W.T.AS. NOS. 282/LB TO 285/LB OF 1996, 102,/LB, 106/LB TO 111 /L13 OF 1993 VS W.T.AS. NOS. 282/LB TO 285/LB OF 1996, 102,/LB, 106/LB TO 111 /L13 OF 1993
1997 P T D (Trib) 1034
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujeeb Ullah Siddiqui, Chairman, Shariq Mahmood, Accountant Member and Nasim Sikandar, Judicial Member
W.T.As. Nos. 282/LB to 285/LB of 1996, 102,/LB, 106/LB to 111/LB of 1993, decided on 22/11/1996.
(a) Wealth Tax Act (XV of 1963)---
----Ss.5, 3 & 2(a)(ii)---Exemption---Cooperative Housing Society-- Contention that immovable assets held by a Cooperative Housing Society are for the benefit of its members and accordingly exempt from wealth tax is naive---Argument that such Society is holding its assets for its members and, therefore, do not "own" the property is not correct statement of fact or law-- Reasons recorded---Such Society thus falls within the ambit of Wealth Tax Act, 1963.
1992 PTD (Trib.) 1187 ref.
(b) Wealth Tax Act (XV of 1963)---
----Ss.2(e)(ii) & 3---Asset---Cooperative Society---Where a Cooperative Housing Society is found to be factually holding assets for any of the objects enumerated in S.2(e)(ii) of the Wealth Tax Act, 1963, there does not appear any legal bar which could be said to operate against inclusion of such assets in its net wealth for levy of wealth tax.
(c) Wealth Tax Act (XV of 1963)---
----S.2(e)(ii), Explanation [as added by Finance Act (XII of 1991)]---C.B.R. Circular No. 18 of 1991, dated 2-7-1991---Explanation added to S.2(e)(ii) of Wealth Tax Act, 1963 by Finance Act, 1991 is declaratory in nature and its purpose and background have been explained in C.B.R. Circular No. 18 of 1991, dated 2-7-1991.
1981 PTD 217 and 1996 SCMR 1470 ref.
(d) Wealth Tax Act (XV of 1963)---
----S.2(e)(ii), Explanation [as added by Finance Act (XII of 1991)]---C.B.R. Circular No. 18 of 1991, dated 2-7-1991---Asset---Engagement of an assessee in "business" of construction and sale or of letting out is at par with the other situation where the immovable property is held for similar "purpose" and, therefore, is covered by the definition of "asset".
1994 PTD (Trio.) 1034 ref.
(e) Words and phrases---
----"Purpose"---Meaning.
(f) Wealth Tax Act (XV of 1963)---
----Ss.2(e)(ii), Explanation & 3---C.B.R. Circular No. 18 of 1991, dated 2-7-1991---Asset---Charge of wealth tax---Principles---Cooperative Housing Society---Such Society or for that matter any person to which the provision of S.2(e)(ii), Explanation of Wealth Tax Act, 1963 are applicable, cannot be made liable to pay wealth tax unless an Assessing Officer brings home in exact and unambiguous terms that the "purpose" for which the assessee held any immovable property was manifested clearly by any act done---Clear finding of fact will have to be recorded by the said Officer to hold an assessee to be engaged in such "business".
In order to burden a person/assessee with wealth tax liability, the purpose must be more than a mere desire or an enabling clause such as an object in the object clause of a Memorandum of Association. An enabling provision in a Memorandum of Association of a society/company or any other similar body to construct, sell or let out immovable property at a future time will not by itself mean that all the properties held at that time or in subsequent days are meant for any of the stated "purpose". In this regard distinction between the main object and subsidiary or subordinate objects will have to be kept in mind. Besides the main object clause, other objects stated in a Memorandum, generally, are merely enabling and given only in order to keep day to day affairs of a Company or association flowing normally.
It was 'a common practice to incorporate a wide range of activities in Memorandum of Associations but unless a concrete shape was given to a subsidiary object, a Company could not be regarded as having ventured in business other than the main business to have the intention of doing a business and being in a business are different matters mere mention of an activity in the Memorandum of Association at best, raised a rebuttable presumption which could be dispelled by showing that the company actually did not carry out that business.
Where any act in furtherance of achieving an object stated in the Explanation to section 2(e)(ii) of the Wealth Tax Act, 1967 is done e.g. a building is constructed and offered to be let out, all other under construction buildings of the kind available with the assessee may be liable to be treated as being held for the "purpose" of construction and let out. Still, one will not be able to say that other open plots with an assessee were also meant for the purpose of construction and sale for letting out etc. Because that would be assuming many things to happen, one after the other. Another issue needs to be taken notice of it is that all the purposes referred to in sub-clause (ii) of section 2(e), the Explanation as also those detailed in the C.B.R. Circular No. 18 of 1991, dated 2-7-1991 refer to the "business" or "purpose" to be accomplished by an "assessee" and not by a third party. This is the only result one is derived at when the section, explanation' and the CBR Circular are read together. It means that if an assessee does not itself engage in letting out, construction and sale and construction and letting out business and simply sells out or leases a plot by way of an isolated transaction, on which another person raises a construction to be let out or to be sold, the other similar open plots available with the assessee will not be taken as being held for the said "purpose". A Cooperative Housing Society or for that matter any person to which the provisions under discussion are applicable, cannot be made liable to pay wealth tax unless an assessing officer brings home in exact and unambiguous terms that the "purpose" for which the assessee held any immovable property was manifested clearly by any act done. An equally clear finding oh fact will have to be recorded to hold an assessee to be engaged in "business" of the kinds discussed above.
1994 PTD (Trib.) 1034 ref.
(g) Wealth Tax Act (XV of 1963)---
----S.2(e)(ii), Explanation & 3---Wealth Tax Rules, R.8---C.B.R. Circular No.18 of 1991, dated 2-7-1991---Immovable assets of Cooperative Housing Society---Charge of wealth tax---Principles elucidated.
1990 PTD (Trib.) 671 and 1980 PTD 322 ref.
(h) Wealth tax---
---- Doctrine of mutuality---Concept---Doctrine of mutuality is known only to income-tax proceedings and its extension to wealth tax regime is totally out of place.
The doctrine of mutuality is known only to income-tax proceedings and its extension to wealth tax regime is totally out of place. The principle underlying the doctrine is that no one can make profit out of himself and that no one can be a seller and a buyer at the same time. The doctrine of mutuality is neither of general application nor it is absolute even in cases of income-tax matters.
Where a person was engaged in both taxable and non-taxable activities and the transaction of transfer of goods from one unit to another was made then it would be deemed that different departments were separate entities for the purpose of taxation.
Legislature can frustrate the application of the doctrine of mutuality by bringing into the tax net an income which would otherwise be hit by the principle of mutuality.
The most important consideration to attract the doctrine of mutuality remains that there is complete identity of contributions and participators. This happens only where a business or business-like income generating activity is carried out by a group of persons or the contributions made by them attract returns, real or notional, from dealings strictly between themselves. In its orthodox concept, the mutual societies even did not have a paid-up capital so that the identity of contributions and participators is maintained to the fullest extent.
1991 PTD (Trib.) 917; 1993 PTD 1455; 1963 PTD (Trib.) 15 and 1992 PTD (Trib.) 1187 ref.
(i) Wealth Tax Act (XV of 1963)---
----Ss.2(e)(ii), Explanation & 3---C.B.R. Circular No. 18 of 1991, dated 2-7-1991---Immovable assets of Cooperative Housing Society---Charge of wealth tax---Conditions---Principles.
In case of Cooperative Society, which is a juristic person/body incorporate, only those immovable properties can be subjected to wealth tax which are held for the purpose of:---
(i) Letting out or business of letting out;
(ii) construction and letting out; and
(iii) construction and sale.
Immovable property held by a Cooperative Housing Society is liable to wealth tax only if the conditions stipulated in the definition clause section 2(e)(ii) read with the explanation are fully answered. The land acquired or ear-marked for the purpose of allotment to members for raising of houses shall not ordinarily be liable to be valued at market price on every valuation day as a matter of course. Also mere development work at site to make the proposed housing society fit for human inhabitation will not be taken as "business" of construction for the purpose of valuation of portion of assets reserved for residences of the members. The assets or immovable properties ear-marked for purposes other than construction of residences would also not be brought to tax unless either business activity in respect thereof is clearly spelled out from the functioning of a housing society or any of the aforesaid "purpose" is crystallized in respect of such assets and is brought home in ascertained terms.
Manzoor Hussain Butt and Jamil Akhtar Baig, C.A. for Appellant (in W.T.As. Nos.282/LB to 285/LB of 1996).
Shahbaz Butt, L.A. and Khalid Aziz Banth, D.R. for Respondent (in W.T.As. Nos.282/LB to 285/LB of 1996).
Shahbaz Butt, L.A. and Khalid Aziz Banth, D.R. for Appellant (in W.T.A. No. 102/LB of 1993).
Zia H. Rizvi for Respondent (in W.T.A. No. 102/LB of 1993).
Shahbaz Butt, Legal Advisor and Khalid Aziz Banth, D.R. (in W. T. As. Nos. 106/LB to 111/LB of 1993).
Sardar Ahmad Jamal Sukhara for Respondent (in W.T.As. Nos. 106/LB to 111/LB of 1993).
Date of hearing: 27th June, 1996.
ORDER
NASIM SIKANDAR (JUDICIAL MEMBER). ---These eleven appeals, four by an assessee and seven by the Revenue have been consolidated to consider a preliminary objection as to whether the immovable properties held by a Cooperative Housing Society are covered by the definition of "asset" and, therefore, are subject to charge of wealth tax.
2. The assessee respondent in W.T.A. No.102/LB/93 M/s. Lahore Cantt. Cooperative Society returned "nil" wealth for the year 1987-88 on the ground that "No wealth tax is chargeable. Assets of the Society are held for the benefit of the members hence exempt from wealth tax under section 5 of the Wealth Tax Act, 1963". The assessing officer noted that the assessments framed in respect of the Society on 29-5-1988 for the years 1979-80 to 1986-87 were confirmed in first appeal on 30-4-1989. However, subsequently I.T.A.T., vide an order recorded in W.T.As. Nos.320 to 327 dated 16-3-1991 set aside them and that proceedings on these remanded assessments had not yet been completed. The operative part of the Tribunal's order was reproduced to identify the issues which resulted in remand of earlier assessments. It reads as under:---
"However, the facts of this case before us are not that simple as those of the Companies involved in the similar appeals before the Honourable Supreme Court. The facts of the case need fresh examination to ascertain if the assessee was holding any immovable property for the purpose of business of construction and sale or letting out as laid down by the Honourable Supreme Court of Pakistan. The assessments are, therefore, set aside and remanded back to the assessing officer with directions to reconsider the same in the light of the above discussion. In view of this finding other issues need not be discussed."
3. In response to notices issued for the years under review, the Society reiterated its defense that land was purchased out of the funds provided or contributed by its members and that the Society only undertook development work where after the possession of plots was handed over to the allottees. Further that at that stage portion of the land/plots handed over to the members was excluded from the balance-sheet of the Society. The assessing officer was not convinced. The reliance of Society on an unreported decision in W.T.A. No.267/KB of 1984-85, dated 7-6-1989 Re: M/s. United Centre, Karachi also failed to persuade him. In that unreported decision it was held that the words "construction" and "business of construction" were not synonymous. According to the assessing officer the effect of the order and the distinction drawn therein between the aforesaid two phrases had totally been changed after the addition of an explanation to section 2(e)(ii) by Finance Act, 1991. Accordingly an assessment was finalized on 30-6-1992 creating a demand of wealth tax against the Society. The assessment order so framed, however, was annulled by the first appellate authority C.I.T. (A) Zone-V, Lahore on 20-4-1993. The concluding para of the order reads as under:---
"I fear the whole order is based on guesswork, conjecture and surmise. Cooperative Society is a body Corporate whose purpose is to do something for the benefit of its members on the basis of doctrine of mutuality and there is no element of business involved and hence the transaction of Corporate would not attract the provision of Wealth Tax Act unless it is firstly proved that the Society's holding some assets and secondly that such assets are being held for the purpose of business of construction and sale or letting out. None of these qualifying traits exist in the formation of the Society which being exempt from wealth tax. The impugned assessment by Wealth Tax Officer stands annulled."
4. Earlier the learned appellate authority agreed that it was not the business of the assessee to be the owner of the property but to distribute it amongst its real owners after acquiring it through respective District Collectors; that the Society showed the assets in its financial statements only for the limited purposes of accounting and certain requirements of the Cooperative Laws.
5. The assessee-respondent in departmental Appeals (I.T.As. Nos. 106 to 111) (assessment years 1982-83 to 1987-88) M/s. Canal View Cooperative Housing Society was charged to wealth tax at various sums in these years. Original assessments framed on 30-6-1988 (assessment years 1982-83 and 1983-84) and on 31-7-1988 (assessment years 1984-85 to 1987-88) were set aside in first appeal. The reasons or remand as noted by CIT (A)-III, Lahore through the order recorded on 9-4-1990 being:---
"I feel that the W.T.O. while charging the A.O.P. to tax has taken cover totally under the umbrella of section 2(e)(ii) read with section 3 of the Wealth Tax Act. If so, it would be appropriate for the W.T.O. to bring on record any instance of the A.O.P. being involved in the business of construction and sale or letting out of property if he wants to charge the A.O.P. to tax. All assessments are set aside to be framed afresh on the lines indicated."
6. After remand, the assessing officer himself raised two issues. First whether the assessee Housing Society was carrying on construction, sale or letting out and secondly, if that constituted "business of construction"? Thereafter, he noted that Legislature, in the meanwhile, after the remand order, having amended the law by adding an explanation to section 2(e)(ii) of the Wealth Tax Act through Finance Act, 1991 and also having given it retrospective effect, the issue of "business of construction" stood resolved. Therefore, he proceeded to examine the next limb of the issue whether the activities of 'the Society amounted to engagement in the business of construction and sale or letting out. The reply submitted by the assessee that construction was not engaged in construction and sale or letting out business directly or 1N indirectly was rejected. A consolidated assessment order for the years 1982 83 to 1987-88 was framed on 9-6-1992. The immovable assets held by the Society during the relevant period were included in its net wealth to repeat, the assessments and the resultant demand created in the first round. The only difference being levy of additional tax on the demand so created. On challenge, CIT (A)-V, Lahore on 15-5-1993 annulled the consolidated assessment order holding that:---
I am of the opinion that the vacant lands owned by the society cannot be subjected to tax keeping in view the decision given by the Honourable Supreme Court of Pakistan in the judgment quoted before. The observation of the W.T.O. that the society is engaged in the business of construction for sale or letting out of property is based on misinterpretation of the provision of law since provision of suitable infrastructure amenities undertaken by the society was essential and within its very object of development of the plots as sites fit and suitable for construction of houses by its members. The Wealth Tax Officer failed to bring on record any instance of business of construction, sale or letting out of the property. "
7. Learned first appellate authority also made a reference to an unreported decision of this Tribunal in W.T.As. Nos.26 to 34/LB/90-91 dated 24-3-1991 Re: Cooperative Model Society, Lahore. A reported decision of the Karachi Bench of this Tribunal 1992 PTD (Trib.) 1187 was also referred to hold that except for the rented out property", a Cooperative Society had completely been exempted by the Tribunal" from the levy of wealth tax. A judgment of the Supreme Court of Pakistan in Civil Appeal No.K-140 of 1981 now reported as 1996 SCMR 1470 was referred whereby the decision of Karachi High Court Re: B.P. Biscuit Factory v. W.T.O. 1981 PTD 217 was reversed. It may be noted that the same appellate authority had earlier decided the appeal on 20-4-1993 in favour of M/s. Lahore Cantt. Cooperative Society Ltd. annulling the impugned assessment order framed in respect of that Society.
8. The appellant in I.T.As. Nos.282 to 285 M/s. PCSIR Staff Cooperative Housing Society returned deficit net wealth for the years 1990-91 to 1993-94. The assessing officer, in the first instance, accepted the returned wealth at various sums and also allowed the liabilities claimed against them. The consolidated order framed on 23-4-1995 was, however, revised under section 17-B of Wealth Tax Act, 1963 on 24-12-1995. The revising authority noted that the liabilities claimed and allowed for the above-said assessment years were excessive as compared to the declared net wealth and had wrongly been calculated by the then assessing officer. From the sketchy revisional order it appears that the original assessment orders were modified and the value of the land owned by the Society was deducted from the wealth originally assessed presumably on account of its being contribution of the members of the Society. In this manner wealth tax demands of substantial amounts were created in these four years. This has brought the assessee in first appeal before us. Apart from challenge to the jurisdiction of the revising authority to cancel the original assessments, the appellant Society has also questioned levy of wealth tax on its immovable assets per ratio of the aforesaid decision of this tribunal cited as 1992 PTD (Trib.) 1187.
9. Parties have been heard. The Revenue is represented by Mr.Shahbaz Butt, Legal Advisor assisted by Mr. Zahid Pervez, Advocate. Mr.Zia H. Rizvi has appeared for M/s. Lahore Cantt. Housing Society, Mr.Sardar Ahmed Jamal Sokhera for the Canal View Housing Society and MrJamil Akhtar Baig, Advocate and Mr. Manzoor Hussain Butt, Advocate for M/s. PCSIR Cooperative Housing Society.
10. Learned counsel for the assessee societies, in their own words, have explained the objects, purposes and functions of a Cooperative Housing Society with particular reference to their individual party/society. The place, location of land acquired by the society, its area, the stage of development and partial or total handing-over of development plots to the respective members has also been disclosed. The manner in which the contributions were sought from and made by the members has also been explained to some extent. It is a common ground between the assessees that assets held by them d4 not actually belong to them but to individual members on account of doctrine of mutuality. Therefore, it is alleged that the inclusion of assets held by a society in its net wealth and charging to tax will negate the basic concept of Cooperative movement. It is also stated that liability to wealth tax arises out of "ownership" and that none of three assessee societies owned and asset in their independent right as all of them were purchased out of the contributions made by the members who alone were owners in the real sense. It is further claimed that none of the assets was held for the "purpose" of construction, sale or letting out and even if a very small portion of land was constructed, sold or let out, it had no element of "business" involved in the transaction. According to the assessees, the construction, letting out or sale, where carried out, was only for the purpose of advancement of the objects of a society and of the benefit of its members as a whole who were the end users or ultimate beneficiaries. Also that simple construction or sale or letting out per se does not amount to "business" unless a concerted effort to earn profit is brought home by the Revenue in respect of every individual assessee which it failed to establish; that at any rate when a plot is transferred to a member, an assessee society is absolved from any liability towards such asset and it is only the transferee member who is liable to wealth tax. The term "business" has been explained by Mr. Jamal Sokhera with reference to two reported decisions cited as PLD 1969 Karachi 278 Re: CIT, Central Karachi v. M/s. Habib Insurance Co. Ltd., Karachi and PLD 1975 Karachi 260 Re: CIT v. M/s. New China Glassware Co. Reliance has also been placed upon PLD 1991 Supreme Court 280 Re: CIT Central, Karachi v. M/s. Fakir Cotton Ginning and Pressing Industries Ltd., to stay that while interpreting tax and fiscal statutes a Court must look to the words of the statute and interpret it in the light of what is clearly expressed and that a Court cannot imply anything which is not expressed nor can it import provisions in the statute so as to support assumed deficiency. Mr. Jamal Sokhera has also referred to PLD 1989 Quetta 74 Re: Noorani Trading Co. (Pvt.) Ltd. v. Federation of Pakistan and PLD 1977 Lah. 797 Re: Highway Petroleum Service, Lahore v. Islamic Republic of Pakistan and others tea support his arguments that in cases of interpretation of fiscal statutes is not permissible to assume arty particular intention other than the one clearly conveyed by the words of the statute and that where two interpretations are possible then the one which is favourable to the citizen must be accepted. Relying upon the ratio it is argued that immovable assets held by a Cooperative Housing Society are not expressly hit or covered by the charging provisions of the Act read with the definition clause and that if an ambiguity is found it should be resolved in favour of the assessee Societies.
11. It is noted that all the assessees rely upon a reported decision of this Tribunal cited as 1992 PTD (Trib.) 1187 to claim that this Tribunal has allowed total exemption from charge of wealth tax to the assets held by a Cooperative Housing Society.
12. Learned legal advisor Mr. Shahbaz Butt has also explained the actual practice being followed by Cooperative Housing Societies in acquiring lands, inviting contributions from members and the development process etc. He contends that a Cooperative Housing Society is a juridical person independent and different from its members. Therefore, it is liable for payment of all taxes and levies irrespective of the factum of sources or contribution of funds by members; that doctrine of mutuality is primarily applicable to income earned and not to assets jointly held by members of an A.O.P. or a body of individuals whether incorporated or not and a company; that even otherwise the doctrine of mutuality cannot be extended to commercial plots or shops etc. being sold through auction or to the part of land let out with or without construction for use by third parties; that there is a clear distinction between simple development and construction for selling' or letting out. On facts it is stated that the assessee societies deliberately withheld the information as to the actual cost of land, the development- cost and the price on which the plots were allotted to individual members in order to conceal the extract nature and volume of their activities; that the assessees societies are engaged in selling commercial and in some cases even residential plots by open auction which fact alone renders all the rest of land and constructed plots available with them liable to charge of wealth tax; that even a single transaction of sale, letting out can be in the nature of trade or business and that a regular activity in this direction over a period of time is not necessary. It is also stated that sub-clause (i) of Explanation to section 2(e)(ii) makes every asset held for the "purpose" of letting out as chargeable to tax and in such cases even availability of element of business activity is not necessary which is covered by second part of that sub-clause of the Explanation. According to him in the first sub-clause to the Explanation the word "or" has the effect of disconnecting and dividing the clause into two independent portions, the earlier part referring to "purpose" of letting out and the later to the "business" of letting out. The situation contemplated by this sub-clause, in the view of the learned legal advisor, being that once a Housing Society does anything in furtherance of letting ` out a property, whole of the left out land or pieces of lands available will be liable to be taken as held for the purpose of letting out.
13. The submissions made by the parties as noted above amply demonstrate that none of them has made any attempt to assist us for an answer to the preliminary objection arranged is para one ante. Most of the contentions made at the bar pertain to their part or total denial that assets held by them are not for the purpose of the three objects stated in section 2(e)(ii) read with its Explanation nor any of them engaged in the business of letting out either.
14. To reach a conclusion as to whether the whole or a part of immovable of a Cooperative Housing Society are held for the purpose of letting out, construction, sale or business of letting out, the facts of every case will have to be examined in the perspective of facts on the ground. Learned counsel for the parties were informed at the outset of the proceedings that appraisal of these facts shall, if necessary, be made by the respective benches to which these appeals are assigned for decision if the preliminary objection fails. .
15. The claim of the respondent/assessee Lahore Cantt. Cooperative Housing Society that it was holding assets for the benefit of the members and, therefore, these were exempt under section 5 of the Wealth Tax Act is not well based. Neither the learned A.R. for the assessee society has taken us to any particular provision in the Act or Rules which allows exemption in such-like cases nor in fact it exists at all. That a Cooperative Housing Society is an independent legal person apart and different from its members, competent to sue and be sued in its own name, with perpetual existence or succession under the provisions of the Cooperative Societies Act, 1925 has not been disputed by any of the parties. Its status with -reference to the Wealth Tax Act, 1963 was examined by a Division Bench of the Tribunal at Karachi in the case relied upon by all the assessee societies viz. 1992 PTD (Trib.) 1187 In para. 8 of that decision it was found "If all the above provisions are read together it becomes very clear that a Cooperative Society is a body corporate under the Cooperative Societies Act, 1925 and accordingly if may find some place in charging section 3 of Wealth Tax Act " Therefore, the independent status or entity of the assessee societies qua its members is established beyond any doubt. An absolute exclusion from the charging provisions of section 3 is not claimed. Therefore, the contention that immovable assets held by the society are for the benefit of members and accordingly are exempt from wealth tax is naive. Every claim of exemption has to be supported by a clear and unambiguous provision of law. For, a claim of exemption presupposes that the assets, income etc. is liable to charge or levy but for the concession allowed by law itself. As observed earlier neither any provision of law has been pointed out nor any other reference, factual or legal, has been made to support the claim of exemption by the assessee Cantt. Cooperative Housing Society or, for that matter, any of the assessee societies before us.
16. The other facet of the contention that the assessee societies are holding their assets for their members and, therefore, do not "own" them is otherwise not a correct statement of fact or of law. The assessee societies being independently legal persons acquired immovable properties normally open lands in their own names and then a part or whole of it was transferred to their members in small chunks before or after doing the development works. Any one who does not own or possess a thing cannot further transfer the same. No one can transfer a better title and once the assessee societies claim that after the transfer of plots to the members were liable to wealth tax in their individual capacity, these cannot be allowed to say that before such transfer no such liability could arise against the society. We will hasten to add that in the cases before us the nature of assets, immovable properties and its ownership by the assessees in their own right is not a moot point. Both these conditions or requirements are almost admittedly present and available to bring these societies within the ambit of Wealth Tax Act. The only issue, in the circumstances, remains whether in their cases, like that of any firm, association of persons or body of the individuals whether incorporated or not mere ownership of immovable properties is sufficient to charge wealth tax unless the conditions contained in section 2(e)(ii) read with Explanation agree in full. What we are trying to bring home is that all the assessee societies own immovable properties and, therefore; the immovable "assets" liable to be included in their net wealth subject to the conditions that such immovable properties are held or the purpose of letting out, business of letting, for the purpose of construction and letting out and construction and sale. The question whether or not a particular assessee housing society is engaged in or is holding immovable properties for any of the above said proposes or for "business" of letting out will depend upon finding of fact to that effect. After the aforesaid decision of Supreme Court of Pakistan ins Civil Appeal No.K-140 of 1981 Re: B.P. Biscuit Factory Ltd., Karachi v. W.T.O. and another the explanation added to subsection (2)(e)(ii) by Finance Act, 1991 has merely explained the scope of the phrase, "for the purpose of the business of construction and sale of letting out of property". Before addition of this explanation, preponderances of judicial decisions, including the said decision of the Supreme Court favored the view that only the immovable property of an assessee engaged in any of the three activities, letting out, construction or sale as a business was covered by the term assets. However, since the addition of said Explanation an equal emphasis has been placed upon the "purpose" for which an immovable property is held. Where a Cooperative Society is held to be factually holding assets for any of these objects, there does not appear any legal bar which could be said to operate against inclusion of such assets in its net wealth for levy of wealth tax.
17. This is true of the letter of law and we entertain no doubt about it. However, the matter in issue does not end here as the identification of set of facts to which the provision of law is to be made applicable is equally important. Particularly in view of the circumstances counted in earlier paragraphs where assessments were annulled in respect of the last two assessees, namely M/s. Lahore Cantt. Cooperative Housing Society, Lahore and the Canal View Housing Society Limited. In both cases the assessing officers appear to have avoided the required finding of facts. Learned first appellate authority also jumped to conclusion without recording and examining the issues need to be addressed in detail.
17-A. The Explanation added to section 2(e)(ii) of Wealth Tax Act, 1963 through Finance Act, 1991 like all of them is declaratory in nature. Its purpose and background was explained in C.B.R. Circular No.18 of 1991, dated July 2, 1991. The facts leading to the decision by Karachi High Court in 1981 PTD 217 re: B.P. Biscuit Factory v. W.T.O. and another/later reversed by Supreme Court in 1996 SCMR 1470 (SC Pak.) are so well known that these do not need to be repeated. The Supreme Court in that case finally decided that only such immovable properties which were held for the purpose of "business" of construction and sale or of letting them out fell within .the definition as contained in section 2(e)(ii) of the Ordinance. Then happened the addition of Explanation in 1991. The desired extension in scope of the provision and its application after the judgment of the Supreme Court was explained by the above Circular. Para. IV of the Circular reads: "Keeping in view the said judgment of the Honourable Supreme Court bf' Pakistan and the said Explanation to-sub-clause (ii), it is hereby clarified that the immovable property held by a firm, an association of persons or a body of individuals, whether incorporated or not, and a company for the following purposes shall be liable to wealth tax:
(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;
(iii) immovable property held for the purpose of construction and sale of property;
(iv) immovable property held for the purpose of business of construction and sale, or
(v) immovable property held for the purpose of business of construction and letting out. "
18. The Explanation read with the Circular leads to the obvious: that engagement of an assessee in "business" of construction and sale or of letting out is at par with the other situation where the immovable property is held for similar "purpose" and, therefore, is covered by the definition of "asset". As far the assets held for the "business" and for the "purpose of business" of the three kinds, letting out, construction and letting out and construction and sale, do difficulty is likely to arise to bring them in the tax net. Finding a person to be engaged in business of the above kinds cannot be a problem. A negative finding will be equally easy if the tests indicated in the reported judgments cited at the bar e.g., re: Habib Insurance Company Ltd., (supra) are applied objectively. Whether or not a venture is in the nature of trade or business is not far to seek. A business activity nowadays is so expressed or declared that it cannot remain untraceable for a long time. Also the availability of voluminous case-law on the subject can make the job easier both for the Revenue Collector as well as the assessee. The view of this Tribunal and those of superior Courts in this regard have been summed up in 1994 PTD (Trib.) 1034. A difficulty however, is likely to arise before concluding for or against an assessee if the immovable property held by it is meant for any one or more of the three "purposes" contemplated in the explanation. In cases of Cooperative Housing Societies the enigma of "purpose" will be all the more complexes except in cases where an assessee openly declares any one or more of the said purposes to hold immovable property, it would not be possible for an assessing officer to lay a firm hand upon an assessee. A "purpose" in common English language means an object to be attained, a thing intended, a resolution or a determination. An intention to do something in future is so personal in nature that it cannot be attributed to a person natural or juristic till some practical steps have actually been taken to accomplish the desired object. Therefore, in order to burden a person/assessee with wealth tax liability, the purpose must be more than a mere desire or an enabling clause such as an object in the object clause of a memorandum of association. An enabling provision in a memorandum of association of a society/company or any other similar body to construct, sell or let out immovable property at a future time will not by itself mean that all the properties held at that time or in subsequent days are meant for any of the stated "purpose". In this regard distinction between the main object and subsidiary or subordinate objects will have to be kept in mind. Besides the main object clause, other stated in a memorandum, generally, are merely enabling and given only in order to keep day to day affairs of a Company or association flowing normally. In 1994 PTD (Trib.) 1034, Mr. Iftikhar Ahmad Bajwa, learned Accountant Member, opined that it was a common practice to incorporate a wide range of activities in Memorandum of Associations but unless a concrete shape was given to a subsidiary object, a Company could not be regarded as having ventured in business other than the main business. It was further found that to have the intention of doing a business and being in a business are different matters. Further that mere mention of an activity in the Memorandum of Association at best, raised a rebuttable presumption which could be dispelled by showing that the company actually did not carry out that business. Reference in this regard was also made to another reported decision of this Tribunal cited as 1990 PTD (Trib.) 671. Reliance was also placed upon the examination of the proposition as made by the Karachi High Court in 1980 PTD 322 Re: M/s. PICIC Ltd. v. CIT (East), Karachi. However, where any act in furtherance of achieving an object stated in the Explanation is done e.g. a building is constructed and offered to be let out, all other under-construction buildings of the kind available with the assessee may be liable to be treated as being held for the "purpose" of construction and let out. Still, one will not be able to say that other open plots with an assessee were also meant for the purpose of construction and sale or letting out etc. Because that would be assuming many things to happen, one after the other. Another issue needs to be taken notice of. It is that all the purposes referred to in sub-clause (ii) of section 2(e), the Explanation as also those detailed in the said C.B.R. Circular refer to the "business" or "purpose" to be accomplished by an "assessee" and not by a third party. This is the only result one is derived at when the section, explanation and the C.B.R. Circular are read together. It means that if an assessee does not itself engage in letting out, construction and sale and construction and letting out business and simply sells out or leases a plot by way of an isolated transaction, on which another person raises a construction to be let out or to be sold, the other similar open plots available with the assessee will not be taken as being held for the said "purpose". A Cooperative Housing Society or for that matter any person to which the provisions under discussion are applicable, cannot be made liable to pay wealth tax unless an assessing officer brings home in exact and unambiguous terms that the "purpose" for which the assessee held any immovable property was manifested clearly by any act done. An equally clear finding of fact will have to be recorded to hold an assessee to be engaged in "business" of the kinds discussed above.
19. Bearing in mind the above discussion and also the peculiar facts in which a Cooperative Housing Society is placed, we proceed to take up the other submissions made at the bar. The contention that if all immovable properties held by a Cooperative Housing Society are found covered by the charging provisions of Act, the very purpose of the cooperative movement will be defeated, does need serious consideration. Generally, the assessee societies after acquisition of land show it in their asset part in the balance -sheets and the contribution advances made by the members in liability column. This is fairly reasonable and true both theocratic ally as well as practically. They show the assets or the land at its cost in the years to come while the Revenue Collector would take them on the valuation date at enhanced rates by using phrases like, "keeping in view the ever rising tend in real estate prices". This treatment may be justified in respect of any absolute owner of a property. However, it is to be kept in mind that land acquired by a Housing Society through Collectors or purchased from individual land owners in funded by the contributions made by its members. It certainly vests in the society in whose favour a legal transfer has come into being either by a sale-deed or by operation of law. Although, as we will see later in this order, the doctrine of mutuality is not attracted in such cases yet the fact remains that a Cooperative Housing Society in such circumstances is under a legal claim of the members to allot them a proportion out of the total holdings held by it. A Cooperative Housing Society having received an advance sum as total or part price of piece of land and in some cases development charges as well is not a free holder to sell the land in open market notwithstanding a usual stipulation to the effect that in cases of certain defaults the entitlement shall be cancelled. Till a Housing Society terminates and M finally declines the right of contributing members for justifiable reasons and in accordance with the Articles of Association, it cannot dispose of or sell even an unascertained portion of its total holding in the open market. And in cases where it is done in accordance with law, the Articles of Association or the resolutions of the governing body, the member concerned or more of them are entitled to the proceeds proportionate to their contributions. A Cooperative Housing Society may not strictly be a trustee for the members who had contributed for the land purchased. But their rights in that property closely resemble with beneficial ownership. A beneficial owner or cestul que trust has been defined in Black's Law Dictionary, Fifth Edition at page 142 as a person who does not have title to property but has rights in the property which are the normal incident of owning the property. In the like manner, a Cooperative Housing Society has a responsibility towards contributing members which is akin to that of a fiduciary. Any intermeddling by the Society or wrongful disposal of property purchased by members contributions can be interfered by members in accordance with the checks inbuilt in Cooperative Laws, memorandum and articles of association and, failing them, through an injunction. Unlike shareholders of a Joint Stock Company with limited liability, the members of a Cooperative Housing Society have a direct interest in the land purchased from their funds. They are not obliged to wait for the liquidation of the Society to make a claim against the property held by it. The right of a Housing Society to deal with the immovable properties ear-marked for residential allotment being clearly subject to this clog, its valuation at market rate on every valuation date does not appear proper. Rule 8 of the Wealth Tax Rules, 1963 talks of an asset (other than cash) to be estimated at the price which in the opinion of the W.T.O., it would tact if sold in the open market. The qualification of the asset being readily saleable in open market is, generally speaking, not present in cases of the land ear-marked for housing purposes. For, in most of the cases land acquired for such purpose' is relatable to number of existing or expected members and their contributions. Therefore, any appreciation, if accrued to land, will go to the members who may subsequently be called upon to take up the burden of taxation on the transfer of plots in their names. The period between acquisition of land by a Society and its transfer to members by whatever means in vogue which will give them control and seisin on the plot for free enjoyment or disposal, will per force be of shifting over. Barring rare exceptions, neither the Society, nor a member may be liable for wealth tax during this period. All the more so, when liability owed towards members as advances is to remain static and unchanged Since liability side of the balance-sheet of a Society cannot register an increase corresponding to the increase attributed to the land, it would be unjust on the part of the Revenue to touch only that part which will result in a favour to it.
19-A. In wealth tax levy two factors are most, relevant. The first is relationship or nature and extent of interest of a person in an asset and then its valuation. The term "asset" has been described in widest possible form and for individuals includes property of every description whether movable or immovable. The valuation day is the eventfully day and once it has happened any subsequent change will not affect the nature of interest and the value that existed on that day. The value is to be determined in term of "amount" or money value in accordance with the provisions of the Act read with the Rules framed thereunder. The valuation of an asset, except for cash, is made by employing various methods as contained in the Wealth Tax Rules, 1963. It needs no emphasis that valuation or money value of an asset is an ever changing phenomena. It does not rest for a longer time. It will either increase or decrease for a number of reasons. An asset not liable to wealth tax on the last valuation day may very well be liable on the next valuation day and vice versa. Most general method or test for determination of value of an asset (other than cash), barring exceptions given in Rule 8 where other methods are, employed, is the price which in the opinion of the Wealth Tax Officer an asset would fetch if sold in the open market on the valuation day. Without a doubt an assessee is charged to wealth tax in view of and to the extent an asset adds to his net wealth. It is, therefore, not only the value or the price which an asset can fetch if sold in the open market but also the notional increase or decrease that it brings to the wealth of an assessee. In other words, the value or the price of an asset in the open market is meaningless if it does not even notionally add anything to the wealth of an assessee. Like any other levy, the wealth tax charge also does not operate in a vacuum. A legal owner of valuable piece of land which is in adverse possession of another party for more than 12 years will hardly be called upon to pay wealth tax although his title has not yet been -finally determined by a Court of competent jurisdiction. Similarly a claimant of "goodwill" being used and enjoyed by another person will not be liable to tax merely on the basis of his claim to its ownership or entitlement. On valuation day such-like property, tangible or intangible, might will be twice the value it had on last valuation day but this fact alone does not add anything to the wealth of the owner. The vesting of title or legal ownership to or in that individual is rather a source of worry and agro than being an asset or a periodical increase to his wealth. In the case of a Cooperative Housing Society, for reasons discussed above, nothing is added to its wealth for the mere reason that prices of real estate or the lands situated in the area have gone up since the last valuation day.
20. Also to say that a Cooperative Housing Society is engaged in business of construction and sale only for doing development work is not in any way near the truth. A business undertaking presuppose engagement in an activity motivated and directed in furtherance of the object to earn profit. Therefore, without bringing on record any exception to general practice of a Cooperative Housing Society, at least those before us, the assessing officer cannot treat a Cooperative Housing Society as a business enterprise merely for the reason that it carried on development work which normally includes construction of roads, laying of sewerage, raising of water-tanks and provision of other similar civic amenities. These facilities, roads, parks, sewerage, water supply etc. created and provided by members contributions cannot be termed as "purpose" either in itself or an independent subject- matter of sale or letting out. The "construction" made in their shape is not saleable unless a Society proceeds to dispose of whole of the scheme inclusive of residential and other plots as a lot. None of these amenities or facilities is constructed made or held for any of the "purposes" indicated in the explanation and elaborated through the said Circular No. 18 of 1991. It may further be stated that no immediate profit accrues to a society as a result of so-called construction though it may make convenient or facilitate the enjoyment or disposal of property by the members on completion of development work. Still if some surplus does arise to a society on disposal or sale of a part of property, normally commercial plots at a later stage of execution of housing scheme, it will not "work back" and render the development work, a "business" of the society or will establish "purpose" as construction, sale or letting out. For, a society may never sell or let out any property; even commercial zones, may be operated by itself. Till an act contrary to the main, object of providing or facilitating cheaper housing is done, no motive qua "purpose" can be attributed to a society. As observed in 1992 PTD (Trib.) 118.7 some, distinction in dealings by societies with their members and non-members shall also have to be kept in mind while reaching a conclusion.
21. Before concluding we would like to rule upon the doctrine of mutuality pleaded as one of the reasons to exclude the immovable properties held by the societies from the definition of the word "assets". The submission is sought to be supported by a reported decision of Lahore High Court in Re: CIT, Lahore v. Lyallpur Central Cooperative Bank 1959 PTD 639. However, the plea is misconceived as the decision relied upon is clearly distinguishable. In the first instance the doctrine of mutuality is known only to income-tax proceedings and its extension to wealth tax regime is totally out of place. The principle underlying the doctrine is that no one can make profit out of himself and that no one can be a seller and a buyer at the same time. The doctrine of mutuality is neither of general application nor it is absolute even in cases of income-tax matters as found by this Tribunal in 1991 PTD (Trib.) 917. In that case one of us Mr. Muhammad Mujeeb Ullah Siddiqui, Judicial Member, now Chairman while speaking for the Division Bench examined a number of reported decisions from English and Indian jurisdictions to reach the conclusion that where a person was engaged in both taxable and non-taxable activity and the transaction of transfer of goods from one unit to another was made then it would be deemed that different departments were separate entities for the purpose of taxation. Another case elaborates the point. In 1993 PTD 1455=200 ITR 493, Re: CIT v. Chelmsford Club Ltd., the assessee, a member's Club, owned and occupied a club house. The assessee did not let out the premises to its members or to outsiders. Nor did it occupy the premises for any business or vocation. The assessing officer assessed the annual letting value of the club-house in the hands of the assessee under section 22 of the Indian Income Tax Act, 1961 equivalent to section 19 of the Income Tax Ordinance, 1979. The Appellate Tribunal held that the income from house property was not liable to tax on account of doctrine of mutuality. Reversing the order, a Division Bench of the Delhi High Court held that principle of mutuality did not arise in the case because no money had arisen to the assessee by way of rent; the club-house was, in self-occupation and the incidence of tax under section 22 was on the ownership of the building. It is also settled, that Legislature can frustrate the application of the doctrine by bringing into the tax net an income, which would otherwise be hit by the principle of mutuality. In 1963 PTD (Trib.) 15 this Tribunal found that surplus arising to the appellant company from insurance transactions of a mutual character was assessable to income-tax in view of the extended meanings given to the word "profit" by virtue of the provisions of section 2 (6-C) of the Income Tax Act, 1922. However, the most important consideration to attract the doctrine remains, that there is complete identity of contributions and participators. This happens only where a business or business-like income generating activity is carried out by a group of persons or the contributions made by them attract returns, real or notional, from dealings strictly between themselves. In orthodox concept, the mutual societies even did not have a paid-up capital so that the identity of contributions and participators is maintained to the fullest extent. In the three cases before us the assessee societies as legal persons are totally different from their members who are natural persons. Their creation and registration as Cooperative Societies under the relevant Act is a permanent bar against their fusion with the contributory members or their identity, one for the other. Therefore, as observed earlier the case relied upon at the bar Re: Lyallpur Central Cooperative Bank (supra) is not relevant to the facts in issue before us. In that case the assessee Bank derived income from dealing with its members, which was found exempt by the Tribunal from levy of income tax on the basis of a C.B.R. Circular. The learned Division Bench of the High Court upheld the view taken by the Tribunal. The doctrine as noted above evidently has no application to wealth tax cases as to hold otherwise would nullify the provisions for levy of such tax to the kinds of assessees enumerated and the situations given in section 2(e)(ii) of the Act.
22. The three assessees, as noted above, have relied upon the ratio of the case cited as 1992 PTD (Trib.) 1187. However, the submission that this Tribunal in any sense totally "exempted" the Cooperative Housing Societies from the levy of wealth tax is not well based. This Tribunal can neither allow exemption to an assessee nor the ratio settled in that case by any means be stretched to be taken as an authority to support the contention. The operative part, para. 14 of judgment clearly lays down that "in case of Cooperative Society, which is a juristic person/body incorporate, only these immovable properties can be subjected to wealth tax which are held for the purpose of:---
(i) Letting out or business of letting out;
(ii) construction and letting out; and
(iii) construction and sale".
The closing part of the order of the learned Division Bench reaffirms that 'the fulfilment of the above three conditions is necessary in order to bring a Cooperative Housing Society within the ambit of Wealth Tax Act. From this order of the Tribunal, we cannot trace out the alleged blanket protection or total "exemption" to Cooperative Housing Societies from the levy of wealth tax.
23. The upshot of the above is that immovable property held by a Cooperative Housing Society is liable to wealth tax only if the conditions stipulated in the definition clause section 2(e)(ii) read with the explanation are fully answered. The land acquired or ear-marked for the purpose of allotment to members for raising of houses shall not ordinarily-be liable to be valued at market price on every valuation day as a matter of course. Also mere development work at site to make the proposed housing colony fit for human inhabitation will not be taken as "business" of construction for the purpose of valuation of portion of assets reserved for residences by the members. The assets or immovable properties ear-marked for purposes other than construction of residences would also not be brought to tax unless either business activity in their respect is clearly spelled out from the functioning of a housing society or any of the aforesaid "purpose" is crystallized in respect of such assets and is brought home in uncertain terms.
24. With these remarks we will direct that the appeals filed by the assessee Cooperative Housing Societies as well as the Department may be placed before respective Benches as per Roster arrangement for decision on facts in the light of the aforesaid observations.
M.B.A./331/T Order accordingly.