W.T.A. NO. 11/IB OF 1993-94, DECIDED ON 15TH NOVEMBER, 1995. VS W.T.A. NO. 11/IB OF 1993-94, DECIDED ON 15TH NOVEMBER, 1995.
1996 P T D (Trib.) 356
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Junejo M. Iqbal, Accountant
Member
W.T.A. No. 11/IB of 1993-94, decided on 15/11/1995.
Wealth Tax Act (XV of 1963)---
----Ss.3 & 2(e)---Property held for purposes of letting out--Association of persons---Charge of wealth tax---Principles---Held, before it was decided that an immovable property was held by a firm or an association of persons or body of individuals or a company for the purpose of business of construction or letting out etc. as given in S.2(e), Wealth Tax Act, 1963, Authority had to find that the body of individuals or the association of persons had agreed to acquire the property for the purpose of any such business---Such a position would necessarily involve contractual agreement between the partners of the firm or members of association of persons to carry out any such business---Where assessee and his four daughters had jointly acquired the house while out of four daughters three were minors and as such were incapable of entering into any contract of business with their father, it could not be found that the assessee and his minor daughters had acquired the house in pursuance of an agreement to carry out the business of letting out---Tax Authorities, therefore, were right in holding that the assessee's three minor daughters' shares in the house also belonged to the assessee for the purpose of computation of the value of his assets under the Wealth Tax Act, 1963.
Essentially the wealth tax is a tax on individuals who own wealth. If a property is owned jointly by more than one, person individually each sharer possesses the property equal to what his share is in the joint property. The concept of taxing an association of persons in respect of a joint property is ordinarily inconsistent with the concept of the ownership of the property-because an association of persons as such not being a juridical person cannot own any property. However, a regime of artificial owing a property by an association of persons was, for the purposes of charging the wealth tax, created in 1980 through Wealth Tax Amendment Ordinance, 1980 and the assets were bifurcated into two categories. In the case of an individual property of every description movable or immovable tax (except growing crops, grass or standing trees or agricultural land and any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land) shall be his assets but in the case of a firm, association of persons, body of individuals or company only immovable property held for purpose of business of construction and sale or letting out shall be the assets of the firm. The amendment also explained that in the case of firms etc. only following immovable property shall be included into the definition of assets:--
(i) immovable property held for the purpose 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.
Obviously the second category of assets being a special category is to be construed narrowly and strictly. Any property to be treated in the second category must fall within the definition of assets construing the words of the definition strictly. Thus, before it is held that an immovable property is held by a firm or an association of persons or body of individuals or a company for the purpose of business of construction or letting out etc. as given in section 2(e) of the Act one has to find that the body of individuals or the association of persons etc. agreed to acquire the property for the purpose of any such business- This would necessarily, involve contractual agreement between the partners of the fire or members of the association to carry out any such business. In the present case the assessee and his four daughters had jointly acquired the house. Out of four daughters, three were minors and as such were incapable of entering into any contract of business with their father. Thus, it could not be found that the assessee and his- minor daughters acquired the house in pursuance of an agreement to carry out the business of letting out the tax authorities were right to hold that the assessee's three, minor daughters shares in the house also belongs to the assessee for the purpose of computation of the value of his assets under the Wealth Tax Act, 1963. The appeal is rejected.
Habib Fakhruddin, F.C.A. for, Appellant
Nasir Hussain, D.R. for Respondent.
Date of hearing: 1st-August, 1995
ORDER
CH. IRSHAD AHMAD (JUDICIAL MEMBER).--Section 3 of the Wealth Tax Act, 1963 (the Act) provides that there shall be charged for every financial year a tax (called the wealth tax) in respect of the net wealth of every individual, firm, association of persons or body of individuals at the specified rates. Section 2(m) defines net wealth "to mean the amount by which the aggregate value computed in accordance with the provisions of the Act of the all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under the Act, is in excess of the aggregate value of all the debts owed by the assessee. Explanation (i) below clause (m) above explains that any property owned by any minor child of the assessee shall be deemed to belong to the assessee. Section 4(1)(a)(iii) of the Act provided that in computing the net wealth of an individual there shall be included as belonging to him the value of assets which are held by his wife or minor child. Section 2(e) of the Act defines the expression "assets" and different meanings have been assigned to it with reference to individuals and firms, association of persons, bodies of individuals and companies. In the case of an individual "assets" includes property of any description movable or immovable except certain specified properties But in the case of a firm, an association of persons or body of individual or a company it includes only "immovable property held for the purpose of the business of construction and sale or letting out".
The assessee in his own, and in the names of his four daughters out of which three are minors, purchased a house (No.221/1, Khadim Hussain Road, Rawalpindi) for the consideration of Rs.2,050,000. A further sum of Rs.200,000 was expended to acquire title and transfer deeds. The assessee and his daughters offered tax on the value of the house as an association of persons. The W.T.O. was of the view that the assessee alongwith his daughters was not taxable as an association of persons in respect of the said house because it was not held by them for the purpose of business of letting. The W.T.O. was of the view that the house belonged to the assessee and his daughters jointly, and the assessee was liable to pay tax in respect of it under section 3 read with section 4(1)(a)(iii) of the Act. Thus, the assessing officer included the value of the assessee's minor daughters' shares in the house in the net wealth of the assessee and charged tax accordingly. Then assessee's appeal has also, been rejected by the Appeal Commissioner.
Through this appeal the assessee has objected to the order of the tax authorities whereby they have refused to tax the house as a separate asset in the hands of an association of person consisting of the assessee and his daughters.
We have heard Mr. Habib Fakhruddin, F.C.A. for the assessee and Mr. Nasir Hussain, D.R. ??
Learned A.R. of the assessee has contended that since the assessee and his daughters have let out the house, therefore, it is to be taxed as a separate asset in the hands of the assessee and his daughters in the status of an A.O.P.
Essentially the wealth tax is a tax on individuals who own wealth. If a property is owned jointly by more than one person individually each sharer possesses the property equal to what his share is in the joint property. The concept of taxing an association of persons in respect of a joint property is ordinarily inconsistent with the concept of the ownership of the property because an association of persons as such not being a juridical person cannot own any property. However, a regime of artificial owning a property by an association of persons was, for the purposes of charging the wealth tax, created in 1980 through Wealth Tax Amendment Ordinance, 1980 and the assets were bifurcated into two categories. In the case of an individual property of every description movable or immovable except growing crops, grass or standing trees or agricultural land and any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land shall be his assets but in the case of a firm, association of persons, body of individuals or company only immovable property held for purpose of business of construction and sale or letting out shall be the assets of the firm. The amendment also explained that in the case of firms etc only such immovable property shall be included into the definition of assets as is held,.--
(i) immovable property held for the purpose of letting out, or business 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.
Obviously the second category of assets being a special category is to be construed narrowly and strictly. Any property to be treated in the second category must fall within the definition of assets construing the words of the definition strictly. Thus before it is held that an immovable property is held by a firm or .an association of persons or body of individuals or a company for the purpose of business of construction or letting out etc. as given in section 2(e) of the Act one has to find that the body of individuals or the association of persons agreed to acquire the property for the purpose of any such business. This would necessarily involve contractual agreement between the partners of the firm or members of the association to carry out any such business. In this case the assessee and his four daughters have jointly acquired the house. Out of four daughters, three are minors and as such are incapable of entering into any contract of business with their father. Thus, it cannot be found that the assessee and his minor daughters acquired the house in pursuance of an agreement to carry out the business of letting out. For these reasons we are not satisfied that there are sufficient grounds to interfere with the tax authorities orders. In our view the tax authorities were right to hold that the assessee's three minor daughters' shares in the house also belongs to the assessee for the purpose of computation of the value of his assets under the Wealth Tax Act, 1963. The appeal is rejected.
M.B.A./155/Trib. ??????????????????????????????????????????????????????????????????????????????? ?????Order accordingly.