Wealth Tax Act (XV of 1963)---

----Ss.7, 2(5)(ii), Expln. (iii) & 25(5)---Valuation of assets---Association of persons---Immovable property held by assessee for the purpose of business of construction and sale---Land/plot---Cost of construction---Work in progress-- -Booking receipts of constructed premises---Inclusion of value of work in progress in net wealth and deduction-of booking receipts from net wealth as debt owned to the extent of construction and- work in progress---Fact that title of plot was not yet transferred in favour of assessee was discovered during the proceedings before Tribunal---Appellate Tribunal set aside the assessment order for de novo consideration in circumstances, as -full facts were not brought on record---Appellate Tribunal, however, laid down guiding principle for valuation of plot, constructions- of cost, work in progress and treatment of booking receipts accordingly.

W.T.A. No.350/IB of 1997-98 rel.

Zaki Ahmad, D.R. for Appellant.

Ahadullah for Respondent.

Date of hearing: 19th October, 1999.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---The above appeals at the instance of department are directed against the order dated 11-2-1999 by the learned CWT(A), Zone-VI, Karachi in W.T.A. Nos. 1068 and 1066 relating to the assessment years 1995-96 and 1997-98.

2. The relevant facts are that the respondents is an AOP engaged in construction business. In the assessment year 1995-96 the respondent declared negative wealth of Rs.52,57,747 and in the assessment year 1997-98 declared negative wealth at Rs.65,67,726. .

3. In the assessment year 1995-96 the value of Plots Nos.7 and 8, Block-V-B, Nazimabad, Karachi was declared at Rs.1,02,50,000 which was accepted. The cost of construction and work in progress was estimated at Rs.1,07,43,931. The gross wealth was thus determined at Rs.2,09,93,931. Liabilities were claimed at Rs.1,96,93,394 which represented the total amount of booking receipts. The Assessing Officer allowed the liabilities to the extent of cost of construction and work in progress and thereby worked out the net wealth at Rs.1,02,50,000. After allowing basic exemption of Rs.10,00,000 the wealth tax was charged on an amount of Rs.92,50,000.

4. In the assessment year 1997-98 the case was assigned to Special Officer who reported that the land was shown at cost i.e. Rs.1,02,50,000 which was required to be valued on the valuation date. It was further stated to the report that the cost of construction was shown at Rs.1,39,13,527 while according to covering letter of the A.R. the cost of construction comes to Rs.1,37,22,587. It was proposed that cost of construction could be taken from the record of the earlier years. It was further stated that the total receipts were shown at Rs.2,22,53,700 while according to the letter of A.R. the total collection up to 30-6-1998 was required to be verified from the previous record. It was further proposed that the capital of the partners claimed at Rs.84,77,553 being part of total liabilities claimed at Rs.3,07,31,253 were required to be verified from the record.

5. The assessee was confronted with the Special Officer's report and after necessary compliance the detail whereof is not given in assessment order. The Assessing Officer estimated the value of plot at Rs.1,20,34,170. The cost of construction was determined at Rs.1,39,13,527. The value of work in progress was worked out at Rs.79,39,377. The gross wealth was thus worked out at Rs.3,38,87,104. Out of liabilities claimed at Rs.3,07,31,253 which represented receipts and the capital of partners, the liabilities were allowed to the extent of Rs.2,18,52,934 representing cost of construction and work in progress. After deduction of liabilities the net wealth was determined at Rs.1,20,34;170. After allowing statutory exemption at Rs.10,00,000 the amount of Rs.1,10,34,170 was subjected to the levy of wealth tax.

6. The assessee/respondent feeling aggrieved preferred first appeals assailing the estimate of net wealth and curtailment of liabilities. The declared valuation of the respondent is reflected in the following chart which is taken from the first appellate order:--

7. The learned CWT(A) ultimately held as follows:---

"The correct method for valuation of land with incomplete superstructure thereon, is the value of land and the cost of the construction work as shown in the account by this AOF in the assessment years 1995-96 and 1997-98. Therefore, the learned Assessing Officer was not justified in adding the work in progress at Rs.65,48,284 and Rs.79,39,377 for the years 1995-96 and 1997-98, over and above the value of construction work. I, therefore, order the deletion of the additions, on account of the work in progress, in the assessment years 1995-96 and 1997-98... In the years 1995-96 and 1997-98 being an AOP the appellant is not entitled to capital contributions of the members of AOP as debts owed. It is entitled to booking receipts, as a debt owed. The value assessed of the plot, in the year 1997-98 at Rs.1,20,34,176 is in accordance with the Collector's rate and is hence maintained in the appellant's case.

Consequently, gross and net wealth in the years 1995-96 and 1997,-98 in the case, should be determined as follows:-

Consequently, appellant shall get relief in the assessment years 1995-96 and 1997-98 as stated above, and, the appellant's appeals to that extent are allowed. "

8. The department feeling aggrieved with the above findings has preferred these appeals contending that the learned CIT(A) was not justified to hold that the entire booking receipts are debt owed. The contention of the department, is that the liabilities were required to be restricted to the extent of cost of construction only.

9. Heard Mr. Zaki Ahmad, learned representative for the department and Mr. Ahadullah, Advocate, learned counsel for the respondent.

10. The learned DR has submitted that the respondent is an A.O.R. and, therefore, for the purpose of working out the aggregate value of wealth and net wealth the immovable property held by respondent and the liability if any in respect of such wealth is to the considered only. In short his contention is that while working out the aggregate value of the assessee's wealth the immovable properties held for the purpose of business of construction and sale is to be considered only and likewise the debt owed relating to assets included in the aggregate value of wealth is to be deducted. The learned DR has assailed the finding of learned CIT(A) that the entire booking receipts is to be taken as debt owed. He has contended that the learned CIT(A) has failed to consider that the consequence of the impugned direction would be that, on one hand the book receipts are not to be included in the aggregate value of the wealth as has been done by the assessee as well as the assessing officer in this case and on the other hand the entire booking receipts shall be excluded from the aggregate value of the wealth, which is not the intention of law.

11. Mr. Ahadullah, learned counsel for the respondent has conceded that the respondent is an AOP, therefore, the immovable property only held for the purpose of business of construction and sale is to be treated as assets and is to be considered for the purpose of working out the aggregate value of the wealth and consequently only such part of the booking receipts is to be deducted there from which has been invested in the purchase of land belonging to assessee and the cost of construction held by the assessee. Mr. Ahadullah has stated that once the aggregate value of the wealth is computed in the hands of respondent it has to be seen as to how much amount has been invested in bringing into existence the assets i.e. land and construction and to that extent the amount is to be held as debt owed which is required to be deducted from the aggregate value of wealth. Mr. Ahadullah has further submitted that the view of Assessing Officer that the cost of construction only is to be allowed as debt owed is not correct because the land has also been acquired out of the booking receipts. He has thus submitted that to the extent of investment made in acquiring the plot, the deduction is to be allowed holding the said investment as debt owed.

12. Mr. Ahadullah was required to produce evidence that the plot was also purchased out of booking receipts. Mr. Ahadullah sought adjournment for producing evidence. Time was allowed to Mr. Ahadullah and he has produced a document captioned as 'Agreement To Sell Without Possession' dated 16th of September, 1993. He has stated that this agreement of sale was executed between partners of M/s. Liberty Cinema the owners of the open commercial plot of land bearing No.7-B measuring 4832 sq. yds. situated at Block-V-D, Nazimabad; Karachi. A perusal of the sale agreement shows that the total sale consideration was agreed upon at Rs.1,02,50,000. Part payment of Rs.7,50,000 was made at the time of execution of sale agreement. It is further stated in the sale agreement that further amount of Rs.5,00,000 shall be paid within 15 days, where after the vendors shall hand over physical possession of the plot to the vendees empowering them to announce the project on the said plot. It is further stated in the sale agreement that the vendees shall pay the balance sale consideration of Rs.90,00,000 on or before 15-6-1994.

13. From a perusal of the above sale agreement it transpired that the two instalments of Rs.7,50,000 and Rs.5,00,000 were to be paid before announcement of project and booking of fats/shops to be constructed on the said plot. The last instalment of Rs.90,00.000 was to be paid on or before. 15-6-1994 and, therefore, the question of investment out of any receipts received after 15-6-1994 in purchase of plot does not arise. Mr. Ahadullah has stated that no sale deed has been executed as yet and, therefore, a very important fact and the proposition of law connected therewith has not been considered at all. During the course of arguments before us Mr. Ahadullah has conceded that under the provision of Wealth Tax Act, 1963 only such assets can be included in the hands of an assessee which are owned by him meaning thereby the legal title to the property is vested in such assessee. Mr. Ahadullah has further conceded that under the Transfer of Property Act read with the provision of Registration Act an immovable property of a value of Rs.100 and upward can be transferred by registered instrument only. He `Tins further conceded that under section 54 of the Transfer of Property Act a contract for the sale of immovable property does not create any charge on such property. We have recently held in W.T A. No. 350/IB/997-98 that the assets can be subjected to wealth tax in the hands of legal owner only and none else.

14. After a careful examination of the facts in these appeals and the relevant law we are of the considered opinion that the correct facts were not brought on record before the learned two officers below and, therefore, the assessments have not been made in accordance with the provisions of law. In the facts and circumstances of the case it would be appropriate to set aside the assessment orders for de novo consideration in the light of directions to be given presently by us. Although the question of taxability of the plot in the hands of assessee in these appeals was never raised and it only came to light when on our query the full facts were brought on record. Under section 25(5) of the Wealth Tax Act, 1963 ' the Appellate Tribunal is empowered to pass such order as it thinks fit and, therefore, we hereby set aside the assessment orders with the following directions:--

(i) The Plot No.7-8, Block-V-D, Nazaimabad on which the respondent/assessee has raised construction does not belong to the respondent and it is still held by the registered firm M/s. Liberty Cinema and, therefore, it cannot be included in the net wealth of the respondent. It should be excluded from the wealth of the respondent and the department may initiate proceedings according to law for the levy of wealth tax in respect of the said plot in the hands of legal owners/title holders of the plot namely M/s. Liberty Cinema a registered firm.

(ii) If deemed fit the Provincial Authorities may be intimated for taking appropriate action in respect of the transaction pertaining to the plot according to law.

(iii) The constriction has been raised by the respondent and, therefore, the Assessing Officer should determine the market value of such construction on the valuation date on each assessment year.

(iv) After determining the market value of the construction, the assessee should be called upon to establish the amount of investment made in raising the construction out of the booking receipts as on valuation date in each assessment year and the amount of such investment should be treated as liability and consequently the debt owed which should be deducted from the market value of the construction, on the valuation date.

(v) So much of the booking receipts as has not been utilised in the construction should be treated as immovable property and it is neither to be included in the aggregate wealth of the respondent being an AOP nor it is to be deducted from the market value of the construction for the purpose of arriving at the net wealth' of the assessee liable to be charged with wealth tax as on valuation date.

(vi) If proper sale deed is executed in respect of the plot by the owners thereof in favour of respondent and is duly registered, it shall take effect from the date of full payment of the sale consideration. In such eventuality the market value of plot is to be included in aggregate wealth and debt owed shall be allowed to the extent of. booking receipts utilised for payment of sale consideration of the plot. The facts in this behalf gleaned from the sale agreement have already been discussed which may be taken into consideration

15. The appeals stand disposed of as above.

C.M.A./104/Tax(Trib.)Order accordingly