Income Tax Act (XI of 1922)---

----S.9---Income from property ---Assessee entered into a tenancy agreement with her sister for 11 months whereas sister of assessee leased out the said premises for three years which, she was not authorised to do---Effect-- Question arose as to whether the lease to the sister by the assessee was bona fide and whether the subsequent lease was made for the benefit of the assessee---Held, it could very legitimately be inferred that the agreement of lease between the sister of the assessee and tenant was a subterfuge to evade the due incidence of taxation---Amount of rental income realised by the sister of assessee under the temporary sub-lease to another tenant could be taken as the assessee's income under S.9 of the Income Tax Act, 1922.

Muhammad Amin Butt for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 24th April, 1993.

JUDGMENT

M. MAHBOOB AHMAD, C.J. ---The Income Tax Tribunal (Lahore Bench), Lahore has referred to this Court the following question said to be of law and arisen out of the order of the Tribunal, dated 3-6-1984 for answer in accordance with the provisions of section 136(1) of the Income Tax Ordinance, 1979:--

"(i) Whether on facts and in the circumstances of the case the finding `that the assessee's sister signed the lease agreement on behalf of the appellant and Mr. Sarfraz Pirzda acted as care-taker on behalf of the assessee and it was not a sub-lease by assessee's sister is inconsistent with record and based upon misreading of evidence and material on record and non-consideration of material facts?

(ii) Whether on facts and in the circumstances of the case the Tribunal was right in introducing a new reasoning that the amount of rental income realized by Mst. Firdous Zain under the temporary sub-lease to a foreign sub-tenant could be taken as the assessee's income under section 9 of the Income Tax Act, 1922?"

The assessee who is a film artiste filed her return of income for the assessment year 1980-81 in which a sum of Rs.7,380 was shown to have been received by her as rent for the property bearing No. 31-B, Central Avenue Phase-II, Defence Co-operative Housing Society, Karachi. The Income Tax Officer however after issuing notice under section 61 of the Income Tax Ordinance, 1979 came to the conclusion that the property in question had been let out by her w.e.f.11-11-1980 to M/s. Mitsubishi Corporation Ltd., 8th Floor, Dawood Centre, Karachi at a monthly rent of Rs.3,500. He accordingly made the assessment on that basis vide his order, dated 22-2-1983.

2. Aggrieved by the said order, the petitioner filed an appeal, which was dismissed by the Commissioner of Income Tax (Appeals) on 27-7-1983. Further appeal to the learned Income Tax Appellate Tribunal was dismissed on 3-6-1984 whereafter she filed application under section 136(1) of the Ordinance, 1979 for referring the questions mentioned above to this Court for opinion. It is on this application that the present reference has been made.

3. Mr. Muhammad Amin Butt, learned counsel for the petitioner has submitted that there is evidence on the record to show that the petitioner had leased out the property in question to Mst. Firdaus Zain vide agreement dated 18-12-1979 at a rent of Rs.1,000 P.M. and that the fresh evidence that the sub-letting was for and on behalf of the assessee and for her benefit is conjectural. According to the learned counsel, under section 19 of the Income Tax Ordinance, 1979, it is only the rent received by the landlord, which could be subjected to tax.

4. Mr. Muhammad Ilyas Khan, learned counsel for, the respondent has, on the other hand contended that there is intrinsic evidence available on record to show that the letting out through a lease deed by sister of the assessee namely Mst. Firdaus Zain to M/s. Mitsubishi Corporation was in fact to ensure to be benefit of assessee. He in this connection has referred to the agreement of tenancy between the assessee and her sister, dated 18-12-1979 and lease deed between her sister Mst. Firdaus Zain and M/s. Mitsubishi Corporation Ltd., dated 29-12-1979: It is submitted, by the learned counsel that the very short period of about 10 days whereafter the lease was executed by the sister of the assessee for a rent Rs.3,500 after showing it on tenancy to her from the assessee by itself shows the lack of good faith and of bona fides of the latter. The lease in the circumstances of necessity has to be taken as one for and on behalf of the assessee.

5. The other aspect referred to by the learned counsel for the respondent was that the tenancy between the assessee and her sister was for 11 months whereas the latter had leased out the premises for three years which she could not have done and the tenant from the sister would not have taken it, had there been no privity between the assessee herself and the tenant ultimate.

6. Having given consideration to the controversy, we are of the view that the contentions raised on behalf of the petitioner do not have any force. The question, which calls for determination is as to whether the lease to the sister by the assessee was bona fide and whether the subsequent lease was made for the benefit of the assessee. The peculiar circumstances existing on the record as pointed out by the learned counsel for the Department do tend to show that it could very legitimately be inferred that the agreement of lease between the sister of the assessee and tenant was a subterfuge to evade the due incidence of taxation. It cannot therefore be said that there was no evidence available on the record to reach the conclusions concurrently arrived at by all the three forums below.

7. In the light of the above discussion, the answer to the questions referred to us are against the assessee and in favour of the Department. There will however be no order as to costs.

M.B.A./M-1181/L Reference answered.