Wealth Tax Act (XV of 1963)---

----Ss. 2(5)(ii) & 2(e)(ii)----Assets---Assessee was a private limited company, running a business of Flour Mills which was leased out---Wealth tax was charged on the Flour Mills, being !eased out, to the hands of assessee on the ground that mill was an asset in term of S.2(5)(ii) of the Wealth Tax Act, 1963 and was held for the purpose of letting out ---Assessee contended that i1 has only leased out the machinery and plant of the mill and the leased income-was being assessed under S.30 of the Income Tax Ordinance., 1979 and not under S.19 of the Income Tax Ordinance, 1979 and that leasing of the flour mill was a leasing out of the movable property alongwith the immovable property (building/land) and hence, it was outside the purview of S.2(5)(ii) of the Wealth Tax Act, 1963 and was, thus, not assessable assets under the Wealth Tax Act, 1963 that original purpose of the company was to itself run a flour mill and it had been doing it but after that due to abnormal circumstances the company had to lease out the flour mill, therefore, the property could not be assessed under the Wealth Tax Act, 1963 as it had not been held for the business of letting and that assessee, at any time, might occupy, the mill for purposes of its own business ---Assessee also objected that "paid-up capital" was a liability of the company as it was payable to its Directors, which was a debt owed and was deductible from the wealth of the assessee-company---Validity--- Machinery and the plant of the flour mill embedded in the earth or attached to it was so embedded for the permanent beneficial enjoyment of that to which it was attached, and was installed in the building for the purposes of flour mill, was an immovable property terms 'of S.2(5).(ii) of the Wealth Tax Act, 1963---Article and Memorandum of the assessee, clearly showed that one of the objects was to lease out or let out the flour mill, therefore, it was being held for the purpose of business 'of letting out---Thus, same was an asset in terms of S.2(5)(ii) of the Wealth Tax Act, 1963 and was chargeable to Wealth Tax Act, 1963---In case of winding up of a company its Directors/shareholders were entitled to receive their sum, which they had contributed towards the Capital, by sale of the assets- owned by the company---If there was no such asset or the assets were of lesser value the Directors could not enforce payment---"Paid-up capital", therefore, was not a debt and, thus, it was not allowable under the Wealth Tax Act, 1963-- Appeal of the assessee was dismissed by Appellate Tribunal in circumstances.

1981 PTD 217 rel.

Black's Law Dictionary, 8th Edn. ref.

Javed A. Qureshi for Appellant.

Muhammad Ali Shah, D.R. for Respondent.

Date of hearing: 10th June, 1999.

ORDER

KARAMAT HUSSAIN NIAZI (JUDICIAL MEMBER).---The above appeals at the instance of the appellant, a private limited company-are directed against the combined order dated 1-7-1997 recorded by the learned, CIT(A), Sialkot Zone, Sialkot relating to the assessment years 1992-93 to 1996-97.

The relevant facts leading to these appeals are that the appellant owns a flour mills of the name and style of "M/s United Roller Flour Mills (Pvt.) Ltd." which was leased out to a third party from the assessment year 1992-93. The Assessing Officer was of the view that the flour mills was an asset 'in terms, of section 2(e)(ii) of the Wealth Tax Act, 1963 (hereinafter called the Act) and as it was held, by the appellant company, for the purpose of letting out, therefore, it was chargeable to wealth tax under the Act. Accordingly, assessment was made at ten times of the annual letting value of the asset. This action of the Assessing Officer was confirmed in appeal, by the learned CIT(A). Aggrieved with the orders of the tax authorities, the appellant is in further appeals before us.

We have- heard both the parties and have perused the relevant orders.

Before proceedings further, we may like to mention here that " grounds of appeals are not specific and concise and are not in conformity with rule 10 of the ITAT Rules, 1981. Ground No.2 makes no sense and when the attention of the learned. A.R. of the assessee was drawn in the grounds of appeal, it was admitted that these were not properly worded.

However, instead of rejecting the appeals on this technical ground, we proceed to dispose of these appeals on merit.

The learned A.R. of the assessee assailed the impugned order on the ground firstly, that the appellant company has leased out machinery and plant of the, flour mills, which is a movable property, alongwith the building as it is inseparable from the letting out of the said machinery and, thus, it is not an asset in terms of section 2(e)(ii) of the Act and secondly, that the property is not being held by the appellant for the purpose of letting out or the business of letting out, therefore, it is not assessable under the Act.

Elaborating the' first objection, the learned A.R. has submitted that section 2(e)(ii) of the Act expressly excludes the movable properly held by the company for the purpose of business of letting out. It is appropriate here to reproduce the provision of section 2(e)(ii) which reads as under:--

2(e) "assets" includes-

(i) in the case of an individual and a Hindu undivided family, property of every description movable or immovable except--

(a) not relevant.

(b) -do-

(ii) in, the case of a firm, an association of . persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property;

Explanation.---For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes--

(i) immovable property held for the purpose of letting out, or business of letting out, of property;

(ii) immovable property held for the purpose of construction and letting out of property; and

(iii) immovable property held for the purpose of construction and sale of property.

The learned A.R. has vehemently tried to convince us that, the appellant has only leased out the machinery plant etc. of the mills and the leased income is being assessed under section 30 of the Income Tax Ordinance, 1979 .(hereinafter called the Ordinance) and not under section 19 of the Ordinance. Therefore, the leasing of the flour mills is a leasing out of the movable property alongwith the immovable property (building/land) and hence, it is. outside the purview of section 2(e)(ii) and is, thus, not assessable assets under the Act.

Immovable or movable property has not been defined in the Act. It has been defined in the General Clauses Act, 1897, as under:---

"Immovable properly", shall include land, benefits to arise out of the land, and things attached to the earth or permanently fastened to anything attached to the earth. "

'Movable property'' shall mean property of every description except immovable property."

The definitions of immovable property do not tell us what "immovable property" is. They only tell us what is either included or not included therein. A thing is embedded in the earth or attached to what is so embedded for the permanent beneficial enjoyment of that in which it is attached is "immovable property". The. superior Courts have laid down two tests for deciding as to the character of the property when fixture are annexed to land, namely.

(1)the degree or mode of annexation, and

(2)the object or annexation.

The second, which is the more important of the two, involves the consideration of the particular circumstances of each case. It follows that if a thing embedded in the earth or attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached then it is a part of the immovable property. In view of what has been stated above, we have, no hesitation to hold that the machinery and the plant of the flour mills embedded in the earth or attached to it is so embedded for the permanent beneficial enjoyment of that to which it is attached, and is installed in the building for the purposes of flour mills, is an immovable property in terms of section 2(e)(ii) of the Act.

The next objection of the learned A.R. of the assessee is that as the leased income of the mills is being assessed under section 30 of the Ordinance and not under section 19 of the Ordinance, therefore, it is not held for the purpose of letting out or the business of letting out and, thus, the assessee company is not chargeable to wealth tax. It has been contended on behalf of the appellant that the original purpose of the company was to itself run a flour mills and they had been doing it till the assessment year 1991-92 but-after that due to abnormal circumstances, the company have to leases out the flour mills, therefore, the property cannot be assessed under the Act as it has not been held for the business of letting out. It is further contended that the appellant company, at any time, may occupy the mills for the purposes of its own-business and, therefore, it cannot be inferred that, the mills has been held for the purpose of letting out or for the business of letting out. In support of its contention the Memorandum and Article of Association is placed on record.

According to Article III(1), the object of the company is "To take over the running business with all their assets, liability, contacts, privileges, entitlement, goodwill, stocks and all concerned things as per books of account of United Roller Flour Mills, Gujrat". According to Article III(20) the object is "To lease, let out, hire, mortgage, sell or otherwise dispose of the whole or any parts of the undertaking of the company or any lands, business, property, rights or assets- of any kind in such manner and for such consideration as the company ay think fit". In view of above, it is manifestly clear that one of the objects of the company is to lease out or let out the flour mills. Since the assessment year 1992-93 until now the flour mills is on lease with a third party. In these circumstances, we are of the considered view that it is being held for the purpose of - business of letting out. We are further fortified in our view by decision of Sindh High Court, Karachi in re-B.P. Biscuit Factory v. WTO, Karachi reported as 1981 PTD 217.

As a result of what has been discussed above, we have no doubt in our mind that the flour mills alongwith the building and machinery, leased out to a third party is immovable property and is an asset being held for the purpose of business of letting out in terms of section 2(e) and is chargeable I to wealth tax under the Wealth Tax Act,. 1963.

The next objection of the appellant is that the "paid up capital" is a liability of the company as it is payable/returnable to its Directors, in case of winding up, and therefore, it is a debt owed and is deductible from t0o wealth of the assessee company. The contention raised by the learned A.R. of the assessee has no force as the "paid up capital" is not a "debt owed" by the company to the Directors. Debt according to Black's Law Dictionary Eighth Edition means "a sum of money due by certain and express agreement. A specified sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment." Thus, a "debt" is a specified sum of many owned by one person to another where the debtor is under obligation to pay/return the same to the creditor and the creditor has a right (in case of non-payment) to enforce its payment. In case of "winding up" of a company it's Directors/shareholders are entitled to receive their sum, which they have contributed towards the capital, by sale of the assets owned by the company. If there is no such assets or the assets are of lesser value the Directors cannot enforce payment. Hence, the "paid up capital" is not a debt and, thus, it is not allowable under the Act. We, therefore, uphold the findings of the two officers below on this issue.

Consequently, these appeals fail and are hereby dismissed.

C.M.A./M.A.K.15/Tax (Trib.)Appeals dismissed.