Income Tax Ordinance (XXXI of 1979)---

----Ss.19 & 156---Income from house property---Rectification of mistake-- Assessee was a co-owner of property let out to a company of which he was a Director---Company (the tenant) sublet the property to other tenants on much higher rent than what was being paid to the assessee---Assessee declared its share from rent received from the company which was far less than the rent received by the company from the sub-lettees---Assessing Officer considered the position as collusive arrangement between the assessee and the company and assessee s income from property was charged to tax on notional basis on account of the rent received by the company from the sub-lettees rather than actual rent received by the assessee from the company---Company's assessment had also been made separately against which application under S.156 of the Income Tax Ordinance, 1979 was pending asserting that assessment may be cancelled in the case of company because the income from property had been assessed in the hand of individual owner ---Validity-- Provisions of S.19(2) of the Income Tax Ordinance, 1979 provide that it was not always the rent actually received, but the sum for which property reasonably be expected to be let from year to year was liable to tax-- Property had admittedly been let out on a higher rent by the lessee, which was a limited company and owners of the property being the Directors of said company Assessing Officer was justified in making assessment of income from property on the basis of rent received by the lessee/company-- Annual value being relatable to the building owned by assessee, value assessable shall comprise of the amount which even a sub-lessee or sub tenant pays for its occupation---Assessment was confirmed by Appellate Tribunal in circumstances.

M. Rehman, Income-tax Officer and others v. Narayangang Company (Pvt.) Ltd. (1971) 23 Tax 223; (1978) 113 ITR 136; 1992 PTD (Trib.) 161 and 1989 PTD (Trib.) 859 distinguished.

1996 PTD (Trib.) 122 and I.T.As. Nos. 933 to 937/LB of 1991-92 ref.

S. A. Khan for Appellant. .

Sh. Muhammad Hanif, D.R. for Respondent.

Date of hearing: 25th November, 1999.

ORDER

MAHMOOD AHMED MALIK (ACCOUNTANT MEMBER).-- The assessee has filed appeals for the assessment years 1988-89 and 1989-90.

2. The brief facts of the case are that the assessee, individual, is a Director of M/s. Escorts Pakistan, (Pvt.) Limited. For the assessment year 1988-89 return was filed by the Assessee to declare property income at Rs.41,347 and salary income at Rs.48,000 and Zakat paid was claimed at Rs.1,38,027. Thus, balance loss was shown for the year 1988-89 at Rs.48,680. As the declared income was less than the immediately preceding year the case were processed under normal law. The Assessing Officer accepted the salary income as it was supported by the Salary Certificate. The Assessing Officer observed that four co-owners of the. property, assessee being one of them let out the property to M/s. Escorts Pakistan (Pvt.) Ltd. The co-owners of the property were also directors in M/s. Escorts (Pvt.) Ltd. The company, a separate legal entity, further sub-let the various units in the property to the Sui Northern IBM, Marabuni Corporation and M.C.B: A portion of the building was also utilized by M/s. Escorts Pakistan (Pvt.) Ltd. for its own business. The rent paid by the sub-lettees to the company ~alongwith the fair rent of the portion occupied by the company was held by the Assessing Officer to be the ALV of the property. The assessee on his part had declared his share from the rent received from M/s. Escorts (Pvt.) Ltd. which was far less than the rent received by the company from the sub -lettees. The Assessing Officer after discussing these facts considered into be collusive arrangement between the owners of the building and the company viz M/s. Escorts (Pvt.) Ltd. and determined the assessee's share from property income at Rs.1,99,244 to which an addition of Rs.25,564 was made as income from maintenance charges. A perusal .of the wealth statement indicated that the assessee had shown a liability of Rs.2,24,758 against pool account. The assessee submitted that pool fund account was created among the family members. Details in this respect were filed before the Assessing Officer. On examination of facts it revealed that total funds shown available in the pool account were short by an amount of Rs.3,63,050 i.e. the difference of amount actually remitted at Rs.4,65,705 and as shown by the assessee at Rs.8,28;755. The explanation, given by the assessee did not find ,favour with the Assessing Officer, and, therefore, assessee's share was determined at Rs.1,07,445 and the same was added under section 13(1)(aa) of the Income Tax Ordinance, 1979. Thus, total income for the year 1988-89 was determined at Rs.3,80,253. The learned first appellate authority set aide the addition made under section 13(1)(aa) whereas rest of the treatment was confirmed.

3. On remand the Assessing Officer repeated the same treatment as was given in the first round. The learned CIT(A) upheld the treatment given by the Assessing Officer. The assessee has filed appeals against both the orders of the learned CIT (A) for the assessment year 1988-89.

4. In the assessment year 1989-90 the Assessing Officer accepted the salary income as declared. Property income was declared by the assessee at Rs.38,972. During this year also the GALV was determined as in the assessment year 1988-89. The Assessing Officer has discussed various aspects at length in the body of the assessment order: On the basis of ALV determined by the Assessing Officer property income was determined at Rs.2,17,320. The Assessing Officer also made an addition of Rs.30,000 on account of household expenses in agreement with the assessee which is not disputed now. On appeal the learned CIT(A) upheld the treatment given by the Assessing Officer.

5. The assessee had let out the property during the assessment years 1988-89 and 1989-90 to M/s. Excorts Pakistan (Pvt.) Ltd. The tenant had sub-let the property to other tenants during these two years. The rent derived by M/s: Escorts Pakistan (Pvt.) Ltd. was much higher than it paid to the assessee, who was one of the co-owners of the property. Assessment in the case of the company had been made separately on the basis of income derived by it. The assessment in the case of the company was not cancelled and the income from property of the assessee was charged to tax on notional basis on account of the rent received by the company. One ground of appeal for the assessment years 1988-89 and 1989-90 is that the impugned assessments could not have been framed without first quashing the parallel assessments of M/s. Escorts Pakistan (Pvt.) Ltd. where income from property namely the Excorts House already stood assigned. In this regard the learned A. R. referred to the decision of the Supreme Court of Pakistan in M. Rehman, Income Tax Officer and others v. Narayangang Company (Pvt.) Ltd. (1971) 23 Tax 223 wherein it was observed as under:---

" ....The concern of the Income Tax Authorities, however, was that the Association of persons as a separate entity had escaped assessment. In that the Income-tax Officers were worthy of blame. As soon as they came to know in each individual case that some income was derived by the assessee from a venture carried out jointly with others, they should have excluded that income from the account year and issued notice to each associate under section 34 directing then to file a return. of the income for the year ending 30th June, 1999, derived from the joint venture. Having failed to do so on account of their negligence they cannot be permitted to turn round and issue a fresh notice under section 34 to the same assessee as member of an association in respect of the income which had already been charged to tax in their hands. It was also anomalous to maintain that an income which had already been taxed has 'escaped assessment' or has been taxed. 'at too low a rate' etc. The position which emerges out, therefore, is that the income derived from the joint venture by the three associates having been charged to tax in their respective hands and no step taken for annulment of their assessments the same income could not be taxed again in their hands as income of separate entity."

The learned counsel further stated that he had filed an application under section 156 requesting that the assessment in the case of the company namely Escorts (Pvt.) Ltd. may be cancelled because the income from property had been assessed in the hands of the individual owners. The learned counsel stated that no action had been taken on this application under section 156. The learned D.R. on this part stated that if the application had been filed by the assessee more than a year ago the necessary rectification would be deemed to have taken place under' section 156(3) and if the application is rejected by the Assessing Officer the assessee has the option to file appeal against such rejection. In these circumstances, he stated that the question of double assessment does not arise. We have considered the argument of both the parties on this issue. The Naryanagang Company's case referred to by the learned counsel for the assessee is not relevant because facts of the case are different. In the -Narayangang Company's case assessment had already been made in' the hands of members and a notice was subsequently issued to the AOP under section 34 of the repealed Income-tax Act, 1922 to charge to tax the same income which had been assessed in the hands of the three members of the joint venture. It was in this context that the Supreme Court upheld the order of a Division Bench of the High Court of East Pakistan and held that income derived from the joint' ventures by the three associates having been charged to tax in their hands and no steps taken for annulment of their assessments the same income could not be taxed again in their hands as income of a separate entity. In the present case steps are in hand for cancellation of the assessments framed in the hands of the limited company because the learned counsel submitted that his application under section 156 was pending. Secondly the Assessing Officer has proceeded in accordance with the provisions of law as he has adopted the notional income from property as per the definition of "annul value" as given in sub-section (2) of section 19. Thirdly the same issue came up before this Tribunal for the preceding years in case of one of the co-owners. The plea of the assessee was not accepted in this reported case 1996 PTD (Trib.) 122. We do not find much substance in the argument of the learned A.R. and this ground fails.

8. One of the grounds taken by the assessee for the assessment years 1988-89 and 1989-90 is as follows:

....That there was no ground to label the lease agreement dated 5-3-1979 as collusive. The Income-tax Officer in reading this agreement ignored several other benefits the appellant enjoyed under it. The ITO did not discharge the onus of proving that the apparent was not the real state of affairs."

The above ground is against rule 10 of the Income Tax Appellate Tribunals Rules, 1981 which provides as under:

" ....Every memorandum of appeal shall ....set forth concisely ...... the specific ground of appeal without any argument or narrative; ...."

However, since the learned D. R. did not object to this irregularity we allowed the learned A.R. to proceed further. The learned counsel referred to an Indian case-law reported as (1978) 113 ITR 136 wherein it had been directed that even though the property had been sublet by the tenant the property income actually received by the owner of the property will be brought to tax as income from property. The learned A.R. could not produce any Pakistan case-law on this subject. The Indian case-law referred to by the learned counsel is based on altogether different footing. In that case there was no allegation of any collusive arrangement and the owner and the lessee were different person not related to each other. The lessee was getting higher rent but was paying rent to the owner in 1959 as per the terms of the old lease executed as early as 1935 with the old owners of the property. There was growing on litigation also between the owner and the tenant under the Madras Building (Lease and Rent Control) Act (18 of 1960).

9. The definition of Annual Letting Value has been given in sub section (2) of section 19 as under:

"(b) annual value' of any property be deemed to be the sum for which the property might reasonably be expected to let from year to year:

Provided that where the property is let on rent, the annual value shall not be less than the rent payable by the tenant."

The above provision clearly states that it is not. always the rent A actually received but the sum for which might reasonably be expected to let, from year to year which is liable to tax under the Income Tax Ordinance. Since admittedly the property had been let out on higher rent by the lessee, which was a limited company with the owners of the property being the directors, the Assessing Officer was justified in making assessment of income from property on the basis of rent received by the lessee i.e. M/s. Escorts (Pvt.) Ltd. The learned counsel also referred to the following case-law.:---

(1) 1992 PTD (Trib.) 161.

(2) 1989 PTD (Trib.) 859.

The reference to the above case-law was made to argue that the Assessing Officer had no power to estimate ALV. This argument is misconceived and the cases quoted are not relevant. to the facts under appeal. The question of estimation of ALV is not involved here because the Assessing Officer has charged to tax rent actually received by the private limited company. This case-law was discussed earlier too by this Tribunal in the case of co-owners of the same property in the case reported as 1996 PTD (Trib.) 122. The assessee's appeal on this score had failed and it was held that since the annual value is relatable only to the building owned by an assessee the value assessable shall comprise of the amount which even a sub -letter or a sub-tenant pays for its occupation. In the case of the assessee himself also the impugned assessment order made on similar lines were B confirmed by this Tribunal in I.T.As. Nos.933 to 937/LB/1991-92 for the assessment years 1983-84 to 1987-88 dated 10-3-1999. We do not find any reason to disagree with the order. Thus, the grounds of assessee's appeals for the assessment years 1988-89 and 1989-90 on the issue of property income fail.

C.M.A./M.A.K./24/Tax(Trib.)Appeals dismissed.