Wealth Tax Rules, 1963---

----R. 8(2)(c)(I)---Wealth Tax Act (XV of 1963), S.35---Valuation of shares ---Rectification of mistake---Break-up value of shares ---Assessee wanted to seek revision of valuation of shares under the garb of rectification ---Validity---Assessee had failed to furnish necessary particulars and details in that behalf to the Assessing Officer before the completion of assessment---Revision of valuation of shares could not be sought if required particulars and details were supplied only with the rectification application for the first time---Option for assessee to get the valuation of shares revised under law highlighted.

Khalid Adamjee v. CIT 1983 PTD 246 fol.

1992 SCMR 687 = 1992 PTD 570; K. Natrajan v. CIT (1977) 110 ITR 580; M. Chettgappan and others v. CIT AG (1977) 110 ITR 684; C. Parikh & Co. v. CIT (1980) 122 ITR 610; J.B. Advani & Co. (Pvt.) Limited v. R.D. Shah (1969) 72 ITR 395; Maganti Ramchandra Rao & Company v. CIT (1974) 95 ITR 147 (AP) and SaurashtraCement and Chemical Industries Ltd. v. CIT (1978) 115 ITR 27 (Guj.) ref.

Rehan Hassan Naqvi for Appellant.

Misri Ladhani, D.R. for Respondent.

Date of hearing: 7th March, 1998.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN). ---The above appeals at the instance of assessee are directed against the order, dated 29-9-1997 by the learned C.W.T.(A), Zone-VI, Karachi, in Wealth Tax Appeals. Nos. 102, 103, 104 and 105/A-VI relating to the assessment years 1992-93,1993-94, 1994-95 and 1995-96.

2. The common objections raised in all the four appeals are as follows:---

"That the learned C.I.T.(A) has erred in not directing that the share of the registered public company may be valued according to rules at break up value.

That the learned C.I.T.(A) has erred in drawing adverse inference from the fact that the appellant had declared these shares on face value because the valuation is to be made as per rules irrespective of the value declared by the appellant. "

3. Heard M/s. Rehan Hassan Naqvi and Lubna Pervaz, Advocates for the appellant and Mr. Misri Ladhani, learned representative for the department.

4. Briefly stated the relevant facts giving rise to these appeals are that the appellant in her returns of wealth tax for the four assessment years under appeal declared shares of M/s. Zafara International Limited as follows: ---

5. A perusal of record with the assistance of learned representatives for the parties shows that alongwith return of net wealth tax under Wealth Tax Act. 1963 no particulars of M/s. Zafara International Limited were given indicating if it was a public limited company or a private limited company. It was not stated as to what was the face value and break up value of the shares No working of the break up value of the shares was given. No balance-sheet of M/s. Zafara International Limited was furnished.

6. In the above circumstances the assessing officer accepted the declared value of the shares and completed the assessment accordingly. After receiving the assessment order for the four assessment years under appeal the Authorised Representatives of the appellant addressed a letter, dated 5-11-1996 to the assessing officer which reads as follows: ---

"To,

The Assistant Commissioner of Income-tax,

Circle-23, Zone-F,

Karachi

Subject:Request for rectification under section 35 of the WealthTax Act-Assessment Years 1992-93 to 1995-96 in the case of Dr. Mrs. Zahida Baqai-Prop. Baqai Hospital,

Karachi.

Dear Sir,

Under the instructions from our abovenamed client and on perusal of I.T. 30, it is noted that the value of shares of M/s. Zafara International Limited which is a Public Limited Company quoted in the Stock Exchange was inadvertently offered to tax at face value and included in the total wealth of our above client in all the abovementioned assessment years.

As per Rule 8(c)(1) of the Wealth Tax Rules 'The value of Share of Joint Stock Company Registered in Pakistan which are noted on recognised stock exchange shall be taken at face value or the breakup value as determined in the manner provided in subclause (11) whichever is lower."

The breakup value of one share of M/s. Zafara International is Rs.3.93 in the assessment year 1992-93 and NIL in the assessment year 1993-94 and 1994-95 and 1995-96 which is below the face value of Rs.10. Thus, the wealth of our client had been excessively assessed by a sum of Rs.29,80,000 and Rs.69,00,000 in the assessment years 1992-93 and 1993-94 respectively and by Rs. one crore each in the assessment years 1994-95 and 1995-96. In view of the above facts as the mistake pointed is apparent from the record the assessment order for the assessment years 1992-93 to 1995-96 may kindly be rectified under section 35 and revised demand notice and challan be issued accordingly. It may please be noted that the revised demand after the aforesaid rectification would result in the following demands:---

In view of the above, you are requested to kindly issue revised demand notice for the above amount and recovery proceedings initiated against our client may kindly be dropped till the orders are rectified in the manner as indicated above.

Thanking you."

7. A certificate, dated 27-10-1996 from M/s. H.R. Khan & Company, Corporate Law Consultant was also furnished giving break up value of the share of M/s. Zafara International Limited as on 31-12-1993. (It is pertinent to note that the assessment order for all the four assessment years under consideration was completed on 11-5-1996) subsequently the Authorised Representative of appellant supplied balance sheet of Zafara International Limited on 19-5-1997. The assessing officer rejected the rectification application on 20-5-1997. The order communicated to the appellant read as follows:---

"Karachi, the 20th May, 1997

To,

Dr. (Mrs.) Zahida Baqai, Prop

M/s. Baqai Hospital,

Nazimabad,

Karachi.

Sub: PAYMENT OF WEALTH TAX DEMAND

Please refer to your Counsel's letter, dated 19-5-1997 alongwith photo copies of Balance Sheets of M/s. Zafara International Limited for Rectification of Wealth Tax Assessment under section 35 of the Wealth Tax Act, 1963.

On examination of case records I find that Balance Sheets/Auditor's Certificates regarding Break up value of shares of M/s. Zafara International Limited, were not furnished during the course of assessment proceedings. Moreover, the information regarding number of shares held by you or the documents relating to the purchase of these shares was never furnished. The declared value of these shares was accepted and the same was not contested at the appellate forum.

Under these circumstances, the rectification under section 35 of the Wealth Tax Act, 1963 cannot be made at this stage."

8. Being aggrieved with the rejection of application, the appellant preferred first appeals which were dismissed by the C.W.T.(A) on 29-9-1997. It was contended before the learned C.W.T.(A) that the assessing officer ought to have adopted the valuation of shares of quoted public company at the lower of face value or the break up value instead of accepting the value declared by the assessee. The C.W.T.(A) observed that the assessing officer rightly refused to revise the valuation of shares which was accepted as shown in the returns and, therefore, the grievance that the assessing officer has erred in taking the value of shares on face value instead of break-up value does not arise.

9. Being still dissatisfied the appellant has preferred above appeals before us.

10. Mr. Rehan Hassan Naqvi, learned counsel for the appellant who was not appearing before the lower forums and has not filed second appeals, has vehemently assailed the findings of learned two officers below. He has contended that M/s. Zafara International Limited, being a public limited company quoted on Stock Exchange, the assessing officer ought to have adopted the lower of face value or break up value in accordance with the provision contained in Rule 8(2)(c)(1) of the Wealth Tax Rules 1963. His contention is that when the value of shares was declared in the returns the assessing officer ought to have initiated an enquiry into the value of shares which was to be taken in accordance with the provision contained in Rule 8(2)(c)(I) and (II) of the Wealth Tax Rules 1963, irrespective of the fact whether any information about the break up value was given or not. Mr. Rehan Hassan Naqvi has pointed out that in the assessment years 1992-93 and 1993-94 the face value of shares was declared at Rs.1,00,00,000 while the value for the purpose of wealth tax was declared at Rs.69,00,000 which was accepted by the assessing officer while in the assessment years 1994-95 and 1995-96 the face value of shares was declared at Rs.1,00,00,000 and Rs.1,04,000 respectively and the value for the purpose of wealth-tax was also declared to be the same and in these years also the declared value was accepted. As no particulars in respect of the company or the break-up value of the shares were given, therefore, according to learned D.R. the assessing officer was justified in adopting the declared value on the inference that the value of shares have been worked out in accordance with the rules. Mr. Rehan Hassan Naqvi has submitted that in the assessment years 1992-93 and 1993-94 there may be justification for the assessing officer in adopting the declared value of the shares because it was lower to the face value but in the assessment years 1994-95 and 1995-96, the declared value for the purpose of wealth tax is equal to the face value of shares, therefore, assessing officer was not justified in accepting the same. We are not persuaded to agree with the contentions of Mr. Rehan Hassan Naqvi. However, we would not like to go in further detail on this issue because it may take us off the point under consideration in these appeals. The point for consideration in these appeals is whether revision of the value of shares sought by the appellant under the garb of rectification falls within the purview of jurisdiction vested in the assessing office: under section 35 of the Wealth Tax Act, 1963 which reads as follows:---

"35. Rectification of mistakes.--- At any time within four years from the date of any order passed by him, or if, the Commissioner, the Wealth Tax Officer, (the Appellate Assistant Commissioner) and the Appellate Tribunal may, on his, or its, own motion rectify any mistake apparent from the record and shall, within a like period, rectify and such mistake which has been brought to the notice of the Commissioner, the Wealth Tax Officer (the Appellate Assistant Commissioner) or the Appellate Tribunal, as the case may be, by an assessee:

Provided that no such rectification shall be made which has the effect of enhancing the assessment unless the assessee has been given a reasonable opportunity of being heard in the matter."

11. We have asked Mr. Rehan Hassan Naqvi if there was a single word on the record in respect of break-up value of the shares which was not considered or ignored by the assessing officer or any mistake was committed in appreciating the facts or applying the law to which Mr. Rehan Hassan Naqvi has replied in negative. However, Mr. Rehan Hahan Naqvi in support of his contention that the assessing officer ought to have conducted enquiry into the value of shares instead of accepting the declared value has placed reliance on the judgment of Honourable Sindh High Court in the case of Khalid Adamjee v. C.I.T. (1983) 48 Tax 56. He has placed reliance on the following dictum laid down by the Honourable Judges of Sindh High Court (the judgment was authored by his Lordship Mr. Justice Saiduzzaman Siddiqi, J. as he than was):---

" We are in respectful agreement with the view taken by the Indian Supreme Court on the scope of power of Income-tax Officer under section 35 of the Indian Income Tax Act which is identical to section 35 of our Act and accordingly hold that while rectifying a mistake or an error in the assessment or an order of refund the Income-tax Officer need not confine itself only to the errors which are pointed in the order but such errors as are pointed out from the proceeding and record of assessment or refund order as the case may be, may also be taken into consideration for correcting or rectifying the assessment or the refund order. We are therefore, of the view that an error in the assessment order resulting from failure to apply the indisputable state of law could be corrected by the I.T.O. under section 35 of the Act provided the mistake or error is apparent from the record of assessment proceedings. It, therefore, follows that if the I.T.O. failed to give effect to a provision of law as interpreted by the High Court or the Supreme Court at the time of making of assessment or refund order and such mistake is discoverable from the record and proceeding of assessment or refund order then such errors could also be corrected by the I.T.O. under section 35 of the Act. "

12. On the basis of above principles laid down by the Honourable High Court Mr. Rehan Hassan Naqvi argued with full force at his command that indisputable state of law that the lower of the face value or break-up value of the shares is to be adopted by virtue of the provision contained in Rule 8(2)(c)(I) of the Wealth Tax Rules has been violated, therefore, it was a mistake apparent on record and the assessing officer ought to have rectified the same. However, with respects to Mr. Rehan Hassan Naqvi and to his very vehement arguments, we are not persuaded to agree with the view, because in our humble opinion the contention could have been taken into consideration if the assessee would have furnished the necessary particulars and details to the assessing officer before the completion of assessment order, which was admittedly not furnished and was produced before the assessing officer for the first time, alongwith rectification application under section 35 of the Wealth Tax Act. We are fortified in our humble view with the principles contained in the ruling on which Mr. Rehan Hassan Naqvi has placed reliance.. In fact, the circumstances in the appeals before us are similar to the circumstances in the case of Khalid Adamjee v. C.I.T. (supra) on which reliance was placed by Mr. Rehan Hassan Naqvi. In this case the following question was referred to the Honourable High Court:---

"Whether in the facts and circumstances of the case the Tribunal was right in upholding the refusal by the Income-tax Officer to rectify the assessment for assessment year 1967-68 under section 35 of the Income-tax Act, 1922. "

13. Section 35 of the Income-tax Act, 1922 was similar to section 156 of the Income Tax Ordinance, 1979 and section 35 of the Wealth Tax Act, 1963 which is under consideration. After expressing their views on the scope of section 35 of the Income-tax Act, 1922, the Honourable Judges of Sindh High Court held as follows:---

"This, however, does not conclude the cases before us, as the correction sought by the applicants in these cases in their assessment order was not ascertainable from the proceedings and record of the `p` cases. It is not disputed before us by the learned counsel for the applicants, that the assessee in their return for the period under consideration had not separately shown the dividend income received by them from the Companies which enjoyed exemption under section 15-BB of the Act. The assessees had also not claimed any exemption in their respective returns for these dividends. The following observations in para. 5 of the order of Tribunal may be reproduced here, in this regard: ---

We have considered the factual as well as the legal position. It was admitted in the original returns filed that the nature of the dividends or the nature of the companies from which these were received were not disclosed or specified. It would, thus, appear from these facts that the law was correctly applied by the Income-tax Officer.

From the above-quoted observations of the Appellate Tribunal it is quite evident that it was not possible to find out from the record and proceedings of assessment order the amount which were claimed by the applicants as the dividend income received by them from Companies whose income was exempted from payment of tax under section 15-BB of the Act, and therefore, in order to make the desired correction in the assessment orders it was necessary for the Income-tax Officer to hold further enquiry into the case to find out the same. This in our view could not be done by the I.T.O. as correction of such mistake would not fall within the scope of section 35 of the Act. Therefore, in our view the Tribunal rightly refused to rectify the error in these circumstances under section 35 of the Income Tax Act. In this view of the matter, it cannot be said that the Tribunal acted illegally or against law while upholding the order of the Income-tax Officer declining to rectify the alleged error under section 35 of the Income-tax Act."

14. A perusal of the above passage from the judgment of Honourable High Court shows that it is in all fours to the facts of the present case. It has been held by the Honourable High Court that in the facts and circumstances which were similar as in the present case the assessing officer was justified in refusing to rectify the mistake as the correction of mistake would not fall in the scope of section 35 of the Act. Respectfully following judgment of Honourable Sindh High Court on which learned counsel for the appellant has placed reliance it is held that the learned two officers below have rightly refused to rectify the mistake to which no exception can be taken. The appeals are without substance and stand dismissed accordingly.

15. Before parting with this order we would like to observe that we have all sympathies with the appellant who has been made victim of lack of application of mind on the part of her tax consultant. In the first instance the value of shares for the purpose of wealth tax was not worked out according to law and necessary particulars as well as evidence for the purpose of working out the value of shares in accordance with the Wealth Tax Rules were not furnished. However, when the mistake on part of the tax consultant of the appellant was realised after receiving the assessment order, right course available in law was not perused. The first option which the tax consultant of appellant could exercise was the filing of appeal with a request that the appeal is the continuation of assessment proceedings, therefore, the assessee may be provided opportunity to produce necessary evidence and particulars before the assessing officer and request could be made to the appellate authority for setting aside the issue in interest of justice and for levy of tax in accordance with the law. We are of the opinion that with the production of necessary evidence the appellate authority could be persuaded to allow opportunity to the assessee for production of evidence on the plea that no assessee should be made to suffer on account of fault on the part of its legal advisor. Since the authority vested in appellate forum is much wider than the scope of jurisdiction vested in the assessing officer under section 35 of the Wealth Tax Act, the assessee could get the relief available to her in law. So far the scope of section 35 of the Wealth Tax Act or section 35 of the repeated Income-tax Act, 1922/section 156 of the Income Tax Ordinance, 1979 is concerned its scope is very limited. In the case of Khalid Adamjee v. CIT (supra) the Hon'able Sindh High Court has also held that, "in order to making the desire (Correction in the assessment order it was necessary for the I.T.O. to hold further enquiry into the case to find out the same. Thus, in our view could not be done by the I.T.O., as the correction of such mistake would not fall within the scope of section 35 of the Act".

16. The scope of above section has been explained by the Honourable Supreme Court of Pakistan in judgment reported as 1992 SCMR 687 = 1992 PTD 570 as follows:---

"Section 35 of the repealed Income-tax Act, 1922 hereinafter referred to as 'The Act' confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised suo motu or if it is brought to the notice by an assessee. Therefore, essential condition is mistake apparent on the face of record; mistake Which may be seem floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy, investigates into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provisions of law and forms an opinion different from the order, then it will not amount to rectification of the order. Any mistake which is not patent and obvious on the record cannot be termed to be an order which can be corrected by exercising power under section 35 ...."

17. From the above discussion it is clear that the very narrow and limited forum under which relief was not available to the appellant was opted by her tax consultant. In the case of non-filing of appeal the second option available to the tax consultant of the appellant was to invoke the revisional jurisdiction of C.W.T. under section 25 of the Wealth Tax Act which reads as follows:---

"25. Powers of Commissioner to revise order of subordinate authorities.--- (1) The Commissioner may, either of his own motion or on application made by an assessee in this behalf, call for the record of any proceeding under this Act in which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such inquiry to be made and, subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit."

18. A perusal of above section shows that the CW.T. on an application on behalf of assessee call for the record of any proceedings and may make such enquiry or cause such enquiry to be made and may make order as he thinks fit. Thus, in the revisional jurisdiction, the appellant could get relief. We have not been able to lay hand on any judgment from Pakistani jurisdiction in support of the authority vested in C.W.T. under section 25 of the Wealth Tax Act, 1963 but we have found few authorities from Indian jurisdiction while dealing with section 25 of the Indian Wealth Tax Act, 1957, which is similar to the provision contained in Pakistan Law. For the sake of comparison section 25 of the Indian Wealth Tax Act, 1957 in reproduced below.

"25. Powers of Commissioner to revise order of subordinate authorities.--- (1) The Commissioner may, either of his own motion or on application made by an assessee in this behalf, call for record of any proceeding under this Act in .which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such inquiry to be made, and subject to the provisions of this Act, pass such order thereon, not being an order prejudicial to the assessee, as the Commissioner thinks fit."'

18. Madras High Court held in the case of K. Natrajan v. CIT (1977) 110 ITR 580, that the revisional authority cannot go beyond the case pleaded by the assessee before the original authority and grant him relief. However, contrary view was taken by the same Court in M. Chettgappan and others v. CIT AG (1977) 110 ITR 684 wherein it was held that "claim of insurance premium though not raised before the assessing officer should have been considered by the C. I. T. in revision petition before him." In the instant case, however, the amount was exempt from taxation. It was not claimed before the assessing authority. It was held that the revisional authority can consider the claim by exercising jurisdiction under section 25 of the Indian Income-tax Act. It was held by Gujarat High Court in the case of C. Parikh & Co. v. CIT (1980) 122 ITR 610 that the powers of the Commissioner under section 25 of the Indian Wealth Tax Act are very wide and he has power to entertain even new grounds which were not urged before the lower authorities. It was further held that the Commissioner can grant relief even in a case where over assessment was made due to mistake on the part of the assessee. Thus, we are of the opinion that the tax consultant of the appellant could seek relief from the C.W.T. under section 25 of the Wealth Tax Act, instead of invoking the jurisdiction vested in the assessing officer under section 35 of the Wealth Tax Act which could not be invoked as already held by us, because the required investigation and probe was not possible by the assessing officer.

19. We would further like to observe that it has been held in the following judgments from Indian Jurisdiction that the Commissioner has the power to condone the delay in filing revision petition under section 25 if the assessee can satisfy him that he was prevented by sufficient cause in filing the application in time.

(1)J.B. Advani & Co. (Pvt.) Limited v. R.D. Shah (1969) 72 ITR 395(Supreme Court of India).

(2)Maganti Ramchandra Rao & Company v. C.I.T. (1974) 95 ITR 147(AP).

(3)Saurashtra Cement and Chemical Industries Ltd. v. C.I.T. (1978) 115 ITR 27 (Guj).

20. Although strictly speaking we were not supposed while deciding the appeal before us to discuss the scope of authority vested in C.W.T. under section 25 of the Wealth Tax Act and his authority of condoning delay but while dismissing her appeals we thought that due to lack of proper legal advise, she has been put to hardship and, therefore, we have clarified the legal position in respect of the forum from where she can get relief. We further found ourselves free in expressing our view on this issue because the revisional order if any by C.W.T. is not subject to our appellate jurisdiction and, therefore, if any revision application is submitted before the C. W. T. the order shall never be subject matter of appeal before us and as such there is no apprehension of making up the mind in respect of a matter which may come before us in appeal. We would further like to clarify that we never intend to influence the exercise of discretion by the C.W.T. and if revision application is submitted before him consequent to the exposition of law by us in respect of the authority vested in him under section 25 of the Wealth Tax Act, the C.W.T. shall be absolutely free to exercise his discretion as he thinks fit, without being influenced from any observation made by us. Appeal dismissed:

M . B. A. /517/Trib. Appeal dismissed.