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

----S.7---Wealth Tax Rules, 1963, R.8(3)---Valuation of assets---Considerations for determination---Property situated outside Pakistan---Mode for determination of the value of such property.

The W.T.O. has been empowered to estimate the market value of land and buildings with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood of the same locality. In cases where the property is lot out, if the annual rent is considered reasonable, then the value can be determined by multiplying the A.L.V. with 10. In addition to this there are various methods recognized by law for determining the market value of any building. Some of the methods are as follows:---

(a) valuation of land and building method;

(b) actual sale price method;

(c) rate of receipt method;

(d) itemwise valuation method;

(e) building method (contractors method), and

(f) rental method.

Therefore, critical analysis of Rule 8(3) would reveal that if the W.T.O. chooses to estimate value of property, then he had to take into consideration the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood. Since in the present case the property was situated outside Pakistan, therefore, how it was possible for the W.T.O. to consider all these factors. The methods prescribed for valuation of properties in Rule 8(3) are for the properties situated in Pakistan, as in case of immovable properties situated outside Pakistan. It would be very difficult or rather impossible for the W.T.O. to examine all such factors for determining the market value of the property. Method of ten times of the gross annual rental value as the value of the property would also be not applicable as this method is also applicable in case of property situated in Pakistan. The only course in such a situation would be either to accept the value shown in sale-deed available with the assessee or any valuer's report received from the country where the asset or property is situated. However, the value of foreign property shown in sale deed or any other document recognized by the country where such property is situate would be binding on W.T.O. unless he had some evidence to rebut such fact.

The valuation of assets could be made with reference to section 7 of the Wealth Tax Act and Rule 8(3) of the Wealth Tax Rules. From the scrutiny of the provisions contained in the Wealth Tax Act and Wealth Tax Rules, it would appear that the procedure for valuation of foreign property has not been provided. The W.T.O. has discretion to adopt any reasonable method of valuation of properties, where it is not provided, but he has to consider the valuation factors prevalent in the countries in which the properties are situated.

The rental method was not applicable in case of the assesses The valuation of such property would be proper if it is made on the basis of any sale deed or valuer's reports available with the assessee in this regard. Since these documents are not available on record, therefore, Tribunal set aside the valuation of properties situated abroad and directed the W.T.O. to make enquiries about the valuation from the assessee and thereafter determine the value disclosed in those documents.

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

----Ss.3, 6 & 2(e)---Wealth tax---Chargeability---Net assets ---Definition-- Individual who is not a citizen of Pakistan is not liable to pay any wealth tax in respect of the property located outside Pakistan.

Section 3 of the Wealth Tax Act, which is the charging section, imposes the tax liability in respect of net wealth owned on valuation date by an individual, whether a citizen of Pakistan or a non-citizen of Pakistan, resident in Pakistan or non-resident of Pakistan, if it exceeds the prescribed amount. Section 6, however, provided that in computing the net wealth of an individual who is not a citizen of Pakistan or a citizen of Pakistan is not "resident and, ordinarily resident" in Pakistan during the year ending on the valuation date, 'the value of assets and debts located outside Pakistan and the value of assets in Pakistan represented by the loans or debts referred to therein, shall not be taken into account. It, therefore, follows that an individual who is not a citizen of Pakistan is not liable to pay any wealth tax in respect of the assets located outside Pakistan. The definition of net assets with reference to definition clause would be aggregate value of all assets wherever located within Pakistan or outside Pakistan.

Rehmat Shakeel for Appellant.

Khalid Siddiqui, D.R. for Respondent.

Date of hearing: 3rd November, 1993.

ORDER

SYED KABIRUL HASAN (JUDICIAL MEMBER).---In these three Wealth tax appeals, a very important point has been raised by the appellant relating to valuation of foreign assets/immovable property. The assessment years involved are 1985-86, 1986-87 and 1987-88.

2. The brief facts necessary for the disposal of these appeals are that during the assessment years, the assessee filed return declaring an immovable property situated at Singapore. This property was let out. The Income Tax officer on the basis of monthly rent, determined the Annual Letting Value (A.L.V.) and multiplied the same with 10 and in this manner determined the market value of the property.

3. In support of these appeals, Mr. Rehmat Shakeel, the learned counsel for the assessee has submitted that this method of valuation of multiplying the bona fide A.L.V. is not applicable in case of the assessee, as the property is situated outside Pakistan, whereas this method, has been devised fir the properties situated in Pakistan.

In reply, the learned Departmental Representative has submitted that this is the normal practice of the Department that in cases where the annual rent can be determined, then they resort to valuation procedure of A.L.V. by multiplying the same with 10.

4. We have heard the learned counsel for the assessee as well as learned D.R. The contention of learned counsel for the assessee requires consideration in so tar as the rules for valuation of properties have been made considering the conditions and circumstances of this country. Rule 8(3) of the Wealth Tax Rules, 1963 which deals with the valuation of land and building, states as under:--

"Rule 8(3). Land and Buildings:

The value of land and buildings, excluding agricultural land, shall be estimated with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood of the said locality:

Provided that the Wealth Tax Officer shall not, except with the prior approval of the Central Board of Revenue determine the value of any property at a sum higher than ten times the gross annual rental value of such property:

Provided further that any amount by way of advance or security, which is not adjustable against the rent payable by the tenant shall be taken into consideration for determining gross annual rental value.

Explanation.---For the purpose of this sub-rule, "gross annual rental value" means the sum for which the property might reasonably be expected to let from year to year."

From the careful reading of above, it would appear that the W.T.O. has been empowered to estimate the market value of land and buildings with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood of the same locality. In cases where the property is let out, if the annual rent is considered reasonable, then the value can be determined by multiplying the A.L.V. with 10. In addition to this, there are various methods recognized by law for determining the market value of any building. Some of the methods are as follows:-- .

(a) valuation of land and building method;

(b) actual sale price method;

(c) rate of receipt method;

(d) item-wise valuation method;

(e) building method (contractors method); and

(f) rental method.

Therefore, critical analysis of Rule 8(3) would reveal that if the W.T.O. chooses to estimate value of property, then he had to take into consideration the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood. Since in this case the property was situated outside Pakistan, therefore, how it was possible for the W.T.O. to consider all these factors. In our view, the methods prescribed for valuation of properties in Rule 8(3) are for the properties situated in Pakistan, as in case of immovable properties situated outside Pakistan, it would be very difficult or rather impossible for the W.T.O. to examine all such factors for determining the market value of the property. We have also taken into consideration this fact that as the property was already let out, therefore, it was quite easy for the W.T.O. to adopt ten times of the gross annual rental value as the value of the property. But this method would also be not applicable as this method, in our opinion, is also applicable in case of property situated in Pakistan. The only course in such a situation would be either to accept the value shown in sale-deed available with the assessee or any valuer's report received from the country where the asset or property is situated. However, the value of foreign property shown in sale -deed or any other document recognized by the country where such property is situated, in our opinion, would be binding on W.T.O. unless he, had some IA evidence to rebut such fact.

5. Let us now consider the scheme of Wealth Tax Act, 1963. Section 3 of the Wealth Tax Act, which is the charging section, imposes the tax liability in respect of net wealth owned on valuation date by an individual, whether a citizen of Pakistan or a non-citizen of Pakistan, resident in Pakistan or non resident of Pakistan, if it exceeds the prescribed amount. Section 6, however, provides that in computing the net wealth of an individual who is not a citizen of Pakistan or a citizen of Pakistan is not "resident and ordinarily resident" in Pakistan during the year ending on the valuation date, the value of assets and debts located outside Pakistan and the value of assets in Pakistan represented by the loans or debts referred to therein, shall not be taken into account. It, therefore, follows that an individual who is not a citizen of Pakistan is not liable to pay any wealth tax in respect of the assets located outside Pakistan. The definition of net assets with reference to definition clause would be aggregate value of all assets wherever located within Pakistan or outside Pakistan. Since chargeability is not disputed by the assessee, therefore, this has been stated for reference only.

6. Now, therefore, the valuation of assets could be made with reference to section 7 of the Wealth Tax Act and Rule 8(3) of the Wealth Tax Rules. Rule 8(3) has already been discussed in foregoing paras. From the scrutiny of the provisions contained in the Wealth Tax Act and Wealth Tax Rules, it would appear that the procedure for valuation of foreign property has not been provided. In our opinion, the W.T.O. has discretion to adopt any reasonable method of valuation of properties, where it is not provided, but he has to consider the valuation factors prevalent in the countries in which the properties are situated.

7. In. view of this, we are in agreement with the contention of learned counsel for the assessee that the rental method was not applicable in case of the assessee. The valuation of this property, in our opinion, would be proper if p it is made on the basis of any sale deed or valuer's reports available with the assessee in this regard. Since these documents are not available on record, therefore, we would set aside the valuation of properties situated at Singapore and direct the W.T.O. to make enquiries about the valuation from the assessee and thereafter determine the value disclosed in those documents.

8. These appeals are disposed of in. the manner as indicated above.

M.BA./40/T.TOrder accordingly.