W.T.AS. NOS. 311 TO 313/LB OF 1988-89, DECIDED ON 12TH MARCH, 1993. VS W.T.AS. NOS. 311 TO 313/LB OF 1988-89, DECIDED ON 12TH MARCH, 1993.
1995 P T D (Trib.) 942
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mushtaq, Accountant Member and Ch. Muhammad Ishaq, Judicial Member
W.T.As. Nos. 311 to 313/LB of 1988-89, decided on 12/03/1993.
Wealth Tax Act (XV of 1963)...
----S.2 (m)---Net wealth---Advance rent---Advance rent not being a liability is not debt owed within the meaning of S.2 (m) of the Wealth Tax Act, 1963, it can rather be identified as an, asset.
1993 PTD115fol.
1988 PTD (Trib.) 585 distinguished.
Begum Nazir Abdul Hamid v. Pakistan PLD 1964 Lah. 7; Ghansham Singh v. CIT 1984 PTD 21; 1988 PTD (Trib.) 315; W.T.As. Nos. 1-10 (PB) of 1980-81; 1988 PTD 585 (Trib.) and Standard Mills v. CWT, Bombay (India) (1967) 63 ITR 470 (SC) ref.
Mrs. Sabiha Mujahid, D.R. for Appellant.
Hameed Chaudhry, FCA for Respondent.
Date of hearing: 1st March, 1995.
ORDER
MUHAMMAD MUSHTAQ (ACCOUNTANT MEMBER).---All these appeals have been filed on behalf of the Wealth Tax Department challenging a combined order of the learned CIT (Appeals) Zone-3, Lahore, dated 8-2-1989.
2. The disputed issue in all these appeals being common, all these appeals are proposed to be disposed of by a combined order as under.
3. The respondent in this case Mr. Muzaffar Ali (hereinafter referred to as the assessee) is an individual who has been assessed to wealth tax for all these years. The only disputed issue in these appeals is treatment of advance rent. The assessee rented out his Property No. SE-16-R-23 situated on Davis Road, Lahore and received Advance Rent for five years w.e.f. 1-7-1984 which was to be adjusted against monthly rent. On respective valuation date for the above years the assessee claimed unadjusted rent as liability in the wealth tax return and sought deduction of the above amounts from gross wealth of the assessee. The W.T.O. refined to consider the unadjusted advance rent as liability of the assessee or debt owed within the meaning of section 2(m) of the Wealth Tax Act, 1963.
4. Aggrieved by this treatment, the assessee preferred first appeal. The learned CIT (Appeals) accepted the appeals of the assessee with the following observations:---
"Advance rent obtained from U.B.L. in respect of Property No. 12-D, Davis Road, Lahore has been claimed as liability. The assessing officer found that as per lease deed the appellant was bound to refund the advance rent on premature termination of lease. It was held that this was a contingent liability. I think where the loan deed expressly gives a provision for refund of advance rent, the same should be treated as liability."
5. The Wealth Tax Department feels aggrieved by the above relief allowed by the learned CTT (Appeals) to-the assesses, hence these further appeals.
6. The learned D.R. appearing for the Wealth Tax Department has contended that advance rent received by the assessee was adjustable against rent it could not be considered as debt owed by any stretch of imagination. It was further argued by the learned D.R. that the W.T.O. disallowed the above claim of liability on the basis of decision of higher appellate Courts.
7. Mr. Hameed Chaudhry, the learned A.R. of the assessee on the other hand, contended that advance rent received by the assessee was debt owed within the meaning of section 2(m) of the Wealth Tax Act, 1963. He contended that the assessee was bound to refund the advance rent to the lessee, in case, the premises were vacated by the lessee. According to the learned AR of the assessee at best the advance rent could be considered as contingent liability deductible from the assets of the assessee. The learned A.R. of the assessee pointed out that the issue whether advance rent was a debt owed has already been examined by a Full Bench of the Tribunal and it has been held that advance rent was a debt owed. According to the learned AR of the assessee if there are subsequent decisions of the Tribunal contrary to the above decision these are not to be followed according to the rules of the precedent. The learned A.R. of the assessee in this connection has relied on the following reported cases:
(1) Re: Begum Nazir Abdul Hamid v. Pakistan PLD 1974 Lahore 7(DB); (2) Ghansham Singh v. CIT 1984 PTD 21; (3) 1988 PTD 315 (Trib.).
Elaborating the ratio of these decisions, the learned A.R. has contended that the decision of the Full Bench has to be followed by the Division Bench and Single Benches unless it is upset by another Full Bench and if in a Division Bench two members differ, the third member has to follow the decision of another Division Bench.
8. We have carefully considered the facts of the case and arguments advanced from both the sides. There is no cavil with the proposition relied on by the learned A.R. that the decision of the Full Bench has to be followed by the Division Bench or by a Single Bench. However, the learned A.R. of the assessee at the bar has not cited any decision of the Full Bench in his favour indicating that advance rent should be considered as debt owed but going through the relevant case-law it appears that the learned A.R. of the assessee has in mind the case reported as 1988 PTD 585 (Trib.) (W.Tas. Nos.21 and 22/KB of 1991-92, dated 30-4-1988). In that case a Full Bench of the Tribunal considered the question of advance rent. We have examined in detail the above decision of the I.TA.T. In that case, however, the facts are different than the instant case. In para.2 of the above order, the break-up of the liabilities was given by the I.T.A.T as under:--- .
"The break-up of the liabilities as shown by the appellant is as under:--
| | 1979-80 | 1980-81 |
| Security deposits from the tenants | Rs.27,45,720 | Rs.27,40,780 |
| Loans. | Rs.3,97 000 | Rs.9,33,515 |
| Total. | Rs.31,42,720 | Rs.36,42,295 |
Thus, in the above case- basically the question was relating to securities. Needless to say there is difference between security and advance rent. The learned Members of the Tribunal observed that deposits/advances were of different categories. The relevant paras. Nos. 30 and 31 of the above decision are reproduced as under:---
"30.--Let us now also examine the nature of deposits/advance rent. They may fall in any of the following categories:---
(i) The deposits/advance rent may be taken by a landlord for investing them in building a new property and such deposits/advance rent are made adjustable against the rent.
(ii) The deposits/advance rent may be received by a landlord as caution money for indemnifying himself for the damages caused to fixtures and fittings by the tenant.
(iii) Deposits/advance may be obtained by a landlord for enforcing the performance of a contract, e.g., it may be agreed upon that a licensee or a lessee would vacate the property after certain period whiff the landlord would charge mesne profits at certain rate and deduct the same from deposits/advance rent in addition to taking resort to other remedies open to him.
(iv) The deposits/advance rent may be obtained by a landlord for reducing the reasonable rent.
31. It is thus clear that the deposits/advance rent falling under categories 1, 2 and 3 would amount to `debt owed' as they reflect the liability of a landlord which is real and which is to be discharged in praesenti or in future, whereas the amounts received under category 4 would amount to an illusory and false liability. In such cases the deposits/advance rent are held by the landlords in perpetuity with them in consideration of a rent which is on lower side than the reasonable rent. As such, such liability is not in fact a liability hence cannot amount to be `debt owed'."
The learned counsel of the assessee has failed to point out in which category the advance rent received by the assessee falls.
9. Again, the learned Members of the I.TA.T. in the above case did not ' give conclusive findings regarding the advance/deposits received by that assessee but remanded the case back to the W.T.O. with the following observations:---
"Thus, to conclude we hold that for the reasons given above the W.T.O. was not justified in adding Rs. 24,339 and Rs.22,608 to the annual letting value of the property. We further hold for the reasons given above that the W.T.O. was not justified in adding 10% interest worked out on the amount of deposits/advance rent to the annual letting value in both the assessment years. The order of the learned AA.C. on first issue is, therefore, hereby vacated as indicated above but his order regarding the deletion of interest is hereby confirmed for both the assessment years. However, as far as the issue regarding the liabilities, as raised by both the appellant and the department in cross appeals is concerned, it is hereby set aside and W.T.O. is directed to examine the entire issue in the light of discussion made above and frame de novo assessments in both the assessment years according to law. Needless to say that both the appellant as well as W.T.O. would have right to produce or summon such further and additional evidence which they deem fit."
At this stage it will be quite pertinent to point out that earlier a Division Bench of the I.TA.T. had already decided vide W.T.As. Nos. 1-10(PB) of 1980-81 ' (Assessment years 1969-70 to 1978-79), dated 26-12-1983 Re: Mian Farooq Ahmad Sheikh, Rawalpindi v. W.T.O., Investigation, Rawalpindi that advance rent was not a debt owed within the meaning of section 2(m) of Wealth Tax Act, 1963. The operating part of the above decision is reproduced as under:--
"It is difficult to hold that advance rents received by the assessee were in the nature of debts payable by him either presently or in future. The Strouds in his Judicial Dictionary (Third Edition) has defined `debt' thus a debt is a sum payable in respect of eventually present in the instant case. Consequently, the appeals on this issue also fail."
10. At this juncture it is also pertinent to mention another decision of the I.TA.T. reported as 1993 PTD 115 wherein it has been clearly held that advance rent does not have any ingredient of liability and it cannot be equated with the loans or advances. It has been clearly held in the above decision that advance rent cannot be classified as a debt owed. It has been further held that advance rent can be identified as an asset.
11. It is also pertinent to point out that the learned A.R. of the assessee in his arguments has contended that advance rent could be best considered a contingent liability and it could be deducted from the assets of the assessee while calculating the net wealth. In the reported case 1988 PTD (Trib.) 585 the learned' Members while discussing the contingent liabilities also discussed the case reported as (1967) 63 ITR 470 (Standard Mills v. CWT Bombay (India) SC). The Lordships of the Indian Supreme. Court have held "that gratuity payable on termination of employment was a mere contingent liability which arose only when the employment of an employee was terminated by the death or other incapacity, retirement or resignation. Their Lordships were of the view that it was not liability existing in praesenti, hence could not be treated as debt.
12. Because of the above reasons, we are not inclined to agree with the arguments of the learned A.R. that advance rent is a debt owed within the meaning of section 2(m) of the Wealth Tax Act, 1963, therefore, for the foregoing reasons, we accept the appeals of the Department, vacate the order of learned CIT (Appeals) wherein the advance rent has been treated as, debt owed within the meaning of section 2(m) of Wealth Tax Act, 1963 and restore the order of the W.T.O.
13.The appeals are allowed as above.
M.B.A./93/TAppeals accepted.