Wealth Tax Act (XV of 1963)-

----S.46---Wealth Tax Rules, 1963, R.8(2)(c)(i)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Valuation of shares---Market value---Method for valuation of shares of joint stock companies quoted on recognised stock exchange being face value or break-up value whichever was lower and method for valuation of shares of joint stock companies not quoted on recognised stock exchange being face value or break-up value whichever was higher [as prescribed by R.8(2)(c)(i), Wealth Tax Rules, 1963] being discriminatory---Rule 8(2)(c)(i), Wealth Tax Rules, 1963 was declared to be ultra vires and of no legal effect---Authorities were directed to proceed to calculate and levy tax on the market value of all such shares.

PLD 1997 SC 582 and 1997 PTD 1555 ref.

Imtiaz Rashid Siddiqui and Imran Anjum Alvi for Petitioner.

Muhammad Ilyas Khan for Respondents.

Date of hearing: 15th April, 1998.

JUDGMENT

This judgment shall dispose of Writ Petition No.14044 of 1994, Writ Petition 6792 of 1995, Writ Petition No.20902 of 1996, Writ Petition No. 12975 of 1997, Writ Petition No. 16824 of 1997, Writ Petition No. 21302 of 1997, Writ Petition No. 13269 of 1997, Writ Petition No. 13267 of 1997, Writ Petition No. 13266 of 1997, Writ Petition No. 13268 of 1997, Writ Petition No.17870 of 1997, Writ Petition No.11507 of 1997, Writ Petition No. 11706 of 1997, Writ Petition No.27646 of. 1997, Writ Petition No.872 of 1998 and Writ Petition No. 10778 of 1998 in all of which the common question which falls for determination is regarding validity of rule 8(2)(c)(i) of the Wealth Tax Rules, 1963, which reads as under:---

"Valuation of assets other than cash.---(1) ... ... ... ... ... ... ... ...

(2) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ..

(a) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. . ... ... ... ..

(b) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .. ... ... ... ..

(c)(i)The value of the shares of joint-stock companies registered in Pakistan which are quoted on a recognised Stock Exchange shall be taken to be the face value, or the break-up value as determined in the manner provided in such clause (ii) whichever is lower and .the value of shares of joint-stock companies registered in Pakistan which are not quoted on a recognised Stock Exchange shall be taken to be the face value, or the break-up value so determined, whichever is higher:

(ii)...............................................................

2. There is no dispute on facts, which are that the petitioners are share holders in various incorporated Companies, which are not listed at Stock Exchange. It is a common ground between the parties that these shares form assets in the hands of the share-holders and are liable to payment of Wealth Tax under the Wealth Tax Act, 1963. The dispute, however, arises as to the method of valuation of these shares inasmuch as according to rule 8, if a Company is listed at the Stock Exchange, the value of the share for the purpose of Wealth Tax Act is the face value of the share or the price at which it is quoted at the Stock Exchange whichever is less. On the other hand, as would be obvious from the rule reproduced above, in case of unlisted Companies the value of the share is taken to be either the face value or the break up value whichever is higher. The petitioners have objected to the adoption of this formula in respect of unlisted companies.

3. The learned counsel for the petitioners have contended that under the Wealth Tax Act, 1963, and the rules framed thereunder, tax can only be levied on the market value of the assets held by the assessee and tax cannot be charged on a notional value which is different from the market value or the price. In particular it has been emphasised that there is no justification for providing that while in the case of listed companies the value of the share shall be taken to be either the face value or the quoted price whichever is lesser but in the case of unlisted companies value shall be the break up value or the face value whichever is higher. In the submission of the learned counsel, this submission is arbitrary, unreasonable, discriminatory and is violative of Article 25 of the. Constitution of Islamic Republic of Pakistan, 1973.

4. There is a considerable merit in these contentions. Undoubtedly, the Wealth Tax Act, 1963 has been promulgated to levy tax on the wealth. "Net Wealth" has been defined in section 2(16) as the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date is in excess of the aggregate value of all the debts. Section 7 of the Wealth Tax Act, 1963 provides that the value of assets, other then cash, for the purposes of this Act shall be estimated by the Deputy Commissioner in accordance with the rules made under section 46 of the Act, section 46 of the Act provides for framing of Rules, inter alia, the manner in which the market value of any asset may be determined. Reference may also be made to the charging section, which is section 3 of the Wealth Tax Act, according to which the tax is to be charged in respect of any asset of an individual or assessment of persons or a Company, as the case may be. The impugned rule has been framed in exercise of the powers conferred by section 46(2)(a) of the Wealth Tax Act, which reads as under:---

"Power to make rules:---(1)

(2)In particular and without prejudice to the generality of the foregoing power, rules made under this section may provide for ---

(a) the manner in which the market value of any asset may be determined;

5. It is obvious from the above that the power has been delegated to the Board of frame rules so as to determine 'the market value of the asset. The use of the word "market" is not without significance, for it requires that the value should be such which a willing buyer shall pay to a willing purchaser. If in a rule, valuation fixed has no reference to the market value, it would be ultra vires of the Act as it is against section 46.

6. As is evident from the above, the Wealth Tax Act, 1963 permits the taxation of assets which formed wealth of a person and the valuation of which is to be determined on the basis of its value. It is not open to the Authorities to fix arbitrary value having no relation to the actual value and is even not fair estimation of the value of a particular asset.

7. Further more the rule is clearly discriminatory inasmuch as while in the case of listed companies it is provided in the said rule itself that the market value shall be taken to be the valuation quoted at the Stock Exchange or face value whichever is less but in the case of unlisted companies the valuation is either the face value or the break up value whichever is more. No justification has been put forward on behalf of the respondents for the insistence that while in the former case the lesser value is to be considered for the purpose of taxation and in the latter case, higher value has to be taken into account.

8. It is, however, submitted that there is no yardstick available with the Government for determining the market value and, therefore, per force the face value has to be considered as the market value.

9. This contention loses sight of the fact that the rule provides for working out the market value i.e. break up value of the share. If this measure has been adopted for fixing the value of the share, there could possibly be no objection. Furthermore, if in the case of listed companies it is either the listed value or the face value whichever is less which constitutes the market value, the same treatment should have meted out in case ofnon-listed companies by providing that the value shall be either the face value or the break up value worked out by the Wealth Tax Officer whichever is less. The rule is, thus, clearly discriminatory also.

10. There is no cavil that the equality clause does not prohibit or forbid classification and further it may be true that listed companies may form a different class but it is well settled in law that classification must be based on reasonable differentia and must have nexus with the object for which the law is framed. The Wealth Tax Act has been framed to levy tax on the wealth, the valuation of which is calculated on the basis of the market value. No one can, therefore, be directed to pay the tax on value of the assets which are higher than the market value, for that would make the law confiscatory. (See M/s. Elahi Cotton Mills Ltd. and others v. Federation of Pakistan PLD 1997 SC 582). W In view of above, all these petitions are allowed and rule 8(2)(c)(i) of the Wealth Tax Rules, 1963 is declared to be ultra vires and of no legal A effect. The Authorities concerned shall proceed to calculate and levy tax on the market value of the shares held by the petitioners. No order as to costs.

C.M.A./M-824/L Petitions allowed.