Government Approved Valuer - Concept ...

No one in India can claim that he or she is a "Government Approved Valuer" for all kinds of valuation work. Everyone who is enlisted or empanelled with various Government Departments, claims that, he or she is a "Government Approved Valuer". Since the institutions, organisations or individual are not properly informed on this point, the valuers who are merely registered or empanelled (under such enactment where its scope is only limited) remain free to misguide the people by claiming that they are the so-called 'Government Approved Valuers' under Income-tax Act also. This has created a wrong impression everywhere that, there is a separate superior category of valuers who have obtained approval of their status from Government authorities. This is totally erroneous.

1. For undertaking Wealth Tax work, a valuer can get registered (which is as good as an empanelment) with related Income tax authorities under Section 34AB of the Act. There are ten different categories of valuers possessing different qualifications as prescribed for such valuers viz.

2. A valuer of immovable property (other than agricultural lands, plantations, forests, mines and quarries)

3. A valuer of agricultural lands [other than plantations referred to in sub-rule (4)]

4. A valuer of coffee plantation, tea plantation, rubber plantation or, as the case may be

5. A valuer of forest

6. A valuer of mines and quarries

7. A valuer of stocks, shares, debentures, securities, shares in partnership firms and of business assets, including goodwill but excluding those referred to in sub-rules (2) to (6) and (8) to (11)

8. A valuer of machinery and plant

9. A valuer of jewellery

10. A valuer of works of art

11. A valuer of life interest, reversions and interest in expectancy

For the purposes of sub-section (2) of section 34AB, the qualifications for registration as valuers of different classes of asset shall be as specified in sub-rules (2) to (11).

For a particular case under reference, such as 'Valuation of Jewellery' specified in sub-rule 9 the following conditions must be satisfied:

A valuer of jewellery must have been, for a period of not less than 5 years, a sole proprietor or partner in a partnership firm carrying on jewellery business which has on an average an annual turnover of not less than rupees 15 lakhs or profit (including fees for valuation of not less than rupees 50 thousand) in the last three Accounting years immediately preceding the year in which the application for registration as a valuer is made by him.

Formerly this registration of valuers for Wealth Tax purpose was with Central Board of Direct Taxes. After the year 1986 this procedure has been changed. Now, for becoming eligible to undertake valuation in Wealth Tax case, the valuer has to seek registration with the Office of the Chief Commissioner Of Income Tax of the area in which the valuer is operating.

Surveyors and loss assessor who normally work for insurance claims are another category of people who are wrongly projecting themselves as valuers recognised by department of economic affairs, as they happen to hold a licence issued under the Insurance Act for doing the necessary survey and estimate damages in case of claims made on insurance company. Surveyors and loss assessors are trained to assess the 'cost of the damage', with a view to re-instate the assets i.e. what it costs to re-instate. A valuer on the other hand, is expected to estimate the value of any asset, keeping in mind, the benefits one would derive from the potentiality of that asset when he acquires the said asset, tangible or intangible by transfer of ownership rights.

No one, i.e. neither Income Tax Department nor the Insurance Department is conducting any examination for determining the qualification or worth of a valuer or surveyor and loss assessor except in case of the 'Wealth Tax Act' purpose, where valuer's qualifications are considered only for the purpose of registration or empanelment (which, in any case, may not guarantee either an assignment for such registered valuer from Wealth Tax Authority or that particular valuers findings would be binding on Wealth Tax Authority for determination of tax amount)

It may be noted here that, Government Of India has agreed in principal to bring in legislation and enact a suitable 'Engineers Act'. The Consulting Engineers Association Of India have made a written submission to the Hon'ble High Court at New Delhi in this regard. The matter is being pursued by The Consulting Engineers Association Of India. Unlike the other professionals, like Architects, Chartered Accountants, Advocates, Company Secretaries, Cost Accountants, etc., the Engineers are not governed by any specific enactment passed by either the Parliament or by any other legislating authority.

Whether wealth tax leviable on the making charges of the jewellery? – A Detailed Analysis

Under the scheme of Wealth Tax in India, Wealth tax is levied on the net wealth of the every individual, Hindu undivided family and company as on the valuation date. "Net Wealth" means the amount by which the aggregate value computed in accordance with the provisions of Wealth Tax Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the Assessee on the valuation date which have been incurred in relation to the said assets.

"Assets" has been defined in section 2(ea) of the Act, which inter alia includes jewellery, bullion furniture, utensils or 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, except held as stock in trade.

Out of the above, the term 'jewellery' is further defined in explanation 1 to this section, which reads as under:-

[Explanation 1] : For the purposes of this clause, —

(a) "jewellery" includes —

(i) 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;

(ii) precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel;

Many times the registered valuers while valuing the jewellery for the purpose of wealth tax and also sometime the Assessing Officer while making the Wealth Tax Assessment, includes the 'Making Charges' in the value of the jewellery and levies Wealth Tax on the Same.

Now the question arises as to whether the 'Making Charges' incurred by the Assessee in connection with the 'jewellery', are also subject to the levy of Wealth Tax? Whether the value of Making Charges also needs to be included in the valuation of 'jewellery' for the purpose of the Wealth tax?

Let's examine this issue in detail herein under:-

Provisions relating to Valuation of 'jewellery' under the Wealth Tax Act:-

Section 7 of the Wealth tax Act, 1957 provides for 'Value of assets, how to be determined', which reads as under:-

7. Value of assets, how to be determined

(1) Subject to the provisions of sub-section (2), the value of any asset, other than cash, for the purposes of this Act shall be its value as on the valuation date determined in the manner laid down in Schedule III.

Accordingly, the Net Wealth is to be valued at the rates as specified in the Schedule III of the Wealth Tax Act. Schedule III of the Act lays down the 'Rules for Determining the Value of Assets'. Part 'G' of the said schedule contains the rules for determination of 'Valuation of jewellery', which reads as under:-

Part G

Jewellery

18. Valuation of jewellery.

(1) The value of the jewellery shall be estimated to be the price which it would fetch if sold in the open market on the valuation date (hereafter in this rule referred to as fair market value).

(2) The return of net wealth furnished by the assessee shall be supported by, —

(i) a statement in the prescribed form, where the value of the jewellery on the valuation date does not exceed rupees five lakhs;

(ii) a report of a registered valuer in the prescribed form, where the value of the jewellery on the valuation date exceeds rupees five lakhs.

(3) Notwithstanding anything mentioned in sub-rule (2), the Assessing Officer may, if he is of opinion, that the value of the jewellery declared in the return, —

(a) is less than its fair market value by such percentage or such amount as is prescribed under sub-clause (i) of clause (b) of sub-section (1) of section 16A;

(b) is less than its fair market value as referred to in clause (a) of sub-section (1) of section 16A,

he may refer the valuation of such jewellery to a Valuation Officer under sub-section (1) of the said section and the value of such jewellery shall be the fair market value as estimated by the Valuation Officer.

Thus, the levy of Wealth tax on 'Making charges' of the jewellery is unjustified because of the following reasons:-

a) 'Making Charges' are not included in the definition of the Assets either individually or also not covered in the definition of the term 'jewellary';

b) In the Rules of Valuation of jewellery, it is clearly provided that the value of jewellery shall be estimated to be the price which it would fetch if sold in the open market on the valuation date. It is well settled principle that no one in the open market shall pay for the 'making charges' incurred by the seller. The seller will fetch the amount exclusively attributable to the contents of the precious metal at the prevailing rates on that particular date and nothing more than that.

c) There is a difference between the term 'Cost' and 'Value'. In general the 'Cost' is the amount that we incur for acquisition of something and 'Value' is the amount that we can fetch is that item is sold in open market. Making Charges are without any ambiguity considered as a part of the 'cost' of the jewellery but under the scheme of the Wealth Tax, same should not be considered as a part of the 'Value' according to the provisions of the Act.

d) In many cases, the Department also argues and levy wealth tax on the making charges of the jewellery on the ground that when a manufacturer of gold jewellery or a person engaged in business of jewellery sell such items into open market, they also realize the making charges. This ground for taxing the making charges under the Wealth Tax Act does not sound to be valid, as such manufacturer / jeweler held the jewellery as stock in trade and which is specifically excluded from the definition of the term 'jewellery'.

e) Further, the 'form O-8' which is the designated form for 'Valuation of Jewellery' also does not contain any field which gives even a remote indication regarding inclusion of 'Making Charges' into the value of jewellery. Abstracts of Form O-8 is reproduced hereunder for ready reference:-

Point number 12 is for 'Total Value of Jewellery', which is succeeded to Point No. 10 and Point No. 11, which are 'Value of each precious or semi-precious stone and the total value of all such stones' and 'Value of the precious metal content in all the items of jewellery' respectively. Thus, it can also be positively inferred that Point No. 12 is nothing but a sum of Point No. 10 and 11. Inclusion of Making Charges into the value of jewellery does not find any place in the form O-8 of 'Valuation Report', which itself implies that same is not to be intended to be included in the taxable 'Value of Jewellery'.

Conclusion:- Under the background of the above analysis of the provisions of the Wealth Tax Act and 'Rules for Determining the Value of Assets', it can safely be concluded that 'Making Charges' should not be made subject to levy of Wealth Tax. Though, one may logically argue that the Making charges must, invariably form part of the value of jewellery, but the law ALWAYS does not works on mere logics. However, a clarificatory amendment on this aspect of law will be appreciated for the removal of the ambiguity amongst the department being the exchequer, taxpayers, tax-professional and registered valuers

 

Valuation of Jewellery

Jewelry Includes:

1. 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.

2. Precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel.

In support of the valuation of jewellery, the prescribed form to be attached with the return is:

1. Where the value of the jewellery on the valuation date is upto Rs.5 lakhs, a statement in Form No. 0-8A, a prescribed by rule 13(c), signed by the assessee, or

2. Where the value of the jewellery on the valuation date exceeds Rs.5 lakhs, a report of Registered Valuer in Form No.0-8, as prescribed by rule 8D.

The report can be the basis for arriving at the valuation for 4 subsequent years. All that is needed is to substitute the value of gold, silver or any alloy of the base year with that of the relevant year. Again, adjustment for purchases and sales made during the relevant year will have to be carried out.

Rates of Gold and Silver for Wealth Tax valuation Purpose

In the Chart Given below we have given rates of Gold and Silver for Wealth tax Valuation Purpose from A.Y. 1981-82 to A.Y. 2014-15.

Jewellery

Valuation of Jewellery

Jewelry Includes:

1. 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.

2. Precious or semi-precious stones, whether or not set in any furniture, utensils or other article or worked or sewn into any wearing apparel.

In support of the valuation of jewellery, the prescribed form to be attached with the return is:

1. Where the value of the jewellery on the valuation date is upto Rs.5 lakhs, a statement in Form No. 0-8A, a prescribed by rule 13(c), signed by the assessee, or

2. Where the value of the jewellery on the valuation date exceeds Rs.5 lakhs, a report of Registered Valuer in Form No.0-8, as prescribed by rule 8D.

The report can be the basis for arriving at the valuation for 4 subsequent years. All that is needed is to substitute the value of gold, silver or any alloy of the base year with that of the relevant year. Again, adjustment for purchases and sales made during the relevant year will have to be carried out.