W.TAS. NOS.1742/HQ, 1743/HQ AND 1744/HQ OF 1989-90, HEARD ON 14TH NOVEMBER, 1990. VS W.TAS. NOS.1742/HQ, 1743/HQ AND 1744/HQ OF 1989-90, HEARD ON 14TH NOVEMBER, 1990.
1991 P T D (Trib.) 135
[Income-tax Appellate Tribunal Pakistan]
Before Farhat Ali Khan Chairman and Alvi Abdul Rahim, Accountant Member
W.TAs. Nos.1742/HQ, 1743/HQ and 1744/HQ of 1989-90, heard on 14/11/1990.
Wealth Tax Act (XV of 1963)--
----S. 5(1)(xv)(i) & (ii)---C.B.R. Circular NO.IT.J. (42)/85, dated 22nd August. 1985---Exemption in respect of assets created, brought or received from abroad-- Entitlements illustrated---Exemption could be granted to an asset which is created for the first time out of the remittances received or brought in Pakistan through proper Banking Channels and not to subsequently created assets-- C.F.P . Circular No. IT.J.(42)/85, dated 22-8-1985 is compatible and in consonance with the provisions of S.5(1)(xv)(i) & (ii) of Wealth Tax Act, 1963.
An assessee can claim exemption regarding an asset which he brings into Pakistan. He is also entitled to this concession if he remits such asset from abroad. This privilege also appears to be available to an assessee who receives an asset from abroad. Suppose a person is coming from Saudi Arabia and brings with him these certificates, Saudi Riyals, U.S. Dollars, Sterling Pounds, jewellery, V.C.R., Colour T.V., Washing Machine, etc. etc. All these assets subject to foreign exchange regulations and customs and sales tax laws would be his assets exempt from wealth-tax for the reason that he has brought them in Pakistan and he would be entitled to this concession in the year in which he brings them into Pakistan and the following five years. Now, suppose a person working in Dubai remits U.S. Dollars and Sterling Pounds to his foreign exchange account maintained in Pakistan. These Dollars and Sterling Pounds would be his assets in Pakistan exempt from wealth-tax as they have been remitted by him. Similarly, if a person receives U.S. Dollars, Sterling Pounds, Saudi-Riyals and capital goods like Car, T.V., V.C.R., etc. etc. from his son working abroad, all these assets would again be exempt from wealth tax as they would be deemed to have been received by him from outside Pakistan. In all these cases the exemption would be available under paragraph (i) of clause (xv) of subsection (i) of section 5 of the Act.
Now, suppose a person who has brought to Pakistan travellers cheque in U.S. Dollars and purchased the certificates out of them, it would be said that he has created an asset in Pakistan out of foreign exchange brought by him into Pakistan but he would not be entitled to the exemption under para. (ii) of clause (xv) of subsection (1) of section 5 of the Act, unless he could establish that he brought into Pakistan the travellers cheque in U.S. Dollars through normal banking channel. Similarly, if a person receives U.S. Dollars through proper banking channel and purchases the certificates out of them it would be deemed that he has created an asset, and of course, he would be entitled to the exemption under same provision of law. In both these illustrations the assessee would be deemed to have created assets out of remittances received or brought by him into Pakistan through normal banking channels. If a person who brings some foreign currency or receives some foreign exchange through normal banking channels and encashes them in Pak. rupees he would again be deemed to have created an asset out of remitances received or brought into Pakistan through normal banking channels and would be entitled to the exemption. It is important to note that the emphasis is on creation of an asset and not on asset itself. Thus, if an assessee has purchased the certificates out of remittances received or brought by him through proper banking channels in Pakistan he has surely created an asset but when subsequently he is encashing them into Pak. rupees he is converting it into another asset. The exemption has been granted to an asset which is created and not to an asset which comes into existence after conversion of the already created asset. Even if it is held that the encashment in Pak. rupees is also creation of an asset yet the exemption cannot be extended to it for the simple reason that the law has granted exemption to the asset which is created for the first time out of remittances received or brought in Pakistan through proper banking channels and not to subsequently created assets. If exemption is applied to subsequently created assets then every asset obtained on conversion of previously created asset would be exempted and thus the wealth tax would never be chargeable on it which, of course, does not appear to be the intention of the legislature.
In the illustration given above if a person reconverts Pak. rupees into Dollars or into other foreign currency he would not be entitled to claim exemption on it for the same reason. The exemption is available to an asset which is created and not which is obtained on conversion of the already treated asset. The C.B.R. Circular bearing No. ITJ.(42) of 1985, dated 22nd August, 1985 appears to be compatible and in consonance with the provisions of paragraphs (i) and (ii) of clause (xv) of subsection (1) of section 5 of the Act.
G.M. Gangat, ITP for Appellant.
Ilyas Shaikh, D.R. for Respondent.
Dates of hearing: 11th and 14th November, 1990.
ORDER
FARHAT ALI KHAN (CHAIRMAN).---Mr. G.M. Gangat submits that amount received on encashment of foreign exchange bearer certificates, hereinafter referred to as the certificates, is exempt from wealth tax under clause (xv) of section 5 of the Wealth Tax Act, hereinafter referred to as the Act. According to him the appellant purchased certificates out of foreign exchange remitted to Pakistan and subsequently encashed them in the sum of Rs.6,37,000, Rs.11,39,500 and Rs.17,89,500 in assessment year 1986-87, 1987-88 and 1988-89 respectively. She claimed exemption regarding aforesaid amounts in each assessment year involved but the assessing officers rejected her claim and on appeal the learned C.I.T. (Appeals) by his consolidated order dated 31st January, 1990 has put his seal of approval thereon. Mr. Gangat has also produced some encashment certificates and foreign exchange remittance certificates. But the foreign exchange remittance certificates show that the appellant received foreign exchange worth Rs.3,50,000 and Rs.2,00,000 on 29th October, 1987 and 6th October, - 1988 out of which the certificates were purchased. Similarly, the encashment certificates indicate that on 30th June, 1986, 30th June, 1987 and 30th June, 1988 which are the valuation dates for the relevant assessment years, she had Rs.6,37,000, Rs.5,02,G00 and Rs.3,50,000 which she obtained by way of encashment. Thus, it is clear that neither she could give proof regarding receipt of foreign exchange nor encashment of the certificates to support her entire claim regarding exemption in each assessment year involved as mentioned-above.
2. On the other hand, Ilyas Shaikh, the learned D.R. has supported both the officers below. According to him the exemption allowed by clause (xv) of subsection (1) of section 5 of the Act applies to the certificates and not to the amount obtained on their encashment. In order to fortify his submissions he has also invited our attention to C.B.R. Circular NO.IT.J/(42) of 1985, dated 22nd August, 1985 whereby it has been specifically clarified that the exemption did not apply to the amount received on encashment of the certificates.
3. We have heard both the learned Authorised Representative of the appellant as well as learned D.R. Since the exemption has been granted by clause (xv) of subsection (1) of section 5, therefore, we propose to start our discussion with it and for sake of easy reference it is reproduced hereinbelow:--
"5. Exemption in respect of certain assets.---(1) Wealth Tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee--
(xv) assets--
(i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;
(ii) created by an assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (i):
Provided that where investment in the asset is not made entirely out of remittances received in, or brought into Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment;
4. Now, from perusal of paragraph (i) of clause (xv) as reproduced above it appears that an assessee can claim exemption regarding an asset which he brings into Pakistan. He is also entitled to this concession if he remits such asset from abroad. This privilege also appears to be available to an assessee who receives an asset from abroad. Let us illustrate all these three illustrations. Suppose a person is coming from Saudi Arabia and brings with him these certificates, Saudi Riyals, U.S. Dollars, Sterling Pounds, jewellery, V.C.R., Colour T.V., Washing Machine, etc. etc. All these assets subject to foreign exchange regulations and customs and sales tax laws would be his assets exempt from wealth-tax for the reason that he has brought them in Pakistan and he would be entitled to this concession in the year in which he brings them into Pakistan and the following five years. Now, suppose a person working in Dubai remits U.S. Dollars and Sterling Pounds to his foreign exchange account maintained in Pakistan. These Dollars and Sterling Pounds would be his assets in Pakistan exempt from wealth tax as they have been remitted by him. Similarly, if a receives U.S. Dollars, Sterling Pounds, Saudi-Riyals and capital goods like Car, T.V., V.C.R., etc. etc. from his son working abroad, all these assets would again be exempt from wealth tax as they would be deemed to have been received by him from outside Pakistan. In all these cases the exemption would be available under paragraph (i) of clause (xv) of subsection (i) of section 5 of the Act.
5. Now, suppose a person who has brought to Pakistan travellers cheque in U.S. Dollars and purchased the certificates out of them, it would be said that he has created an asset in Pakistan out of foreign exchange brought by him into Pakistan but he would not be entitled to the exemption under para. (ii) of clause (xv) of subsection (1) of section 5 of the Act, unless he could establish that he brought into Pakistan the travellers cheque in U.S. Dollars through normal banking channel. Similarly, if a person receives U.S. Dollars through proper banking channel and purchases the certificates out of them it would be deemed that he has created an asset, and of course, he would be entitled to the exemption under same provision of law. In both these illustrations the assessee would be deemed to have created assets out of remittances received or brought by him into Pakistan through normal banking channels. Let us also mention here that if a person who brings some foreign currency or receives some foreign exchange through normal banking channels and encashes them in Pak. rupees he would again be deemed to have created an asset out of remittances received or brought; into Pakistan through normal banking channels and would be entitled to the; exemption. It is important to note that the emphasis is on creation of an asset and not on asset itself. Thus, if an assessee has purchased the certificates out of remittances received or brought by him through proper banking channels in Pakistan he has surely created an asset but when subsequently he is encashing them into Pak. rupees he is converting it into another asset. The exemption has been granted to an asset which is created and not to an asset which comes into existence after conversion of the already created asset. Even if it is held that the encashment in Pak. rupees is also creation of an asset yet the exemption cannot be extended to it for the simple reason that the law has granted exemption to the asset which is created for the first time out of remittances received or brought in Pakistan through proper banking channels and not to subsequently created assets. If we apply exemption to subsequently created assets then every asset obtained on conversion of previously created asset would be exempted and thus the wealth tax would never be chargeable on it which, of course, does not appear to be the intention of the legislature.
6. Let us also mention here that in the illustration given above if a person I reconverts Pak. rupees into Dollars or in other foreign currency he would not be entitled to claim exemption on it for the same reason which I have given above. Thus, if the contention of Mr. Gangat is accepted the exemption would be available to an asset which has come into existence out of an asset which was created out of remittances received or brought in Pakistan through normal banking channels. But as pointed out earlier the exemption is available to an asset which is created and not which is obtained on conversion of the already created asset. I think it is for this reason that the C.B.R. Circular bearing No. IT.J.(42) of 1985, dated 22nd August 1985,appears to be compatible and in consonance with the provisions of paragraphs (i) and (ii) of clause (xv) of subsection (1) of section 5 of the Act.
7. In view of discussion made above the submission of Mr. Gangat appears to be devoid of any merit. All the appeals, therefore, stand rejected, and the impugned order is hereby confirmed.
M.BA./937/TAppeals rejected.