HAJI MUHAMMAD SHAFI VS WEALTH TAX OFFICER, 1992 PTD-SUPREME-COURT 726 (1992)

(On appeal from the judgment and order of the High Court of Sindh, dated 3-11-1988 passed in C.P. No. D-364 of 1984).

(a) Wealth Tax Act (XV of 1963)---

----Preamble---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was granted- to consider the questions whether Wealth Tax Act, 1963 was ultra vires of the Constitution and whether in view of the fact that the tax was imposed by the Federation under Wealth Tax Act, 1963, as well as by the Province under the West Pakistan Urban Immovable Property Tax Act, 1958 on the same immovable property, this was the case of double jeopardy and thus, illegal.

(b) Wealth Tax Act (XV of 1963)---

----Ss.3 & 2(m)---Constitution of Pakistan (1973), Fourth Schedule, item 50-- Capital value of the assets includes the net value of the assets---No material difference existed between the concept of taxation under S.3 of the Wealth Tax Act, 1963 and Entry No.50 of the Federal Legislative List of the Constitution as underlying object of the aggregation of all the properties of an assessee for the purposes of levy of tax was common in both the provisions---Fact that Authorities while providing for determination of tax liability of an assessee under the Act, allowed deduction had no bearing on the character or nature of the tax as said feature of the Act indicated a mechanism or method provided under the Act for calculation of tax liability of an assessee under it---Tax levied under S.3 of the Act on the "net wealth" was not in any manner different from the tax on the capital value of the assets as contemplated by Entry No.50 of the Federal Legislative List of the Constitution---No fetter was placed on the power of the Legislature while providing for tax on the capital value of assets of a person, to allow deduction of liabilities outstanding against him from the value of his assets.

(c) Wealth Tax Act (XV of 1963)---

----Ss.2(m) & 3---Net wealth---Determination---Taxation---First the aggregate value of all the assets belonging to the assessee had to be taken into consideration which was the basis for charging the tax---In order to calculate the tax the aggregate value of liabilities and debits were to be deducted from the aggregate value of assets and the excess so calculated would be termed as "net wealth" on which the tax was calculated at the specified rate---Such process of calculating the tax would not exclude the capital value of assets from Wealth Tax charged under S.3.

(d) Wealth Tax Act (XV of 1963)---

----S.3---West Pakistan Urban Immovable Property Tax Act (V of 1958), S.3-- Imposition of taxes both under Wealth Tax Act, 1963 and West Pakistan Urban Immovable Property Tax Act, 1958 does not amount to double taxation on the same property as the nature, object and purpose of both the Acts were different, issued by two different legislatures exercising power within their Constitutional authority.

Wealth Tax is a Federal Tax imposed under law whereas West Pakistan Urban. Property Tax Act is a provincial tax imposed on the rental value of the property and not on the value of assets of the assessee. Unless double taxation is prohibited by law it cannot be treated illegal.

It is thus, clear that unless there is any prohibition or restriction on the power of the legislature to impose a tax twice on the same subject-matter, double taxation cannot be declared illegal or void though it may be oppressive and inequitable. Unless there is a clear law imposing tax twice merely by implication tax cannot be imposed twice over. There should be a clear and specific provision to that effect.

Imposition of both the taxes does not amount to double taxation on the same property as the nature, object and purpose of both the Acts are different, issued by two different legislatures exercising powers within their Constitutional authority.

M/s. Jain Bros and others v. Union of India & others, AIR 1970 SC 778; Arvinder Singh v. State of Punjab, AIR 1979 SC 321 and In Corpus Juris Secundum, Volume 84 ref.

Nasim Ahmed Khan, Advocate Supreme Court and Shabbir Ghaury, Advocate-on-Record for Appellants.

Nasrullah Awan, Advocate Supreme Court and M.I. Oarni, Advocate- on-Record for Respondents.

Aziz A. Munshi, Attorney-General for Pakistan with Nizam Ahmed, Deputy Attorney-General for Pakistan (on Court Notice).

Date of hearing: 16th February, 1992.

JUDGMENT

SALEEM AKHTAR, J.---The appellants jointly own property bearing No.CL 5/11, Civil Lines, Saddar, Karachi, known as Shari Chambers. It was subjected to wealth tax in their hands in the status of an Association of Persons as one unit. The demands raised for the assessment years, 1979-80, 1980-81, 1981-82 and 1982-83 have been paid but the demand for the charge years 1983-84 was partly paid and partly it was recovered by coercive proceedings leaving some balance due at the time when petition was filed in the High Court. The respondent filed a Constitutional petition in 1984 challenging the vires of Wealth Tax Act on the ground that it is ultra vires the Constitution. And also on the plea that the tax has been imposed by the Federation under Wealth Tax Act as well as by the Province under the West Pakistan Urban Immovable Tax Act, 1958, on the same immovable property, which, cannot be subjected to tax twice. By the impugned judgment the Constitution Petition was dismissed. Leave to appeal was granted to consider the following questions:

"(1) Whether Wealth Tax Act, 1963, is ultra vires of the Constitution.

(2) Whether in view of the fact that the tax is imposed by the Federation under Wealth Tax Act, 1963, as well as by the Province under West Pakistan Urban Immovable Property Tax Act, 1958, on the same immovable property, this is the case of double jeopardy and, thus, illegal."

2. Mr. Nasim Ahmed Khan, the learned Advocate Supreme Court for the appellants, has contended that the Wealth Tax Act is beyond the legislative competency as under Item 50 of the Fourth Schedule of the Constitution called Federal Legislative List read with Articles 141 and 142 of the Constitution the tax can be levied on capital value of the assets whereas section 3 of the Wealth Tax Act, hereinafter referred to as `the Act', the tax has been charged on the net value of the assets. Item 50 reads as follows:-

"50. Taxes on the capital value of assets not including taxes on capital gains on immovable property."

Section 3 of the Wealth Tax Act which is the charging section reads as follows:-

"3.Charge of Wealth tax:--Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963, as a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual (Hindu undivided family, firm, association of persons or body of individuals, whether incorporated or not, and company) at the rate or rates speed in the Schedule.

The term net wealth has been defined by section 2(m) and reads as follows:-

"2(m)--'net wealth means the amount by which the aggregate value computed in accordance with the provisions of this Act of all 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 that Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-

(i) debts which under section 6 are not to be taken into account; and.

(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act:

Explanation: For the purposes of this clause--

(i) any property, other than agricultural land, owned by any minor child of the assessee shall be deemed to belong to the assessee;

(ii) `assessee' shall be the (parent) determined by the Wealth Tax Officer; and

(iii) where the right, title or interest to or in any immovable property other than agricultural land vests in more than one person, such person shall, in respect of such property, be assessed as an association of persons and the value of such right, title or interest, shall not be included in the net wealth of an individual. (Provided Wealth Tax is charged on such right, title or interest."

In order to illustrate the meaning of the words `net wealth' the learned counsel for the appellant referred to Sanaullah Woollen Mills Limited and another v. Monopoly Control Authority, PLD 1987 SC 202, where the meaning of the term `value of assets' as defined in the Monopolies and Restrictive Trade Practices (Control & Prevention) Ordinance, 1970, has been held to be as follows:-

"In this background I will dwell on the meaning of the term `value of assets' appearing in the definition clause. The word `means' has no other significance but that, that the word `assets' has to be given its ordinary meaning and not to be understood as having any extended meaning which the word `includes' conveys. The word `asset' is generally used in collective plural and in commercial law it denotes the aggregate of available property, stock in trade, cash etc. belonging to a merchant or merchantile company. (Black's Law Dictionary Revised Fourth Edition, Page 151). It is also used to signify the means which a person or a bank or a corporation has as compared with his/its liabilities, that is, its identity is separate and is not inclusive of debts or liabilities but is only comparable to them. It is in this sense that the word `assets' has been used to denote a `complete whole' of the property. Any other meaning given to it will be against the verbal expression of the legislature, and would defeat the very purpose of the legislation."

According to Mr. Nasim Ahmed Khan, `capital value of asset' mean gross value without deducting liabilities and as section 3 of the Act only speaks of net value of assets which means after excluding the liabilities the same is not covered by item 50. The judgment quoted by the learned counsel for the appellant was in respect of a statute in which value of asset had been defined. In any event if the said meaning is taken into consideration for the purposes of the argument advanced it will hardly improve the appellant's case. In the High Court as well as before us the learned counsel has entirely relied upon the judgment of the Supreme Court of India in Union of India v. Harbhajan Singh Dhillon (1972) 83 I.T.R. 582. The Supreme Court of India while declaring Wealth Tax Act ultra vires the Constitution of India and referring to Entry No.86, List 1, which provided for taxes on capital value of the assets observed that there is a distinction between true net wealth and a tax which can be levied under Entry No.86 (which is partly similar to Entry No.50) and further observed that it was not incumbent on the appellant to provide for deduction of debts in ascertaining the capital value of the assets as the entry is not strictly concerned with tax on net wealth nor it provides for deduction of debts and liabilities'. It, also, observed that under Entry No.86 a tax is to be levied on the capital value of the assets of an individual and deduction of debts in order to determine the capital value of the assets of any individual or company is not permissible.

3. The, learned Bench of .the High Court of Sindh for valid reasons disagreed with the observations made in this judgment. The judgment of the Indian Supreme Court was thoroughly analysed and it was pointed out that the appeal to the Supreme Court arose from the judgment of the Punjab and Haryana High Court passed in a writ petition by which an amendment made by the Finance Act was challenged as the value of agricultural land which has been excluded from Item 86 of List 1 of the Indian Constitution was subjected to wealth tax. Therefore, the entire case was to be dealt with reference to amendment made by the Finance Act and to that extent it was hit by the Constitution. The learned Judges in the impugned judgment first analysed the provisions of the Act and observed as follows:-

"Firstly we are unable to find any material difference between the concept of taxation under section 3 of the Act and entry No.50 of the Federal Legislative List of Constitution and on the above ground. The underlying object of aggregation of all the properties of an assessee for the purposes of levy of tax is common both in section 3 of the Act as well as under entry No.50 of the Federal Legislative List of The Constitution. The fact that the authorities while providing for determination of tax liability of an assessee under the Act, allowed deduction of all his outstanding liabilities from the aggregate value of his assets has no bearing on the character or nature of the tax. This, feature of the Act only indicates a mechanism or method provided under the Act for calculation of the tax liability of an assessee under it which certainly cannot affect or change the character or nature of the tax. There is no justification for the above reasons to hold that the tax levied under section 3 of the Act on the `net wealth' is in any manner different from the tax on the capital value of the assets as contemplated by entry No.50 of the Federal Legislative List of Constitution. There are no words in entry No.50 of the Federal Legislative List of Constitution which could be interpreted as placing any fetter on the power of legislature while providing for tax on the capital value of assets of a person, to allow deduction of liabilities outstanding against him from the value of his assets."

Referring to the reasons which had compelled the Supreme Court of India to take a different view out of which only one reason was relevant for purposes of the case under consideration, the following observation was made:

"However, we may examine here the first reason as it may be relevant on account of similarity of entry No.86 of Indian Constitution with entry No.50 of Federal Legislative List of our Constitution to the extent that both contemplate tax `on capital value of the assets'. The above reasoning proceeds on the assumption that the parliament while legislating in respect of tax on capital value of assets is not obliged to provide for deduction of debts in ascertaining the capital value of assets. With utmost respect the above reasoning cannot lead to conclusion that the parliament while legislating in respect of entry No.50 of the Federal Legislative List of our Constitution could not allow deduction of debts in ascertaining the capital value of assets. On the contrary this shows that there are no such fetters on the powers of parliament while legislating in respect of tax on capital value of assets under entry No.50 of Federal Legislative List of our Constitution. We are, therefore, unable to agree with the contention that because it was not incumbent on the parliament while legislating in respect of tax under entry No.50 of Federal Legislative List of Constitution to provide for deduction of debts in ascertaining the capital value of assets and that they did allow such deduction under the Act, therefore, the nature of tax levied under the Act should be held different from the concept of taxation under entry No.50 of Federal Legislative List of the Constitution. The effect of allowing deduction of debts in ascertaining the value of assets under the Act has been dealt with at length earlier in this order by us and need not be repeated here again. Suffice it to say that the fact that the legislature had allowed deduction of debts under the Act in ascertaining the capital value of assets could in no way change the nature of tax which is contemplated under entry No.50 of the Federal Legislative List of Constitution.

4. We are in full agreement with the observation made by the learned Judges of the High Court. Item 50 of the Fourth Schedule provides for tax on capital value of the assets not including taxes on capital gain on immovable property. Therefore, tax on capital value of assets can be levied which is not disputed at all. Wealth Tax is one of those taxes which intends to subject the assets to taxation. It is nobody's case that the Wealth Tax Act does not charge the assets. The Act has provided a mechanism for imposing and calculating the . tax on capital assets. The provision for calculating such tax is provided by the Act. Section 3 denotes which part of the capital value shall be taken into consideration for the purposes of charging wealth tax It is nobody's case that the net value of assets is not a part of the capital value. The capital value of the assets includes the net value of the assets. The definition of the net wealth under section 2(m) clearly provides that first the aggregate value of all the assets belonging to the assessee has to be taken into consideration. This is the basis for charging the tax. Now, in order to calculate the tax the aggregate value of liabilities and debts are to be deducted from the aggregate value of assets and the excess so calculated has been termed as ` net wealth' on which tax is calculated at the speed rate. This process of calculating the tax does not exclude the capital value of assets from wealth tax charged under section 3.

5. The next contention is that on the same property the appellant is required to pay tax twice namely wealth tax and tax under the West Pakistan Urban Immovable Property Tax Act. The learned counsel calls it a case of double jeopardy. This expression seems to be inappropriate. At best it can be 'a case of double taxation. Wealth Tax is a Federal Tax imposed under law whereas West Pakistan Urban Property Tax Act is a provincial tax imposed on the rental value of the property and not on the value of assets of the assessee. Unless double taxation is prohibited by law it cannot be treated as illegal. Reference can be made to M/s. Jain Bros. and others v. Union of India and others, AIR 1970 SC 778 where it was observed as follows:--

"It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted they cannot be so interpreted as to tax the subject twice over to the same tax (vide Channel, J. in Stevens v. The Durban-Rodde Poort Gold Mining C. Ltd. (1909) 5 Tax Cas 402. The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of section 23(5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation if any double taxation is involved the legislature itself has in express words, sanctioned it. It is not open to anyone thereafter to involve the general principles that the subject cannot be taxed twice over."

Reference can also be made to Arvinder Singh v. State of Punjab, AIR 1979 SC 321, where it was observed:

"There is nothing in Article 265 of the Constitution from which one can spell out the Constitution vice called Double Taxation if on the same subject-matter the legislature chose to levy tax twice over. There is no inherent invalidity in the physical adventure where other provisions exist."

It is, thus, clear that unless there is any prohibition or restriction on the power of the legislature to impose a tax twice on the same subject-matter, double taxation cannot be declared illegal or void though it may be oppressive and inequitable. Unless there is a clear law imposing tax twice merely by implication tax cannot be imposed twice over. There should be a clear and specific provision to that effect. In Corpus Juris Secundum, Volume 84, it has been stated:

"Double taxation should not be permitted unless the legislature has authority to impose it. However, since the taxing power is exclusively a legislative function, as discussed supra and since, except as it is limited or restrained by Constitutional provisions, it is absolute and unlimited, as considered supra 4, it is generally held that there is nothing, in the absence of any express or implied Constitutional prohibition against double taxation, to prevent the imposition of more than one tax on property within the jurisdiction as the power to tax twice is so simple as the power to tax once. In such case whether or not there shall be double taxation is a matter within the discretion of the legislature."

We are, therefore, of the view that imposition of both the taxes referred does not amount to double taxation on the same property as the nature, object and purpose of both the Acts are different, issued by two different legislatures exercising power within their Constitutional authority. We, therefore, dismiss the appeal with no order as to costs.

M.B.A./M-1612/S Appeal dismissed.