W.T.A S. NOS 13, 14 AND 15/LB OF 1990-91, DECIDED ON 7TH MAY, 1996. VS W.T.A S. NOS 13, 14 AND 15/LB OF 1990-91, DECIDED ON 7TH MAY, 1996.
1996 P T D (Trib.) 905
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Judicial Member and Shariq Mahmood, Accountant
Member
W.T.A s. Nos 13, 14 and 15/LB of 1990-91, decided on 07/05/1996.
(a)Wealth Tax Act (XV of 1963)---
----S.2(m) & (e)-"Net wealth---Asset---Definition---Word "belonging" as used in S.2(m). Wealth Tax Act, 1963---Connotation illustrated---Property belongs to a person who owns it---Ownership of property---Conditions---Burden of proof of ownership---Mere possession or joint possession unaccompanied by a right to or ownership of property would not bring the property within the definition of "net wealth" for it would not be an "asset"---All permanent interests, to or in an immovable property require solemnizations of the acquisition by certain prescribed mode regulated by tradition and. registration
The Act itself does not define the word "belong" or its grammatical derivative "belonging". Belong means: appertain to; to be a property of; to be a member of; to appropriate; to own. The word "belonging" has been explained to include ownership.
Mere possession or joint possession unaccompanied by a right to or ownership of property would not bring the property within the definition of "net wealth" for it. would not be an "asset" of the assessee.
Both natural and juridical persons may have a variety of interests to or in any property. These interests range from simple easements to prescriptions in cases of immovable properties. The mode of acquiring the interest generally determines the kind and extent of an interest in a property. The mode of termination of such interest or extinguishment of a right also coincides with its acquiring by or devolution on another person. Of all the kinds of interests to and in an immovable property, ownership stands at the highest pedestal. Reason simply being that with ownership come along all possible incidences that can be exercised with respect to or in a property. In simplest possible words these incidences include "jusutendi" the right to use of a thing; (2) "jus possidendi" the right to possession; (3) "jus abuntendi" the right to consume or destroy a thing; (4) "jus despondeni vel transferendi" the right to dispose of a thing or to transfer it; (5) "jus sibi hapendi" the right to hold a thing for one's self, (6) "jus alter non-habendi" or, "jus prohidendi" the right to exclude others from its use. No other kind of relationship between a property and a person offers that much of variety and depth of interest in an immovable property. For obvious reasons all permanent interests, to or in an immovable property require soletmnization of the acquisition by certain prescribed mode. The earlier forms regulated by tradition and the latest by registration. The sole intention being open declaration and announcement of the relationship between a person and the property. It also comprises in physical outward display of persistent ability to possess. Again it identifies one with the other, the owner and the owned. The law clothes this ceremony with a strong presumption in cases of transfers of immovable properties in modern times. The manifestation of such ceremony is called registration with Authorities appointed by the State. If any of the above-stated six attributes is lacking, ownership in respect of a property is neither complete nor absolute. Also in cases of immovable properties, the idea of ostensible ownership is not unknown to our jurisprudence. However, any person challenging a properly solemnized transfer or registered sale-deed is under a heavy burden to establish that the property stood transferred for his benefit and ultimately as exclusive owner. A still heavier burden lies upon a third party to the deed that the conveyance in fact did not transfer what it purported or that the transferee was a person other than the one named in the deed.
A property "belongs" to a person who owns it.
Black's Law Dictionary, 5th Edn., (1995) 4 All ER 453 and (1986) 162 ITR 888 ref.
(b) Wealth Tax Act (XV of 1963)---
----S.2(m) & (e)---Net wealth---Asset---Definition---Word "belonging" used in S-2(m), Wealth Tax Act, 1963 while defining "net wealth" refers to a complete and full owner---Mere agreement to sell does not confer any right or title in the property.
1995 PTD 234; 1992 PTD 719; 1967 PTD 170; 1993 PTD 69 - PLD 1991 SC 368; PLD 1993 Lah-33 and PLD 1994 Lah. 108 ref.
Shahbaz Butt for Appellant.
Muhammad Saleem Chaudhry for Respondent.
Date of hearing: 7th March 1996.
ORDER
Section 3 of the Wealth Tax Act, 1963 provides for charge of a tax, to be known as Wealth Tax, in respect of the net wealth of an assessee on the valuation day. Sub-clause (m) of section 2 defines "net wealth" to mean the amount by which the aggregate value computed in accordance with the provisions of the Act of all "assets" wherever located "belonging" to the assessee is in excess of the aggregate value of all debts owed by an assessee on the valuation date. The definition admits of two exceptions of certain kinds of debts. And, according to sub-clause (e) of this section the word "assets" includes property of every description movable or immovable. Some exceptions are again stated. However, for the purpose of disposal of these three departmental appeals for the years 1987-88 to 1989-90 we are called upon to answer only if in the facts before us the asset in question "belonged" to the assessee so as to make it includible in the net wealth of the assessee.
2. From the bundle of facts unfolded on record it appears that an individual Malik Muhammad Sadiq son of Muhammad Isa agreed to purchase a piece of land measuring 11 Kanals, 9 Marlas and 88.5 sq. ft. commonly known Properly No. S-19R-90 situated at 69 'The Mall, Lahore. A sum of Rs.50,00,000 was advanced at the time of entering into the agreement to sell on 5th day of July, 1986. The sellers M/s. Kohinoor Textile Mills Limited, Lahore consented that on payment of the whole consideration settled at Rs.2,65,00,000 they will convey the property to the said purchaser or to his nominee. The proposed sale matured on 19th day of May, 1987 when for the said total consideration agreed upon, the seller conveyed the demised property in favour of M/s. National Industrial Cooperative Finance 'Corporation Limited (for short N.I.C.F.C.) as nominee of said Malik Muhammad Sadiq. The recitals of the sale-deed confirmed the above facts and also declared the original agreement to sell as part of the sale-deed which was registered with Sub-Registrar, Lahore on 20-5-1987. On the same day, viz. 20-5-1987 the new owner N.I.C.F.C. entered into an agreement to sell with M/s. Sadiq Enterprises, 69-The Mall Lahore a partnership firm through the said individual Malik Muhammad Sadiq as Managing Partner. As per terms of this agreement the price of the property was settled at Rs.2,95,00,000 and the amount already paid by Malik Muhammad Sadiq to previous owner M/s. Kohinoor Textile Limited was accepted as part payment towards the total consideration. The period for completion of the sale was agreed upon as on or before 31-5-1988. The proposed purchaser, M/s. Sadiq Enterprises were, inter alia, authorised to enter upon the premises to get it vacated from tenants in occupation and also to raise construction on the site in accordance with the approved plan. The assessee was also permitted to advertise the proposed project and to receive advances from prospective buyers with a further condition that every copy of the booking shall be endorsed to the vendor and that 50 % to 65 % of the second instalment received from buyers will be deposited with the vendor, M/s. N.I.C.F.C.
3. What went between the parties thereafter is not relevant for our consideration. In reply to notices issued by the Wealth Tax Officer, the assessee M/s. Sadiq Enterprises returned deficit wealth in the three years respectively at Rs.1,03,556, Rs.33,94,772 and Rs.10,31,943. The claim of the assessee that the land under partly constructed structure, namely Sadiq Plaza belonged to M/s. N.LC.F.C: was rejected for the following three reasons recorded in the assessment order for the year 1987-88:
(a) No one can be authorised to sell the various parts of the building without having ownership rights of the said building. It clearly shows that the assessee is rightful owner of the land.
(b) Afterwards because of certain financial conveniences the assessee made arrangement with M/s. N.I.C.F.C. M/s. N.I.C.F.C. agreed to Pakistan Tax Decisions 1996 enter first in agreement to sell with M/s. Kohinoor Textiles Mills Limited and then in turn to sell with the assessee on the next date. It reflects that this arrangement was made not to give the ownership to the N.I.C.F.C. but to take certain credit facilities from M/s. N.I.C.F.C.
(c) My view point is further supported by the fact that M/s. N.I.C.F.C. has not shown this property as its assets in balance-sheet as at 30-6 1987. The amount has been reflected as an advance to M/s. Sadiq Enterprises.
The treatment was repeated in the rest of the two years and assessments were finally framed at net taxable wealth in the three years respectively at Rs.1,24,02,830, Rs.1,06,40,887 and Rs.5,24,43,i64. These included estimated cost of work in progress at Rs.7,00,000, Rs.1,85,00,000 and Rs.4,50,00,000. Earlier the assessee had returned cost at Rs.5,89,114, Rs.18,36,504 and Rs.3,84,23,228.
4. Learned first appellate authority CIT(A)-III, Lahore through its order recorded on 17-5-1990 found in favour of the assessee:--
"The appellant in this case is clearly a developer of a project and had merely entered into an agreement for sale. A contract of sale does not create any right in the property. The right in property is created only on registration of sale-deed.. Since the appellant in this case is not the rightful owner of the property the charge of wealth tax on account of land is deleted for all the three years under appeal. "
The cost of work in progress in the three years which was enhanced by the assessing officer was also directed to be accepted as declared. This has grieved the Revenue.
4. Learned Legal Advisor for- the Revenue, Mr. Shehbaz Butt, while supporting the three assessment orders relies heavily upon another agreement to sell between the assessee and M/s. N.I.C.F.C. dated 8-6-1988. Through this agreement the vendor M/s. Sadiq Enterprises agreed to sell a portion of the first floor of Sadiq Plaza to vendee M/s. N.I.C.F.C. According to him various clauses of this agreement indicate in clear terms that the assessee is in fact owner of the land as well as structure of the Plaza constructed thereupon. It is vehemently contended that the assessee enjoyed all rights and attributes of an owner of the property in question and that registered sale-deed dated 20-5-1987 in favour of M/s. N.I.C.F.C. was only a device to secure their advance paid as consideration. To him it is a simple case of advancement of loan by the ostensible owner M/s. N.I.C.F.C. to enable the purchaser to honour his commitment for payment of balance consideration before the specified date. In this connection he refers to the above finding of the assessing officer in the assessment order for the year 1987-88 that M/s. N.I.C.F.C. did not declare the demised property in their balance-sheet. Learned Legal Advisor has also invited our attention towards the balance-sheet of the assessee prepared by M/s. Hussain Chaudhry & Company, Chartered Accountant as on 30-6-1987 wherein land at cost has been shown at Rs.2,65,00,000. Further, refers to the improvement made in the balance-sheet as on 30-6-1989 wherein the same asset has been shown as "sale agreement of land" for the same amount. The alleged certificate issued by M/s. N.I.C.F.C. is referred to contend that land in question, consideration money paid to original owner M/s. Kohinoor Textile Mills Limited was secured by mortgage of at least four properties belonging to the partners of the assessee-firm including the property in dispute
6. Ch. Muhammad Saleem, Advocate, learned counsel for the assessee categorically denies that the assessee is an owner of the land in question either in fact or in law. He claims that M/s. N.I.C.F.C. was not an ostensible owner as it had repeatedly declared itself as full owner in the two agreements executed between the parties on 20-5-1987 and later on 8-6-1988. It is stated that some recitals or a portion of the agreements cannot be picked up to assign meaning which are clearly out of context. Learned counsel further contends that if all the documents executed between the assessee and the N.I.C.F:C. including the registered sale-deed are juxtaposed, no ambiguity will remain as to the exact nature of the rights of the parties in the plot in question. Further, states that the assessee was never the owner of the land under the Plaza and the only right it had was that of execution of sale-deed after the payment of the remaining consideration. Learned counsel also objects to the reference by the Revenue the agreement 'to sell. dated 8-6-1988 and the aforesaid alleged certificate issued by M/s. N.I.C.F.C. on the ground that none of these documents was ever considered at earlier stages of the proceedings nor the assessing officer relied upon any of them while rejecting the claim of the assessee. The reliance by the Revenue on the above-said certificate is also disputed by saying that no mortgage deed in respect of any of the properties including the one in question in this case was ever executed nor the certificate can belied the ownership of M/s. N.I.C.F.C. acquired through the registered sale-deed. Learned counsel says that the assessee owns only superstructure while the land under it belongs to M/s. N.I.C.F.C. As an evidence of the fact reference is made to an order of Deputy Registrar, Cooperative Lahore Division dated 30-4-1992 whereby the whole of the project has been taken over/attached to safeguard the interests of the depositors/investors of the aforesaid late corporation M/s. N.I.C.F.C. To the objection of the learned Legal Advisor Ch. Muhammad Saleem contends that there is no estoppel against law and the balance-sheet was duly corrected in the very next years wherein amount due on account of agreement to sell was duly indicated. Also refers to C.B.R. Circular C. No. 1568-S(WT)/80, dated 22-9-1980 to claim that the assessing officer was obliged to determine the liability/charge of wealth tax keeping in view the registered sale-deed only. In support of his other submissions that the: levy in question is chargeable only on the assets of' an assessee which is owned by him reliance is placed upon (1977) 35 Tax 231 (S.C. India) re: CWT West Bengal v. Vishwanath Chatter Jee & Company and (1984) 153 ITR 201 re: CWT v. Meattle Private Limited. The other submission that M/s. N.I.C.F.C were real owners of the land in question and that mere agreement to sell did not confer any ownership on the assessee, support is sought from re: B.D. Avari v. CIT reported as 1989 PTD 670 and re: CWT, Gujrat-IV v. H.H. Maharaja F.P. Gaekewad reported as (1981) 144 ITR 304.
7. At this stage before proceeding ahead, the relevant provisions of the Wealth Tax Act as mentioned in para. I need to be recalled. Since the terms "asset" and "net wealth" have been defined in section 2, no difficulty is likely to arise in their interpretation. However, the words "belonging" to the assessee on the valuation date as used in the definition of net wealth need further consideration. The Act itself does not define the word "belong" or its grammatical derivative "belonging". According to Black's Law Dictionary, 5th Edition belong means: appertain to; to be a property of; to be a member of; to appropriate; to own. The word "belonging" has been explained to include ownership. In the first case relied upon by Chaudhry Muhammad Saleem re: Vishwanath Chatter Jee & Company (supra) the Supreme Court of India examined the term used exactly in the same manner in section 2(m) of the Indian Wealth Tax Act, 1957. By referring to dictionary meaning of the word "belong", the Court found that, "it is the property of a person or that what is in his possession as of right which is liable to wealth tax. In other words the liability to wealth tax arises out of the ownership of the asset and not otherwise". It was accordingly laid down that mere possession or joint possession unaccompanied by a right to or ownership of property would not bring the property within the definition of "net wealth" for it would not be an "asset" of the assessee. In (1995) 4 All ER 453 re: Melluish (Inspector of Taxes) v. BMI (No.3) Limited and related appeals the House of Lords were considering whether plant or machinery leased out and installed in premises occupied by the lessee local authority "belonged" to the lessor companies to entitle them to written down allowance (depreciation). Section 44(1) of 1971 Act provides that:
----------where (a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant for the purposes of the trade, and (b) in consequence of his incurring the expenditure, the machinery or plant belongs, or has belonged, to him, and (c) the machinery or plant is or has been in use for the purposes of the trade, allowance and charges shall be made to and on him in accordance with the following provisions of this section."
The august House after referring to its earlier decided cases held the term "belong" as equivalent to the word "own". At page 464 of the report it was observed:--
"I, therefore, reach the conclusion that for the purposes of section 44 property belongs to a person if he is, in law or in equity, the absolute owner of it. Such a construction reflects the obvious, prima facie, meaning of the word; what belongs to me is what I own. It produces a coherent and easily applicable formula and, save in relation to fixtures, avoids anomalous results. I am fortified in this conclusion by the decision of the Court of Appeal in Stockes (Inspector of Taxes) v. Costain Property Investments Ltd. (1984) 1 All ER 849, (1984) 1 WLR 763. In that case the tax payer had developed a site belonging to local authority under an agreement which required the inclusion of certain plant and equipment as fixtures. Pursuant to the agreement, on completion of the development the- developer was granted a 99-year lease by the local authority. The developers claim for capital allowances for the plant and equipment they had installed failed because as a fixture it was owned by the local authority as freeholders and could not, for the purposes of section 44 "belong" to the developers as lessees. Fox LJ said (1984) 1 All ER 849 at 854, (1984) 1 WLR 763 at 769):
I agree that 'belong' and 'belonging' are not terms of art. They are ordinary English words. It seems to me that, in ordinary usage, they would not be satisfied by limited interests. For example, I do not think one would say that a chattle 'belong to X' if he merely had the right to use it for five years'.
Robert Goff LJ treated the expression 'belonging to' as the same as 'owned by' (see (1984) 1 All ER 849 at 856, (1984) 1 WLR 763 at 771). In my judgment that case was rightly decided. The same conclusion must apply to the much lessor rights enjoyed in the present case. A long lease-holder enjoys a legal estate -in the land (including the fixtures) which gives him immediate possession and enjoyment of the fixtures. In contrast, in the present case the rights enjoyed by the tax-payer company confer no immediate right of any kind to enjoyment of-the property and only nebulous contingent future rights so to do."
8. Both natural and juridical persons may have a variety of interests to or in any property. These interests range from simple easements to prescriptions in cases of immovable properties. The mode of acquiring the interest generally determines the kind and extent of an interest in a property. The mode of termination of such interest or extinguishment of a right also coincides with its acquiring by or devolution on another person. Of all the kinds of interests to and in an immovable property, ownership stands at the highest pedestal. Reason simply being that with ownership come along all possible incidences that can be exercised words these incidences include "jus utendi" the right to use of a thing; (2) jus possidendi" the right to possession; (3) "jus abuntendi" the right to consume or destroy a thing; (4) "jus despondent" vel transferendi" the right to dispose of a thing or to transfer it; (5) "jus sibi hapendi" the right to hold a thing for one's self, (6) "jus alteri non habendi" or, "jus prohidendi" the right to exclude others from its use. No other kind of relationship between a property and a person offers that much of variety and depth of interest in an immovable property. For, obvious reasons all permanent interests, to or in an immovable property require solemnization of the acquisition by certain prescribed mode. The earlier forms regulated by tradition and the latest by registration. The sole intention being open declaration and announcement of the relationship between person and the property. It also comprises in physical outward display at persistent' ability to possess. Again it identifies one with the other; the owner and the owned. The law clothes this ceremony with a strong presumption in case of transfers of immoveable properties in modern times. The manifestation of such ceremony is called registration with Authorities appointed by the State. If any of the, above-stated six attributes is lacking, ownership in respect of a property is neither complete nor absolute. Also in cases of immovable properties, the idea of ostensible ownership is not unknown to our jurisprudence. However, any person challenging a properly solemnized transfer or registered sale-deed is under a heavy burden to establish that the property stood transferred for his benefit and ultimately as exclusive owner. A still heavier burden lies upon a third party to the deed that the conveyance in fact did not transfer what it purported or that the -transferee was a person other than the one named in the deed.
9. The provisions of section 2(m) of (Indian) Wealth Tax Act, 1957, as deserved earlier are exactly identical to those now under consideration before us. The expression "belonging to the assessee on the valuation date" was examined in detail by Supreme Court of India in (1986) 162 ITR 888 re: (late) Nawab Sir Mir Usman Ali Khan v. CWT, Hyderabad. The assessee, Nizam of Hyderabad received full consideration for certain immovable properties and also put the purchaser in possession. However, he had not executed any registered sale-deed in favour of the vendees. The Supreme Court after referring to various decisions of the Indian High Courts in which the word" belonging" had been considered in this context concluded that the value of the properties were to be included in the net wealth of the assessee for the purpose of assessment to wealth tax as they are assets belonging to him within the meaning of section 2(m) of the Wealth Tax Act, 1957. Their Lordships further recorded that for all legal purposes the properties had to be treated as belonging to the assessee and that the liability to wealth tax arose because of the belonging of the asset and not otherwise. In the view of their Lordships mere possession or joint possession, unaccompanied by the right to be in possession or ownership of property would not bring the property within the definition of "net wealth" for it would not then be an asset belonging to the assessee. In this case the judgment of the Gujarat High Court, C.W.T. v. H.H. Maharaja F.P. Gaekward (supra) was also considered and impliedly approved. The remarks of S. Mukharji, J. recorded at page 899/900 of the report are reproduced to know the reasons that weighed with their Lordships to reach the aforesaid conclusion. The learned Judge speaking for the Bench observed:--
"The position is that though all statutes including the statute in question should be equitably interpreted, there is no place for equity as such in taxation law. The concept of reality in implementing a fiscal provisions relevant and that Legislature in this case has not significantly used the expression I owner' but the expression 'belonging to'. The property in question legally, however, cannot be said to belong to the vendee. The vendee is in rightful possession only against the vendor: Speaking for Myself, I have deliberated long on the question whether in interpreting the expression belonging to' in the Act, we would not import the maxim that equity looks upon a thing as done which ought to have been done' and though the conveyance had not been executed in favour of the vendee, and the legal title vested with the vendor, the property should be treated as belonging to the vendee and not to the assessee. I had occasion to discuss thoroughly this aspect of the matter with my learned brother and since in view of the position that legal title still vests with the assessee and the authorities, we have noted, are preponderantly in favour of the view that the property should be treated as belonging to the assessee in such circumstances, I shall not permit my doubts to prevail upon me to take the view that property belongs to the vendee and not to the assessee. I am conscious that it will work some amount of injustice in such a situation because the assessee would be made liable to bear the tax burden in such situation without having the enjoyment of the property in question. But times perhaps are yet not ripe to transmute equity on this aspect in the interpretation of law much as I would have personally liked to do that. As Benjamin Cardozo has said, ' The judge, even when he be free, is not wholly free'. The Judge cannot innovate at pleasure'.
10. The above-stated decisions from Indian Supreme Court as well as the House of Lords give ample support to the preposition that a property "belong" to a person who owns it. Therefore, the status of the assessee in the facts before us, needs to be considered in the light of these decisions. Plainly, the assessee, as an individual advanced certain sum to the owner of the premises and thereafter got them transferred through registered sale-deed in the favour of a third party M/s. N:I.C.F.C. as his nominee. The reasons for such substitution of purchasers and for that matter owners as well may well have been paucity of funds. The fact remains that he allured the said Cooperative Society to invest and acquire the property in its own name as owner. This gave him respite from immediate payment of remaining consideration and also secured his money paid as advance. The new purchasers M/s. N.I.C.F.C. willing to make some profit agreed as they contracted to sell that property at a higher price on the very day t its purchase The recitals of the sale-deed bear witness to the fact that property in questions was transferred absolutely from the original owner M/s. Mohinoor Mills Limited in favour of M/s.,N.I.C.F.C.. The said individual, however continued have an interest m the property to the extent of the money he advanced. Subsequently he was joined by certain other persons in the enterprise to assume a different status as a legal entity. The two agreements to sell between the assessee and the said M/s. N.I.C.F.C. rather support the claim that it was not a sham agreement between the lender and borrower: Through the agreement, dated 20th May, 1987 the assessee agreed to purchase the property in question at a higher price as compared to the one on which the property was sold by the original owner. Para. 10 of the first agreement to sell provides that: "it is expressly understood that the ownership and the property shall remain with the vendor till the payment in full and the execution of the sale-deed". Through the second agreement the assessee as an owner of the structure raised on the site agreed to sell a part of the constructed portion to the owner of the land. We do not see any unusual aspect in the practical significance of this agreement. The assessee was given the possession of the site in question in pursuance of an agreement to sell for a specific purpose and period. The property in plot remained with the owner M/s. N.I.C.F.C. and the one in the structure built subsequently in the assessee. Both of these agreements as said above repeatedly confirmed the sale in favour of M/s. N.I.C.F.C. Para. 6 of the first agreement to sell can also be referred in this regard besides a part of para_ 10 already reproduced above. Subsequently events, i.e. taking over the property by Dy. Registrar Cooperatives, strengthen the case of the assessee that land under the Plaza was' always considered by M/s. N.I.C.F.C. as their own property. Therefore, after their evaporation the regulatory body, the Registrar Cooperative, Punjab moved in to protect the interest of 'the depositors and investors. In the second case relied upon by the learned counsel for the assessee re: Nettles Private Limited (supra) the assessee-company agreed to transfer a flour milling factory and its stock-in-trade to a subsidiary company for consideration. The settled price of factory was to be paid in the form of allotment of shares of equal amount in the subsidiary while the price of stock-in trade was to be taken as loan re-payable with interest. The transfer of factory premises as well as the stock-in-trade actually took place. The subsidiarya company also allotted fully paid-up shares in favour of the principal company within the prescribed period provided in the agreement to sell. No deed of sale was, however, executed. The W.T.O. included the value of the factory in the net wealth of the principal company on the ground that in absence of a sale-deed the ownership of the factory still vested in it. The Tribunal found that though the legal title in the Mills remained vested in the assessee, the principal company, yet the Mills could not be said to "belong" to it after payment of consideration as agreed upon. On reference of a Division Bench of Delhi High Court held that "the Mills belonged to the assessee-company and their value was liable to be included in its net wealth". Further that liability of wealth tax arose out of ownership of the assets and not otherwise. The property of Mills could not be held to belong to the subsidiary company without transfer of title by a valid sale-deed. The proprietary rights in the Mills did not get extinguished by the mere acts attributed to the assessee".
11 In the next case relied upon at the bar re: B.D. Avari (supra) the ran assessee allegedly transferred his property to his minor sons through an agreement to sell. Therefore, no income from property under section 9 of the late Income-tax Act, 1922 was returned. The I.T.O. found that title to the property did not pass by mere execution of an agreement to sell. The Tribunal maintained the order. On reference the Karachi High Court found that under section 54 of the Transfer of Property Act a contract to sell does not create any right in the property. The right in the property is corrected on registration of sale-deed if the value of the property is Rs.100 or more. The next case relied upon on this issue is re: H.H. Maharaja F.P. Geakeward (supra). Here again the Gujarat High Court found, "that receipt of part of sale price and parting of possession would not divest the vendor of an immovable property of his title to the property nor would the purchaser acquire any title to the property. The doctrine of part performance embodied in section 53-A of the Transfer of Property Act, 1882 had limited application and offered a good defence to the person put in possession to the extent provided in that section. In 1995 PTD 234 re: K.N. Razdan v. CIT a Division Bench of the Calcutta High Court appeared ready to allow wider meaning to the word "owner". However, this view appears opposed to the one taken by the Supreme Court of Pakistan in re: Mehran Associates discussed in later part of this order. It may also be noted that their Lordships of the Calcutta High Court were considering the issue of income from house property in the perspective of the amendment made as sub-clause (iii-a) in section 27 of the Indian Income Tax Act, 1961 which says "that a person allowed to retain possession of a building or part thereof in part performance of a contract of the nature referred to in section 53-A of the Transfer 'of Property Act, 1882 shall be deemed to be the owner of that building or part thereof". No such presumption, it may be noted, has been created in the Wealth Tax Act,
1963 or the Income Tax Ordinance, 1979.
12. The provisions of section 12(13) of the Income Tax Ordinance are in pari materia with those under consideration before us. These provide that where an assessee being an owner of a building receives from any person to whom said building or any part thereof is let out on rent any amount which is not adjustable against the rent payable by such person, such amount shall be deemed to be income of the assessee and chargeable to tax as income from house property in the manner given in the subsection. The assessee before the Karachi High Court in re: CIT v. Mehran Associates Limited 1992 PTD 719 was a private limitedcompany which constructed a building from its own funds on a plot owned by the Auqaf Department, Government of Sindh. The assessee returned a loss for the year. 1980-81. However, the assessing officer on discovering that it had received non-adjustable and non-refundable payments from the tenants of such building brought that amount to tax under subsection (13) of section 12 of the Ordinance The order was confirmed in first appeal but reversed by the Tribunal I'll the ground that the appellant-assessee was not "owner" of the property in question. On reference before the Karachi High Court reliance was placed upon Bachu Bai F.E. Dinshaw v. CIT 1967 PTD 170 wherein it was held that no person enjoying possession of the property under the provision of section 53-A of the Transfer of Property Act including its beneficial owner could be taxed under section 9(1) of the Income-tax Act, 1922. The Court repelled the contention and held for the Revenue remarking, "except for the fact that the respondent could not sell the property, it held a complete domain over it as it could sublet the structures built on the plot and could receive rents or advances which were non-refundable and non-adjustable. No doubt, according to the " terms of the agreement, the respondent was bound to hand over possession of the structure to the Auqaf Department at the expiry of the term of the lease and apparently it had not been vested with power to take away the superstructure or anything attached to the earth, but short of such authority, the respondent was vested with complete power and authority over the property which can only be enjoyed by its owner". On further appeal at the instance of the assessee the Supreme Court of Pakistan in re: Mehran Associates v. CIT, Karachi 1993 PTD 69 = 1993 SCMR 274 reversed the decision of the Karachi High Court observing that notwithstanding some of the attributes of ownership pointed out by the Karachi High Court the assessee was not an owner of the structure in question nor he was covered by the definition of the word as explained in various judicial authorities. It was noted that since the structure/building raised on the site was to belong to the Auqaf Department at the end of the lease the assessee could not be taken as its owner. According to their Lordships the assessee could have been considered as an owner of the structure if the same was not to vest ultimately in the Auqaf Department. Therefore, the Court accepted in principle the possibility of duality of ownership of land and structure in two different parties.
13. The reason advanced in the assessment order for the year 1986-87 while rejecting the claim of the assessee can hardly be described as legal or even convincing.
14. The objection "that no one can be authorised to sell various parts of the building without being ownership rights of the said building" was necessarily misdirected. The assessee never denied ownership of the structure and similar arrangement with land owners are not lacking in the field. The ownership of land and the structure raised upon it in two different persons is neither far fetched nor illegal. Likewise the sale transaction could not be doubted for the reason stated at para. (b) above. It is not the case of the Revenue that transfer of ownership in favour of M/s. N.I.C.F.C. was benami nor it could possibly be made as admittedly bulk of the funds were provided by the purchaser itself. The transaction could be doubted only if there was any clog on the exercise of rights of ownerships by the transferee M/s. N.I.C.F.C. Mere personal opinion of the assessing officer that the agreement in question was coined to take certain credit facility from M/s. N.I.C.F.C." is not sufficient to discard a registered sale-deed for adequate consideration duly executed between a seller and a purchaser. The third objection or support derived from non-declaration of the property as an asset by M/s. N.I.C.F.C. is again misconceived. The assessing officer does not appear to have involved M/s. N.I.C.F.C. in the proceedings at- any stage to confront them. if they had anything 4o say in this regard. The actual owner, at last per documents produced before the assessing officer was most relevant quarter to be resorted to for appraisal of ownership. However, the assessing officer sat at a distance to make and draw his own conclusions from the arrangement without subjecting it to any acid test. Even the picked up portions from the documents executed between the parties do not support the case of the Revenue The ownership and transfer of an immovable property is an incidence that requires proof to accordance with settled principle of law of evidence. Also, an act done in the legal framework provided in this behalf will not be doubted for any extraneous reason unless strong evidence is available that it was opposed to any law or was intended to cause injury to a third party. In Government of N.-W.F.P. v. Said Kamal Shah PLD 1986 SC 360 at 442 it was found when parties by mutual free consent enter into a valid contract, then the third parties have no right to intervene either to frustrate the contract or to change its nature". The Supreme Court repeated this view in PLD 1991 SC. 368; 1991 PTD 488 re: CIT v. Siemens A.G. It said, "the Income Tax authorities cannot change the nature of the contract, intended by the parties thereto under the pretext that the rule of interpretation of a fiscal law in this behalf is different "
15. From the above we have concluded that the word "belonging" used in sub-clause (m) of section 2 of the Act while defining "net wealth" refers to a complete and full owner. Also that mere agreement to sell does not confer any right or title in the property. The assessee entered into the premises under the terms of agreement to sell, and was at best entitled to the safeguards provided in section 53-A of the Transfer of Property Act (IV of 1882). It constructed a Plaza from its own fund and, therefore, owned the structure subject to the conditions described in the first agreement to sell dated 20-5-1987. The terms of second agreement to sell dated 8-6-1988 did not derogate from the ownership rights of M/s. N.I.C.F.C. The agreement to sell between the parties dated 20-5-1987 does not leave any room for a doubt as to the rights qua the property; present as well as future interests of the parties: This agreement also adequately safeguards E the vital interest of an owner by providing that the assessee as an owner of the structure will keep it posted not only with the booking of offices flats or shops etc. but shall also render in a substantial part of second instalments to be received from intended buyers. Irrespective of the colour given to the sale transaction. in the books of M/s. N.I.C.F.C. it cannot be termed as a mere advancement of loan. They paid the consideration money and got the land transferred in their favour through a registered sale-deed. By doing this they became full owners for all intents and purposes. The assessee as an individualhave persuaded them to substitute the original owner on account of shortagefunds. However, this fact alone will not amount to make the individual or the 1'ortnership firm subsequently formed an owner of the site in question. For, the question of the intended purchaser, an individual and then partnership firm, did not change materially inasmuch as the advance paid by it continued to remain with the owner of the property, in the first instance with M/s. Kohinoor Textile Mills and on transfer of the land with M/s. N.I.C.F.C. as owners. The introduction of the plea by the Revenue that alleged land was duly secured by a mortgage deed as well is not at all established on record nor M/s. N.I.C.F.C. as owner could possibly be a mortgagee at the same time. It is naive to think and plead that the assessee could mortgage the property in question to anyone without an intervening sale-deed in its favour. The entry of the assessee on the premises and construction of Plaza did not make it an owner or the one to which the land under the same "belonged". The position in which the assessee was placed did not answer most of the necessary attributes of an owner as detailed by the Karachi High Court in re: CIT v. Mehran Associates (supra) and reproduced above. The subsequent events, as noted above, also fortify the contention of the assessee that M/s. N.I.C.F.C. treated the property in question as their own and, therefore, the action by the regulatory agency, the Registrar, Cooperatives, Punjab.
16. In PLD 1993 Lah. 33 re: Niaz Ali and others v. Muhammad Din and others, Mian Allah Nawaz, J. re-affirmed the principle that transfer of immovable property could take place only by a registered sale-deed wherever section 54 of the Transfer of Property Act was applicable. The view adopted by Gul Zarin Kiyani, J. in PLD 1994 Lah 108 re: Thal Development Authority v. Khushi Muhammad and another will not be applicable to the case of the assessee as one of the respondents before his Lordship in that case had already paid whole of the purchase price for allotment before it agreed to sell the property in favour of the other respondents.
17. The Revenue has also failed to challenge the direction of the Appellate Authority to accept the declared cost or the work-in-progress. The assessing officer enhanced the cost from Rs.5,89,114 to Rs.7,00,000, from Rs.18,36,504 to Rs.1,85,00,000 and from Rs.3,84,23,223 to Rs.4,50,00,000. The reasons for enhancement being alleged suppression in declared cost and the increase in cost of, building material. Learned First Appellate Authority found that the assessee being engaged in construction as 'business, there could be no question of under-valuation of cost as it would give rise to an enhanced profit, and therefore, application of an enhanced rate of tax. The idea of claim of a lower cost than the actual incurred was, rejected. In absence of any challenge to such observations we will refuse to interfere for the Revenue on this score as well.
18. Accordingly the three departmental appeals shall fail.
M.B.A. /211/TribAppeals dismissed.