W.T.A. NO.755/LB OF 1996 VS W.T.A. NO.755/LB OF 1996
1997 PT D (Trib.) 203
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Judicial Member and Sikandar Kalim Fazal, Accountant Member
W.T.A. No. 755/LB of 1996, decided on 19/08/1996.
(a) Wealth Tax Act (XV of 1963)---
----Ss. 2(e)(ii), m(iii), 3 & 5---C.B.R. Circular No. .18 of 1991, dated 9-7-1992---Net wealth---Assets---Residential house---Non-residential property---Association of persons---Exemption---Definition of assets in respect of Association of persons does not include a residential house ---Non residential property is not covered by the definition of "net wealth" in the case of Association of persons---Concept of exemption of self-occupied house under the provisions of S.5(i)(xvi) of the Wealth Tax Act, 1963 does not exist in the case of an A.O.P.---Only exemption which for the year would be Rs.10,00,000---No substitution in respect of self-occupied house, therefore, is available in respect of a residential house because the same not being covered by the definition of the "net wealth" is not taxable.
The concept of A.O.P. though was earlier a part of the Wealth Tax Law under section 3 but to charge an A.O.P. to wealth tax the provision was introduced by the Finance Ordinance, 1980 through which a new category of notional A.O.P. was created to charge to tax property units which stood registered in the name of more than one person. The concept of real A.O.P. existed in section 3 of Wealth tax Act but to charge immovable properties held by an A.O.P., the concept of above-noted national A.O.P. was created.
Provision of A.O.P. under section 2(m)(iii) charge 'net wealth' in terms of immovable properties and the definition of 'net wealth' under section 2(e)(ii) includes immovable properties held for business of construction and sales/letting out.
Godown occupied for personal business use is not included in other preview of clause (ii) of section 2(e) of the Wealth Tax Act, 1963. After introduction of the explanation, only that property is to be taxed which is held for the purposes of:
(i) Business of construction and letting out or business of letting out of property.
(ii) Construction and letting out of property.
(iii) Construction and sale of property.
The definition of assets in respect of A.O.P. does not include a residential house.
Even if the property is not a residential property, the same even, otherwise is not covered by the definition of "net asset" in the case of an A.O.P.
The. law does not permit travelling beyond the intendments provided by the Legislature. Stretching a charging section beyond its jurisdiction has never been allowed by the higher Courts. Nothing can be presumed which is not explicit from the words of the Legislature.
The impugned provision would therefore, only charge that property to tax which is held for the purposes mentioned in the explanation above. No only it does not include self-occupied residential house but also excludes such other properties which are held by an A.O. P. for the purposes other than mentioned in the explanation added to paragraph (ii) "of clause (e) of section 2 of the Wealth Tax Act.
The concept of exemption of a self-occupied house under the provision of section 5(i)(xvi), does not exist in the case of an A.O.P. The only exemption available for calculating the tax of A.O.P. is the basic exemption which for the year would be Rs.10,00,000. No substitution in respect of a, self-occupied house, therefore, is available in respect of a residential house because the same not being covered by the definition of the 'net asset' is not taxable as an A. O. P.
1990 PTD 383; 1996 PTD (Trib.) 100; 1991 PTD (Trib.) 1058; M/s. B.P. Biscuits Factory v. W.T.O. Civil Appeal No. 140-K of 1981; 1996 PTD (Trib.) 192; 1988 PTD (Trib.) 585 and 1996 PTD (Trib.) 1144 ref.
(b) Interpretation of statutes---
---- Fiscal statute---Intention of Legislature---Travelling beyond the indentment provided by the Legislature is not permissible---Stretching a charging section beyond its jurisdiction is also not allowed---Nothing can be presumed which is not explicit from the words of the Legislature.
Since claim of the assessee is that the two properties have been made as one by demolishing dividing wall and that the same is not even otherwise chargeable under section 2(e)(ii) as an A.O.P., the same cannot be taxed in the hands of impugned assessee. The claim of the assessee is fully justified. The property shall, therefore, be excluded from the total wealth of A.O.P. The issue regarding valuation, therefore, shall not arise in view of the above findings. However, above exclusion from the assets of the A.O.P. shall not debar the department of charging this asset, in the hands of the members of the A.O.P. in their individual assessments to the extent of their respective shares.
Dr, Ilyas Zafar for Appellant.
Muhammad Aslam, D.R. for Respondent.
Date of hearing: 28th July, 1996.
ORDER
This assessee appeal assails inclusion of property situated at 30 Humaliya Road, and 31-Zafar Ali Road, Sialkot; in the assets of an A. O. P.
2. The brief facts of the case are that aforementioned two properties were purchased by one A.O.P. for the purpose of their personal residence. The property was declared as a part of the assets of the A.O.P. and was previously assessed to wealth tax on the basis of the same. The AR has informed that during the impugned year the assessee came to know about his previous, mistake of inclusion of these assets in the return filed as A.O.P. He, therefore, became wiser this time and claimed one of the two as exempt from wealth tax. Moreover, he said that the property in the previous year was purchased on 9-6-1994 and its possession was not obtained up to 30-6-1994. It is in these circumstances that the property was included in the taxable assets. For the impugned year the assessee claimed that house being self-occupied should be declared as exempt. The W.T.O. did not agree with the assessee and assessed the property to tax by including the same as a part of the assets of the A.O.P. and adopted the value at Rs.3,46,40,000. This combined estimate of the value of the two properties was made on claim of the assessee that both being adjacent to each other were ultimately converted into one by removal of the dividing wall in-between.
3. The assessee preferred an appeal before learned C.I.T.(A), Sialkot; wherein the claim of exemption and estimate of value both were challenged. The learned C.I.T.(A) observed that the assessee entered in an agreement with the department on 20-6-1995 for 1994-95 and until this date there was no claim that the property is one. He further observed that the assessee could not demolish dividing wall in ten days, and thereby confirmed the disallowance of the claim of exemption under section, 5 (XVI) of the Wealth Tax Act earlier disallowed by W.T.O. He, however, reduced the value of the property No.30-Humaliya Road, Sialkot Cantt. to Rs.1,50,00,000. The learned C.I.T.(A) also observed that both the houses are separate and thereby confirmed the exemption allowed in respect of Property No.31-G, Zafar Ali Road. The learned C.I.T.(A), however, accepted that few rooms have been constructed on 30-Humaliya Road also.
4. Before us the learned A.R. of the assessee besides repeating his earlier arguments have come up with an additional submission. Firstly, he has argued that consent of the assessee does not confer jurisdiction over an illegality. Similarly, he said that having once agreed for payment of tax on self-occupied house as a part of assets of an A.O.P., the assessee is not debarred to claim it as exempt in a subsequent year. In his support he has referred two judgments wherein the learned High Court held that agreements being extraneous to the Income Tax Ordinance, does not confer any right to the assessee. The relevant part is as follows:---
1990 PTD 383
"We entirely agree with the view taken by the Tribunal. In the Ordinance, there is no room for an agreed assessment and the I.T.O. had to assess the petitioner's total income, on .the strength of the material on the record and such other evidence on specific points, as required by him. If the I.T.O. chooses to follow a manner of assessment extraneous to the Ordinance he could well-voluntarily impose on himself the condition as to the Commissioner's approval of such an assessment. It is clear to us that the Assessing Officer did not finalize the agreed assessment and the approval of the Commissioner Income-tax was the condition precedent for such acceptance. The proposal for agreed assessment forwarded by the petitioner to the Commissioner, therefore, did not confer any right on the petitioner. His stand is utterly misconceived. It is well-settled that only a substantial question of law can be referred to the High Court. The Tribunal's order does not give rise to any such question. No ground for interference. Dismissed in limine."
5. Advancing his arguments he said that non-filing of appeal in the previous year also does not debar the assessee from challenging the same or the similar issue in a subsequent assessment. The judgment in respect thereto which he relied upon is as follows:---
1996 PTD (Trib). 100.
6. In the above noted judgment the learned Tribunal held that non -filing of appeal in the previous year does not debar any party from agitating any particular issue of facts in the subsequent years. He also argued that the learned I.T.O. and C.I.T.(A) could not in fact 'appreciate the claim of the assessee. The assessee's claim was not that he should be allowed exemption under section 5(1)(xvi) but that property impugned was not chargeable in the hands of an A.O.P. He also argued that even if the assessee could not formally present this claim before the subordinate officers there is no bar to take up the same now the real issue which require indulgence of I.T.A.T. the A.R. urgued is that whether the provisions relating chargeability of an A.O.P. is applicable on a residential house or not. The issue in his opinion has already been discussed in a judgment cited as follows:--
1991 PTD (Trib.) 1058.
"Similarly, the finding of learned C.W.T. (A) that the self-occupied property of A.O.P. does not fall under the ambit of section 2(e)(ii) also seems to be correct in view of explanation added to paragraph (ii) of clause (e) of section 2 of the Wealth Tax Act, for the simple reason that wealth tax on an A.O.P. could be imposed only for those immovable properties which are held by an A.O. P. for any of the purposes mentioned in aforesaid explanation added by Finance Act of 1991 and that self-occupied property does not fall within any of such purposes. The departmental appeal, therefore, fails on this point also."
7. It may be worth mentioning here that the judgment referred is based upon the explanation added in section 2(e)(ii) in pursuance to a judgment of the Supreme Court of Pakistan in the case of M/s. B.P. Biscuits Factory v. W.T.O. 1996 SCMR 1470.
8. The D.R. on his turn strongly supported the order of the subordinate officers. He said that the assessee claimed exemption of one self -occupied house and in this case two residential properties were before the W.T.O. He, therefore, allowed exemption in respect of one which was claimed by the assessee to be exempt in the previous year. He also argued that the assessee having offered these properties for tax in the previous year is debarred from claiming the same as exempt in the subsequent years. Regarding arguments of the A.R. that the same being a residential house could not be taxed in the hands of an A.O.P., the learned D.R. vehemently opposed by saying that every property belonging to the same members of an A. O. P. are to be taxed and no, exception can be made, in respect of any asset. Before we give our findings it will be more appropriate to. go through the issue impugned before us keeping in view the relevant provision of law.
8-A. The concept of A.O.P. though was earlier a part of the Wealth Tax Law under section 3 but to charge an A.O. P. to wealth tax the provision was introduced by the Finance Ordinance, 1980 through which a new category of notional or fictional A.O.P. emerged. This concept of notional A.O.P. was created to charge to tax property units which stood registered in the name of more than one person. The concept of real A.O.P. existed in section 3 of Wealth Tax Act but to charge immovable properties held by an A.O.P., the concept of above-noted national A.O.P. was created. The distinction between two types of A. O. P. have already been discussed thoroughly in the judgment referred by the A, R. cited as 1991 PTD (Trib.) 1058 and we need not repeal it here. The definition of A.O.P. has also elaborately been thrashed out by the learned Income Tax Appellate Tribunal in a latest judgment cited as 1996 PTD (Trib). 192 wherein the share of residential house excluded from the assets of an individual assessee under the claim that the residential house owned by more than one person was separately assessable as an A.O.P. was not accepted. It has been observed that provision of A.O.P. under section 2(m)(iii) charge 'net wealth' in terms of immovable properties and the definition of 'net wealth' under section 2(e)(ii) includes immovable properties held for business of construction and sales/letting out. The judgment now referred by us has not only located the history of this amendment but have also discussed other relevant judgments including 1988 PTD (Trib).- 585. In this judgment the learned Tribunal held that godown occupied for personal business use is not included in the purview of Clause II of section 2(e) of the Wealth Tax Act. For the purpose of arriving at a clear finding in the impugned case, we also find support from the judgment referred supra, wherein it has been observed that after introduction of the explanation, only that property is to be taxed which is held for the purposes of:
(i)"Business of construction and letting out or business of letting out of property.
(ii)Construction and letting out of property.
(iii)Construction and sale of property."
9. Above observation also finds support from C.B.R. Circular No. 18 of 1991 of July 9, 1992. The relevant para wherefrom is as follows:---
"(IV) Keeping in view the said judgment of the honourable Supreme Court of Pakistan and the said explanation to sub-clause (ii), it is hereby clarified that the immovable property held by a firm, an association of person 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 sale ofproperty;
(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.
(V)The 'explanation' added to the said sub-clause (ii) shall be effective from the 28thday of June, 1979 when the said sub-clause (ii) was inserted in the Wealth Tax Act, 1963.
10. Above discussion and C.B.R. Circular makes it abundantly clear that the definition of assets in respect of A.O.P. does not include a residential house.
11. In the impugned case both the properties situated at Zafar Ali Road and the one at Humaliya Road are being used for residential purposes. The A.R. of the assessee has produced before us electricity bills and few other documents to say that the property impugned is a residential house in personal use of the members of the A.O.P. It is also not the case of the department that the property situated in 4.3 acres is actually held for the business of construction and letting out or for business of construction and sale etc. Even if the property is not a residential property, the same even otherwise is not covered by the definition of 'net asset' in the case of an A.O.P. Before concluding we would like to refer the famous principle regarding interpretation of fiscal statutes. It is a settled issue that the law does not permit travelling beyond the intendments provided by the Legislature. Stretching a charging section beyond its jurisdiction has never been allowed by the higher Courts. Nothing can be presumed which is not explicit from the words of the Legislature. For references were cited here a latest reported judgment of I. T. A. T. which is as follows:---
1996 PTD (Trib).-1144.
12. The impugned provision would therefore, only charge to tax the property which is held for the purposes mentioned in the explanation above. Not only it does not include self-occupied residential house but also excludes such other properties which are held by an A.O. P. for the purposes other than mentioned in the explanation. Here again we would like to quote with advantage a citation from the following judgment:
1988 PTD (Trib). 585.
The relevant para. is as follows:---
"It was held that since the company was in occupation of the premises for the purpose of its business which contested of safe storage of films by providing use of the vaults and affording facilities for the safe storage of the films, the company, therefore, derived its income from business and not from letting out of the property. In our view this ruling lends support to our conclusion." Thus, neither the self-occupied godowns can beheld to be assets as defined by clause (ii) of section, 2(e) of the Wealth Tax Act nor Rs.24,339 and Rs.22,608 can be held to be income from business of letting out."
13. In keeping view above discussion and the judgments referred by us there is no reason for including both the properties in the assets of the assessee. The concept of exemption of a self-occupied house under the provision of section 5(i)(xvi), in our opinion, does not exist in the case of an A.O.P. The only exemption available for calculating the tax of A.O.P. is the basic exemption which for the year would be Rs.10,00,000. No substitution in respect of a self-occupied house, therefore, is available in respect of a residential house because the same not being covered by the definition of the ' net asset' is not taxable as an A.O. P.
14. In the impugned case since claim of the assessee is that the two properties have been made as one by demolishing dividing wall and that the same is not even otherwise chargeable under section 2(e)(ii) as an A.O.P.; the same cannot be taxed in the hands of impugned assessee. The claim of the assessee is fully justified. The property shall, therefore, be excluded from the total wealth of A.O.P. The issue regarding valuation, therefore, shall not arise in view of the above findings. However, above exclusion from the assets of the A.O. P. shall not debar the department of charging this asset, in the hands of the members of the A.O.P. in their individual assessments to the extent of their respective, shares. The appeal is accordingly decided in favour of the assessee on the lines and in the manner as indicated above.
M.B.A./269/T Order accordingly.