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

----S. 2(e)(ii), Explanation [as added by Finance Act (XII of 1991), S.2]-- "Assets"---Definition---Immovable property owned by an assessee which is let out to various tenants falls within the ambit of inclusive definition of assets laid down under S.2(e)(ii) of the Wealth Tax Act, 1963.

(b) Wealth Tax Rules, 1963--

-----R. 8(3)---Valuation of assets---Land and buildings---Mandatory exercise to be done by the Assessing Officer while estimating value of immovable properties for assessment of wealth elaborately illustrated---Where the Assessing Officer had not followed the mandatory method as laid down in R.8(3) of the Wealth Tax Rules, 1963 for estimating the value of the property, Income Tax Appellate Tribunal vacated the impugned order and set aside the assessment order to be passed afresh in accordance with law.

Firstly, the substantive sub-rule (3) of Rule 8 of the Wealth Tax Rules, 1963 requires the W.T.O. to estimate the market value of immovable property on corresponding valuation date with due regard to the nature and size of the property, the amenities available and the price prevailing in the neighbourhood of the said property. This is a mandatory exercise that has to be performed invariably while estimating value of immovable properties for the assessment of wealth.

The W.T.O. after so estimating the value, should proceed to determine the sum for which the relevant property might reasonably be expected to let from year to year taking into consideration all the factors that are laid down in such Rule which, in terms of Explanation to sub-rule (3), means the GARV. While performing the foregoing exercise, is case of property that is let out, it is mandatory upon the W.T.O., under second proviso to sub-rule (3), to take into consideration any amount taken by the assessee by way of advance or security which is not adjustable against the rent payable by the tenant. In other words the amount for which the property might reasonably be expected to let from year to year, in case of let out property for which the assessee is receiving rent besides taking any amount by way of advance or security which is not adjustable against such rent, shall be determined under second proviso by taking into consideration the factors that led the landlord to demand and compelled the tenant to pay any advance or security which is not adjustable against the rent payable by the tenant and give a finding to this effect. If the D.C.W.T. finds that such advance or security is taken by the assessee in order to keep the amount of annual rent lower than the sum for which the property might reasonably be expected to let from year to year, he shall add, a reasonable sum, as warranted by the consideration funds by the D.C.W.T. behind the receipt of such advance or security, to the declared annual rent for determining the GA.R.V. Having so determined the G.A.R.V. of the property, D.C.W.T should work out, as required under the first proviso the amount, which is ten times (for assessment year 1992-93 and 1993-94 twelve times) the GA.R.V. determined by him. He shall then compare the value as arrived at with the value determined by him under the provisions of main sub rule (3), and adopt lower of the two as the value of the property. In case the D.C.W.T., on the basis of the value estimated by him on consideration laid down under main sub-rule (3), and for any other compelling reasons to be recorded in his order, finds that the value of property should be determined at a sum higher than ten times (twelve times in assessment years 1992-93 and 1993-94) the GA.R.V. determined by him, he shall have to obtain prior approval of the C.B.R. (Commissioner since assessment year 1992-93) for adopting such higher value. In the present case the D.C.W.T. has not followed the method laid down under Rule 8(3) of the W.T. Rules in determining the value of assessee's property. Income-tax Appellate Tribunal vacated the impugned order of the AA.C. and set aside the impugned assessment order on this point to be passed afresh in accordance with law.

1988 PTD 585 and Messrs B.P. Biscuit Factory in Civil Appeal No.K 140 of 1981, dated 19th January, 1989 fol.

(c) Wealth Tax Rules, 1963---

----R. 8(3)---Valuation of assets---Land and buildings on rent---Amount of security obtained from tenants which are not adjustable against,-rent but refundable at the time of vacation of the premises by the tenant---Treatment.

Messrs B.P. Biscuit Factory in Civil Appeal No K-140 of 1981, dated 19th January, 1989 fol.

Muhammad Naseem for Appellant.

Muhammad YousufButt, D.R. for Respondent.

ORDER

These eleven appeals are instituted at the instance of the assessee, a private limited company that owns Hotel Mehran at Karachi and has leased it out to M/s Hayat Services Ltd. besides letting out the shops therein to several tenants. Six of these appeals are directed against decision of the learned AA.C. in appeals against assessment orders under section 16 (3) of the Wealth Tax Act.

Mr. Muhammad Naseem Ahmed, the learned Counsel of the appellant and Mr. Muhammad Yousuf Butt, the learned D.R. are heard at length.

Regarding the plea taken by Mr. Naseem Ahmed that provisions of sub-clause (ii) of clause (e) of section 2 of the Wealth Tax Act, hereinafter referred to as under section 2(e)(ii), do not apply to the appellant because it "is not carrying out the business of construction, sale or letting out of properties and thus holds no assets to fall within the charging section," it is contended that the appellant is holding the immovable property for the purpose of hotel business which is different from the purpose of the business of construction and sale, or letting out, of property. He has placed reliance upon the decision of the Honourable Supreme Court of Pakistan in the case of M/s B.P. Biscuit Factory in Civil Appeal No.K-140 of 1981, dated the 19th January, 1989. However, the learned counsel is unable to controvert the fact that after the insertion of the Explanation (being reproduced hereunder) to clause (e)(ii) of section 2 by Finance Act 1991, giving it the retrospective effect, neither this plea nor any support from the decision ibid is available to the appellant. The Explanation reads:--

"2.Definitions.--In this Act, unless the context otherwise requires:-

(e)"assets" includes:--

(i) in the case of an individual and a Hindu undivided family, property of ' every description movable or immovable, except:--

(a) growing crops, grass or standing trees on agricultural land;

(b) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land:

Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling house or a store or an out house; and

(ii) In the case of a firm, an association of persons or a body of individual, whether incorporated .or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property.

Explanation.--For removal of doubt, it is hereby declared ,that immovable property and the purpose, referred to in this sub-clause, includes--

(i) immovable property held for the purpose of letting out, or business of letting out, or business of letting out, of property;

(ii) immovable property held for the purpose of construction and letting out, of property; and

(iii) immovable property held for the purpose of construction and sale of property."

Since the appellant is the owner of a property that is admittedly let out to various tenants the immovable property held by it falls within the ambit of inclusive definition of assets laid down under section 2(e) (ii) of the Wealth Tax Act. Accordingly, the appeals found lacking any substance on this ground, are hereby dismissed.

Next we come to the contentions raised by the appellant in grounds No.7, and regarding "the formulas of 10% as available in rule 8(3) of the W.T. Rules", its applicability to facts of appellant's case and its incorrect application and addition of 10% of deposits, non adjustable against rent, to the annual rent in order to determine the GA.R.V. of the property. It is clarified by the learned counsel that the words "formula of 10% used in ground No.7, actually refer to the words "ten times the gross annual rental value" as used in first revision to sub-Rule (3) of rule 8 of the Wealth Tax Rules.

On careful consideration of the provisions of rule 8(3) of the W.T. Rules we find that firstly, the substantive sub-Rule (3) requires the W.T.O. to estimate the market value of immovable property on corresponding valuation date 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 neighbour-hood of the said property. This is a mandatory exercise that has to be performed invariably while estimating value of immovable properties forthe assessment of wealth.

The W.T.O. after so estimating the value, should proceed to determine the sum for which the relevant property might reasonably be expected to let from year to year taking into consideration all the factors that are laid down in, sub Rule which, in terms of Explanation to sub-rule (3), means the GA.R.V. While performing the foregoing exercise, in case of property that is let out, it is mandatory upon the W.T.O., under second proviso to sub-rule (3), to take into consideration any amount taken by the assessee by way of advance or security which is not adjustable against the rent payable by the tenant. In other words the amount for which the property might reasonably be expected to let from year to year, in case of let out property for which the assessee is receiving rent besides taking any amount by way of advance or security which is not adjustable against such rent, shall be determined under second proviso by taking into consideration the factors that led the landlord to demand and compelled the tenant to pay any advance or security which is not adjustable against the rent payable by the tenant as held by the Full Bench of this Tribunal in the decision reported as 1988 PTD 585, and give a finding to this effect. If the D.C.W.T. finds that such advance or security is taken by the assessee in order to keep the amount of annual rent lower than the sum for which the property might reasonably be expected to let from year to year, he shall add, a reasonable sum, as warranted by the considerations founds by the D.C.W.T. behind the receipt of such advance or security, to the declared annual rent for determining the GA.R.V. Having so determined the GA.R.V. of the property, D.C.W.T. should work out, as -required under the first proviso the amount which is ten times (for assessment years 1992-93 and 1993-94 twelve times) the GA.R.V. determined by him. He shall then compare the value so arrived at with the value estimated by him under the provisions of main sub-rule (3), and adopt lower of the two as the value of the property. In case the D.C.W.T., on the basis of the value estimated by him on considerationlaid down under main sub-rule (3), and for any other compelling reasons to be corded in his order, finds that the value of property should be determined at a sum higher than ten times (twelve times in assessment years 1992-93 and 1993-94) the GA.R.V. determined by him, he shall have to obtain prior approval of the C.B.R. (Commissioner since assessment years 1992-93) for adopting such higher value. Since the D.C.W.T. has not followed the method laid down under Rule 8(3) of the W.T. Rules as explained supra, in determining the value of appellant's property, we vacate the impugned order of the learned A.A.C. and set aside the impugned assessment orders on this point to be passed afresh in accordance with law.

The last common ground on, which the appellant has impugned the orders of the learned AA.C. is taken against upholding the impugned assessment orders disallowing the amounts of security obtained from tenants which are not adjustable against rent but refundable at the time of vacation of the premises by the tenant. The learned A.A.C. has upheld disallowance of the claims of varying amounts in each of the six years on the ground that such security is in the nature of reserve and not debt owed. We are pursuaded to agree with the learned counsel that the impugned orders of the two officers below have not examined the nature of the security in accordance with law as explained by a larger bench of this Tribunal in the case reported as 1988 PTD 585. Accordingly, we set aside the impugned orders with the directions to determine the category of the security obtained by the appellant, keeping in view the test laid down in the decision of the Tribunal supra.

M.BA./133/T Order accordingly.