W.T.A. NO. L-C(IB) OF 1995-96 VS W.T.A. NO. L-C(IB) OF 1995-96
1997 P T D (Trib.) 327
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Hamidullah Malik, Accountant Member
W. T. A. No. 1-C(IB) of 1995-96, decided on 15/12/1996.
(a) Wealth Tax Act (XV of 1963)---
----Ss. 3, 2(m) & 2(e)---Net wealth---Evacuee property---Transfer of such property to displaced persons---Status of transferee---What interest has been granted to a displaced person in an evacuee property through transfer under the evacuee laws is neither more nor less than what the evacuee owner had in the property---Transferee thus has the same rights in the property which the evacuee owner had in such property.
(b) Wealth Tax Act (XV of 1963)---
----Ss.3, 2(m) & 2(e)---Assets---Net wealth ---Chargeability of tax---Evacuee property in Cantonment area---Allotment of such evacuee property to a displaced person under evacuee laws---Status of allottee---Land in the property belonged to the Government and Government had the right to resume the land at any time by giving one month's notice and paying the value of such building as may have been authorised to be erected---Land under the property, thus, could not be sold by the original grantee (the evacuee) and being his successor allottee also could not sell the same-- Military Authorities. after the allotment of the property to displaced person mutated the same from the name of the Government to the name of allottee in the registers ---Military Authorities, however, after recalling that the allottee's rights in the property were the same as that of evacuee owner and since the land granted to the evacuee continues to be the property of the Federal Government the same position must continue even if the property had been granted to the allottee under the evacuee laws---Military Authorities reversed the mutation and by a letter informed the allottee that mutation had been cancelled from his name and land had been shown in name of Government in the registers---Said letter from the authorities prompted the allottee, who previously had been including the property in his assets, to show nil value of the property in his return of wealth---Validity---Held, letter from the Authorities had not changed the allottee's interest in the property-- Allottee was and even after the letter, continued to be the owner of only such rights in the property as the evacuee owner had ---Allottee's interest in the property thus remained the same as it was before the property was mutated in his name and after the issuance of the letter informing him the reversal of the mutation it did not suffer any change ---Allottee was entitled to receive the rent in respect of the property and his tenant could not stop paying the rent on the plea that he was not the owner of the land on which the property was standing or that authorities had refused to mutate the land in his name---Until the allottee was evicted from the property by permanent title-holder, he could enjoy the benefits to arise out of the property and as such shall be treated the owner of immovable property.
(c) Wealth Tax Act (XV of 1963)---
----S. 7---Wealth Tax Rules, 1963, R. 8---Valuation of assets---' Determination---Alienability of an asset is not a condition precedent for its inclusion in the assets of an individual---Determination of value of inalienable property---Land under the property though was not alienable by the owner of the building yet he had the right to enjoy the benefits arising out of the property---Property in question, therefore, was his assets consisting of immovable property but since it was not alienable its value could not be determined equal to alienable immovable property---Tribunal under the circumstances, held that it would be appropriate if the value of the property was determined equal to 50% of the value of similar alienble property situated similarly.
Commissioner of Income Tax v. Dr. B.M. Ankalasaria 1987 PTD 572 ref:
(d) Wealth Tax Act (XV of 1963)---
----S. 7---Wealth Tax Rules, 1963, R. 8---Valuation of assets-- Determination---Immovable property---Assets which are not straightaway alienable---Manner of valuation of such assets not given in the Rules-- Effect---Expansion of the Rules to embrace cases of inalienable properties derived---Held, if the manner of valuation of an asset was not given in the Rules that would not mean that same could not be valued or taxed---Rules needed expansion to prescribe the manner in which the value of an asset which was not straightaway alienable was to be determined---Income Tax Appellate Tribunal desired that rule-making Authority to consider the matter in that behalf---Copy of the order was directed by the Tribunal to be sent to the Central Board of Revenue to consider expansion of the Rules to prescribe the manner of the valuation of immovable property, which in the hands of an assessee was not alienable.
Commissioner of Income Tax v. Dr. B.M. Ankalasaria 1987 PTD 572 ref.
Muhammad Riaz, D.R. for Appellant.
Z.A. Qureshi for Respondent
Date of hearing: 18th November, 1996.
ORDER
In his return of wealth furnished under section 14 of the Wealth Tax Act, 1963 (the Act) the assessee declared the property identified as No.31-II, the Mall, Rawalpindi, but its value was declared at nil. In declaring nil value of the property the assessee explained that he was neither the owner nor the lease-holder of the property. According to the assessee he was only possessing the property and the right to possess being not an alienable its value was zero.
2. The assessing officer was of the view that since the assessee was enjoying the rent of the property, therefore, his right in the property was an asset. Accordingly he has estimated the value of the property equal to twelve times of the annual rent the assessee was actually receiving.
3. On assessee's appeal the Appeal Commissioner has deleted the value of the property from the assets of the assessee because he was not the owner.
4. Through this appeal the assessing officer has objected to the order of the Appeal Commissioner on the ground that the Appeal Commissioner was not justified to delete the value of the property from the assets of the assessee.
5. We have heard Mr. Muhammad Riaz, D.R. for the Department and Mr. Z.A. Qureshi, Advocate for the assessee.
6. It appears to be an accepted position that the land under the property is owned by the Federal Government for the purposes of Rawalpindi Cantonment. The land was granted to a non-Muslim before the creation of Pakistan for commercial purposes under the terms and conditions contained in the General Order by the Governor-General in Council No. 179,, dated 12th September, 1836. After the creation of Pakistan the original grantee became an evacuee and his rights in the property became evacuee property and the said rights were allotted to the assessee, a displaced person under the laws relating to rehabilitation and settlement of evacuees. By now the judicial authority is firm that what has been granted to a displaced person in an evacuee property under the said laws is neither more nor less than what the evacuee had in the property. There is no need to survey the judicial authorities establishing the above principle. It is thus accepted that the assessee has the same rights in the property which the evacuee had in the property. Paragraph 6 of the Governor-General in Council's General Order No. 179, dated 12-9-1836 prescribes the conditions on which a person was allowed to occupy the land, and they are:
| 6. "Condition of occupancy. | No ground will be granted except on the following conditions, which are to be subscribed by every grantee, as well as by those to whom his grant may subsequently be transferred:-- |
| Resumption of land. | 1st.---The Government to retain the power of resumption at any time on giving one month's notice and paying the value of such buildings as may have been authorised to be erected. |
| Land belongs to Government. Land cannot be sold by grantee. Transfer of houses Between military officers. | 2nd.---The ground, being in every case the property of Government, cannot be sold by the grantee; but houses or other property thereon situated may be transferred by one military or medical officer to another without restriction, except in the case of reliefs, when, if required, the terms of sale or transfer are to be adjusted by a Committee of Arbitration. |
| Arbitration in case of transfer on relief. Transfer of house to civilian. | 3rd.---If the ground has been built upon, the buildings are not to be disposed of to any person, of whatever description, who does not belong to the army, until the consent, of the Officer Commanding the station shall have been previously obtained under his hand. |
| Transfer to native. | 4th.---When it is proposed, with the consent of the General Officer, to transfer possession to a native, should the value of the house, buildings or property to be so transferred exceed Rs.5,000, the sale must not be effected, until the sanction of Government shall have been obtained through His Excellency the Commander-in-Chief." |
7. In view of the above terms and conditions there is no doubt that the land in the property belongs to the Government. The Government has the right to resume the land at any time by giving one month's notice and paying the value of such building as may have been authorised to be erected. There is no dispute that the land under the property could not be sold by the original grantee and being his successor cannot be sold by the assessee.
8. It further appears that after the property was allotted to the assessee I under the displaced persons' settlement laws the military authorities' mutated I the property from the name of the Government to the name of the assessee in their registers. Later however, the said authorities realizing that the assessee's rights in the property were the same as that of the evacuee owner and since the land granted to the evacuee continued to be the property of the Federal Government the same position must continue even the property has been granted to the assessee under the displaced persons' settlement laws reversed the mutation and, vide their letter, dated 23-7-1992 informed the assessee that they have cancelled the mutation from his name and have shown the land in the name of the Government in the registers. The said authorities' above intimation prompted the assessee, who previously had been including the property in his assets, to show nil value of the property in his return of wealth. As stated earlier the Appeal Commissioner has cancelled the value of the property from the assessee's assets for the reason that as the assessee is not the owner of the property it has no value to be charged to wealth tax. Unfortunately the Appeal Commissioner has not examined the issue whether the assessee's right to possess the land was or was not an asset for the purposes of the Act. At the very out set it may be stated that the military authorities' letter, dated 23-7-1992 did not legally change the assessee's interest in-the property. The assessee was, and even after the letter, continues to be the owner of only such rights in the property as the original evacuee owner had. The military authorities' letter by which they had mutated the a ownership in the land in the name of the assessee was a plain mistake. In law the nature of the assessee's interest in the property continued and remained the same as it was before the property was mutated in his name and after the issuance of the letter informing him the reversal of the mutation. The question that arises is whether the rights in land granted to the evacuee owner the precursor of the assessee, is an asset liable to wealth tax charge under the Act. Section 3 of the Act provides that there shall be charged for every financial year commencing on and from the first day of the July, 1963 the tax (hereinafter referred to the wealth tax) in respect of the net wealth on the corresponding valuation date of every individual etc. at the rate or rates specified in the Schedule to the Act. The expression "net wealth" has been defined in section 2(m) of the Act to mean the amount by which the aggregate value computed in accordance with the provisions of Act of all the assets, wherever located, belonging to the assessee on the valuation date including assets required to be included in his net wealth as on that date under the Act is, in excess of the aggregate value of all debts owed by the assessee on the valuation date other than certain specified debts. The expression "assets" has been defined in section 2(e) to include property of every description movable or immovable except growing crops etc. The arrangement of the Act as detailed above thus provides that the tax is chargeable in respect of the assessee's net wealth. The net wealth includes assessee's assets and assessee's assets includes property of every description movable or immovable. The question thus boils down to: whether the right the assessee has in the property is an asset or not. As stated earlier assets includes any movable or immovable property. The next step to beg answer to the question is to find whether the assessee's right in the property is movable or immovable property. The Act does not define "movable property" or "immovable property',". The Act does not define "movable property" or "immovable property". And, where any Act does not define an expression its meanings are to be found from the General Clauses Act, 1897. General Clauses Act defines the expressions "movable property" and "immovable property". It defines the expression "immovable property" (section 3(25) to read: 'immovable property shall include land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth'. It defines the expression "movable property" (section 3(3) to read: "movable property shall mean the property of every description except immovable property". The Appeal Commissioner is of the view that since the assessee was not the owner of the land, therefore, the property could not be treated as his asset to be charged to tax under the Act. This understanding betrays the concept of the property. A person may have variety of interest in an object These interests range from simple easement right to ownership. The right to receive rent is an interest and as defined in the General Clauses Act it is an immovable property.
9. There is no dispute that the assessee is entitled to receive rent in respect of the property. His tenant cannot stop paying rent on the plea that the assessee is not the owner of the land on which the property is standing or that the military authorities have refused to mutate it in his name. And, until the assessee is evicted from the property by paramount title-holder he will enjoy the benefit to arise out of the property and as such shall be treated the owner of immovable property.
10. The next question and of fundamental importance that arises, is how the value of the assessee's interest in the property shall be determined. Section 7 of the Act provides that the value of any assets for the purposes of the Act shall be determined by the Wealth Tax Officer in accordance with the rules made under section 46 of the Act. Rule 8 of the Wealth Tax Rules, 1963 made under the Act provides that the value of an asset (other than cash) shall be estimated to be the price, which, in the opinion of the Wealth Tax Officer, it would fetch if sold in the open market on the valuation date. It further provides that the value of the lands and buildings, shall be estimated with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality etc. The Appeal Commissioner's argument that since according to the terms and conditions of the grant the assessee is not empowered to alienate the land on which the property is standing it has no value. The alienatibility of an asset is not a condition precedent for its inclusion in the asset of an individual. One may own a motor car which may not be transferable within specified time but it would not mean that no property in the motor car vest in the assessee for the purpose of computing his net wealth under the Act. The existing rules providing for the determination of the value of assets proceed on the assumption that the assessee is the owner and has the right to dispose of the asset but that does not mean that if an asset is inalienable it has no value. The rules are intended to provide criteria to determine the value of an asset and not to exempt it from assessee's assets. It may be pointed out that if the manner of valuation of an asset is not given in the Rules that does not mean that it cannot be valued or taxed. Commissioner of Income Tax v. Dr. B.M. Ankalasaria 1987 PTD 572 (H.C.). All that we can observe is that the rules need expansion to prescribe the manner in which the value of an asset which is not straightaway alienable shall be determined, and hope that the rule-making authority will consider the matter. It is correct that the value of an alienable asset cannot be equal to an inalienable asset. In any case since the assessee has the right to enjoy the benefit arising out of the property it is his asset consisting of immovable property but since it is not alienable its value cannot be determined equal to alienable immovable property. Under these circumstances it will be appropriate if the value of the property is determined equal to 50% of the value of similar alienable property situated similarly.
11. Accepting the appeal the Appeal Commissioner's order is vacated and the assessing officer is directed to determine the value of the property as indicated above.
12. A copy of this order shall be forwarded to the Central Board of Revenue, Islamabad to consider the expansion of the rules to prescribe the manner of the valuation of immovable property which, in the hands of an assessee, is not alienable.
M.B.A./293/Trib. Order accordingly.