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

----S.2(m)---Wealth Tax Rules, 1963, R.8(3), second proviso---Net wealth-- Advance rent---Amount lying with the assessee landlord as an advance rent whether a liability towards the tenant in respect of the unadjusted rent on the valuation date---Nature of such deposit---Held, such a sum was more clearly identifiable as an "asset" which was to be aggregated towards net wealth and not a liability to be grouped as a "debt owed" for adjustment against aggregated assets.

ITA No.196(LB) of 1985-86 distinguished.

ITAs. Nos. 1 to 10/PB of 1980; 1988 PTD (Trib.) 585; Mst. Fauzia Mughees's 1988 PTD 629; Paracha Textile Mills Ltd. 1983 PTD 335; Karachi Sindh Development Corporation 1989 PTD 472; WTAs. Nos. 1 to 10/PB of 1980 ref.

(b) Words and phrases---

---- Words "debt" and `debt owed'---Meaning .

Mst. Fauzia Mughees's 1988 PTD 629 rel. on.

Nemo for Appellant.

Hameed Chaudhry, CA for Respondent.

Date of hearing: 28th October, 1992.

ORDER

AA. ZUBERI (ACCOUNTANT MEMBER): --This appeal has been filed at the instance of the Department to agitate against order, dated 10-4-1985 passed by the learned Commissioner (Appeals), Zone-3, Lahore in respect of the wealth tax assessment for the year 1982-83. The respondent individual has both movable and immovable assets.

2. None was present for the Department when called out. The appeal is, therefore, taken up for decision ex parte on merits by resort to Rule 20 of the Income Tax Appellate Tribunal Rules.

3. The discussion with the learned counsel for the respondent and the scrutiny of record before us shows that the respondent is the owner of House No. 170-F/3 Islamabad which has been rented out and "advance rent" taken for the period 9-8-1981 to 8-8-1983 at Rs.1,08,000. As on 30-6-1982 (the valuation date) a sum of Rs.59,809 stood as liability towards the tenant in respect of the unadjusted rent, this was claimed as debt due but the assessing officer disallowed deduction from the wealth. On appeal, the learned Commissioner held1hat the claim was not hit by the mischief of second proviso to Rule 8(3) of the Wealth Tax Rules and that having the ingredients of a liability was a valid deduction. The Department feels aggrieved by this decision and has placed reliance on this Tribunal's decision, dated 26-12-1983 on ITAs. Nos. 1 to 10/PB/1980 where it has been held that advance rent is not a liability as it does not qualify to be "debt owed" within the meaning of clause (m) of section 2 of Wealth Tax Act. The, learned counsel for the respondent on his turn relied on this Tribunal's decision reported as 1988 PTD (Trib.) 585 that the advance rent by the Full Bench to be a "debt owed".

4. We have considered the rival arguments addressed to us by the two sides and also gone through the relevant provisions of the Wealth Tax Act. Clause (in) of section 2 of the Wealth Tax Act prescribes that Net Wealth shall represent "the aggregate value of ....all the assets" as exceeds the "aggregate value of- all the debts owed". There can be no quarrel with this, but the difficulty is the word `debt' has nowhere been defined in this legislation. A controversy about this had come up for adjudication before the Lahore High Court In re: Mst. Fauzia Mughees 1988 PTD 629. The learned Judges after examining various authorities and definitions concluded that `debt' is a sum of money which is now payable (or will become payable in future) by reason of a present obligation. In other words debt is a present liability to pay an amount in future, though it may not be ascertained but may become ascertainable. The word `owed' according to the learned Judges is used with reference to the assessee i.e. the debtor and not with reference to the creditor, hence all the debts which an assessee owed ought to be excluded from his `assets' though the time for payment of these debts may be a little remote. The Wealth Tax Officer, the learned Judges ruled, is not to regulate the relationship of the assessee but is only to recognize the existence of the relationship of Debtor v. Creditor, and to notice whether a particular debt is owed by the assessee or not.

5.In addition to the above-referred judgment by the Lahore. High Court, we have gone through decisions reported as 1983 PTD 335 In re: Paracha Textile Mills Ltd. and 1989 PTD 472 In re: Karachi - Sindh Development Corporation. All these decisions (on which we could lay our hands) relate to loans/advances/securities which from the very beginning entailed a commitment for repayment to the creditor having almost no possibility of non payment (or forfeiture) except in such contingencies as the breach of contract etc. In the case in hand, the "advance rent" was received by the respondent not envisaging its repayment but only an adjustment against rent becoming due successively from month to month. The eventuality calling for refund of the unadjusted balance could arise if the tenancy was to be terminated earlier- than the stipulated period. The subtlety is that in respect of loans/advances/securities the refund is an expected end to a successful termination of the transaction for which the amount is received, in contrast-in such situations as of the respondent, the unadjusted balance of "advance rent" would be liable to be refunded only if the events were to take an unexpected unfortunate turn, not foreseen originally. It thus emerges that the sum of money akin to "advance rent" becomes the property of the recipient as tangible assets have sufficient permanency giving an undisputed right to its utilization in any manner, including the discretion to convert it into other assets so as to enjoy the usufruct or benefit. Therefore, it appears difficult to equate "advance rent" with loans or advances (as commonly understood in commercial parlance) which do not become the property of the recipient but remain a debt (or a security) to be paid back in accordance with the terms agreed upon. This angle of looking at the impugned transaction prompts us to adhere to the conclusion reached by this Tribunal's Peshawar Bench decision, dated 26-12-1983 on WTAs Nos.l to 1.0(PB) of 1980 and to distinguish this Tribunal's earlier decision such as ITA No.196(LB) of 1985-86, dated 30-5-1989 where the scrutiny was conducted from a different angle. The subtle distinction due to the concept of complete ownership of the money received as `advance rent' with only a remote and far off chance of its refund, in our opinion, would result in disentitling the owner of such amount of money, to classify it as "debt owed" for deduction from the aggregated value of all assets. Such a sum, to our mind, is more clearly identifiable as an `asset' which is to be aggregated towards `net wealth' and not a liability to be grouped as a "debt owed" for adjustment against aggregated assets. On this view, we feel no hesitation in VACATING the treatment meted out by the learned Commissioner. The appeal consequently succeeds.

M.B.A./2435/TAppeal accepted.