I.TAS. NOS. 467/LB AND 1220/LB OF 1991-92,'DECIDED ON 7TH OCTOBER, 1992. VS I.TAS. NOS. 467/LB AND 1220/LB OF 1991-92,'DECIDED ON 7TH OCTOBER, 1992., 1993 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 952 (1992)

(a) Income Tax Ordinance (XXXI or 1979)---

----Ss. 13(I)(d) & 58---Interpretation of S.13(1)(d)---Where an assessee has made any investment or acquired any article the difference between the market value of the investment or the article and the consideration paid by the assessee for making the investment or acquiring the article will not be deemed as income of the assessee---Provision of S.13(1)(d) would be applicable only where the Assessing Officer fords that the assessee has expended more amount for making the investment or acquiring the valuable article than the amount recorded in the books of accounts maintained by assessee or shown in the wealth statement furnished under S.58 of the Ordinance.

The bare reading of the bare language of section 13(1)(d) of the Ordinance would show that it does not say that where an assessee has made any investment or Acquired any article the difference between the market value, of the investment or the article and the consideration paid by the assessee for making the investment or acquiring the article will be deemed as income of the, assessee. Clause (d) would be applicable only where the I.T.O. finds that the assessee has expended more amount for making the investment or acquiring the valuable article than the amount recorded in the books of accounts maintained by the assessee or shown in the wealth statement furnished under section 58 of the Ordinance. In the present case, the addition made by the tax authorities can be defended only if the said authorities had found that the assessee had actually expended more money than Rs.2,00,000 to acquire the area in dispute. The tax authorities in their approach to the matter appear to have proceeded on the assumption that if the market value of an asset acquired by an assessee exceeds the consideration paid for its acquisition, the difference between the two was to be treated as "deemed income" of the assessee. But the language of the relevant provisions of statute does not unequivocally support the raising of above assumption. To tax a citizen unambiguous legislative command is needed. In .the matter of fiscal statutes one has to lock merely at what is clearly said. There is no room for any intendment. There is no presumption as to tax. Nothing is to be read in the fiscal statute which is not there. Neither anything is to be implied nor to be read in a fiscal statute beyond the clear language. It is true that if the market value of any asset acquired by an assessee and the consideration paid by him for its acquisition differ the latter being too low as compared to the former, the assessing officer may raise his finger and may start looking into the fact whether or not the assessee expended more amount in making the investment or in acquiring the property than the, amount recorded in that behalf in the assessee's books of accounts and wealth statement. Butt, it will be only a starting point; the end will be that the assessing officer finds that the assessee had really expended more money than that what has been recorded in his looks of accounts or shown in the wealth statement. And, any such finding must be supported by an objective evidence.Hundered and one situations may be visualised in which a person has the opportunity to acquire property for a price lesser than the market price or for inadequate consideration. The real question in any such case would be whether the amount expended lay the assessee for the acquisition of property was the same which was recorded 3n his books of accounts or wealth statement or the amount appearing in the books or the statement had been understated. The law does not prohibit the one to acquire or the other to sell a property for inadequate consideration. Mere inadequacy of the consideration does not render a contract void.

The real question that arises in the c. se is whether the tax authorities have found that the company had expended more money on the acquisition of the area than what has been shown in its books of accounts. There is no evidence on this point. The tax authorities have made the addition to the company's income primarily on the ground that the market value of the area acquired by the company was more than that recorded in the sale-deed. The tax authorities have by and large proceeded on the assumption that since the real value of the area acquired by the assessee was more than the consideration paid for its acquisition, it will be presumed that the company had expended the amount for the acquisition of the area equal to its market value. The law does not provide for raising any such assumption.

It may not be understood that if the tax authorities cannot find that an assessee had actually paid more money for the acquisition of any asset than for which the said asset appears to have been acquired, no addition under section 13(1)(d) of the Ordinance can be made. If the I.T.O. finds that the value of any asset acquired by the assessee as recorded in the assessee's books of accounts or wealth statement is too low as compared to its market value, he may call upon the assessee to show cause why the difference between the two values should not be treated as his deemed income and the assessee may show the cause either by showing that the amount expended by him for the acquisition of the asset and recorded in his books of accounts and wealth statement was not less than the market value of the asset and the value found by the I.T.O. was not correct or that he had the reasons to acquire the asset at lower or inadequate price, and as such he did not expend more money than what is recorded in his books of accounts notwithstanding that the market value of the asset was more than the amount which the assessee expended to acquire it. If the assessee is able to show that he had reasons to acquire the asset for lower price or inadequate consideration that would be a valid explanation to explain the source of income as contemplated by section 13(1) of the Ordinance.

(b) Interpretation of statutes---

--Fiscal statute---Principles for interpretation

In the matter of fiscal statutes one has to look merely at what is clearly said. There is no room for any intendment. There, is no presumption as to tax. Nothing is to be read in the fiscal statute which is not there. Neither anything is to be implied nor to be read in a fiscal statute beyond the clear language.

(c) Contract---

---Mere inadequacy of the consideration does not render a contract void.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.13(2)---Determination of real value of investment made by assessee by the Assessing Officer ---Assessee has to be heard to explain that he, for reasons, had acquired an asset for inadequate consideration.

It is true that subsection (2) of section 13 empowers the assessing officer to determine the real value of any investment made by the assessee. It is also correct that the consideration of any sale shown in the sale-deed does not debar the tax authorities to determine the real market value of the asset purchases. But the said provision does not say that the assessee will not be heard to explain that he, for reasons, had acquired an asset for inadequate consideration.

Zia H. Rizvi for Appellant (in I.TA. No.467/LB of 1991-92).

Qaiser M. Yahya, D.R. for Respondent (in T.A. No.467/LB of 1991-92)

Qaiser M Yahya, D.R for Appellant (in I.TA. No.1220/LB of 1991-92)

Zia H. Rizvi for Respondent (in I.T.A. No.1220/LB of 1991-92).

Date of hearing: 22nd April, 1992.

ORDER

CH. IRSHAD AHMAD (JUDICIAL MEMBER): --The assessee, a private limited company (the company) derives income from processing of cloth namely printing, dyeing and bleaching for and on behalf of other parties. In the return of income for the assessment year 1988-89 the assessee declared net profit at Rs.35,446. The declared net profit was arrived at in the following manner:---

The ITO noted that although the receipt and gross profit rate earned by the assessee have showed an improvement as compared with the preceding years but still the G.P. rate declared at 24.96% was not up to the mark "as in other parallel cases in this line of business and as per past history of the case". The ITO also noted that the assessee had shown lesser receipts from printing which aimed at avoiding proper incidence of taxation because printing receipts are normally subjected to higher G.P. rate (35%) as compared with dyeing and bleaching receipts which are subjected to lower rate '(20%). The assessing officer ultimately apportioned the gross receipts between printing receipts and bleaching receipts at the ratio of 20% and 80% respectively.

The scrutiny of the schedule of fixed assets of the company showed that the company had, through a sale-deed registered on 13-5-1987, acquired an area of 31 kanals 8 marlas for a sum of Rs.2,00,000. The assessing officer found that the value of the said area was Rs.31,40,000. The assessing officer, therefore, added a sum of Rs.29,40,000 i.e. the difference between the estimated market value of the area purchased and the consideration shown in the sale-deed under clause (d) of subsection (1) of section 13 of the Income Tax Ordinance, 1979.

The assessing officer also made few addbacks out of the profit and loss expenses.

On appeal by the assessee, the CIT (A) held that the apportionment of the receipts between the "printing" and "dyeing and bleaching" at 20% and 80% respectively made by the assessing officer against the declared ratio of 17.74% and 82.26% respectively was "nothing more than mere a tinkering with the figures and was contrary to the Income Tax Appellate Tribunal's decisions." The -CIT(A) accordingly directed the ITO to adopt the appointment of the gross receipts between "printing" and "dyeing and bleaching at the ratio of 17.74% and 82.20% respectively. The CIT(A) also set aside the addition made on account of the sale of scrap for readjudication. Add-backs made by the assessing officer out of the P&L account expense. Wader the heads "staff salaries", "bonus paid to the staff", and advertisement were deleted whereas addbacks under the heads "vehicle running expenses'' and "building and machinery repairs" were reduced. Although the approach of the CIT(A) regarding the addition of deemed income under section 13(1)(d) of the 1079 Ordinance basically remained the same as that of the assessing officer but the CIT(A) reduced the amount of that addition from Rs.29,40,000 to Rs.5,85,000. The CIT(A) concluded that the valuation adopted by the ITO on the basis of a solitary case at NTN. 03-06-0531834, which was altogether different and distinguishable and ignoring the other cases, the evidence, produced by the assessee including other transactions of lands purchased by Faisalabad Development Authority, the rates fixed by the Deputy Commissioner, Faisalabad, as well as the departmental authorities has without any proper justification. Considering all facts and keeping in view the nature and type of land the area purchased by the company, the CIT(A) concluded that it would be fair to adopt the value of the area at Rs.7,85,000.

Both the assessee as well as the department have objected to the order of the CIT(A).

At the opening of the hearing of this appeal the learned counsel for the assessee stated that he would confine his objection only to the addition made under section 13(i)(d) of the Ordinance and disallowance of "vehicle running expenses":-The department has objected to all modifications made by the CIT(A) in the assessment made by the assessing officer.

We have heard Mr. Zia H. Rizvi, Advocate for the assessee and Mr. Qaiser M. Yahya DR for the Department.

The issue regarding the addition made to the income of the assessee under section 13(1)(d) of the Ordinance has been projected as the most important issue in these appeals. The point that has been debated is whether or not the tax authorities were justified to make an addition to the income of the company equal to the difference between the market value of the area acquired by the company and price paid for its acquisition. The assessee contends that it paid only Rs.2,00,000 for the acquisition of the area and the said consideration. has been correctly recorded in the sale-deed as well as in the schedule of the assets. The tax authorities appear to be of the view that whenever an assessee acquires an asset of which the market value is more than that what he paid for the acquisition of the said asset the difference between the market value and the consideration paid by the assessee will be deemed to be the income of the assessee and liable to be added to the income of the assessee under section 13(1)(d) of the Ordinance. In adding the difference between the market value of the area acquired by the company and the consideration paid by the company to the seller tax authorities have relied upon clause (d.) of subsection (1) of section 13 of the Ordinance. Since the answer to the question whether the above provision of law does or does not permit the addition of the difference between the market value of an asset and the consideration paid by the assessee for acquisition of the said asset is to be found from the quoted' provisions of the statute it would be pertinent to reproduce the same which reads as follows:---

"13(1)(d).--The assessee has made investment in any income year or is found in respect of any such year to be the owner of any valuable article and the Income Tax Officer finds that amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement furnished under section 58 in respect of that year."

The bare reading of the bare language of section 13(1)(d) of the Ordinance would show that it foes not say that where an assessee has made any investment or acquired any article the difference between the market value of the investment or the article and the consideration paid by the assessee for making the investment or acquiring the article will be deemed as income of the assessee. Clause (d) ibid would be applicable only where the I.T.O. finds that the assessee has expended more amount for making the investment or acquiring the valuable article than the amount recorded in the books of accounts maintained by the assessee or shown in the wealth statement furnished under section 58 of the Ordinance. Coming to the present case, the addition made by the tax authorities can be defended only if the said authorities had found that the assessee had actually expended more money than Rs.2,00,000 to acquire the area in dispute. The tax authorities in their approach to the matter appear to have proceeded on the assumption that if the market value of an asset acquired by an assessee exceeds the consideration paid for its acquisition, the difference between the two was to be treated as "deemed income" of the assessee. But as seen above the language of the relevant provisions of statute does not unequivocally support the raising of above assumption. To tax a citizen unambiguous legislative command is needed. The judicial authority is firm that in the matter of fiscal statutes one has to look merely at what is clearly said. There is no room for any intendment. There is no presumption as to tax. Nothing is to `tie read in the fiscal statute which is not there. Neither anything is to be implied nor to be read in a fiscal I statute beyond the clear language. It is true that if the market value of any asset acquired by an assessee and the consideration paid by him for its acquisition differ the later being too low as compared to the former, the assessing officer may raise his finger and may start looking into the fact whether or not the assessee expended more amount in making the investment or in acquiring the property than the amount recorded in that behalf in the assessee's books of accounts and wealth statement. But, in our view, it will be only a starting point; the end will be that the assessing officer fords that the assessee had really expended more money than that what has been recorded in his books of accounts or shown in the wealth statement. And, any such finding must be supported by an objective evidence. Hundred and one situations may be visualised in which a person has the opportunity to acquire property for a price lesser than the market price or for inadequate consideration. The real question in any such case would be whether the amount expended by the assessee for the acquisition of property was the same which was recorded in his books of accounts or wealth statement or the amount appearing in the books or the statement had been understated. The law does not prohibit the one to acquire or the other to sell a property for inadequate consideration. Mere inadequacy of the consideration does not render a contract void.

The real question that arises in this case is whether the tax authorities have found that the company had expended more money on the acquisition of the area than what has been shown in its books of accounts. There is no evidence on this point. The tax authorities have made the addition to the company's income primarily on the ground that the market value of the area acquired by the company was more than that recorded in the sale-deed. The tax authorities have by and large proceeded on the assumption that since the real value of the area acquired by the assessee was more than the consideration paid for its acquisition, it will be presumed that the company had expended the amount for the acquisition of the area equal to its market value. As noted earlier, the law does not provide for raising any such assumption. It is true that subsection (2) of section 13 empowers the assessing officer to determine the real value of any investment made by the assessee. It is also correct that the consideration of any sale shown in the sale-deed does not debar the tax authorities to determine the real market value of the asset purchases. But the said provision does not say that the assessee will not be heard to explain that he, for reasons, had acquired an asset for inadequate consideration.

One may raise a question that how possibly in this materialistic world, one could sell his property of the value of more than Rs.31,00,000 (as estimated by the ITO) or of the value of more than Rs.7,00,000 (as estimated by the CIT(A) for Rs.2,00,000. The question at its first blush appears to be a valid question but it can be answered very conveniently. The acquisition history of the area acquired by the company would offer the explanation. The area was originally purchased by two real brothers namely Abdul Rashid and Abdul Hamid in 1972. In the year 1974, the brothers associated as partners of a firm which set up the business of processing of cloth under the name and style M/s. Rashid Textile Industry. In the year 1983, one of the partners/brothers died and his children were admitted as partners of the firm. In the year 1985, the firm business was converted into a private limited company. The area which was originally acquired by the two brothers has now been transferred to the company. Still the brothers and their progeny are the owners of the majority shares in the company. It will not be wrong to say that the company in fact is alter ego of the two brothers and their progeny. It is an admitted position that the very factory of the company is built over the area acquired by it. The area is not available for free sale and delivery of vacant possession to any outsider intending buyer. Under these circumstances, it would not be correct to evaluate the value of the area as if it was available for open sale. The balance of judgment must tilt in favour of the finding that the sale was in fact only a formality, because for all practical purposes the area already vested in the company. Even if it is assumed that the area did not technically vest in the company before the execution of the formal sale-deed, in view of the relation of the sellers-with the company, there was all justification for the owners to sell it to the company at lower price or for inadequate consideration. Neither the assessing officer nor the CIT(A) has adverted to any evidence or circumstances which could show that the company had in fact expended more money for the acquisition of the area than for which it purports to have been acquired. There is no evidence that the sellers had received more money than for which the area purports to have been sold. The entire efforts of the tax authorities have been roaming about to find out the reasonable market value of the area. The said enquiry though, in our view, relevant to the case, could not offer ultimate answer to the question. We would, therefore, direct that the addition made under section 13(1)(d) of the Ordinance shall be deleted.

Before we part with the issue, we would like to record a note of caution that we may not be understood saying that if the tax authorities cannot find that an assessee had actually paid more money for the acquisition of any asset than for which the said asset appears to have been acquired, no addition under section 13(1)(d) of the Ordinance can be made. What we really intend to say is that if the I.T.O. fends that the value of any asset acquired by the assessee as recorded in the assessee's books of accounts or wealth statement is too low as compared to its market value, he may call upon the assessee to show cause why the difference between the two values should not be treated as his deemed income and the assessee may show the cause either by showing that the amount expended by him for the acquisition of the asset and recorded in his books of accounts and wealth statement was not less than the market value of the asset and the value found by the I.T.O. was not correct or that he had the reasons to acquire the asset at lower or inadequate price, and as such he did not expend more money than what is recorded in his books of accounts notwithstanding that the market value of the asset was more than the amount which the assessee expended to acquire it. If the assessee is able to show that he had reasons to acquire the asset for lower price or inadequate consideration that would be a valid explanation to explain the source of income as contemplated by section 13(1) of the Ordinance.

So far as the addbacks made out of the verifiable running expenses are concerned,, it may be noted that the assessee had claimed them at Rs.89,263 out of which the assessing officer disallowed a sum of Rs.35,000. The CIT (A) reduced the addback because the addition made by the assessing Officer was more percentage-wise, than the disallowance made during the previous years. The assessee has not been able to demonstrate that the expense were cent per cent verifiable. In such cases, we ordinarily do not interfere with the empirical judgment of the higher tax authority. The order of the CIT (Appeals) on that score is maintained.

This disposes of the assessee's appeal.

So far as the departmental appeal is concerned, we land that all that has been contested is mere tinkering with the figures reduced or deleted by tire CIT(A). In our view tire determination of the CIT(A) was quite fair.' The department's appeal is devoid of force and is hereby rejected.

The assessee's appeal so far as it relates to the addition made under section 13(l)(d) of Ordinance is accepted. The departmental appeal is rejected in toto.

M.B.A./2291/T Order accordingly.