W. T. A. NO. 152/KB OF 1998=99, DECIDED ON 26TH DECEMBER, 1998. VS W. T. A. NO. 152/KB OF 1998=99, DECIDED ON 26TH DECEMBER, 1998.
1999 P T D (Trib.) 1342
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mehboob Alam, Accountant Member
W. T. A. No. 152/KB of 1998=99, decided on 26/12/1998.
Wealth Tax Act (XV of 1963)---
----S.16(4)---Wealth Tax Rules, 1963, R.8(8)---Assessment---Valuation of interest in partnership/association of persons---Presumptive assets -- Taxability---Assessee a partner in a firm---Presumptive income of firm-- Assessing Officer did not take into account the whole share of imputed income but restricted the credit to the actual income as shown by the books of account claimed by the assessee---Books of account were not produced before the Assessing 'Officer in support of the claim---Assessing Officer worked out the share income of assessee on the basis of imputed income and made addition in the net wealth of the assessee---First Appellate Authority deleted addition on the ground that assessee was not debarred by law from declaring the real income---Validity---Held, there was no provision of taxing "presumptive asset" under the Wealth Tax Act, 1963---Valuation of interest of partner had to be determined strictly in terms of R.8(8) of Wealth Tax Rules, 1963---Books of account and documents as required under S.16(4) of the Wealth Tax Act, 1963 had to be produced before the Assessing Officer for the purpose---Order of First Appellate Authority was vacated and by Appellate Tribunal order of the Assessing Officer was set aside for fresh determination of share income of the assessee as per R.8(8) of the Wealth Tax Rules, 1963 after examination of books of accounts of the firm which was undertaken by the assessee to be produced before the Assessing Officer.
Mrs. Shahista Abbas, D.R. for Appellant. Muhammad Iqbal Qasim, F.C.A. for Respondent. Date of hearing: 26th November 1998.
ORDER
MUHAMMAD MEHBOOB ALAM (ACCOUNTANT MEMBER).---The departmental appeal arises out of CIT(A)'s Order No.340, dated 11-6-1998. The main point in dispute relates to deletion of addition of Rs.54,21,146 made to the declared net wealth of the respondent assessee who is a partner of M/s. Razzak Enterprises. During the course of assessment proceedings it was noted by the assessing officer that the respondent had declared his share of income in the said firm at Rs.24,50,000 when according to the assessing officer it should have been Rs.64,99,646. When asked to explain the position it was submitted by the assessee that presumptive income of M/s. Razzak Enterprises worked out to Rs.2,24,88,988 on a total tax payment of Rs.61,51,472 but credit was restricted to Rs.70,00,000 only and 35% of which worked out to Rs.24,50,000 which was shown as share of the respondent-assessee in the said firm. The plea of the assessee did not find favour with the assessing officer who has made the following observations in the assessment order:---
" ....the assessee has taken credit of imputable income at Rs.24,50,000 whereas the imputable income for the year worked out to Rs.78,71,146. Book profits are also not known as no books of accounts have been produced. No plausible explanation has been given in this regard for not taking the full credit of imputable incise. 1t nowhere provided in law that the assessee will not take into account the whole of imputable income or restrict the credit of this income to the figure, which suits him. "
Accordingly, on the basis of total imputable income of Rs.2,24,88,988 the assessee's share was worked out at Rs.78,71,146 and the difference between the amount as declared and the amount as worked by him being Rs.54,21,146 was added towards net wealth of the assessee. When the matter went to the CIT(A) the addition was agitated by the respondent assessee. 1t was pleaded before him that the respondent-assessee had taken "the actual income as shown by the books of accounts in the case of M/s. Razzak Enterprises for the year and as provided by Rule 8(8) of the Wealth Tax Rules, 1963" and as such, according to learned counsel, the assessing officer was not justified in making the impugned additions. Agreeing with the pleading of the learned A.R., the learned C.I.T.(A) deleted the addition with the following observations:---
"Arguments aforesaid are examined by me, which are found forceful and valid in the appellants' case. Recapitulating, the law has specified the limit up to which credit of income could be available in a case, on account of presumptive tax regime. However, the assessee is not debarred by law from declaring his real income which may be over and above the deemed income worked back, on the basis of presumptive tax, but in such a case, he has to file a return of income under section 55, which will fall under the normal assessment regime. Applying this proposition to the present case, it is, therefore, held that there is no bar in law, either, for an assessee to declare his real income as shown by his books of accounts, and take credit thereof actual income which may be less than the imputable income available, to him. In view of aforesaid facts, it is thus held that the assessing officer had no valid grounds to issue the disputed notice under section 16(4) nor the legal authority to make the impugned addition of Rs.54,21,146, to the appellant wealth, for the year in question. This assailed addition is accordingly directed to be deleted in the said case."
It is against the above deletion ordered by the learned C.I.T.(A) that the department has come in appeal before this Tribunal. While the learned D.R. has supported the order of the W.T.O. the learned authorised representative has supported the deletion ordered by the learned C.I.T.(A).
2. The matter has been considered by us. The issue pertains to valuation of interest of the partner in his firm. The relevant rule prescribed for this purpose is Rule 8(8) of the Wealth Tax Rules, 1963 which is reproduced below:---
"8(8) Valuation of interest in Partnership or association of Persons.--
(a) The value of the interest of a person in a firm of which he is a partner or in an association of persons of which he is a member, shall be determined in the following manner, namely:---
(i) The net wealth of the firm or the association on the valuation date shall be first determined.
(ii) That portion of net wealth of the firm or association as is equal to the amount of its capital shall be allotted among the partners or members, in the proportion in which capital has been contributed by them.
(iii) The residue of the net wealth of the firm or association shall be allocated among the partners or members in accordance with the agreement of partnership or association for the distribution of assets in the event of dissolution of the firm or association, or in the absence of such agreement, in the proportion in which the partners of members are entitled to share profits.
(iv) The sum total of the amounts so allocated to a partner or member shall be treated as the value of the interest of that partner or member in the firm or association, as the case may be. "
It is according to the Rule reproduced above that the interest of the partner in his firm has to be determined by the W.T.O. Such determination requires verification of the Profit and Loss Account balance appearing in the books of the firm also without which the net wealth of the firm to be apportioned among the partners cannot be ascertained. From perusal of the assessment order it transpires that the dispute between the department and the respondent-assessee originated from the fact that the books of account were not produced by the respondent-assessee before the assessing officer in support of his claim that the declared distribution of share of the profit among the partners was as per actual income shown in the books of accounts of the firm M/s. Razzak Enterprises. It was only claimed by the assessee that the amount of profit as declared was restricted to the amount of Rs.70,00,000 which was admittedly less than the presumptive income of Rs.2,24,88,988 as worked out on the total tax payment of Rs.61,51,472 by the firm. It was pleaded by the assessee that there was no law whereby the assessee had perforced to declare the entire presumptive income as it actual profit. The grievance of the assessing officer was, however, that actual profits were not known as no books of accounts were produced so that the claim of the assessee about the actual profit of the firm could not be verified. When asked to explain as to why books of accounts as required vide notice under section 16(4) of the Wealth Tax Act were not produced before the assessing officer, the learned counsel simply maintained that copies of the Balance Sheet were available with the assessing officer which should have been accepted by him for the purpose of making the assessment. We do not feel satisfied with this explanation of the learned counsel for the respondent assessee. We also do not find ourselves in agreement with the contention of the department that the value of the interest of the partners should be worked out not on the basis of actual profit but on the basis of imputed income worked out on the basis of tax deducted in respect of presumptive income covered by sections 80-C and 80-CC of the Income Tax Ordinance, 1979 as there is no provision of taxing any "presumptive" asset under the Wealth Tax Act. The valuation of this interest of the partner has to be strictly in terms of Rule 8(8) as reproduced above and such working cannot be made unless the actual income as shown in the books as revealed to the assessing officer. For this purpose the books of accounts and documents as required under section 16(4) of the Wealth Tax Act have to be produced before him. The learned counsel for the respondent-assessee has finally agreed before us to produce the books of accounts before the assessing officer for this purpose. Accordingly, in our view the dispute can be resolved by vacating the order of the CIT(A) and setting aside the order of the assessing officer for fresh determination of the interest of the partners as per Rule 8(8) of the Wealth Tax Rules after examination of books of account of the firm which it is undertaken by the learned counsel for the respondent-assessee to be produced before the assessing officer. The order of the learned C.I.T.(A) stands vacated and the order of the assessing officer is set aside with the above observations.
The appeal stands disposed of accordingly.
C.M.A./16/Trib.Order accordingly.