby a trust,
b) the purpose of the trust,
c) the beneficiary,
d) Trust property.

Creation of valid trust: For creation of the trust it is necessary that the trust property is
transferred by the author of the trust to the trustee.

If the trust property is immovable property, the transfer has to be executed by a

document and registered by the author of the trust or by a will by author of the trust.

There is no special prescribed form on which document of trust has to be drawn

up.

Lawful purpose for creation of trust: According to Indian Trust Act, a trust may be created for
lawful purpose only. Thus the creation of trust, which is unlawful purpose, is invalid.

→ the purpose of the trust is unlawful when

a) it is forbidden by law,
b) it is fraudulent
c) court regards it a immoral or opposed to public policy,
d) Involves injury to the person or property of another.

Main ingredients of a valid trust deed: The essentials of the trust as per section 3 of the Indian
trust act are:
a) Author of the trust – person who reposes confidence.
b) Trustee – the person who accept the confidence
c) Beneficiary – the person for whose benefit the trust is accepted is called
beneficiary,
d) Subject matter – the subject matter of the trust is called ‘trust property or ‘trust
money’.

Specific trust: Specific trust is trust wherein the author of the trust specifies the purpose of trust
clearly.

Non-specific trust: Non-specific trust is trust which is not specific.

 Trust how extinguished.
77. A trust is extinguished—
(a) when its purpose is completely fulfilled; or
(b) when its purpose becomes unlawful; or
(c) when the fulfillment of its purpose becomes impossible by destruction of the trust
property or otherwise; or
(d) when the trust revoked.

Revocation of trust.
78. A trust created by will may be revoked at the pleasure of the testator.
A trust otherwise created can be revoked only—
(a) where all the beneficiaries are competent to contract - by their consent;
(b) where the trust has been declared by a non-testamentary instrument or by word of
mouth.—in exercise of a power of revocation expressly reserved to the author of the
trust; or
(c) where the trust is for the payment of the debts of the author of the trust, and has not
been communicated to the creditors—at the pleasure of the author of the trust.

Indian Registration Act

Certificate of registration: ‘Registration’ is the manure of putting certificate containing the word
‘registered’ and entering in the relevant register by the registering officer.

If any person applied for registration of any document, the registering officer
endorses a certificate on the document containing the word ‘registered’, together with the
no and page of the book in which the document has been entered. After this certificate is
signed, sealed and dated by the registering officer, it is called duly registered in the
manner provided in Indian Registration Act.

Document requiring compulsory registration (section 17): Under the Indian registration Act, the
document requiring compulsory are:

a) Instrument of gift of immovable property,

b) Transfer of immovable property exceeding Rs.100/-,
c) Non-attestified documents enjoining receipt of consideration,
d) Lease of immovable property more than one year or from year to year.

Document requiring optional registration (Section 18): Following documents are requiring
optional registration:
a) Instruments other than gift of immovable property,
b) Transfer of immovable property of valued less than 100/-,
c) Lease of immovable property for less than one year,
d) All other documents except documents mentioned in section 17.

Person entitled to present wills and authorities to adopt: The testator, or after his death any
person claiming as executor, may present it to any Registrator for registration.

Deposit of will: Any testator may, either personally or by duly authorised agent, deposit with
any Registrator his will in a sealed cover superscribed with name of the testator and a
statement of document.
 Procedure of deposit of wills: On receiving such cover the Registrar, if satisfied that the person
presenting the will is the testator, shall record in writing in the register. He also noted the
year, month, day and hour of such registration. The Registrar then place and retain this
sealed cover in fire proof box.

Time from which registered documents operates: A registered documents shall operates from
the time from which is would have commenced to operate and not from time of its
registration.

Indian Stamp Act

Conveyance: Conveyance includes conveyance on sale and every instrument by which property,
whether movable or immovable, is transferred inter-vivos.

‘Executed’ and ‘Execution’: Executed and Execution used with reference to instruments, mean
‘signed’ and ‘signature’.

Instrument: Instrument includes every document by which any right or liability is created,
transferred, limited, extended, extinguished or recorded.

Instrument of partition: Instrument of partition means any instrument whereby co-owners of any
property divide or agree to divide such property.

Power of attorney: Power of attorney includes any instrument empowering a specified person to
act for and in the name of the person executing it.

Settlement: Settlement means any non-testamentary disposition in writing, of movable or

immovable property made:
a) In consideration of marriage,
b) For purpose of distribution of property of settler among family.
c) For any religious or charitable purpose.

Instruments not duly stamped inadmissible as evidence etc.: No instrument is admitted as

evidence unless which evidence is duly stamped bearing an adhesive stamp of not less
than proper amount.
 Transfer of Property Act

Lease: Lease of immovable property means transfer of right of property made for certain time,
in consideration of price paid or promise to transferor by the transferee. The transferor is
called Lessor and the transferee is called Lessee.

Exchange: Exchange is mutual transfer of ownership of one thing for ownership of another.
Such transfer of movable/ immovable property is called an EXCHANGE. A transfer by
Exchange only can be made by sale.

Mortgage: Mortgage is a transfer of an interest in immovable property for the purpose of

securing the payment of money advance by way of loan.

Simple mortgage: It is a mortgage, where possession of mortgaged property is not delivered.

The mortgager binds himself to pay the mortgage money. In the event of his failing to
pay, the mortgagee shall have the right to sell the property.

Unfructuary mortgage: A transferee who has right to posses the mortgage property can receive
the rents and profit accruing from such property. This type of mortgage is called
unfructuary mortgage.
Mortgage by conditional sale: Where the mortgagor ostensibly sales the mortgage property:
a) On condition that defaults of payment of mortgage money on a certain date, the
sale shall absolute.
b) On condition that on payment of mortgage money, the sale shall become void,
c) On condition that on payment of such mortgage money the buyer shall transfer
the property to the seller.

Charge: Where immovable property of one person made security for payment of money to
another and transaction is not a mortgage, the latter person is said to have a charge on the
property.

Difference between Mortgage and Charge:

Mortgage Charge

- There is a transfer of interest - No transfer of interest

- Can only be created by act of parties
- Is created by act of parties or by
operation of law
- A mortgage must necessary be for a - A charge may be in perpetuary /
definite period. forever.

Gift: Gift is the transfer of movable or immovable property made voluntarily and without
consideration by one person (donor) to another (donee). Such acceptance must be done
during life time of donor while he is capable of living.

Essentials of valid Gift:

a) There should be donor and donee. The donor must be competent and donee must
be ascertainable,
b) There must be transfer of ownership,
c) Relate to property in existence,
d) Voluntarily without consideration,
e) During the life time of donor while he is capable of giving,
f) In case of immovable property, there must be a registered instrument signed by
donor and attested by two witness,
g) In case of movable property, gift can be made either registered instrument
property attested or by delivery or by possession.
Revocation of Gift: The donor and donee may agree that on the happening of any specified
event, a gift shall be suspended or revoked.

Transfer of Property: Transfer of property means an act by which a living person conveys
property, in present or in future, to one or more living persons. Here living person
includes company or association or BOI.

Fraudulent transfer: A transfer with intend to delay the creditors of the transferor is called
fraudulent transfer.

Actionable claim: A claim to any debt or a claim in beneficial interest in movable property not
in possession. Example: (a) arrear of rent, (b) money due in a Life Insurance Policy, (c)
fixed deposit in bank.

Non-actionable claim: Example- (a) share in company, (b) lottery ticket, (c) claim to copyright.

Vested interest: Where an interest created in favour of person, on a transfer of property, without
specifying the time to take effect on happening of an event which must happen.

Contingent interest: Where an interest created in favour of a person, on a transfer of property,

without specifying the time to take effect on happening of an uncertain event shall not
happen.

Sale: A transfer of ownership in exchange for a price paid or promised or part paid or part
promised.

Right of seller: Seller is entitled to

a) rent on profit till possession of buyer,
b) Where ownership has passed before payment of whole purchase money, to
charge upon property in the hands of buyer.

Liabilities of seller:
(Before sale):
a) disclose material defects in the property,
b) To produce all documents for examination on request of buyer,
c) Answer all relevant question of buyer, to the best of his information,
d) On payment execute a proper conveyance when the buyer tenders him for
execution at proper place and time,
e) To take as much care of the property and all documents between the period the
date of contract and the date of delivery of property,
f) Pay all public charges up to date of sale,
g) To give possession of the property when the purchaser required,
h) Deliver deed in his possession after receiving whole amount of purchase money.

(after sale)
i) to give possession of property,
j) Give all documents.
 Wealth Tax

Assets u/s 2(ea) :

Assets includes
1. Residential House
2. Commercial House
3. Guest House
4. Farm House situated within 25 km from 4. Residential let out for more than 300
local municipality limit.
Motor Car
Jewellery, bullions, furniture, utensils or
other articles made wholly or partly of
gold, silver, platinum or any precocious
metal.
Yatch, Boat and aircraft
Urban land within municipality limit or 1. Urban land on which construction is not
within 8 km.
the municipality should have population 2. Land occupied by building which has
10000 or more.
Cash I hand in excess of Rs.50000 in case
Individual and HUF. In case of others
any unrecorded amount.
Assets excludes
1. Residential house to whole time
employee of a company whose gross
annual salary does not exceeds Rs,.5
lakh.
2. Residential house / Commercial house
forming part of stock in trade
3. House for own business or profession.
days or more during PY.
5. Property in the nature of commercial
establishment or complex.
1. Motor Cars forming part of stock in trade
2. Motor car used in business of hire.
Held as stock in trade
1. used for commercial purpose.
2. ship
permissible.
been constructed with approval of
appropriate authority.
3. Urban land for industrial purposes for
two years from date of its acquisition.
4. Land held by assessee as stock in trade
for a period of 10 years from date of
acquisition.

Deemed asset (Section 4 ): Certain assets belonging to other persons are also included in the net
wealth of an individual provision is similar to those of ‘clubbing income’ under IT Act.

a) Assets held by spouse, where such assets have been transferred without adequate
consideration,
b) Asset held by minor child (married daughter, handicapped child – exception)
c) Asset transferred to person /AOP without adequate consideration for immediate
deferred benefit,
d) Asset transferred to son’s wife without adequate consideration,
e) Assets transferred to any person /AOP for the benefit of his son’s wife,
f) If an individual transfers his self acquired property to his HUF by making gift or by
throwing it in the common stock, without adequate consideration,
g) The value of partner’s interest in Firm/ AOP,
h) The irrevocable asset which was transferred, if the transferee has the power to
revocation.
Exempted Wealth u/s 5 :

a) u/s 5(i) -Property held under Trust for any chartable / religious purpose,
b) u/s 5(ii) – Interest in HUF – Interest of the assessee in coparcenary property of
any HUF of which he is a member. This is because HUF itself is liable to tax.
c) u/s 5(iii) – Building of an Ex-ruler – Any one building in occupation of an ex-
ruler which is declared by central government as his official residence.
d) u/s 5(v) – Value of assets brought by person of Indian Origin – In case of an
assessee of Indian origin ordinarily resigning in foreign country returned to India with
an intention of permanent resigning in India. The exempted wealth are money and
value of assets brought by him and the value of assets acquired by him out of such
money within one year immediately preceding the date of the return and any time
thereafter are exempted for 7 successive AYs.
e) u/s 5(vi) – One house or part of house – One house or part of house or a plot of
land belonging to an Individual or HUF. The plot of land should upto 500 sq.meter.

Exempted Wealth u/s 6 :

1. Individual – foreign national The value of asset out side India are
2. Individual – Indian national exempted.
Resident but not ordinarily resi.
Non resident
3. Company – Non resident company

Person liable to WT u/s 3(2): :

a) Individual,
b) HUF,
c) Company,
d) AOP chargeable u/s 21AA

Person exempted from WT:

a) Company registered u/s 25 of Company Act,

b) Co-operative society,
c) Social club,
d) Political party,
e) Mutual fund.

Chargeability of net wealth u/s 3 :

a) WT, WT is charged @ 1% on the net wealth in excess of Rs.15 lakhs determined on

the basis of i) Nationality, ii) Residential Status, and iii) Location of the assets on
the valuation date.
b) The WT shall be rounded off to the nearest rupee u/s AD,
c) Valuation date means 31st March of previous year.
Voluntary Return :

u/s 14 Due date 31st September Company, Non corporate assessee whose
accounts are to be audited u/s 44AB under
IT Act or any other law.,
Working partner of firm whose accounts are
to be audited.
st
Due date 31 July Other assessee.
u/s 15 At any time before Belated or Revised return.
completion of assessment
or the expiry of one year
from the end of the
relevant assessment year,
whichever is earlier.

Circumstances in which the AO refers the valuation of assets to the Valuation officer:

Purpose : To adopt the market valued of the asset for the purpose of making assessment.

Situation: (a) Where the valued of the asset estimated by a registered valuer. – the AO is
of the opinion that the value of the asset declared in the return of wealth is less than the
fair market value.

Situation (b) (i) In other case – the fair market valued of the asset exceeds the value of the
asset as retuned by more than the 33 .1/3 % or 50000
(ii) It is necessary to so having regard to nature of the asset and other
relevant circumstances.

Procedure to be followed by the Valuation Officer :

(1) Service of Notice: the V O may serve notice to assessee requiring him to produce
accounts, records or documents as the V O may require.
(2) Valuation :
Situation 1 : Value of the assessee correctly declared in the return u/s 14 or 15. The VO
shall issue an order in writing to that effect and send a copy to the AO and to the
assessee.
Situation 2 : Value of the asset is higher than the value declared in the return u/s 14 or 15
OR the asset is not disclosed OR no return has been filed.

 Notice – the V O shall serve notice on the assessee intimating the value of the
assets he proposes to estimate.
 Opportunity - the assessee shall be give an opportunity to state his objections and
produce evidence in support of his objection.
 Order – After hearing the evidence and after taking into account the materials
gathered during the proceeding, the VO shall pass an order valuation of asset in
writing.
 Communication – Copy of order shall be sent to AO and assessee.
 Completion of assessment – On receipt of order the AO shall proceed to complete
assessment in conformity with the estimate of the VO.
 Finality – The decision of valuation officer regarding valuation of asset is final for
the purpose of assessment.

Jurisdiction of VO : Asstt.Valuation officer - net wealth up to 10 lakh.

Valuation Offier - net wealth up to 50 lakh
District Valuation Officer – net wealth above 50 lakh
Under what circumstances can a Chartered Accountant act as a registered valuer: (a) A C.A. in
practice can be a registered valuer for valuation of stocks, shares, debentures, share in
partnership firms and business asset including Goodwill.

(b) Under Rule 8A, he should not be in practice for not less than 10 years nad his gross
receipt from such practice shall not less than 50000 in any of the three years prior years
of five years.

Liability of Legal Representative u/s 19:

Applicability : All assessment years relevant to valuation date prior to death of assessee.

Liability: If the deceased executed a will then executor/ administrator is liable otherwise
LR is liable.

Residential status and capacity: Assessed in the individual capacity and the residential
status and citizenship are same of the deceased.

Duties and liability:

(a) If the deceased already filed the return, the LR shall be liable to pay WT,
Interest and Penalty which would have been payable by the deceased. The
maximum liability is restricted to the extent to which the estate of deceased is
capable of meeting.
(b) If the deceased failed to file the return the provisions of section 14, 15 and
17 shall apply to the LR.

Assessment in case of Executor u/s 19A:

(a) The net wealth of the estate of a deceased person shall be chargeable to tax in the
hands of executor.
(b) The executor shall be treated as individual for the purpose of WT act.
(c) Two separate assessments shall be made in respect of
1) His own wealth in Individual capacity
2) For the assets of deceased in representative capacity,

Till the assets of the deceased are completely distributed among the beneficiaries,
separate assessment will be made.

Limitation of time assessment :

Section Nature of obligation Limitation

16(1)(a) Intimation of any tax or interest
after adjustment of tax and inertest
paid or for any refund.
16(2) Service of notice requiring
assessee’s attendance, production
of evidence in support of return of
wealth.
17(1A) Service of notice for reassessment
(i) where net wealth has escaped
assessment is less than 10 lakhs
(ii) where net wealth has escaped
assessment is Rs.10lakh or more
17A(1) Passing assessment order
Within 2 years from the end the
AY in which net wealth was first
assessable.
Within 12 months from the end the
month in which return is filed.
Within 4 years from end of the
relevant AY
Within 6 years from end of the
relevant AY.
Within 21 months from end of the
AY in which net wealth is first
assessable.
 17A(2) Passing assessment/ reassessment Within 9 month from the end of
order u/s 17. the FY in which notice u/s 17(1A)
was issued.
17A(3) Passing assessment order in case Within 9 months form the end of
of set-aside or cancelled by the FY in which the order of
appellate authority CIT(A) / Tribunal is received.

Wealth escaping assessment:

1) Where the AO has reason to believe that the net wealth

chargeable to tax has escaped assessment for any AY, he may assess or reassess
such wealth.
2) Issue of notice: The AO should serve a notice u/s !7 (1A) on the
assessee requiring him to furnish return of wealth within prescribed time which shall
not be less than 30 days. Before issuing any notice, the AO should record the reason
to do so.
3) Time limit :

From end of Assessment completed Any other case

relevant AY u/s 16(3)/ 17
4 years Any amount wealth escaping Any mount of wealth
assessment. AO other than ACIT escaping assessment.
and DCIT shall proceed after
approval of JCIT
6 years Wealth escaped is Rs.10 lakh or Wealth escaping Rs.10
more with approval of CCIT lakhs or more with approval
of JCIT

Interest on wealth tax u/s 17B :

For delay in furnishing return of wealth – interest @ 1% per month from due date to the
date of furnishing return or If no return is filed, till the completion of assessment.

Penalty:

Section Nature of default Amount of Penalty

15B(3) Failure to pay tax or interest payable on self Up to 100% tax in arrear
assessment.
18(1)(ii) Failure to comply with notice u/s 16(2)/ Min-1000 for each failure
16(4) Max-25000 for e.f.
18(1)(iii) Concealment of wealth Min-100% of tax s.t.e.
Max-500% of tax s.t.e.
18(1)(a) Failure to answer question legally bound Min-500 for each failure
18(1)(b) Failure to sign statement legally required Max-10000 f.e.f.
18(1)(c) Failure to comply summon u/s 37(1)
18A(2) Failure to furnish statement or information Min-100 per every day default
required u/s 38 within due time. Max-200 per every day default
32 Default in payment of tax Up to 100% of tax in arrear

Time limit of passing penalty order:

Situation Time limit

Where assessment subject Before the end of the FY in which the proceeding has
matter of appeal been initiated or 6 month from end of the month in
which appellate order is received by CCIT/CIT
whichever is later.
Where assessment subject Before expiry of 6 months from end of the month in
 matter of revision by CIT which such revision order was passed.

In other case Before the expiry of FY in which the proceeding has

been initiated or 6 month from end of the month in
which penalty is initiated, whichever is later.

Prosecution :

Section Nature of offence Prosecution

35A Willfully attempts to evade any tax, penalty
or interest chargeable to wealth tax
1. Amount of tax or penalty 1. Min-6month
exceed 1 lakh extended to 7 years and
2. any other case Fine.
2. Min-3month
Max-3 yr.
And Fine
35B Failure to furnish return of wealth u/s 14/17
1. In case where tax sought to be 1.Min- 6m.extended to 7 y.
evaded exceed 1 lakh. With fine
2. In other case 2. Min3m.,Max3y with Fine

No prosecution if return is
filed before end of the AY or tax
determined on regular assessment does not
exceed Rs.3000/-
35C Failure to comply notice u/s 14(4) for Up to 1 year OR fine
productionof books account/ records between Rs.4 and Rs.10 for
every day f default OR both
35D Making false statement in verification,
delivering false statement or account.
tax evaded exceed 1 lakh Min-6m, max-7y with fine
any other case Min-3m, max-3y with fine

35EEE Contravention of order made under second Rigorous imprisonment up

proviso to section 37A(1) / 37A(3) to 2 years and fine.
35F Abetting or inducing another person to
make /deliver false account, statement or
declaration relating to net wealth chargeable
to tax.
1. Tax etc.evaded exceed 1 lakh Min-6m, Max-7y with fine
2. other case Min-3m, Max-3y with fine

Concealment of wealth within the meaning section 18 of wealth tax Act: Any asset deemed to
have been concealed the particulars of his net wealth under following circumstances:
1. He fails to offer an explanation,
2. He offers false explanation,
3. He can not substantiate his explanation ,
4. He fails to prove that (a) explanation made by him is bona-fide, (b) all the facts relating
to his explanation and material to the computation of his wealth have been disclosed by
him.
5. Without any reasonable cause he fails to furnish his return of Wealth.
6. Value of wealth returned is less than 75% of the value dete4rmined in the assessment,
7. Undisclosed assets such as jewellery, money, bullion etc found in course of search u/s
37A.
Appeals under W T Act:

Particulars Commissioner of ITAT High Court /

WT Supreme
Section 23A Court
Appellant Assessee Assessee/ Commissioner As per the
Form E F Income Act.
Fee 250 Related to net Wealth =
1000/-

Time limit for filing
appeal
Appealable order
Time limit for passing
order wherever possible
Other= 500/-
Within 30 days Within 60 days from date of
from date of receipt communication of order to be
appealed.
of order
Memorandum of objection –
within 30 days from date of
receipt of notice in form no. G
Order passed u/s 17, Order passed by
18, 18A, 20(2), 32, Commissioner(A)/ Chief
22, 35 Commissioner u/s 18,
18A/ 25(2)
Within one year Within 4 years from the
from the end of the end of the FY in which
FY the appeal is filed.

Revision u/s 25(1) / 25(2):

In favour of assessee ( Section 25(1) Prejudicial to Revenue 25(2)

1. Filing of reversionary 1. Revision of order of AO by CIT – If
petition – within one year from date prejudicial to Revenue shall be made
of order sought to be revised or within two years from end of the FY in
extended time. which the order sought to be revised is
2. Pass order – within one year passed.
from end of FY in which application
was made.
3. Revision prejudicial to
assessee suo-motu – within one
year from date of order sought to be
revised.

In both the situation u/s 25(1) or 25(2), the provisions of section 264or 265 as amended
shall apply respectively.

Valuation of immovable property:

Step-1 Computational Gross Maintainable Rents (GMR)

If let out Actual Rent, Municipal Value whichever is higher,

If SOP Municipal value or expected value.

Step-2 Net maintainable rent = GMR - 15% of GMR

Step-3 Capitalization of NMR (CNMR)

If property is in freehold land NMR * 12.5

 If property is constructed on lease hold NMR * 10
land for 50 years or above
If Property is constructed on lease hold NMR * 8
land for less than 50 years.

Step-4 Substituted NMR (SNMR) :

For Step-3, the cost of acquisition, construction or improvement of the property may be
substituted in the following circumstances
(a) If cost of acquisition or construction or improvement > CNMR,
the SNMR=Cost of A, C+I,
(b) If cost of a, c+I < CNMR, the SNMR=CNMR
Exception for substitution : (i)If property exclusively used by ‘a’ for residential
purpose throughout the PY, (ii) The cost of construction does not exceed 50 lakh in
Mumbai, Delhi, Kolkotta, Chennai and 25 lakhs in other places.
Step-5 Adjusted NMR – Addition of premium to SNMR in excess of un-built area.
- To add premium, if un-built area of the plot of land on which property is built in
excess of the specified area.
Step-6 Deduct of unearned increase

Adjusted NMR = XXX

Less: Amount of unearned increase
Amount equal to 50% of the SNMR = XXX

Value of Immovable Property = XXX

Valuation of Business Asset (Rule-14):

Conditions: The assessee shall maintain books of account of the business regularly.
Step-1: Aggregate of the following
Asset Value to be considered
Depreciable asset WDV as on valuation date
Non depreciable asset Book value as on valuation date
Closing stock Value adopted for IT purpose.
Value of asset not disclosed in balance Determined in accordance with provisions
sheet of Schedule-III

Step-2: Compare the value of the above assets with the value determined under schedule –III
or Under Rule 20.
1) if Schedule III or Rule 20 value is not more than 20 % of the Step-1 value, adopt
Step-1,
2) if sh.III or Rule 20 value is more than 20 % of step-1 value, adopt Sh.III or Rule
20 value.

Step-3: (a) Deduction of liability incurred in relation to above assets,

(b) Incase it is not possible to identify such dbts, it shall be determined on folloing
basis,

= Total debt X value of asset of business subject to WT

Total value of asset
Step-4: Value of assets = Step-3 - Step-2

Other points: Assets not to be considered for valuation

a) advance tax,
b) bed debt,
c) asset not liable to WT,
d) profit or lass shown in balance sheet,
 e) asset shown in balance sheet not relating to business,
f)
Liabilities not to be considered for valuation
a) capital,
b) reserves,
c) provisions of contingent.
Valuation of interest of partner in Firm/AOP:

Step-1: Valuation of assets of firm/AOP

1) If assets belongs to business of firm / AOP,
2) If asset are not the assets of the business, then the value of the same as per
schedule-III.

Step-2: Allocation of net wealth of firm among partners: allocation will be as per
capital contribution ratio.

This amount is called interest of the partners in firm.

Procedure for valuation of life interest (Rule 7):

Step-1: Compute the average of annual gross income for last three years,
Step-2: Compute deductions for average of expenses incurred on the collection of such
income subject to maximum 5% of average gross income.

Step-3: Average annual Income = Step-1 – Step-2

Step-4: Average annual income * Multiple factor given in appendix to the rule against the
age of the assessee.
It is called value of life interest; it should not be exceed the market value.

Valuation of jewellery for Wealth Tax purpose:

(a) the value of the jewellery shall be determined according to the fair market value
on the valuation date,
(b) Form O-8A – statement by assessee in form no O-8A shall be enclosed with the
return, if the value of jewellery does not exceed 5 lakhs,
(c) Form O-8 – A report of registered valuer in From No O-8 shall be enclosed with
the return of wealth if the value of jewellery exceeds 5 lakh.
(d) Where the valuation of jewellery has been determined by valuation officer u/s
16A for any AY, then such valuation shall be adopted for subsequent four
assessment years subject to following adjustments: (i) if jewellery incluses gold or
silver then the market value shall be substituted, (ii) adjustment shall be made for
any acquisition or sale of jewellery.
(e) Method of valuation – In valuation of jewellery varying percentage are reduced
by value on account of impurities, wastage etc. General reduction Gold=14%,
others=20%.
(f) Reference to valuation officer: If the value of jewellery declared in the return is
less than its market value by 33.1/3% or 50 thousand , the AO shall refer tits
valuation to a valuation officer. In such case the value of the asset ios the value as
estimated by valuation officer.

Valuation of any other assets:

1. applicable to all asset except cash and those covered under Rule 3 to 19.
2. valuation:
Saleable asset u/s 2(ea) Fair market value
Not saleable assets in the open As per the guidelines specified
market by the board.