Finance Act, 1969
Extension of the levy of wealth-tax to wealth comprising agricultural property
53. Agricultural wealth has so far been exempt from wealth-tax under the Wealth-tax Act. This exemption has a historical origin and is not due to any bar under the Constitution on the competence of Parliament to legislate for the levy of wealth-tax on agricultural wealth. Government was advised in April 1968, by the then Attorney-General, Shri C.K. Daphtry, that, although entry 86 of the Union List in the Seventh Schedule to the Constitution relating to taxes on the capital value of the assets of individual and companies, specifically excluded agricultural land from its purview. Parliament was competent to make a law for the levy of tax on the capital value of agricultural land by virtue of its residuary power of legislation under article 248 of the Constitution. The present Attorney-General has agreed with this view in his opinion given in March 1969 and also in his exposition of the matter before the Lok Sabha on 1-5-1969.
Finance Act, 1969
[Paragraph 48]
With a view to bringing about equality of treatment as between persons having investments in non-agricultural property, and those having investments in agricultural property, the Finance Act, 1969 has amended the Wealth-tax Act for extending the levy of wealth-tax to the value of agricultural property, with effect from 1-4-1970, i.e., from the assessment year 1970-71. For this purpose, the definition of ��assets�� in clause (e) of section 2 has been amended. Under the amended definition, in relation to the assessment year 1969-70 or any earlier assessment year, ��assets�� includes property of every description, movable or immovable, but does not include, inter alia, (i) agricultural land and growing crops, grass or standing trees on such land; and (ii) any building owned or occupied by the cultivator of, or receiver of rent or revenue out of, agricultural land. In relation to the assessment year 1970-71, and any subsequent assessment year, ��assets�� include property of every description, movable or immovable, without the exclusion of the above-mentioned items of agricultural wealth. [The three other items of exclusion from the meaning of the term ��assets��, namely (i) animals, (ii) the right to any annuity in certain circumstances, and (iii) any interest in property available to the assessee for a period not exceeding six years, continue unchanged.]
Finance Act, 1969
55. Simultaneously with the enlargement of the scope of the term ��assets��, as explained above, sub-section (1) of section 5 has been amended to provide the following specific exemptions in respect of wealth in the form of agricultural property :
1. Under new clause (iva) inserted in section 5(1), a specific exemption has been provided in respect of agricultural land belonging to the assessee up to a value of Rs. 1,50,000.
Under the existing clause (iv) of section 5(1), the value of one house property belonging to the assessee and used by him exclusively for his residence is exempt from wealth-tax, subject to the condition that where such house is situated in a place with a population exceeding ten thousand persons, the value so exempt will be limited to Rs. 1,00,000. In the case of an assessee who is entitled to the exemption under clause (iv) in respect of the value of a residential house situated in a place with a population exceeding ten thousand persons, the limit of the exemption in respect ofthe value of agricultural land under new clause (iva) is reduced to an amount equal to the difference between Rs. 1,50,000 and the value of the residential house exempt under clause (iv). To illustrate, an individual having a residential house worth Rs. 1,00,000 or more in a city will be eligible for exemption in respect of his agricultural land only to the extent of Rs. 50,000 [Rs. 1,50,000 minus Rs. 1,00,000, being the value of the residential house eligible for exemption under clause (iv)]. Where the value of the urban residential house is less than Rs. 1,00,000 say Rs. 70,000, the exemption under clause (iv) in respect of agricultural land will be available to the extent of Rs. 80,000 [Rs. 1,50,000 minus Rs. 70,000].
Where the residential house is situated in a village with a population not exceeding ten thousand persons, the whole of its value is exempt from wealth-tax under clause (iv) of section 5(1) and, in addition, exemption in respect of the value of agricultural land belonging to the assessee will be available to the full extent of Rs. 1,50,000.
2. Under new clause (viiia) inserted in section 5(1), a specific exemption is provided in respect of the value of growing crops (including fruits on trees) on agricultural land and grass on such land.
It may be noted that the trees themselves, whether fruit-bearing or otherwise, are outside the purview of the exemption. Hence, in the case of land having standing fruit trees, such as coconut, arecanut, mango, jack, tamarind, cashew, etc., or timber, such as teak, rose-wood, etc., or plantations such as tea, coffee, rubber, etc., the value of the trees or plants will have to be taken into account in valuing the land.
3. Clause (ix) of section 5(1) has been enlarged to cover tools, implements and equipment used by the assessee for the cultivation, conservation, improvement or maintenance of agricultural land or for the raising or harvesting of any agricultural or horticultural produce on such land. The value of such tools, implements and equipment will be exempt from wealth-tax, without any monetary limit. However, under the Explanation to clause (ix) (which is a reproduction of the existing Explanation to the said clause) machinery or plant used in any tea or other plantation in connection with the processing of any agricultural produce or in the manufacture of any article from such produce will be outside the scope of the exemption.
Finance Act, 1969
56. The exemption of the value of agricultural land up to Rs. 1,50,000 under new clause (iva) of section 5(1), as stated above, is in addition to the existing general exemption from wealth-tax, under the rate schedule of wealth-tax, on the first Rs. 1,00,000 of net wealth in the case of individuals and Rs. 2,00,000 in the case of Hindu undivided families. Accordingly, in the case of a farmer who owns agricultural land worth not more than Rs. 2,50,000, and who does not have any sizable investment in non-agricultural wealth or property, there will be virtually no liability to wealth-tax. In the case of a Hindu undivided family in similar circumstances, no wealth-tax will be payable unless the net wealth, before the exemption under clause (iva) of section 5(1), exceeds Rs. 3,50,000. In view of this, it will not be necessary for the Department to start proceedings for assessment to wealth-tax in the case of land-owners in rural areas where, on a broad estimate of the value of their agricultural holdings, it is found that the value is not likely to be over Rs. 2,50,000, in the case of individuals or Rs. 3,50,000, in the case of Hindu undivided families.
Finance Act, 1969
57. Although the Wealth-tax Act applies to every individual, Hindu undivided family and company (vide section 3 relating to charge of wealth-tax) the levy of wealth-tax in respect of the net wealth of companies is precluded in respect of the assessment year 1960-61 and subsequent years, by virtue of section 13 of the Finance Act, 1960. Accordingly, the extension of the levy of wealth-tax to wealth in the form of agricultural property with effect from the assessment year 1970-71, will be operative only in the case of individuals and Hindu undivided families. In their cases, the value of the agricultural wealth will be aggregated with the value of their non-agricultural wealth and the aggregate value, as reduced by deduction on account of debts and liabilities and also for the specific exemptions provided for in the Act, will be charged to wealth-tax at the rates specified in Part I of the Schedule to the Wealth-tax Act. Where such agricultural land is situated in an area with a population exceeding one lakh persons, the additional wealth-tax at the rates specified in clause (c) of Paragraph A of Part I of the Schedule will also be chargeable.
Finance Act, 1969
58. The Wealth-tax Act extends to the whole of India including the State of Jammu & Kashmir. However, under the Constitution (Application to Jammu & Kashmir) Order, 1954, article 248 and entry 97 of the Union List in the Seventh Schedule do not apply to that State. In view of this position, the extension of the levy of wealth-tax to wealth in the form of agricultural property is not operative in respect of agricultural lands situated in the State of Jammu & Kashmir. The question of applying article 248 and entry 97 of the Union List in the Seventh Schedule in a modified form to the State of Jammu & Kashmir by an Order of the President under article 370 of the Constitution is separately under consideration. As and when such an Order is made (which requires the concurrence of the State Government), Parliament will be in a position to undertake the necessary legislation to extend the levy of wealth-tax to wealth in the form of agricultural land situated in the State of Jammu & Kashmir.
[Section 24(a) and (b) of the Finance Act]
Increase in the scale of penalties leviable for failure, without reasonable cause, to furnish the return of wealth and to produce accounts, documents, etc., called for by notice
59. The Finance Act, 1969 has amended section 18(1) relating to the levy of penalty for failure, without reasonable cause, to furnish the return of wealth and to produce accounts, documents, etc., called for by notice. Under the provisions as amended, the penalty for these defaults will be calculated with reference to the assessed wealth (subject to certain adjustments) and not with reference to the wealth-tax as formerly. For failure, without reasonable cause, to furnish the return of net wealth within the time allowed, the scale of penalty will be �� per cent of the assessed wealth as reduced by the amount of the initial exemption from wealth-tax, for every month during which the default continued, subject to a maximum, in the aggregate, of an amount equal to the assessed wealth as reduced by the amount of the initial exemption. (The amount of the initial exemption, it may be noted, is Rs. 1,00,000 in the case of an individual and Rs. 2,00,000 in the case of a Hindu undivided family). Where the default occurs in the course of proceedings for reassessment of wealth which had escaped assessment at the time of an earlier assessment for the relevant year penalty will be calculated at the above-mentioned rate on the amount of additional net wealth (in excess of the initial exemption) brought under assessment in such reassessment proceedings. To illustrate, in the case of an individual, where a net wealth of Rs. 80,000 was determined in the original assessment and Rs. 2,00,000 in the reassessment, the base for calculation of the penalty for failure to furnish the return of net wealth in the reassessment proceedings will be Rs. 1,00,000 (Rs. 2,00,000 less the amount of the initial exemption of Rs. 1,00,000). Where the net wealth determined in the original assessment was say Rs. 2,50,000 and in the reassessment Rs. 4,00,000, the base for calculation of the penalty for default in furnishing the wealth-tax return in the reassessment proceedings will be Rs. 1,50,000 (Rs. 4,00,000 minus Rs. 2,50,000).
Finance Act, 1969
60. In the case of defaults, without reasonable cause, to produce accounts and documents called for by notice, the scale of penalty under the new provision will be a minimum of 1 per cent of the ��assessed net wealth��, and a maximum of an amount equal to the ��assessed net wealth��. For this purpose, ��assessed net wealth�� will be taken to be the net wealth determined on assessment as reduced by the net wealth declared in the return, if any, furnished by the taxpayer. Where the case is one of reassessment of wealth which had escaped assessment at the time of an earlier assessment, the ��assessed net wealth�� for the purpose of the above-mentioned penalty provisions will be taken to be net wealth determined on reassessment as reduced by the net wealth assessed previously or the net wealth declared in the return, if any, whichever is greater.
Finance Act, 1969
61. The increased scales of penalties, as stated above, take effect from 1-4-1969. Penalty on the increased scale will be leviable in a case where the default in furnishing the return of net wealth occurs on or after that date, or having occurred earlier, the default continues on or after 1-4-1969. In the latter circumstance, the scale of penalty for any period of default falling before 1-4-1969, will be that laid down under the law in force before its amendment by the Finance Act, 1969, namely, 2 per cent of the wealth-tax payable for every month during which there was failure, without reasonable cause, to furnish the return of wealth, subject to a maximum, in the aggregate, of an amount equal to 50 per cent of such tax. In regard to defaults, without reasonable cause, in producing accounts and documents called for by notice, the new scale of penalty will be operative where the default occurs on or after 1-4-1969.
[Section 24(c) of the Finance Act]