W.T.A. NO. 55(IB) OF 1993-94, DECIDED ON 5TH DECEMBER, 1995. VS W.T.A. NO. 55(IB) OF 1993-94, DECIDED ON 5TH DECEMBER, 1995.
1996 P T D (Trib.) 344
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Junejo M. Iqbal, Accountant
Member
W.T.A. No. 55(IB) of 1993-94, decided on 05/12/1995.
Wealth Tax Act (XV of 1963)---
--S. 5 (I)---Exemption---Foreign remittance---Principles---If an assessee has brought money into Pakistan and by that money has created an asset consisting of any movable or immovable property after the conversion of the money into the movable or immovable asset not the money but the asset shall be excluded from his net wealth chargeable to tax---Where, however, an asset has been created partly out of the remittances recovered by the assessee from abroad and partly from his local resources the asset that shall be excluded from his net wealth chargeable to tax on account of the fact that it has been created out of the foreign remittances shall be that share of the asset which was the ratio of the foreign remittances in the total amount expended for the creation of the asset-- Share in such an asset representing the foreign remittances having once been determined, shall remain the same even if the value of the asset on a particular valuation date has increases[ from its cost.
Habib Fakharuddin, FCA for Appellant.
Qurban Hussain, D.R. for Respondent.
Date of hearing: 8th November, 1995.
ORDER
CH. IRSHAD AHMAD (JUDICIAL MEMBER).--The assessee has invested a sum of Rs.15,180,000 in real estate and has acquired immovable property identified as No.27, Western Half, Blue Area, Islamabad (the property). The amount spent by the assessee for the acquisition of the property includes a sum of Rs.12,863,604. The assessee has, from time to time, brought into Pakistan from abroad. Subsection (1) of section 5 of the Wealth Tax Act, 1963 provides that wealth tax shall not be payable by an assessee in respect of the assets specified therein and the said assets shall not be included in the net wealth of the assessee Clause (xv) of subsection (1) of section 5 ibid specifies the assets brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, and the assets created by an assessee out of the remittances received in or brought into Pakistan. Section 5(1)(xv) reads as follows:---
5. Excerption in respect of certain assets.---(I) Wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-
(xv) assets--
(i) brought or remitted by an. assessee into Pakistan, or received by an asses see from outside Pakistan, in the year in which they are brought,remitted or received and the following five years;
(ii) created by an. assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (i):
Provided that where investment in the assets is not made entirely out of remittance received in, or brought into, Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment;
On the valuation date relevant to the assessment year 1992-93- the value of the property on the basis of its gross annual rental value has been determined at Rs.16,314,240. The tax authorities have excluded the sum of Rs.12,863,258 (the correct figure is Rs.12,863,604) from the value of the property being the sum brought by the assessee into Pakistan from abroad and have charged tax on the balance of the value of the property The assessee's contention is that where an assessee creates an asset out of the money brought by him into Pakistan to the face of the language of clause (xv) of subsection (1) of section 5 of the Wealth Tax Act, 1963, the asset itself stands excluded from his taxable assets Thus, if the value of any asset created by the assessee out of the money brought into Pakistan increases the increased value and not the money spent in creating the asset shall be excluded from his net wealth chargeable to tax. For the same reason, it is contended that where an assessee has created any asset partly out of remittances received to or brought into Pakistan and partly out of local resources the exemption in respect of the increased value of the asset shall apply in the same ratio as the foreign remittances bear to the total amount spent on the creation of the asset. It has been contended that the exemption representing the foreign remittances spent in the acquisition of the property shall be worked out at the same ratio the foreign remittances bear to the total original investment, and on that basis the tax authorities were required to allow the exemption equal to Rs.13,824,764.
We have heard Mr. Habib Fakhruddin, FCA for the assessee and Mr. Qurban Hussain, D.R.
The bare reading of the bare language of clause (xv) of subsection (1) of section 5 of Wealth Tax Act, 1963 supports the assessee's contention. The clause not only excludes the money brought by an assessee into Pakistan from his net wealth to be charged to tax but also any asset created by an assessee out of the money brought into or received by him .in Pakistan. Thus if an assessee has brought money into Pakistan and by that money has created an asset consisting of any movable or immovable property after the conversion of the money into the movable or immovable asset not the money but the-asset shall be excluded from his net wealth chargeable to tax. And, where an asset has been created partly out of the remittances received by the assessee from abroad and partly from his local resources the asset that shall be excluded from his net wealth chargeable to tax on account of the fact that it has been created out of the foreign remittances shall be that share of the asset which was the ratio of the foreign remittances in the total amount expended for the creation of the asset. The share in such an asset representing the foreign remittances having once been determined shall remain the same even if the value of the asset on a particular valuation date has increased from its cost. As stated earlier the immovable property was acquired by the assessee at the total cost of Rs.15,180,000 consisting of foreign remittances equal to Rs.12,863,604 and local resources equal to Rs.2,316,396. Thus, at the same ratio the asset equal to Rs.13,824,764 in the value of the property on the valuation date shall be exempt from the payment of wealth tax and excluded from the assessee's net wealth chargeable to tax. For these reasons the assessee's appeal is allowed as indicated above.
M.B.A./158/Trib.
Order accordingly.