I.T.A. NO. 3080/KB OF 1987-88, DECIDED ON 8TH NOVEMBER, 1995. VS I.T.A. NO. 3080/KB OF 1987-88, DECIDED ON 8TH NOVEMBER, 1995.
1996 P T D (Trib.) 771
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member and Muhammad Mehboob Alam, Accountant Member
I.T.A. No. 3080/KB of 1987-88, decided on 08/11/1995.
Income Tax Ordinance (XXXI of 1979)--
----S.2(ii)---Business---Adventure in the nature of trade ---Determination- Principles---Purchase of land by company,--Even if one of the professed object of the company is to trade in land still some of its transactions in land may b held to be of capital amount and outside the course of business ---Similar activity outside the object clause may still be determined a transaction in the regular course of business---Provisions of Memorandum and Articles Association of Company cannot be considered to be conclusive against or favour of company---Where money making motive was substantial from trasaction of subsequent sale wherein assessee claimed huge amount as capital; gain, prima facie, it was adventure in the nature of trade and profit earned by it company on sale was not exempt.
Even if one of the professed objects of the company is to trade in land still, dome of its transactions in land may be held to be of capital amount and outside the course of business. Similarly activity outside the object clause ma; still be determined a transaction in the regular course of business. The provisions of Memorandum and Articles of Association, therefore, cannot be held to be conclusive against or in favour of the company. Every case needs determination on its own facts and circumstances. While considering such facts the professed object must be kept in view. Prima facie the transaction in the present case was that the money making motive is substantiated from the transaction of subsequent sale wherein the assessee claimed Rs.25,000 as capital gain. If it was kept as a security, then there was no question of any additional amount.
The circumstances of the case, therefore, necessarily prove that the intention of the adventure in the nature of trade and profit earned by the company on sale was not exempt.
The transaction being an adventure in the nature of trade meaning thereby the plot was stock-in-trade, the I.T.O. was justified in assessing the value of plot after discarding the value given by the assessee. The estimate, however, had not been based on some appreciable evidence which could be relied upon. Moreover, the parties in transaction being known and verifiable, the I.T.O. was under a legal obligation to estimate the value on the basis of some solid proof. The direction of the C.I.T.(A) is justified to the extent of setting aside the issue. The I.T.O. is directed to make addition only if the circumstances of the case so warranted after complying with the requirements necessary for such addition.
1989 PTD 1233; 1967 PTD 170; 1993 SCMR 274 = 1993 PTD 69; (1970) 78 ITR 45; 1991 PTD (Trib.) 786 and 1960 PTD (Trib.) 289 ref.
1967 PTD 170; 1993 SCMR 274 = 1993 PTD 69; (1970) 78 ITR 45 ,(SC) and 1991 PTD (Trib.) 786 distinguished.
Salman Pasha for Appellant.
Muhammad Saeed, DR. for Respondent
Date of hearing: 8th November, 1995.
ORDER
This appeal has been filed against Order No. Z-2/338/87, dated 27-7-1981 wherein the learned C.I.T.(A) has refused to consider the profit earned on transaction of plot between the Company and Director as capital gain. The action of the learned CIT(A) to revaluate the amount of sale has also beer considered to be unjustified.
2.The facts of the case are that Mst. Zarina Vayani is a director of the impugned company and she entered into an agreement on 17th day of December, 1993 for surrendering rights of her plot to the Company for a consideration of Rs.3,00,000 earlier received by her as loan from the said company. Later on in 1985 she paid Rs.3,25,000 to the Company and the agreement for surrender of plot previously made was thereby rescinded. The I.T.O. considered this transaction to be an adventure in the nature of trade, estimated the sale price on the basis of market value and the surplus of this asset was charged in the hands of the Company.
3. It has been argued by the A.R. on behalf of the assessee that the appellant-company was not involved in the property dealing and her main business was of ship-breaking. He also said that dominant intention of the assessee was to secure its loan and not to enter into sale and purchase of property. The agreement of transfer was made only to ensure recovery of the outstanding loans. He also argued that memorandum of the Company cannot be considered in the totality of all types of circumstances under which a particular surplus arrives. He admitted that even a single transaction may fall in the nature of trade but only if the overall circumstances of the case so permit. The agreement to retain the plot though was in the shape of Surrender Deed against the. liability, was never retained for earning profit thereon and was just a security. He said that had the-lady directors failed to pay subsequently only then the Company would have opted to recourse of sale. The return of money within two years also is a pointer of fact that companies' decision proved fruitful. However, he could not reply as to why the Company received Rs.25,000 over and above the original amount. The learned A.R. cited following three judgments in favour of his arguments:---
1967 PTD 170; 1993 SCMR 274 = 1993 PTD 69; (1970) 78 ITR 45 (SC).
Regarding valuation of the property, he has contested the estimate by the I.T.O. to be without basis and the action of setting aside of the learned CIT(A) to be not ,in line with the provisions of section 13. He argued that addition having been made in deviation to the instructions contained under the mandatory provisions of sections 13(1) and 13(2), the only answer was cancellation/annulment of the additions and not setting aside of the same. In his favour he has relied upon a case (1989) PTD 1233. He reiterated that the valuation even otherwise was not justified as both the parties in the transactions are. verifiable parties and that both confirmed the amount involved in transaction.
4. The D.R., however, took a different view. He has argued that the balance-sheet of the assessee not only obtained this property as an asset during the period of its holding but also some other plots which have been held by the company under similar agreements. He said that if the intention of the Company was only to secure its amount than the question of showing the same as part of its assets does not arise. He argued that even the circumstances of the transaction clearly speak of the fact that assessee-company purchased these plots for the purpose of selling the same subsequently and to earn profit thereon. The action of the assessee-company to take Rs.25,000 over and above its purchase price also is a pointer of fact that the Company had the intention of earning profit thereon. Without going into the discussion as to what was the actual amount of transaction he repeated that it was a business venture and that the I.T.O. had rightly charged the same for income-tax purpose.
5. It is true that even if one of the professed objects of the company is to trade in land still some of its transactions in land may be held to be of capital amount and outside the course of business. Similarly activity outside the object clause may still be determined a transaction in the regular course of business. The provisions of Memorandum and Articles therefore, cannot be held to be conclusive against or in favour of the company. Every case needs determination of its own facts and circumstances. While considering such facts the professed object must also be kept in view. Prima facie the transaction impugned before us is that the money making motive is substantiated from the transaction of subsequent sale wherein the assessee claims Rs.25,000 as capital gain. If it was kept as a security then there was no question of any additional amount. The A.R. has also admitted that the transactions were purchased and sale transactions though without a formal mutation in favour of the Company. The Company's action of not becoming its real owner also goes against the arguments of the learned A.R. We now come back to the judgments as referred by the A.R. of the assessee one by one, 1967 PTD 170:
"(a) Income-tax Act, 1922 (XI. of J922), S.9(1)---Income from property---Sale of property---Property not conveyed by a registered deed---Purchaser given possession of property and rights to enjoy rental income---Seller, whether owner of property and liable to tax on income from property---Held, yes---Doctrine of part performance, whether applicable---Held, no---'Owner' in S.9(1)---Whether includes beneficial owner---Held, no---Transfer of Property Act, 1882. Ss. 53-A & 54. "
In the above noted judgment, the learned High Court has held that the property income is taxable in the hands of the real owner and not in the hands of the beneficial owner. We respectfully fail to understand as to how the ratio can be made applicable on the facts and circumstances of the present case.
The other judgment cited as 1993 SCMR 274 = 1993 PTD 69 relates to a construction company. It says:---
"Income Tax Ordinance, 1979 (XXXI of 1979), S.12(13)---Income-- Charge of income-tax ---Assessee a construction company-- Assessee took on lease Government property for demolishing the old structure and would raise new construction ---Assessee filed return for the assessment year 1980-81 showing loss---Income Tax Officer found that the assessee had received a non-refundable and non-adjustable payment which was subjected to -tax ---AAC maintained the order---Tribunal held that the assessee was not owner of the building when the assessee was holding lease which was periodically and was enjoying all rights of ownership of the said building---High Court negated the Tribunal's finding---Whether justified---Held, no---Whether provision applicable to the appellant's case---Held, no."
The case is with reference to an income of the assessee being non refundable and non-adjustable amount which the I.T.O. considered chargeable by the mischief of section 12(13) but, however, at the stage of the learned Supreme Court, the same could not find favour of the highest judicial' forum and was considered to be non-taxable in tote hands of the assessee not being the real owner. This also is distinguishable on facts and circumstances of the present case as the additional amount received is in term of profit on sale transaction in a regular business transaction and it is not a sort of lease money or an amount in the shape of un-adjustable payment as was in the above case.
The next case is cited as (1970) 78 ITR 45. The head note is produced below:---
"The respondent, a public company incorporated on January 23, 1947, pursuant to agreements, dated September 20, 1945 and August 7, 1947, by a deed, dated December 22, 1947, acquired from the Raja of Ramgarh, the proprietary interest in certain tracts of land rich in coal and fireclay alongwith the right to receive the arrears of rent and royalty from the lessees with effect from September 1, 1946. It had similarly acquired from the Raja, by a deed, dated January 24, 1949, the proprietary interests in certain other tracts to land, with the right to receive all arrears of rent and royalty. The question was whether the respondent could be assessed to income-tax for the assessment years 1948-49 and 1950-51 on the sums of Rs.2,55,733 and Rs.3,00,332 respectively by the respondent and arrears of royalty and rent: Held that the amounts could not be assessed to income-tax; the right acquired under the deeds to collect arrears of rent royalty could not be considered to be income. "
The ratio of this judgment also does not apply as the income here is from the collection of arrears of rent and royalty which does not have any similarity with the income earned by the impugned company. The increase is admittedly on purchase and sale of a plot but claimed as capital gain.
The learned A.R. has also produced copies of the orders for the earlier three years to say that, no such action in the case of other such transaction has been made .by the Department. In our opinion this cannot estop the I.T.O. to take a legal action in the subsequent years.
The learned A.R. has relied on another judgment of the I.T.A.T., cited as 1991 PTD (Trib.) 786 wherein surplus arising from sale of a plot has been considered to be a capital gain not being an adventure in the nature of trade, and thereby exemption was allowed on profit thereon. In this judgment, the learned I.T.A.T. has laid various tests for determining as to how a sale can be considered to be an adventure in the nature of trade. In this case the purchaser was a doctor in occupation of the plot and he obtained it for the purpose of establishing a clinic which was subsequently sold for profit. The circumstances favored him and the learned Tribunal determined the transaction of sale of plot to be exempt and appeal was allowed in the favour of the assessee.
The facts of the referred case being different we do not consider its ratio to be applicable in the impugned case. The circumstances of the case, I therefore, necessarily proves that the intention of the company was to do this transaction as business. We, therefore, hold that the present transaction was an adventure in the nature of trade and profit earned by the company on sale as not exempt.
The issue of estimate of the plot and addition under section 13 is concerned, the same has been set aside by the CIT(A) for de novo assessment. The argument of the A.R. that this addition could only be made under the provision of section 13 is also not justified. The transaction being an adventure in the nature of trade meaning thereby the plot was stock-in-trade, the I.T.O. was justified in assessing the value of plot after discarding the value of the assessee. The estimate, however, has not been based on some appreciable evidence which we cannot support. Moreover, the parties in transaction being known and verifiable, the I.T.O. was under a legal obligation to estimate the value on the basis of some solid proof. The direction of the learned C.I.T.(A) is justified to the extent of setting aside the issue, which we maintain. We, however, direct the I.T.O. to make addition only if the circumstances of the case so warrant after complying with the requirements necessary for such addition. In this regards, the ratio of the judgment -mentioned below shall also be taken into consideration.
1960 PTD (Trib.) 289
The assessee' s appeal fails and is accordingly disposed of in the manner as mentioned above.
M.B.A./205/Trib.Order accordingly