W.T.A. NO. 13 TO 15/LB OF 1990-91, DECIDED ON 23RD JANUARY, 1991. VS W.T.A. NO. 13 TO 15/LB OF 1990-91, DECIDED ON 23RD JANUARY, 1991.
1991 P T D (Trib.) 650
[Income-tax Appellate Tribunal Pakistan]
Before Mian Abdul Khaliq, Judicial Member and Inam Elahi Sheikh, Accountant
Member
W.T.A. No. 13 to 15/LB of 1990-91, decided on 23/01/1991.
Wealth Tax Act (XV of 1963)---
----S. 3---Liability to wealth tax---Land held by assessee under agreement to sell ---Assessee, by virtue of said agreement to sell, was authorised to enter upon the property for the purposes of development plan, obtaining possession from the occupants and effect provisional booking of various parts of the building intended to be constructed at site while ownership of the land was to remain vested in the vendor until payment of the consideration in full and execution of the sale-deed-- Assessee, held, incurred no liability to pay wealth tax in respect of the land during continuance of the agreement to sell.
S. Roomi Shah, D.R. for Appellant.
Saeed Chaudhry, C.A. for Respondent.
Date of hearing: 5th December, 1990.
ORDER
MIAN ABDUL KHALIQ (JUDICIAL MEMBER).---These three departmental appeals relating to assessment years 1987-88, 1988-89 and 1989-90 are directed against the order of the learned C.I.T. (A)-III, Lahore, dated 17-5-1990. The common objections of the Department in these appeals are:
(i) That the learned C.I.T. (Appeals) was not justified to delete the charge of wealth tax on account of land for the assessment year under consideration as the assessee himself declared value of land in his wealth tax return for the above-mentioned year.
(ii) That the learned C.I.T. (A) was also not justified to give direction to accept declared cost of work in progress in view of increasing trend in prices of materials used.
2. For the purposes of decision of these appeals, the relevant facts of the case arc that a plot of land measuring 11 kanals 9 marlas 80 sq.ft. known as Property No. S-19-R-20. 60-The Mall, Lahore belonged to M/s. Koh-e-Noor Textile Mills Ltd. The property was occupied by various tenants. On 5-7-1986 the assessee entered into an agreement with the owners for purchase of the properly, and paid earnest money of Rs.50,00,000. As per terms and conditions of sale agreement, the assessee could convey the property in its own name or in the name of its nominee. As per clause 2(b) of the aforesaid agreement, the assessee required the vendor to execute sale-deed in favour of his nominee M/s. National Industrial Co-operative Finance Corporation Ltd., a society registered under the Co-operative Societies Act. On 19th May, 1987 the owner sold the property to M/s. National Industrial Co-operative Finance Corporation and executed f' sale-deed specifically stating:
"The vendor hereby absolutely sells, conveys and transfers the aforesaid property to the vendee for a total consideration of Rs.2,65,00,000(Rupees two crores sixty-five lacs only) out of which the vendor has already received Rs.50,00,000 (Rupees fifty lacs only) as aforesaid and the balance consideration of Rs.2,15,00,000 (Rupees two crores fifteen lacs only) has been received by the vendor through pay order No. E 886173 dated 19-5-1987 drawn by National Bank of Pakistan and the vendor hereby acknowledges the receipt of the full consideration and it is expressly stipulated and agreed that no part of the consideration is now left unpaid."
By virtue of clause 7 of sale-deed responsibility for securing physical possession from the tenants was fixed on the vendee. As per registered sale-deed possession of the plot was taken over by M/s. National Industrial Co-operative Finance Corporation Ltd.
Subsequently on 20-5-1987 M/s. N.I.C.F.C. entered into an agreement to sell with the assessee and as per paras 1 and 2, the following terms and conditions were settled:
(i) The vendor shall sell and the vendee shall purchase the property for a total consideration of Rs.2,95,00,000 (Rupees two crores ninety-five lac only) less Rs.50,00,000 (Rupees fifty lacs only) already paid by the vendee to M/s. Kohinoor Textile Mills Ltd. vide Agreement dated 5th July, 1986. The vendee shall pay the balance price together with profit at the rate of 20% per annum by or before 31-5-1988.
(ii) That the sale-deed shall be completed by or before 31-5-1988. The vendee shall have the right to seek completion of the sale-deed at any time before the aforesaid date immediately on the vendee's making the payment as aforesaid and requiring the vendor to execute the conveyance deed in favour of the vendee.
By virtue of para 6 of the same agreement to sell it was also agreed:
"It is expressly made clear that payment of the total consideration money to the vendor as stipulated by this Agreement remains wholly and exclusively the responsibility of the vendee to the vendor for executing conveyance deed in favour of any of his (vendee's) Nominees shall not in any manner detract from or affect the said liability of the vendee to the vendor in this behalf In the event of any shortfall on account of sale of the property by the vendee to the prospective buyers in the amount of the consideration agreed between the vendor and the vendee, the vendee and his property shall be responsible to make good such shortfall."
After execution of this agreement to sell, the assessee was authorised to enter upon the property for the purposes of development plan obtaining possession from the occupants and effect provisional booking of various parts of the building intended to be constructed at the site. The assessee raised construction of the building and obtained some loan from M/s. N.I.C.F.C. as per agreement dated 19-10-1989. In that agreement vide clause 5 it was also provided;
"That till such time the loan and the profits are paid back by the firm to N.I.C.F.C.L., it (N.I.C.F.C.L.) shall not be required by the firm to execute the sale-deed of the land under Sadiq Plaza in favour of the firm and the ownership of the land shall continue to vest in N.I.C.F.C.L."
Booking of the apartments of the building was made by the assessee and sale-deeds were executed by M/s. N.I.C.F.C.L. in favour of the purchasers.
2. The assessee did not file any wealth tax returns for these years and in response to notices. issued under section 17/14(2) of the Wealth Tax Act returns were filed by the assessee declaring deficit wealth for all the years. The assessee denied its liability of payment of wealth tax on the ground that the assessee-firm was constituted on 19th May, 1987 and was not the legal owner of the land. It was pleaded before the assessing officer that as per registered sale-deed dated 19-5-1987 ownership of the land vested with M/s. N.I.C.F.C.L. and by execution of an agreement to sell the assessee could not be deemed to be an owner. The assessing officer observed that though there was some weight in the assessee's plea but in view of increasing trend in the prices of real estate, the assessee could not claim exemption from payment of wealth tax. The assessing officer estimated the valuation of the plot and made thereto varied additions on account of estimate of expenses incurred on work in progress.
3. The first appellate authority modified the assessment holding that the 'assessee being not owner of the land, there could not be any charge of wealth tax for all these years.
4. We have heard the representatives of the parties and examined the sale-deed as well as agreement to sell. The admitted fact is that by virtue of sale-deed dated 19-5-1987 plot of land underneath the constructed Plaza was ownership of M/s. N.I.C.F.C.L. Merely by entering into an agreement for sale on certain terms and conditions ownership could not be legally transferred to the assessee. The established law is that ownership does not stand transferred merely by execution of an agreement to sell without registration. Under section 54 of the Transfer of Property Act and section 49 of the Registration Act, mode of transfer of ownership was prescribed as to be through a registered instrument. When the law required a registered document, title or ownership could not be conferred by mere agreement of sale made between the parties. Under section 53-A of the Transfer of Property Act no title could be conferred on a person found to be in possession on the basis of an unregistered contract of sale.
5. In the light of facts and circumstances of this case, a perusal of contents of registered sale-deed fully establishes that legally ownership of the land vested in M/s. N.I.C.F.C.L. Subsequently the agreement of sale made by the owner with the assessee could not legally make the assessee a lawful owner. The terms and conditions of this agreement for sale established beyond any shadow of doubt that a right was given by the owner to the assessee for developing the Project. On account of that right, the assessee could not be held to be owner. In the light of this discussion, we feel no hesitation in confirming the conclusion of the first appellate authority, that the assessee being not rightful owner of the property could not be subjected to wealth tax for all the years under review.
6: Taking up the next common grievance of the Department regarding acceptance of the assessee's declared cost of construction, we do not feel any justification for interference therein. The first appellate authority deleted the estimates made by the assessing officer while holding as under:--
"The next issue relates to the enhancement of the construction cost. The same had. been enhanced from Rs.5,89,114 to Rs.7,00,000, from Rs.1,83,65,041 to Rs.1,85,00,000 and from Rs.3,84,23,223 to Rs.4,50,00,000. The W.T.O. had done so due to the fact that the prices of raw materials were increasing and complete evidence was not available to support the declared expenditure. It has been agitated that the actual cost of construction is to be adopted for valuation purpose when the same is still under construction stage. As the appellant's business is earning profit from the sale of shops, offices, etc., there would be no question of under-valuation of construction cost as it would be given rise to the application of enhanced Income Tax which goes up to 45% slab if the construction cost is claimed lower than the actual cost. The declared construction cost should, therefore, be accepted."
It does not take us long to confirm the aforesaid finding of the first appellate authority as the basis adopted by the assessing officer was just on conjectures and surmises. No case could be made out at the assessment stage for raising the declared cost of construction. The first appellate authority rightly accepted the assessee's version of cost of construction.
7. As a result of the above discussion, the impugned order does not suffer from any legal infirmity. All the three departmental appeals being devoid of any merits are dismissed.
M.B.A./1183/T.Appeals dismissed.