W.T.AS. NOS.375/HQ TO 377/HQ OF 1988-89 VS W.T.AS. NOS.375/HQ TO 377/HQ OF 1988-89
1997 P T D (Trib.) 192
[Income-tax Appellate Tribunal Pakistan]
Before Hamidullah Malik, Accountant Member and Muhammad Mujibullah Siddiqui, Chairman
W.T.As. Nos. 375/HQ to 377/HQ of 1988-89, decided on 17/07/1996.
Wealth Tax Rules, 1963---
----R.8(3), proviso---Gross Annual Rental Valuation of land and building-- Addition---Validity---Wealth Tax Officer is not vested with the power of adding necessarily 10% or 12% if the deposit/advance rent or interest calculated thereon to ALV in order to find out GARV---Proviso to R.8(3)-- Wealth Tax Rules, 1963 recommends mandatorily to Wealth Tax Officer that he must take into consideration the amount of advance rent or security deposits while determining the GARV, for in some cases the actual rent received may be lesser than the reasonable rent due to payment of advance rent or security deposit--Assessee had received huge amount of unadjustable security deposit from tenants as against actual rent (including service charges) and was using the said amount for his own business ---Assessee had also given substantial concession to its tenants in the matter of monthly rent---Actual amount of rent received by the assessee thus did not represent the true GARY and Wealth Tax Officer was justified to adopt the enhanced rental value of the property but could not resort to formula type addition on percentage basis.
The proviso to sub-rule (3) of Rue 8 of the Wealth Tax Rules, 1963 did not vest the W.T.O. with the power of adding necessarily 10% or 12% of the deposit advance rent or interest calculated thereon to ALV in order to find out GARY. The said proviso recommended mandatorily to the W.T.O. that he must take into consideration the amount of advance rent or security deposits while determining the GARY because in some cases the actual rent received may be lesser than the reasonable rent due to payment of advance rent or security deposit. In other words, although the W.T.O. cannot add a certain percentage of advance rent/security deposit on a formula basis in the actual rent in order to arrive at the GARV of the property yet the law permitted the W.T.O. to adopt enhanced rent of the property keeping in view the consideration of advance rent/security deposit received by the owner of the property.
In the present case the assessee had received unadjustable security deposits of Rs.79,00,000 as against the actual rent (including service charges) of Rs.10,77,000, Rs.10,97,388 and Rs.13,33,248. The assessee was using for its own business huge amounts of fixed security deposits of its tenants. The assessee must have, therefore, given substantial concession to its tenants in the matter of monthly rent. Thus the actual rent received by the assessee did not represent the true Gross Annual Rental Value. The Wealth Tax Officer was, therefore, justified to adopt the enhanced rental value of the shops but he could not take resort to formula type addition on percentage basis. In this background, the C.I.T.(A) was not justified in directing the W.T.O. not to make any addition in the rent declared by the assessee.
Qamaruddin, D.R. for Appellant.
Iqbal Naeem Pasha for Respondent.
Date of hearing: 17th July, 1996.
ORDER
The three appeals at the instance of department are directed against the order dated 28-1-1989 whereby the learned C.I.T.(A) directed the W.T.O. not to add a certain percentage of unadjustable security deposits for the purpose of calculating G.A.R.V. of the shops.
2. Facts relevant to the present appeals are that the assessee-company owns a hotel known as Holiday Inn at Karachi and Islamabad. The hotel buildings contain Shopping Arcades which have been let out. The assessee, besides monthly rent of shops, has received substantial unadjustable security deposits from its tenants. The W.T.O. computed the value of these shops under rule 8(4A) of the Wealth Tax Rules in the following manner:---
| Assessment year | 1985-86 (Rs.) | 1986-87 (Rs.) | 1987-88 (Rs.) |
| Monthly Rent | 34,868 | 36,151 | 55,152 |
| Monthly Service Charges | 54,882 | 55,298 | 55,952 |
| Total | 89, 750 | 91,449 | 1,11,104 |
| Unadjustable Security Deposits | 79,00,000 | 79,00,000 | 79,00,000 |
| Annual Rent | 10,77,000 (89,750x12) | 10,97,000 (91,449x12) | 13,33,248 (1,11,104x12) |
| Add: 10%0 of Security Deposits | 7,90,000 | 7,90,000 | 7,90,000 |
| G. A. R. V. | 18,67,000 | 18,87,388 | 21,23,248 |
3. The assessee was aggrieved by the action of the Assessing Officer in adding 10% of the security deposits in the actual rent of the shops. The learned C.I.T.(A), while referring to the order of the Tribunal in a case reported as 1988 PTD (Trib.) 585 directed the assessing officer not to make any addition on account of security deposits.
4. This time the department is not satisfied with the above direction of the first Appellate Authority. The plea of the department is that a reasonable addition on account of unadjustable security deposits could be made in the actual rent in view of the provisions of sub-rule (4-A) of Rule 8 of the Wealth Tax Rules and on the analogy of the provisions of section 12(13) of the Income Tax Ordinance, 1979. The learned A.R., on the other hand, submitted that no formula addition on percentage basis on account of unadjustable security deposits could be made in the actual rent of the shops in view of the clear findings of the Income Tax Appellate Tribunal in the abovementioned case.
5. We have heard both the parties and gone through the Tribunal's order referred to above. The Tribunal held that the proviso to sub-rule (3) of the Rule 8 did not vest the W.T.O. with the power of adding necessarily 10 % or 12 % of the deposit advance rent or interest calculated thereon to A.L.V. in order to find out GARY. But further observed that the said proviso recommended mandatorily to the W.T.O. that he must take into consideration the amount of advance rent or security deposits while determining the GARY because in some cases the actual rent received may be lesser than the reasonable rent due to payment of advance rent or security deposit. In other words, the Tribunal was of the view that although the W.T.O. cannot add a certain percentage of advance rent/security deposit on a formula basis in the actual rent in order to arrive at the G.A.R.V. of the property yet the law permitted the W.T.O. to adopt enhanced rent of the property keeping in view the consideration of advance rent/security deposit received by the owner of the property. The Tribunal has in paras. 25 to 27 of its order has indicated the course of action which could be adopted by a W.T.O. in such circumstances.
6. In the present case the assessee has received unadjustable security deposits of Rs.79,00,000 as against the actual rent (including service charges) of Rs.10,77,000, Rs.10,97,388 and Rs.13,33,248. The assessee is using for its own business huge amounts of fixed security deposits of its tenants. This consideration must have weighed heavy with both the parties at the time of determining the monthly rent of the shops. The assessee must have, therefore, given substantial concession to its tenants in the matter of monthly rent. Thus the actual rent received by the assessee does not represent the true Gross Annual Rental Value. The Wealth Tax Officer was, therefore, justified to adopt the enhanced rental value of the shops but he could not take resort to formula type addition on percentage basis. In this background, the learned C.I.T.(A) was not justified in directing the W.T.O. not to make any addition in the rent declared by the assessee. We, therefore, vacate her order on this issue for all the three years and remit the matter back to the W.T.O. to recompute the value of the shops in accordance with law and the guidelines given by the Tribunal in paras. 25 to 27 of its abovementioned order.
7.In the result, all the three departmental appeals are allowed.
M.B.A./226/T Appeals allowed