W.T.A. NO.82/HQ OF 1989-90 VS W.T.A. NO.82/HQ OF 1989-90
1997 P T D 1734
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman, S.M. Sibtain, Accountant Member and Nasim Sikandar, Judicial Member
W.T.A. No.82/HQ of 1989-90, decided on 20/03/1997.
Wealth Tax Act (XV of 1963)---
----2(e)(ii)----Valuation of assets---Where immovable property is held for the purpose of construction and sales by a firm, an A.O.P. or a body of individuals whether incorporated or not, and a company and the work of construction is in progress on the corresponding valuation date, after offering the units under construction for advance sale, the value of such incomplete project or projects on the valuation date shall bear the same proportion to the total sale price, at which the project is offered for sale as the work in progress on the valuation date bears to the complete project---Where, however, such an assessee holds immovable properties for construction and sale but offers same for sale only after completion of the construction, valuation of the incomplete project on the valuation date shall have to be done at cost plus the margin of profit assessed on similar work by the Assessing Officer under the Income Tax Ordinance, 1979 either in assessee's own case or where no income has ever been assessed in assessee's own case, the margin of profit assessed in such cases of similar assessees---[W.T.As. Nos. 1686 to 1692/KB of 1986-87; 536/KB of 1986-87; 1054, 1054-A and 1080/KB of 1986-87 overruled].
Where immovable properties are held, for the purposes of construction and sales, by a firm, an A.O.P., or a body of individuals whether incorporated or not, and a company, and the work of construction is in progress on the corresponding valuation date, after offering the units under construction for advance sale, the value. of such incomplete project or projects on the valuation date shall bear the same proportion to the total sale price, at which the project is offered for sale, as the work-in-progress on the valuation date bears to the complete project.
However, in the cases where such assessees hold immovable properties for construction and sale but offer them for sale only after completing the construction,' the valuation of the incomplete project on the valuation date shall have to be done at cost plus the margin of profit assessed on similar work by the D.C.I.T. under the Income Tax Ordinance either in assessee's own case or where no income has ever been assessed in assessee's own case, the margin of profit assessed in cases of similar assessees.
W.T.As. Nos. 1686 to 1692/KB of 1986-87; 536/KB of 1986-87; 1054, 1054-A and 1080/KB of 1986-87 overruled.
Rehan Hasan Naqvi for Appellant.
Inayatullah Kashani, D.R. for Respondent.
Date of hearing: 7th January, 1997.
ORDER
The appellant, in this appeal, has taken objection to the order of the Commissioner of Wealth Tax (Appeals) on 15 grounds. However, the learned counsel of the appellant, Mr. Rehan Hasan Naqvi is pressing the objections taken only on the following two grounds:
"That the learned Commissioner of Income-tax (Appeals) has erred in confirming the tax on completed projects on Plot No.FL-4, Block 5, Clifton and FL-5, Block Min North Nazimabad, Karachi claimed by the appellant.
That the without prejudice to the ground No.3 the learned Commissioner of Income-tax (Appeals) was not justified in confirming the estimated value of FL-4, Block 5, Clifton and FL-5, Block Min North Nazimabad, Karachi at Rs.2,99,06,158. The estimated value confirmed besides being unjustified are excessive and exorbitant."
2. Facts of the case briefly are that the appellant has been allotted a plot of land bearing No.FL-4, Block-5, Clifton, Karachi admeasuring 8160.83 sq. yds. The appellant has undertaken a project for construction of residential apartments which has been in progress for the last several years. Similarly a plot of land bearing No.FI-5, Block M, North Nazimabad admeasuring 4830 sq. yds. has been purchased by the appellant on 26-6-1975 for a consideration of Rs.1,25,000. A similar project of construction of residential apartments has been undertaken on this plot of land as well. The construction has been in progress for the last several years. The declared value of the plots of land as well as the cost of work in progress has never been accepted by the learned D.C.W.T. Instead, he has determined the value of incomplete projects by adding 18% of the declared cost because the appellant has been declaring approximately over 15 % gross profit in its Income Tax returns. This treatment has been upheld by the learned Commissioners of Wealth Tax (Appeals) over the years. Since the learned D.C.W.T. has followed the identical pattern of assessment in the instant year, the learned CWT(A) has upheld the impugned assessment order following the decisions of her learned predecessors.
3. This appeal was originally fixed for hearing on 17-11-1996 before a Division Bench of the Tribunal. Mr. Rehan Hasan Naqvi, Advocate, was present on behalf of the appellant and Mr. Shaheen Aziz Niazi was representing the Department.
4. Mr. Rehan Hasan Naqvi had submitted that firstly the appeals preferred by the appellant against the orders of the learned CWT(A) in the assessment years for and from 1979-80 to 1985-86 in W. T. As. Nos. 1686 to 1692/KB of 1986-87 have been allowed by a Division Bench of this Tribunal vide judgment dated April 4, 1995 following earlier Division Bench decisions in W.T.A. No.536/KB of 1986-87 dated 16-4-1989 and W.T.As. Nos. 1054, 1054-A and 1080/KB of 1986-87 dated 18-11-1991 wherein it has been held that normally there cannot be any market value of incomplete construction and that the proper method for valuation of incomplete project was by taking the cost of land plus the amount spent on its construction and that the cost plus profit method can be adopted in the year when the project is completed. In other words the profit would be added in the year of completion of project and not in the years during which the work was in progress. Mr. Rehan Hasan Naqvi had further submitted that in the instant year the appellant did not hold any asset, as defined under section 2(e)(ii), on the valuation date because the apartments had been transferred and physically handed over to the buyers on completion of the project. During the course of arguments it was felt that the previous judgments of this Tribunal (ibid) requires reconsideration. Accordingly, the appeal is now heard by this Full Bench.
5. Mr. Rehan Hasan Naqvi has been asked to address arguments on two significant aspects of the issue involved in the instant appeal. Firstly, if his submission is accepted that the appellant does not hold the assets representing the two projects supra on the relevant valuation date because the apartments constructed by the appellant have already been transferred and physically handed over to the buyers on completion of the project prior to the valuation date, the consequence of the decisions of the Division Benches of the Tribunal ibid would be that the difference between the cost and the market value on the relevant valuation dates would go untaxed. However, in the case of individual and H.U.F., no such problem shall arise because in the case of such assessees, the movable assets are part of their net wealth and thus the sale proceeds of any part thereof before or after the transfer of property shall form part of assets liable to Wealth Tax. Secondly, in the case of Builders and Developers, when the sale price of the units, proposed to be constructed by them, is fixed prior to the announcement of the project for sale, through media advertisement, what is the difficulty in determining the market value of the work executed by the relevant valuation dates corresponding to assessment years falling during the period taken in completion of the project? The proposition for our consideration is that the assessee has to declare and the learned D.C.W.T. has to assess the percentage of the total work executed by the relevant valuation date and prorate the total sale price of the project to such percentage of work executed, to arrive at its market value on such valuation date.
6. The learned counsel for the appellant Mr. Rehan Hasan Naqvi, initially, has tried to build up his case around sub-rule (3) of Rule-8 of the Wealth Tax Rules which restricts the discretion of the assessing officer not to determine the value of any property at a sum higher than 10 times of the Gross Annual Rental Value of such property except with the prior approval of the Commissioner. He has submitted that, in case of incomplete buildings, since the Gross Annual Rental Value cannot be determined, the assessing officer cannot assess the value under the Rule (supra). However, he concedes that in the method of valuation proposed supra the assessing officer, neither, would be invoking any discretion given to him under any provision of law nor he would be estimating any value of the asset which the assessee himself has not assigned to the asset. He, therefore, concedes that the proposed method of valuation is equitable, fair and reasonable.
7. Accordingly, we find that the aforementioned aspect of the issue has not been considered by the learned Division Benches in the decision's ibid. Consequently, the decisions ibid have created a situation wherein the provisions of section 2(e)(ii) of the Wealth Tax Act to the extent of the chargeability of the difference in the cost of incomplete immovable properties held for the purposes of construction and sale and their value on the relevant valuation date are rendered ineffective, as in the instant case.???????????
8. We, accordingly, hold that in the cases where immovable properties are held, for the purposes of construction and sales, by a firm, an A.O.P., or a body of individuals whether incorporated or not, and a company, and the work construction is in progress on the corresponding valuation date, after offering the units under construction for advance sale, the value of such incomplete project or projects on the valuation date shall bear the same proportion to the total sale price, at which the project is offered for sale, that the work-in-progress on the valuation date bears to the complete project. Consequent upon our foregoing finding, we hereby overrule the decisions of the Division Benches (ibid) on this issue.
9. However, in the cases where such assessee's hold immovable properties for construction and sale but offer them for sale only after completing the construction, the valuation of the incomplete project on the valuation date shall have to be done at cost plus the margin of profit assessed on similar work by the D.C.I.T. under the Income Tax Ordinance either in assessee's own case or where no income has ever been assessed in assessee's own case, the margin of profit assessed in cases of similar assessees.
10. Regarding, the objection of the appellant, to the upholding of the value of the two projects assessed by the D.C.W.T., on the ground that on the relevant date of valuation immovable properties bearing No.FL-4, Block-5, Clifton and FL-5, Block-M, North Nazimabad, Karachi are no more held by the appellant, the learned D.C.W.T. has held that the contention is incorrect because the appellant itself has declared the value of the two properties at Rs.22,238,398 in its return of wealth. Mr. Rehan Hasan Naqvi, however, has submitted that the learned D.C.W.T. has misconceived the facts. The appellant, according to him, has declared in the Annexure-III of the return that flats on FL-4/Block-5, Clifton and FL-5/Block-M of N. Nazimabad have been completed and handed over to owners. Thus, there is neither any such asset held by the appellant on the valuation date nor any value of such assets has been declared in the return.
11. We find on perusal of the return of wealth that the finding of the learned D.C.W.T. that value of the projects (supra) has been declared at Rs.22,238,393 is prima facie incorrect; hence unsustainable.
12. Considering the foregoing facts we vacate the impugned order of the learned CWT(A) and set aside the impugned assessment order on this point with the directions that if the declaration of the appellant that the two projects (supra) have been completed and titles in the properties therein have been transferred to the buyers prior to relevant valuation date is found correct after due verification, no addition shall be warranted on this account in the wealth of the appellant.
13. The appeal is allowed in the manner (supra).
M.B.A./349/(Trib.)?????? ?????????????????????????????????????????????????????????????????????? Order accordingly.