W.T.AS. NOS. 189(113) TO 191 (IB) AND 194(IB) OF 1995-96 VS W.T.AS. NOS. 189(113) TO 191 (IB) AND 194(IB) OF 1995-96
1997 P T D (Trib.) 314
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Hamidullah Malik, Accountant Member
W.T.As. Nos. 189(IB) to 191(IB) and 194(IB) of 1995-96, decided on 14/12/1996.
(a) Wealth Tax Act (XV of 1963)---
----Ss. 3 & 7---C.B.R. Wealth Tax Circular No. 3 of 1983, dated 26-7-1983---Hotel---Immovable property owned by two or more persons and used as hotel is not exempt from the levy of the wealth tax.
(b) C.B.R. Circulars---
---- Scope and object.
The C.B.R. is not empowered to interpret the provision of law. It cannot exempt any property from the charge of tax otherwise chargeable to tax properly under the provisions of the Act.
The C.B.R. can explain the meanings of certain provisions of the statute for the administration of which it is responsible, but it cannot give such meanings to the statute as it does not intend to give. The C.B.R.'s. circulars can only be used as an aid to interpretation of the statutory provisions but cannot be used as an interpretation of the said provisions.
(c) Wealth tax---
---- Liability of wealth tax in respect of immovable property used as hotel or hotel-cum-shopping arcade---Joint property used as hotel or for any other business ---Chargeability to wealth tax of co-accused---Mode---Determination of taxable wealth ---C.B.R. Wealth Tax Circular No. 3 of 1983, dated 26-7-1983 interpreted.
Keeping in view the C.B.R.'s. qualified powers to issue circulars, Wealth Tax Circular No.3 of 1983 seeks to clarify that where a joint property is used as hotel-cum-shopping arcade the part of the property used as shopping arcade shall be subjected to tax in one hand consisting of the co- owners of the property and the part of the property used as hotel in its popular sense or traditional understanding shall be included in the net wealth of the individual co-owners as was done before the 1980 amendment of the Act. Thus, what the last sentence of paragraph 3 of the Circular intended to say was that that part of a joint property which is used for hotel business (or for that matter for any other business purpose) and is not used for the purpose of letting out shall not be subjected to wealth tax in one hand of the firm. A.O.P. or private company but each co-owner's share shall be included in his net wealth and shall be subjected to the provisions of the Act as before the 1980 amendment.
Each co-owner's share in the joint property used as hotel shall be included in his net wealth for the purposes of the Act.
Muhammad Riaz, D.R. for Appellants.
Nemo for Respondents.
Date of hearing: 10th December, 1996.
ORDER
These appeals filed by the Wealth Tax Officer (WTO) raise the question whether an immovable property owned by two or more persons and used as hotel by the co-owners is or is not subject to wealth tax.
2. The W.T.O. is of the view that such property is not exempt from wealth tax and the share of each individual co-owner in the property will be included in his net wealth for the purposes of the Wealth Tax Act, 1963 (the Act). The Appeal Commissioner has held that in view of the Wealth Tax Circular No.3 of, 1983 issued by the Central Board of Revenue on 26-7-1983 such property is not subject to wealth tax.
3. We have heard Mr. Muhammad Riaz, D.R. for the W.T.O. None has appeared for the assessees. Without representation on the assessee's behalf their written request for adjournment is not acceded to.
4. We have not been able to lay our hand on any provision of the Act providing for that an immovable property owned by two or more persons and used as hotel is exempt from the levy of the Wealth Tax Act. The Appeal Commissioner too has not referred to any provision of the Act in support of his holding that the assessee's joint immovable property used as hotel is exempt from wealth tax. Since the Appeal Commissioner s holding is based on the C.B.R.'s. Circular it will be appropriate to set it down. It reads:
WEALTH TAX ACT, 1963
C.NO. 8(9)-WT/IT-V/79
GOVERNMENT OF PAKISTAN
CENTRAL BOARD OF REVENUE
Islamabad the 26th July, 1983.
WEALTH TAX CIRCULAR NO. 3 OF 1993
SUBJECT:WEALTH TAX LIABILITY IN RESPECT OF IMMOVABLE PROPERTIES OF HOTELS-- DETERMINATION OF TAXABLE WEALTH.
A firm, an association of persons or a body of individuals, whether incorporated or not, and a private limited company are liable to pay wealth tax in respect of specified types of assets including immovable property held for the purpose of letting out. However, banking, insurance and Government approved finance companies are altogether excluded from the ambit of wealth tax.
2. Certain questions have been raised regarding wealth tax assessments of immovable properties used as hotels. The position is explained as under.
3. If a firm, A.O.P. or a private company owns immovable property and also runs a hotel therein, wealth tax is levied on the value of only that part of the property which is let out for commercial purposes such as shops, offices, show-rooms, stall, etc. However, that part of the property which is used as suites and rooms for visitors, who stay in the hotel, is not subjected to wealth tax.
4. In certain cases the firms, A.O.Ps. and private companies, which own immovable properties, do not run hotels themselves. They lease out the properties to other persons who run hotels therein. In such a case wealth tax is not levied on the actual hotelier because he is not the owner of the property. However, the firm, A.O.P. or company, which owns the immovable property, has to pay wealth tax in respect of the entire immovable property let out by it irrespective of actual use of the property by the lessee.
5. At the very outset we would like to point out that by now it is established by firm judicial authority that the C.B.R. is not empowered to interpret the provisions of law. It is also established that it cannot exempt any property from the charge of tax chargeable to tax properly under the provisions of the Act. The Circular also does not give any indication that it was intended to grant exemption from tax in respect of immovable property owned by two or more persons and used as hotel or for any other business purpose. Rather the language of the Circular goes to suggest that it was intended to explain the provisions of the Act as an2ended by Wealth tax (Amendment) Ordinance, 1980. Thus, the scope of an enquiry' is limited to the question whether the C.B.R. has correctly explained the provisions of the Act as amended by the 1980 Ordinance.
6. Before the 1980 amendment in the Act wealth tax was chargeable for every financial year in respect of the net wealth on the corresponding valuation date of every individual (section 3). The net wealth was defined to mean the amount by which the aggregate value of all the assets belonging to an individual on the valuation date was in excess of the aggregate value of all the debts owed by the individual on the valuation date (section 2(m). The expression "asset" was defined to include property of every description movable or immovable (except growing crops etc. no material for our enquiry). Naturally in its plain meaning of the asset included the share of any individual in an immovable property owned by two or more persons whether used as a hotel or for any other business purpose. The 1980 amendment in the Act, in pertinent, provide that whether an immovable property belonging to two or more persons is held by the said persons for the purpose of letting out etc. which shall be charged to tax in the hand of one person consisting of the co-owners and shall not be charged to tax in the hands of each co-owner in respect of his share in the joint property. A question however, arises how such a property which is partly used as hotel and partly for the purposes of letting out shall be subjected to tax. The above question rose because a majority of hotels included shopping arcades and a view was that the shopping arcades not being integral part of the hotel or hotel business was to be treated immovable property held for the purposes of letting out and if the property used as hotel with shopping arcade was owned two or more persons it was to be taxed in the hand of one person consisting of co-owners. The real legal position was that if one part of a joint property had been let out on rent and the other part was used for business purposes only the former part was to be subjected to tax in the hand of one person consisting of the co -owners and later part was to be dealt with as it was dealt with before the 1980 amendment. It appears all that of the C.B.R. intended to explain through the Circular was the above legal position. We cannot read anything in the C.B.R.'s. Circular which is inconsistent with or repugnant to the basic provisions of the Act. The C.B.R. can explain the meanings of certain provisions of the statute for the administration of which it is responsible, but it cannot give such meanings to the statute as it does not intend to give. The C.B.R.'s. circulars can only be used as an aid to interpretation of the statutory provisions but cannot be used as an interpretation of the said provisions. Thus, keeping in view the C.B.R's. qualified powers to issue circulars, we are of the view that Wealth Tax Circular No.3 of 1983 seeks to clarify that where a joint property is used as hotel-cum-shopping arcade the part of the property used as shopping arcade shall be subjected to tax in one hand consisting of the co-owners of the property and the part of the property used as hotel in its popular sense or traditional understanding shall be included in the net wealth of the individual co-owners as was done before the 1980 amendment of the Act. Thus, in our view what the last sentence of paragraph 3 of the Circular intended to say was that that part of a joint property which is used for hotel business (or for that matter for any other business purpose) and is not used for the purpose of letting out shall not be subjected to wealth tax in, one hand of the firm. A.O.P. or private company but each co-owner's share shall be included in his net wealth and shall be subjected to the provisions of the Act as before the 1980 amendment.
7. In consequence of what has been stated above the Appeal Commissioner's order cannot be maintained. Accepting the W.T.O.'s. appeals the Appeal Commissioner's order is vacated. Each co-owner's share E in the joint property used as hotel shall be included in his net wealth for the purposes of the Act. The W.T.O. shall determine the tax liability in the light of the above ruling.
M.B.A./294/Trib. Order accordingly.