I.T.A. NO.5554/LB OF 1996, DECIDED ON 7TH OCTOBER, 1998. VS I.T.A. NO.5554/LB OF 1996, DECIDED ON 7TH OCTOBER, 1998.
1999 P T D (Trib.) 8
[Income-tax Appellate Tribunal Pakistan]
Before Nasim Sikandar, Judicial Member and Inam Ellahi Sheikh, Accountant Member
I.T.A. No.5554/LB of 1996, decided on 07/10/1998.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---Addition---Assessee purchased properties contiguous to each other on two sale-deeds on different dates---Assessing Officer assessed same as one unit of property with the view that assessee had attempted to avoid levy of proper stamp duty---Validity---View of the Assessing Officer that the assessee had attempted to avoid levy of proper stamp duty by bifurcating one unit into two was logically unacceptable.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---Addition---Valuation of property ---Assessee purchased property without possession being occupied by different tanents while some of them held a claim of adverse possession against the legal owner-- Assessing Officer refused to give any allowance for the factum of lack of possession in computing the fair market value of property---Validity---Value of a property in such situation was drastically affected and could never fetch a fair market value---Addition made was deleted.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---IncomeTax Rules, 1982, R.207-A---Valuation of immovable property---Addition---Declared value of property in the assessment year 1994-95 was witnessed by registered sale-deed evidencing a rate fixed by Provincial Revenue Authority---Assessing Officer brushed aside the declared value on the ground that fair market value of property was always higher than the one fixed by the District Collector and the Rules came into force on 25-7-1997---Validity---Revenue itself accepted the validity of rates notified by the District Collector for the purpose of S.13 of Income Tax Ordinance, 1979---Rules though notified at later 'stage could very well be invoked to take benefit of the ratio settled by the Supreme Court of Pakistan in 1993 SCMR 73---Addition made was deleted.
1993 SCMR 73 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.13(1)(d)---Addition---Validity---Assessee declared value of property in accordance with sale-deed---Assessing Officer assessed on higher side without bringing any material on record to justify addition ---Validity-- Addition was deleted by the Appellate Tribunal with the remarks that every individual had his own constraints and compulsion to buy or sell property-- Assessing Officer failed to bring home the evidence as to where from the assessee had generated the funds utilized for purchase of property---Addition was deleted.
1995 PTD 1170 ref.
Muhammad Saleem Chaudhry and Irfan Aslam for Appellant.
Ahmad Kamal, D.R. for Respondent.
Date of hearing: 28th July, 1998.
ORDER
NASIM SIKANDAR (JUDICIAL MEMBER).---The assessee before us is an individual and derives share income being partner of a registered firm namely M/s. Tabbaq Restaurant, Lahore. Also rental income was included in the return filed for the year 1994-95 disclosing net income at Rs.56,816 from both sources. The Assessing Officer found that during the period relevant to the assessment under consideration the assessee had purchased two properties measuring 9 Marlas and 7 Marlas 55 sq. ft. The properties which were situated at Abbot Road were respectively disclosed at Rs.6,55,000 and Rs. 13,50,000. The first property was purchased on 16-2-1994 while the second on 23-9-1994. The rate per Marla working out to Rs.1,25,312 was found under-stated. Accordingly the assessee was confronted through notice under section 62/13(2) seeking his explanation as to why rate per Marla should not be adopted at Rs.3,00,000. A parallel case of M/s. Imtiaz Motors was also confronted. In reply the assessee put up the defence that the value disclosed to the Revenue as evidenced by the registered sale-deeds was not .only reasonable but also in accordance with the rates fixed by the District Collector, Lahore for the purpose of section 27-A of the Stamp Act, 1899. It was further alleged that both the properties were two separate and different units located at Abbot Road and Royal Park which could not be compared with the aforesaid alleged parallel cases in which the property was situated at McLeod Road. The actual situation of the properties was also stated to be less favourable on account of their placement on a side lane of the Abbot Road. It was further contended that both units were occupied by different persons some of which had a claim of adverse possession against the legal/actual owner. The Assessing Officer however was not impressed by these submissions. Accordingly he deputed his Circle Inspector to make a spot inquiry. It was accordingly done. The Inspector drew a map of the factual situation of the properties to establish that these were not only situated right on the main Abbot Road but were also connected with each other and in fact were one unit. For various other considerations including the fact that the newly purchased units were contiguous to the property in which the assessee already had a roaring business of restaurant namely Tabbaq Restaurant the Inspector proposed the cost of land between Rs.4,00,000 to Rs.4,50,000. In his report he also made mention of a parallel case of M/s. Sweet Corners McLeod Road, Lahore wherein the assessee having declared purchase price at Rs.2,51,400 per Marla in the year 1993-94 finally agreed to be assessed at Rs.3,20,000 per Marla. After receipt of the report the Assessing Officer proceeded to issue a fresh notice. This time a rate of Rs.4,00,000 per Marla was proposed to be adopted for both the properties in question on the ground of its being the real fair market value of the properties. In reply the assessee repeated his earlier submissions which were found unconvincing. The Assessing Officer finding that both properties being one unit were more favourable for doing any kind of business, that these were contiguous to the already running Tabbaq Restaurant at Lukshami Chowk proceeded to adopt a rate of Rs.4,00,000 per Marla and therefore to work out the value of both the properties at Rs.64,08,888. The difference between the disclosed value at Rs.20,05,000 and the adopted amount at Rs.44,03,888 was deemed income of the assessee by resort to the provisions contained in section 13(1)(d) of the Income Tax Ordinance. Earlier the Assessing Officer also remarked that the rates fixed by the District Collector were minimum rates for the purpose of levy of Stamp Duty and that fair market value of properties was always higher than the one fixed by the District Collector. As regards the claim of the assessee that both properties were purchased without possession he refused to give any allowance for this purpose stating that in the parallel case of M/s. Sweet Corners also the property was in occupation of tenants yet the assessee agreed for a valuation of Rs. 3,20,000 per Marla in the assessment year 1993-94. In case of property income some adjustment was made to compute total income for the year at Rs.44,87,661 by way of an assessment order framed on 6-3-1996.
Learned First Appellate Authority C.I.T.(A)-III, Lahore through an order dated 6-6-1997 by and large agreed with the reasons which earlier prevailed with the Assessing Officer while making the impugned addition under section 13(l)(d) of the Ordinance. The location of the property, its contiguity as well as the parallel cases were referred to approve findings recorded by the Assessing Officer in this behalf. However, learned First Appellate Authority was of the opinion that the parallel case was situated at McLeod Road which was more valuable commercial avenue as compared to the properties situated at Abbot Road. The rates notified by the District Collector both in respect to McLeod Road and Abbot Road were also considered to hold that properties situated at Abbot Road were of less commercial value as compared to those situated at the McLeod Road. The contention with regard to adverse possession of some of the tenants in the demised property was also considered an element favourable to the assessee direct that the valuation of the land under the property should be restricted to Rs.2,75,000 per Marla. The fact that the Assessing Officer at the first instance confronted the assessee with a proposed rate of Rs.3,00,000 was also referred to opine against gradual change in the view of the Assessing Officer. The way in which property income was computed by the Assessing Officer was however maintained in toto.
3. The assessee still feels dissatisfied with the relief allowed which means an addition of Rs.24,01,110 under section 13(1)(d) of the Ordinance after appeal effect.
4. Parties have been heard. Learned counsel for the assessee strongly agitates part maintenance of the impugned addition. It is submitted that in case of purchase of properties there cannot be a real parallel case inasmuch as in such-like transactions people have their own compulsions to sell and buy properties. Also contends that the declared value witnessed by registered sale-deeds evidencing a rate fixed by a Provincial Revenue Authority could not be brushed aside only on the basis of general remarks that factual rates of properties were normally higher than those fixed by these Authorities. In the view of the learned counsel the Assessing Officer failed to bring home any material to say that actually the sum added as addition under section 13(1)(d) changed hands between the seller and the purchaser. It is claimed that in absence of such finding an addition of the kind could neither be made nor sustained. Further it is stated that the First Appellate Authority failed to give due allowance for the factum of lack of possession with the purchaser has also the wavery opinion of the Assessing Officer with regard to fair market value of the demised premises. Lastly he submits that in the assessment year under review namely 1994-95 the Revenue on Wealth Tax side by way of a consolidatedassessment order recorded for the years 1994-95 to 1996-97 accepted the disclosed rate to respect of both the properties. Also refers to last para at page 2 of that assessment order wherein it was stated that the District Collector, Lahore had specified rates for levy of stamp duty by way of a Notification, dated 1-7-1991 at a rate of Rs.1,50,000 per Marla for properties at Abbot Road for first 10 Marlas and a rate of Rs.1,25,000 for every Marla exceeding 10 Marlas. In that assessment order the Assessing Officer also found that the rates so notified remained in currency till 2-7-1995 when these were revised w.e.f. assessment year 1996-97 whereby rate of Rs.4,00,000 per Marla was fixed for first 10 Marlas and a rate o Rs.3,50,000 per Marla for every Marla exceeding 10 Marlas with respect to the properties situated at Abbot Road.
5. Learned D.R. however, supports the assessment order. He is of the view that the assessee had already received excessive relief at the first appeal level and that the Assessing Officer successfully demonstrated the under statement of the value disclosed in the registered sale-deed. By pointing our various aspects of the report made by the Circle Inspector learned D.R, expenses the view that the relief allowed by the First Appellate Authority should rather be reversed. However, in absence of record he cannot say if the department is in cross appeal against allowing of partial relief by the firs Appellate Authority.
6. Having considered the submissions made at the bar we find that the assessee has a strong case for interference. We are not ready to go into unnecessary details if the two properties were a single unit. This fact was rather favourable to the assessee inasmuch as for bigger area a lesser rate is prescribed for the purpose of levy of stamp duty. Therefore, the view of the Assessing Officer that the assessee had attempted to avoid levy of proper stamp duty by bifurcating one unit into two is logically unacceptable. The Assessing Officer has also not disputed the factum of possession of the demised properties by tenants and that some of them even held a claim of adverse possession against the legal owner. The value of a property in such cases is drastically affected as the possession being nine tenth of law a rightful owner is in a precarious position to enjoy the fruits of his ownership. Even in case of statutory tenants the position does not change materially. All the moreso when persons in occupation find that a new owner intended to step in. To vacate the possession they will en cash their advantageous position at the highest possible rate keeping in view the constraints of the new owner particular if he intended to use the property for the purpose of business or as appears in the case of the assessee to extend his existing business. In such a situation a property can never fetch a fair market value. The narration by the Assessing Officer that in the parallel case of M/s. Sweet Corners the property was also in occupation of tenants has not been explained at any length so that we could examine this aspect any further. The submissions made with regard to treatment of the demised premises on wealth tax side also appear forceful. That assessment order rather goes to support the contention of the learned counsel that the proposed rate of Rs.4,00,000 per Marla was correct and relevant for the latter period as the District Collector had also revised the rates to that extent. Therefore, these rates could not be worked back for application on 16-2-1994 and 23-2-1994 when the sale transactions in question were effected.
7. Learned counsel is also right in pointing out that the Revenue itself by way of addition of Rule 207-A in Income Tax Rules, .1982 has accepted the validity of rates notified by the District Collectors for the purpose of levy of Stamp Duty. The amendment in the rules came into force on 25-7-1997 and, inter alia, provided that valuation of immovable properties for the purpose of section 13 of the Income Tax Ordinance, 1979 shall be taken to be the value determined by District Collectors for the purpose of stamp duty. These rules though notified at a latter stage can very well be invoked to take benefit of the ratio settled by their Lordships of the Supreme Court of I Pakistan in 1993 SCMR 73 re: C.I.T. v. Shahnawaz Limited and others. In that case the issue before their lordships being if the amendment made in subsection (6) of section 18-A of the Income Tax Act, 1922 by the Finance Act, 1922 whereby additional amount of tax under that provision could only be charged for a period not exceeding 15 months extended also to the cases of assessee whose assessments had not attained finality. While approving the retrospective effect given to the said amendment their lordships quoted with favour from Craw fords on "Statutory Construction". It may be explained that before amendment the Assessing Officer could levy additional tax for any period till the time of framing of assessment though the finalization of assessment was delayed due to no fault at the assessee. The amended provision had curtailed this period for a maximum period of 15 months only.
8. Even otherwise in a number of recent judgments we have disapproved estimation of valuation of properties transacted through registered sale-deeds. In 1995 PTD (Trib.) 1182 Ch. M. Irshad, Judicial Member as he then was, expressed the opinion that where acquisition of property was made by registered sale-deed ordinarily the consideration evidenced by it should be accepted as the value of the property. The only exception being if the Revenue could prove that the consideration shown in the deed was too low and that the assessee had acquired the property by expending more money. Almost similar views were expressed by him in 1995 PTD 1170 wherein he held that mere fact that the market value of an asset was allegedly higher than the price an assessee paid for its acquisition did not justify any addition under section 13(1)(d) of the Ordinance. Further that normally value of an asset shall be taken as recorded in the sale-deed in absence of any material to justify an addition. In the case before us we do not find that any material worth the name was brought on record to show that actually a higher consideration was paid by the assessee to purchase these properties. As rightly pointed out by the learned counsel every individual purchaser or seller has his own constraints and compulsions to buy or sell a property. These constraints and compulsions being totally personal to an individual and in case of commercial properties the considerations further varying with nature of business or the intended purpose of their application or extension to other individuals cannot readily be assumed. The Assessing Officer unnecessarily stretched himself to enhance the value of the property without bringing home the second aspect as to where-from the assessee had generated that sum of money. He accepted the returned share income from the firm M/s. Tabbaq Restaurant, Lahore. That share income totally being of Rs.41,156 he was required to count the source wherefrom possibly the assessee could have generated the funds utilized for the purpose of purchase of these properties. Since the rates notified by the District Collector on which the properties in question were transacted were admitted the Assessing Officer failed to substantiate his claim that these rates only indicated minimum value of the properties sought to be transferred. In such a situation the centre of the inquiry ought to have been the difference between the minimum and the one factually changed hand. Instead the Assessing Officer proceeded on altogether different premises by highlighting the commercial importance of the property for the purchaser. We are also of the view that both the Assessing Officer as well as the First Appellate Authority failed to allow due allowance to the fact that the assessee purchased these properties without possession. The recovery of possession from tenants and those holding out claims of adverse possession made its enjoyment in future as uncertain and too remote. The minimum rates as the Assessing Officer would like to describe those notified by the District Collector in such-like situation were rather the best possible deal which the seller of these properties could obtain. The treatment of the Revenue on Wealth Tax side was, therefore, in accordance with law.
9.For these reasons we find that the impugned addition under section 13(1)(d) was totally unjustified. It shall stand deleted.
10. No other issue having been pressed or debated the assessee will succeed only to that extent.
C.M.A./578/Trib. Order accordingly.