Wealth Tax Act (XV of 1963)---

----Ss.5(1)(i), 2(e)(ii), 3 & Second Sched., Cl. 22---Exemption---Leased property---Charitable purpose---Property held by assessee, was leased out for a long term ---Assessee claimed exemption from charge of wealth tax on the ground that property was for charitable purpose---Assessing Officer rejected the claim and finalized the assessment---First Appellate Authority found that assets, of the assessee were exempt under S.5, Wealth Tax Act, 1963 and were not chargeable to wealth tax---Department contended that assets held by assessee were covered under S.2(e)(i) of the Wealth Tax Act, 1963 and exemption granted by the First Appellate Authority under S.5(1)(i) of Wealth Tax Act, 1963 was unjustified---Contention of the assessee was that assets of assessee (chamber of commerce) were not covered under; S.3 of Wealth Tax Act, 1963 as the same was to yield before other provisions granting exemption, hence applicability of S.2(e)(ii) of Wealth Tax Act, 1963 was irrelevant---Validity---Charge under Wealth Tax Act, 1963 was charge on assets and the same was to be exempted if it was held for charitable purposes and not if its income could be allocated to charitable purposes---Appellate Tribunal found that property/assets were held for the purpose of charitable nature but having been rented out on long term basis was not held for public purpose of charitable nature---Order of the First Appellate Authority was cancelled while that of Assessing Officer was restored by Appellate Tribunal.

B.P. Biscuit Factory v. W.T.O. (1982) 45 Tax 7; C.W.T. v. Hyderabad Race Club (1978) 115 ITR 453; AIR 1954 Hyd. 9; AIR 1955 Andh. 257; AIR 1933 Mad. 489; AIR 1965 Mad. 53; PLD 1956 Lah. 45; PLD 1969 Dhaka 681; PLD 1966 Dhaka 266; 1989 PTD 909; 1971 SCMR 128; 1980 CLC 558; PLD 1988 SC 370; PLD 1989 Lah. 337; Maxwell on the Interpretation of Statutes, 12th Edn. p.256; Hamdard Dawakhana v. CIT PLD 1980 SC 84; Rehman Corporation v. I.T.O. 1985 PTD 787; 1997 PTD (Trib.) 1034; CIT v. Narayangang Chamber of Commerce and Industry 1968 PTD 513; CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481; CIT v. Federation of Indian Chember of Commerce and Industry (1981), 130 ITR 186 (SC Ind.); Department v. Lahore Flying Club 1986 PTD (Trib.) 441; CIT v. Narayan Chamber of Commerce and Industry 1968 PTD 513; Managing Shebaits of Bhukailash v. W.T.O. (1977) 106 ITR 904; State v. Syed Mir Ahmed Shah PLD 1970 Quetta 49; CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481; CIT v. Narayanganj Chamber of Commerce and Industry 1968 PTD 513; CIT v. Coching Chamber of Commerce and Industry (1973) 87 ITR 83; CIT v. Karachi Chamber of Commerce (1939) 7 ITR 575; CIT v. Federation of Indian Chamber of Commerce and Industry (19811 130 ITR 186 (SC India); CIT v. Andhra Chamber of Commerce v . South Indian Chamber of Commerce and other, (1981) 130 ITR 184 (SC India); Indian Chamber of Commerce v. CIT (1975) 101 ITR 796: CIT v. Surat Silk Cloth (1981) 121 ITR 1; (1971) 81 ITR 230; (1971) 80 ITR 646; Ahmadabad Rana Cast Association v. CIT (1974) 82 ITR 704; ,CWT v. HEH The Nizam's Trust (1973) 89 ITR 80; Managing Shebaits of Phukailash Estates v. WTO (1977) 106 ITR 904; Trustees of KBHM Bhiwandiwalle v. CWT (1977) 106 ITR 709; CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722; 1996 SCMR 1470; CIT v. Abdul Satter Mossa Sailt (1971) 81 ITR 80; Delhi Stock Exchange Limited v. CIT (1997) 225 ITR 235; Berryman v. Whitman College. 222 U.S. 334; 32 S.Ct. 147; 56 L.ED. 424; In re; Walker 200 111, 566, 66 N.E 144, Southern Pac. R.Co. v. State, 34 N.M. 479; 284 Pac. 117; Young Men's Christian Association v. Douglas County 60 Neb. 642, 83 N.W. 924,52 L.R.A. 123; 54 Kan. 542,38- Pac. 796; Bank of Commerce v. Tennessee 161,U.S. 134, 145, 16 S. Ct. 456, 40 L.Ed. 645; Writ Petition No.13113 of 1996; H.E.H. Nizam's Religious Endowmen Trust v. CIT (1966) 50 ITR 582; In re: Lokamanya Tilak etc. Fund 1942 ITR 26, 33; Karen Kayemeth le Jisroel Ltd. v. I.R. 17 T.C. 27; 58 (H.L.); Charusila Dassi, In re: 1946 ITR 362, 370, 376; In re: Trustees of the Tribune 1939 ITR 415; 421 (P.C.); National Anti-Vivisection Society v. I.R. 1948 ITR Suppl. I, 7, 28, 29.(H.L.); Animal Defence and Anti Vivisection Society v. I.R. 32 T.C. 55; In re: Grove-Grady (1929) 1 Ch.557, 582, varied sub nom. A.G. v. Plowden 1931 W.N. 89 (H.L.); Willian Trustees v. I.R. 1948 ITR Suppl. 41; 50 (H.L.) Trustees of Gordhanadas, Etc. Trust v. CIT (1952) 21 ITR 231 and Oppenheim v. Tobacco Securities Trust Co. Ltd. 1951 AC 297 (H.L.); CIT v. Radhaswami Salsang Sabha (1954) 25 ITR 472; 500-1 ref.

Shafqat Mehmood, L.A. for Appellant.

Sirajuddin Khalid for Respondent.

Date of hearing: 9th October, 1997.

ORDER

These seven appeals by the Department are directed against the orders passed by the learned Commissioner of Income-tax (Appeals) on different dates whereby the assessee/respondent was granted exemption under section 5(l)(i) from levy of tax under Wealth Tax Act.

The respondent/assessee is a company incorporated under section 26 of the repealed Companies Act, 1913. On the basis of information that the assessee is owner of Property No. 11 at Race Course Road, Lahore; known as 'Chamber of Commerce and Industry Building' notices under section 17 of the Wealth Tax Act were issued. Returns were filed showing Nil wealth. Through notice under section 16(3) the WTO directed the assessee to file particulars of the tenants to whom the property was let out. These particulars were provided. However, the assessee contended that its assets are exempt under section 5(1)(i) of the Wealth Tax Act hence not chargeable to wealth tax. The learned WTO did not accept contention of the assessee regarding exemption on the following ground:---

(1) Provision of section 2(e) (ii) are applicable as the assessee holds let out property.

(2) On the ratio of Karachi High Court case reported as $P Biscuit Factory versus WTO (1982) 45 Tax 7, the assets are liable to wealth tax.

(3) The membership is not open to public.

(4) The assessee is not holding assets for charitable purpose.

(5) Income of the Chamber is being charged to income-tax.

(6) The request to Government for grant of exemption under section 5(2) was refused.

(7) The objectives are not 'charitable' as defined in the dictionary and held in the case CWT v. Hyderabad Race Club (1978) 115 ITR 453.

(8) That some other similar organizations have been charged to tax.

On the basis of particulars provided by the assessee regarding rent realized, the assessments were framed on the total wealth as under:---

Being aggrieved the assessee preferred first appeal for all the years contending that the assets of the assessee are exempt under section 5(1)(i) of the Wealth Tax Act and the assessment framed by the Assessing Officer are illegal. The First Appellate Authority, vide his order, dated 30-5-1983 passed for assessment years 1979-80 to 1981-82 held that the assets of the assessee were exempt under the exemption provisions of section 5 hence was not chargeable to wealth tax. Appeals were also allowed by him for 1982-83 to 1985-86. Being aggrieved, the department has come in appeal before the Tribunal contending that the order of the learned CIT (A) is erroneous and contrary to factual position obtaining on the order. On the date of hearing the counsel of assessee filed preliminary objections on the maintainability of appeals contending that the appeals preferred being violative of Rules 11 and 12 of the ITAT, 1981, are not maintainable.

We have heard the learned representatives of the parties at length.

The learned L.A. stressed that since the assets held by the Chamber are covered by definition as given under section 2(e) (ii) the exemption granted by the learned CIT(A) under section 5(1)(i) is unjustified. The thrust of the arguments of learned L.A. is that as per section 5(1) of the Wealth Tax Act, 1963 the word 'Public Purpose' is with reference to asset i.e "It is property which is subject to tax and not the income of the said property".

He further argued that the other important fact which needs consideration is as to whether the act of letting out is covered in the definition of public purpose. The expression 'public purpose' he said, not being defined, shall take colour from the statute in which it occurs. He said that the exemption means taking away something from the ambit of revenue hence the same cannot be claimed by analogy or with vague reasoning. It is a settled principle of interpretation of the statutes that an exemption provision is to be strictly construed and nothing should be presumed beyond the expression and intentments of the legislation. He further added !hat the burden of proving whether a person is exempt from a provision is upon the assessee and not on the department. Reliance in support of the arguments is on AIR 1954 Hyderabad 9, AIR 1955 Andhra 257, AIR 1933 Madras 489.

The learned L.A. added that failure to comply with the conditions prescribed in the section disentitles the assessee from the exemption. Reliance is on AIR 1965 Mad. 53. He added that the construction of statute with reference to exemption should be what one understands from its plain reading and that nothing should be presumed beyond the intentments. The cases relied upon are:

PLD 1956 Lahore 45.

PLD 1969 Dhaka 681.

PLD 1966 Dhaka 266.

1989 PTD 909.

1971 SCMR 128.

1980 CLC 558.

The learned L.A. further relied upon the judgment of Supreme Court and High Court, Lahore in support of his other argument that where two constructions are possible, one favourable to the revenue should be adopted. He said that this principle of interpretation of statutes is applicable, only in the case of exemption clauses. He agreed that the general principle of the interpretation of fiscal statute is that the benefit of doubt is to be given to the assessee but the same, he said, is otherwise if the-provision relates to an exemption clause. In his opinion the exemption is to be allowed in the cases which come within the fours of the meanings of legislation on plain reading and which are covered by the provision on strict interpretation. He added that wherever the doubt arises in case of exemption provision, beneficiary should be the department and not the assessee. His reliance in support of his arguments is PLD 1988 SC 370, PLD 1989 Lah. 337. In this regard he further produced a copy of an unreported judgment wherein the Hon'ble Mr. Justice Malik Muhammad Qayyum of Lahore High Court has opined: "It is by now well settled that provisions granting exemption must be strictly construed and doubt if any must be resolved in favour of revenue."

Other judgments on the subject lay down following rules:

PLD 1988 Supreme Court 370:

"As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws-- that the burdens of taxation should be distributed equally and fairly among the members of the society. However, exemptions claimed by the State or its sub-divisions are usually liberally construed and the same rule has frequently been applied to, exemptions made in favour of charitable organization."

The safest principle of interpretation of fiscal statutes which now is almost settled is narrated in following judgment:-- .

PLD 1988 Supreme Court 370:

"Statutes which impose pecuniary burdens are subject to the same rule of strict construction. All charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties; the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction which had the Legislature thought of it, would have been covered by appropriate words. One has to look merely at what is clearly said. There is no room for any intemment. There is no equity about a tax.There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. But this strictness of interpretation may not always ensure to the subject's benefit, for if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be.

Maxwell on the Interpretation of Statutes, 12th Edn., p.256 ref."

On the other hand the counsel for the respondent supported the orders of the learned CIT (A). The learned counsel for the assessee, Mr. Sirajjuddin Khalid, Advocate strenuously argued that the assets of Chamber are riot covered by the Charging section 3 as the same is to yield before other provisions granting exemption hence the applicability of definition of assets as contained under section 2(e)(ii) is irrelevant. Mr. Siraj Khalid submitted that the analysis of subsection (1)(i) of section 5 is that the 'asset' must fulfil four conditions for its entitlement to exemption Le (i) it should be property; (ii) it should be held by the assessee under-trust or other legal obligation; (iii) it should be held either for charitable or religious purpose of public character and (iv) it should be held in Pakistan.

Explaining the first condition the learned A.R. referred to the cases reported as Hamdard Dawakhana v. CIT PLD 1980 SC 84. Rehman Corporation v. ITO 1985 PTD 787 (H.C. Kar.) and 1997 PTD (Trib.) 1034, that the word "property" is a term of widest import and subject to no limitation in its nature. The other condition is holding of property under trust or other legal obligation and its utilization or of income there from should be for charitable purposes. According to the learned counsel, the 'assets charged to tax by the learned WTO fulfil all the conditions hence is exempt from wealth tax'. While explaining the exemptions under section 5(1) and 5(2), he remarked that the ,Legislature has provided a list for exemption from wealth tax, previously under section 5(1) and now under the Second Schedule of the Wealth Tax Act. Under section 5(Z) through which the Federal Government has been authorised to exempt any class of assets or class of persons from the tax payable. Both the authorities have concurrent jurisdiction for grant of exemption. It means an exemption may fall under subsection (1) and also subsection (2) of section 5.

The counsel thus claimed that the exemption covered under section 5(1) or now under Second Schedule would not deprive an assessee from claiming an exemption under section 5(2) as well or vice versa. The A.A. contended that the Chamber is holding its property in Pakistan under legal obligation and the same is of charitable and religious nature. In support of his contentions the learned counsel for the assessee submitted that the very status of the Chamber is of a charitable institution as the same is registered under section 26 of the Companies Act, 1913 (now section 42 of the Companies Ordinance, 1984) as an association not for profit. It is also registered under section 1(12) of the Trade Organizations Act 1961. He contended that objects of the Chamber are of charitable nature and are almost identical to the facts of the case reported as CIT v. Narayangang Chamber of Commerce and Industry 1968 PTD 513, CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481, CIT v. Federation of Indian Chamber of Commerce and Industry (1981) 130 ITR 186 (SC Ind.). He informed that no dividend has ever been paid to the promoters, founders, or other members. In support of his first contention that the Chamber is a charitable institution, the learned A.R. further relied upon the following cases:---

Department v. Lahore Flying Club 1986 PTD (Trib.) 441.

CIT v. Narayan Chamber of Commerce and Industry 1968 PTD 513.

While explaining public purpose of charitable nature, the learned counsel submitted that word "charitable purpose" is not defined in the Wealth Tax Act. The same however, has been defined in Income-tax Act/Ordinance. Needless to say, he said, the same is protected by S.2(2) of the Wealth Tax Act", as inserted in 1997. The definition of income-tax is even otherwise applicable as held in the case of Managing Shebaits of Bhukailash v. W.T.O. (1977) 106 ITR 904. He argued that while using the words "charitable purpose" in section 5(1)(i) the Legislature was aware of the fact that this word stands defined in the repealed Income-tax Act, 1922, hence it was not separately defined under Wealth Tax Act. He placed reliance on the case reported as State v. Syed Mir Ahmed Shah PLD 1970 Quetta 49.

Besides, the learned counsel for the assessee also referred following, six cases from Indian Territory of various Chambers of Commerce and Industry where the word "charitable purpose' has been defined:--

(1) CIT . v Andhra Chamber of Commerce and Industry 1965 PTD 481.

(2) CIT v. Narayanganj Chamber of Commerce and industry 1968 PTD 513.

(3) CIT v. Cochin Chamber of Commerce and Industry (1973) 87 ITR 83.

(4) CIT v. Karachi Chamber of Commerce (1939) 7 ITR 575.

(5) CIT v. Federation of Indian Chamber of Commerce and Industry (1981) 130 ITR 186 (SC India).

(6) CIT Andhra Chamber of Commerce

v. South India Chamber of Commerce

v. South India Film Chamber of Commerce

v. Stock Exchange (1981) 130 ITR 184 (SC India).

The A.R. further said that the only case against the assessee is reported as Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 and that this very case was subsequently overruled by the Supreme - Court of India in the case reported as CIT v. Surat Silk Cloth (1981) 121 ITR 1.

We have given our earnest considerations to the submissions made by the rival counsel. The claim of the assessee is that his property is exempt under section 5(1) (i) and that charging section 3 is subordinate to other provisions of the Wealth Tax Act including section 5(1)(i). He also claims that since the property of the assessee is outside the purview of the charging section, the definition of assets as given under section 2(e)(ii) read with explanation thereto inserted by the Finance Act, 197'1 is not to be taken into consideration. For facility sake we reproduce below the relevant provisions of the Wealth Tax Act:

Section 5. Exemption in respect of certain assets.---(1) Wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee:---

(i) Any property held by him under trust or. other legal obligation for any public purpose of charitable religious nature in Pakistan.

Section 3. Charge of wealth tax.---Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual. Hindu undivided family, firm incorporated or not, and company at the rate or rates specified in the Schedule.

Section 2(e) "assets" includes--

(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, preferred 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, and".

The preposition involved, the learned A.R. says, is very simple. If it can be established that the assessee is exempt under section 5(l)(i) then charging section 3 would not be applicable and the definition section 2(e)(ii) would loose its relevance. Up to June 1977, the word "charitable purpose" was not defined under the Wealth Tax Act. However, the definition section 2 of the Wealth Tax Act has been replaced through Finance Act, 1997 and now under section 2(2) "the words and expression used but not defined in this Act shall have the same meanings assigned to them under the Income Tax Ordinance, 1979". The A.R. says that the provision has come by way of explanation hence is applicable on all cases where proceedings are pending, reliance is placed on PLD 1970 Quetta 49 "the general presumption that the Legislature must be presumed to have always known the laws of the country, and it would add more thoroughly as compared to the knowledge of any ordinary citizen".

Further reliance is placed on (1977) 106 1TR 904 wherein while defining "charitable purpose" or "purpose of charitable or religious nature" the Court held that:

"It has not been defined in the Wealth Tax Act, 1957, therefore, it must bear the same meaning as in the Income Tax Act but under the provisions of Income-tax Act not only should the income be derived from the trust or legal obligation of public purpose of a charitable or religious nature, but the income so derived must to a certain extent be so applied. The position under the Wealth Tax Act seems to be little different. Wealth Tax Act assesses the owning or having possession of the property under section 5(1) (i) of the Act as indicated before stipulated that the condition for exemption was that the property must be held by the assessee under a trust or other legal obligation for public purpose of a religious or charitable nature in India. Therefore, the holding of property by the assessee either under a trust or other legal obligation for public purpose of a charitable or religious nature is the statutory requirement entitling the assessee to exemption under the Act."

From the above case-laws we can validly seek assistance from the cases decided under the income Tax Laws relating to definition and meanings of "charitable purpose". Besides the cases relied upon by the learned counsel for the assessee, as mentioned above, a long list of reported cases, has been made available but the mentioning of all of them would amount to only overburdening this decision

There is no doubt that the immovable assets let out by the Chamber fall under the word "property" as used in section 5(1). The word "property" has been elaborately discussed by the Supreme Court of Pakistan in its case Hamdard Dawakhana v. CIT PLD 1980 ` SC 84. A Full Bench of this Tribunal has also discussed at length the word "property" in its case reported as 1997 PTD (Trib.) 1034.

The A.R. further added that under section 2(14) of the Income Tax Ordinance, 1979, the word "charitable purpose" has been defined to "Includes relief of the poor, education, medical relief and the advancement of any other object of general public utility".

The impugned Chamber as per clause 4 of the Memorandum of Association has provided that the income of the property of the assessee shall be applied solely towards promotion of its object as set forth therein and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise by way of profit to its members.

A situation of letting out the property whether an activity of charitable purpose came for consideration before the Supreme Court of India in the case reported as CIT v. Andhra Chamber of Commerce 1965 PTD 481 (where the object clauses are similar to the assessee here.) It has been held:---

"That, therefore, the income of the Chamber of Commerce from its building was exempt from tax under section 4(3)(i) of the Income tax Act as the building was held under the legal obligation wholly for charitable purpose."

In another case of Supreme Court of India reported as Addl. CIT v Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR I (where the objects of the assessee were almost identical to those of assessee before us) it was held by majority:--

"If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yard and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public utility and profit was merely a by product which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognized by the Central Government under section 25 of the Companies Act, 1956, and under its Memorandum of Association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of the assessee could be utilized only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee."

It may be that an activity of charitable nature may benefit a sect, caste, tribe and not the general public but by it being so, it would not loose the character of its charitable purpose. On going through the cases as cited by the learned counsel for the assessee, (1971) 81 ITR 23q, (1973) 87 ITR 83, (1971) 80 ITR 646, we find that a section of public, as distinct from specified individuals, is also the public and object of public utility may not be one benefited the whole mankind or even all persons living a particular country or province. Similar were the findings given by Supreme Court of India in the case reported as Ahmadabad Rana Cast Association v. CIT (1974) 82 ITR 704 that:

"An object beneficial to a section of public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or all persons in a country or State... the section of the community sought to-be benefited must be sufficiently defined and identifiable by some common quality of public or impersonal nature."

While claiming exemption under section 5(1)(1) of the Wealth Tax Act, the learned counsel for the assessee has further placed reliance on the wealth tax cases reported as:--

(1) CWT v. HEH the Nizam's Trust (1973) 89 ITR 80.

(2) Managing Shebaits of Phukailash Estates v. WTO (,1977) 106 ITR 904.

(3) Trustees of KBHM Bhiwandiwalle v. CWT (1977) 106 ITR 709.

Particularly he invited our attention to the case relied upon by the learned CIT reported as CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 where the rent received from property let out was also held as activity of charitable purpose and was granted exemption from tax. `

The facts and findings given in the cases of various Chambers, relied upon by the learned A.R. for the assessee, are briefly discussed here as under:- '

CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481

The assessee was a company registered under the Companies Act, 1913. The primary objects of the assessee were to promote and protect trade, commerce and industry and to watch over and protect the general commercial interest of the country. The assessee purchased - a building and after alterations let out portions not required for its use. Claim of exemption under section 4(3)(i) of Income Tax Act was rejected by the I.T.O. This action was confirmed by the A.A.C. and Tribunal. On reference the High Court granted exemption. On appeal by Department affirming the judgment of the High Court, the Supreme Court held that:---

"The income of Chamber of Commerce from its 'building was exempt from tax under section 4(3)(i) of the Income Tax Act, as the building was held under a legal obligation wholly for charitable purposes. "

CIT v. Narayanganj Chamber of Commerce and Industry 1968 PTD 513.

The personal status and objects of this Chamber were identical to Andhra Chamber referred above. It derived income from subscription, arbitration, courier service, licence measurement and issue of certificates and house property. The claim of exemption under section 4(3)(i) was rejected by the I.T.O. and A.A.C. The Tribunal granted relief. On a reference, the High Court affirming the order of the Tribunal:

Held that:---

"In the case before us it has not been found by any body at any stage that the income derived from house property and the business has been utilized for the purposes other than for which this association of persons has been registered under section 26 of the Companies Act and the Tribunal recorded its finding to the effect that it, in fact, fulfils the requirement of the provision to section 4 (3)(i) of the Act. "

CIT v. Cochin Chamber of Commerce and Industry (1973) 87 ITR 83 (HC Kerala),

While granting exemption under section 11(1)(a) of the Income Tax Act, it was held:--

"The fact that some income results from carrying out the objects of a charitable trust would not take the charitable purpose outside the scope of the definition in section 2(15). The very object must be the carrying on of an activity for profit in order that it may be outside the purview of the definition."

CIT v. Karachi Chamber of Commerce (1939) 7 ITR 575 (Court of J.C. Sind).

This Chamber charged Measurement Fee which was charged to tax. It was held that:--

"There cannot doubt that the Karachi Chamber of Commerce and its members are one and the same. It is true that under section 26 of the Indian Companies Act, the Chamber is an incorporated body, a legal entity, but it is made up of its members .... the measurement charges realized from its members were not taxable income."

CIT v. Federation of Indian Chambers of Commerce and Industry (1981) 130 ITR 186 (SC Ind.):

The respondent is company without capital. During calendar year 1961, the respondent held the Indian Trade Fair at New Delhi and derived rental income for space allotted, sale of season tickets and gate tickets. The assessee claimed exemption under section 11(1) (a) but was refused by the I.T.O. In appeal the exemption was allowed by A.A.C. which was confirmed by the Tribunal and the High Court. On further appeal by the Department, the Supreme Court of India:---

Held that:--

"The income derived by the respondent from the activities, such as holding the Indian Trade Fair and sponsoring the Conference of the Afro Asian Organization, were for the advancement of the dominant object and purpose of the Federation, viz. promotion, protection and development of trade, commerce and industry in India and were exempt from tax under section 11(1)(a) read with section 2(15)." `

CIT v. Andhra Chamber of Commerce etc. (1981) 130 ITR 184 (SC Ind.):

Held that :--

"Profit-making was not the predominant object of the activity carried on by the Andhra Chamber of Commerce but its predominant. object was to promote trade and commerce which was an object of general public utility and the High Court was right in taking the view that the objects of the Andhra Chamber of Commerce fell within the last category of charitable purpose given in section 2(15) of the Income Tax Act, 1961 and its income was exempt from tax under section 11(1)."

The A.R. claims that out of various cases above, two are directly applicable as the issue thereon is of property income. In these reported cases i.e. 1965 PTD 481, the Court held that---

"the income of Chamber of Commerce from the building was exempt from tax under section 4(3)(i) of the Income-tax Act as the building was held under the legal obligation wholly for charitable purpose. "

The other cases support the contention of the assessee that Chambers are charitable institutions.

Mr. Siraj Uddin Khalid invited our attention to a Division Bench case of this Tribunal reported as 1986 PTD (Trib.) 441 where it was held:--

"Even otherwise, the very fact that the L ....F...C... was registered under the provisions of section 26 of the Companies Act, 1913, it confirms its status of being a charitable institution. It requires no clarifications that registration under such provision is accordingly only when "it is proved to the satisfaction of the Federal Government that an association capable of being formed is a limited company has been or is about to be formed for promoting commerce, art, science, religion, charity or any other useful object and applies or intends to apply its profit (if any) or other income in promoting commerce, art, science, religion charity or any other useful object and applies or intends to apply its profits (if any) or other income in promoting its object and prohibits the payment of any dividend to its members. .

10. Since no part of the respondents' income is used except for promotion of its objects which are educational or in legal termi nology are "charitable" such income shall be exempt from tax." -

Similarly his stress was upon the fact that the Chamber is registered under the Trade Organizations Ordinance, 1961 wherein section 2(12) ""trade organization" has been defined as to---

"means an association-- .

(a) is capable of being formed as a limited company within the meaning of the Act;

(b) is formed or intended to be formed with the object of promoting any trade, commerce or industry or any group or class thereof, or for representing for any purpose, in any manner and to any extent, any trade, commerce or industry or any group or class thereof; and

(c) prohibits payment of any dividend to its members and applies or intends to apply its profits or other income for achieving its objects. "

While dealing with the objections made by the learned W.T.O., for refusing exemption under section 5(1)(i) of the Wealth Tax Act, Mr. Sirjuddin Khalid contended that the case of BP Biscuit Factory v. ITO relied upon, by him stands reversed by Supreme Court of Pakistan reported as 1996 SCMR 1470. The other objections of the W.T.O. that membership is not open to general public, he stressed that there is no prohibition on public for becoming member of the Chamber except they are to qualify to be trader or industrialist. Even if it be there, still the exemption could not be disallowed. He argued that section of public is also public object and public utility even if it is for one sect will not change the character of its being charitable. In support of this contention he reverted back to the cases already discussed above which are:---

CIT v. Abdul Sattar Moosa Sailt.(1971) 81 ITR 80.

CIT v. Cochin Chamber of Commerce (1973) 87 ITR 83.

Additional CIT v. Surat Art Silk Cloth (1980) 121 ITR 1.

The counsel for the respondent argued that to say that Chamber is not holding assets for charitable purposes is also not correct as in the case of several other chambers holding similar assets, the superior Courts have declared such holding to be for charitable purposes. In support of objection that other chambers are paying income-tax, no case was cited by the W.T.O. It was also incorrect that request made to Government for exemption under section 5(2) of Wealth Tax Act was refused. The case of the assessee falls under section 5(1)(i) which is the main contention for claim of exemption. The objection that objects of the Chamber do not reconcile with the dictionary meanings of charitable is also not tenable as word "Charitable" stands elaborately explained by the superior Courts and the assessee falls within those meanings. The learned A.R. for the assessee distinguished his case from the case relied upon by W.T.O. reported as W.T.O. v. Hyderabad Race Club where some of the objects such as "(c) to carry on the business of Race Club in all its branches", disqualified him from exemption whereas none of the objects of, impugned Chamber is of business nature activity. The next objection met by the learned A.R. that similar organizations have been charged to tax is not correct as neither the name of any such organization was mentioned nor it can be made base to charge the impugned assessee who is having its own objects and activities.

We have, at our own, digged out a case from Supreme Court of India reported as Delhi Stock Exchange Limited v. CIT (1997) 225 ITR 235. In this case the assessee claimed exemption from payment of income-tax under section 11 of the Income Tax Act, 1961 on the ground derived from property which was held under Trust for charitable purposes. The appeals related to assessment years covering the period prior to December, 1973 (before amendment of bye-laws) on the relevant date the Memorandum and Articles of Association contained a 'clause that the "surplus of the assessee could be distributed between the shareholders or employees or even their relations". On the basis of this clause the claim of exemption was disallowed by the ITO and was confirmed in by the Tribunal and High Court. The matter went up before the Supreme Court. Supreme Court while disallowing exemption held:

"What is, therefore, required is, that there must be an obligation created to spend the money exclusively and essentially on charity. In the present case, as found by the High Court, at the relevant period there was no obligation that the income from the properties derived by the assessee was to be exclusively used for charitable purposes. It was permissible for the assessee to distribute the whole or part of such income by way of dividends amongst its shareholders. Such a prohibition was imposed only in December, 1973, by the amendment of Article 103(xiv) of the Articles of Association of the assessee. In other words, prior to the said amendment introduced in December, 1973, the assessee was under no legal obligation prohibiting it from distributing the income derived by it by way of dividends amongst its shareholders. On that view of the matter, it must be held that the High Court was right in holding that the assessee could not claim exemption under section 11 read with section 2(15) of the Act. "

But in the case before us we have Articles 4 and 8 of Memorandum of Association which reads:---

"4. The income and property of the Chamber when so ever derived shall be applied solely towards the promotion of the objects of the Chamber as set forth in this Memorandum of Association, and no portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise howsoever, by way of profit to the members of the Chamber or to any of them or to any person claiming through any of them:

Provided that nothing herein contained shall prevent the payment in good faith of remuneration to any officers or servants of the chamber or to any member thereof or other person in return for any services actually rendered to the Chamber, or the payment of interest on money borrowed from any member of the Chamber.

8. If upon the winding up or dissolution of the Association, there remains, after the satisfaction of all its debts and liabilities. Any property whatsoever, the same shall not be paid to or distributed among the members of the Association, but shall be given or transferred to some other institution or institutions having objects similar to the objects of the Association, to be determined by the majority of the members of the Association at or before the time of dissolution or in default thereof, by such Judge of the Court of Lahore, as may have or acquire jurisdiction in the matter."

The learned CIT Appeals in his Appellate Order, dated 30-5-1983 for 1979-80 to 1981-82 has discussed in detail the charitable, nature of the assessee which stands un-controverted by the D.R. and the L.A.

We need not repeat the same. We find ourselves in agreement with following points after hearing the parties concerned:---

That the Chamber impugned before us is holding property under a legal obligation.

It is formed and is intended promotion of trade, commerce and industry within the area of its jurisdiction.

It is for the public at large though it has fixed a parameter to qualify for the membership.

It prohibits payment of any dividend or profit to its members; and

Its purposes are covered within the definition of charitable purpose so far as utilization of the income is concerned.

Now the thin line which requires deep consideration is that under the Income Tax Act or Ordinance, as the case may be, the tax is charged on profits and gains. The corpus there is income, while in the case of wealth tax the corpus is property. The wealth tax is payable by an assessee on all assets held by him. The exemption, however, is available to some, out of which assessee claims following provision to be applicable:---

"Any property held by him under trust or other legal obligation fog any purpose of a charitable or religious nature in Pakistan."

We have already shown our agreement in respect of various principles as mentioned supra in para.8. Now we shall dilate upon the issue as to whether the property impugned is:

"Held by him under a trust or other legal obligation for any public purpose of charitable religious nature." (Underlining is ours).

The doubt emerged upon giving this property on rent to its members as well as to non-members on long term lease. The purpose is controlled by the Memorandum of the Association which are exclusively and solely promotion of the objects of the Chamber being promotion of trade and commerce as is set forth in clause 4 mentioned above. But whether renting out of the property here can also still be covered under the exemption clause requires comparative study of the provision of income-tax, as well as wealth tax. Since most of the cases relied upon are of Indian Origin, we shall take the same for comparison. Section 11 speaks:

11. Income from property held for charitable or religious purposes:

(1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income---:

(a) Income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes 'in India;, and, where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of twenty-five percent of the income from such property. (Underlining is ours for emphasis).

From the comparison of the two provisions above it is clear that the charge under income-tax is on income and the exemption shall also be for the income mentioned therein. In wealth tax the charge is on asset and the same is to be exempted if it is held for charitable purposes, if its income is allocatable to charitable purposes. The property of the Chamber impugned comprises of two units. One is for the office of the-Chamber and is also used for other objects by the Chamber itself. This unit is acceptably "held for the public purpose of charitable nature". The property impugned having been rented out on long term base, in our opinion is "not held for public purpose or charitable nature."

.

The arguments of the learned A.R. that the doubt in the case of fiscal laws should be resolved in favour of the subject is also of no help to the assessee in the present case. The provisions impugned is an exemption clause. General principle of interpretation, undoubtedly, is the same as is argued by Mr. Siraj Khalid, but in the case of an exemption provision there is exception. Mr. Justice Malik Muhammad Qayyam, in W.P. No. 13113 of 1996 have rightly held that:---

"It is now well settled that provisions granting exemption must be strictly construed and doubt, if any, must be resolved in favour of the revenue. "

We are also reminded of some judgments of U.K. origin wherein the Courts have directed that the provisions providing for an exemption may be construed strictly against the person who makes the claim of an exemption. This has been so held in Berryman v. Whitman College 222 U.S. 334, 32 S.Ct. 147, 56 LED. 424; Yle University v. New Haven.

In other words before an exemption can be recognized, the person or property claimed to be exempt must come clearly within the language apparently granting the exemption:

"149 In re Walker, 200 111, 566, 66 N.E. 144, Southern Pap. R.Co. v. State, 34 N.M. 4'79, 284 Pac. 117. And see Yound Men's Christian Association v. Douglas County, 60 Neb. 642, 83 N.W. 924, 52 L.R.A. 123.

The reason for requiring a strict construction of statutes in favour of the State where a person claims immunity from the common burden of taxation, has been ably stated by Mr. Justice Brewer, as appears from the quotation from- his opinion, in Stahl v. The Educational Association of the Methodist Church (54 Kan. 542,38 Pac. 796):

"All property receives protection from the State. Every man is secured in the enjoyments of his own, no matter to what use he devotes it. This security and protection carry with them the corresponding obligation to support. It is an obligation which rests equally upon all. It may require military service in time of war, or civil service in time of peace. It always requires pecuniary support. This is taxation. The obligation to pay taxes is co-extensive with the protection received. An exemption from taxation is a release from this obligation. It. is the receiving of protection without contributing to the support of the authority which protects. It is an exception to a rule, and is justified and upheld upon the theory of peculiar benefits received by the State from the property exempted. Nevertheless, it is an exception; and they who claim under the exception must show themselves within its terms."

Moreover, exemption laws are in derogation of equal rights, and this is an equally important reason for construing them strictly. And a third reason appears from the Court's language in Bank of Commerce v. Tennessee (161 U.S. 134, 145, 16 S. Ct. 456, 40 L. Ed. 645):

"Taxes being the sole meats by which sovereignties can maintain their existence, any claim on the part of any one to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity used upon which the claim to the exemption is founded. It has been said that a well founded doubt is fatal to the claim; no implications will be indulged in for the purpose of construing the language used as giving the claim for exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power."

In view of above discussion we, have no doubts-in our mind that the use of word 'held for the purpose' of 'charitable' nature can in any manner be extended to include the property which has been leased out. The obvious conclusion, therefore, is that the impugned property is not held for public purpose of charitable nature. So relying upon the safest principle of interpretation i.e not to go beyond the intentments expressed by the letters of law and following the findings of Mr. Justice Malik' Muhammad Qayyum vide W.P. No. 13113 of 1996 already quoted by us we give our finding in favour of Revenue.

The order of the learned CIT (A) is, therefore, cancelled and the order of Assessing Officer is restored.

(Sd.)

(Khawaja Farooq Saeed)

Judicial Member.

SHARIQ MAHMOOD (ACCOUNTANT MEMBER).---The issue before us was whether the First Appellate Authority had rightly decided that the property held by the assessee was exempt under the provisions of section 5(1)(i) "any property held by him under trust or other legal obligation for any public purpose of a charitable or religious nature in Pakistan" of the Wealth Tax Act. The Revenue feels that the assessee does not fulfil the conditions to entitle it to exemption while the respondent/ assessee supporting the impugned decision, has impressed upon us that the case falls within the ambit of the above provisions of law and hence the exemption granted at the first forum should be maintained. I am in full agreement with our above findings and conclusions. To strengthen and support the same I would add but before proceeding would also clarify:

(i) The learned A.R. maintained---

(a) that similar organization which has been charged to tax is not correct as neither the name of such organization was mentioned-- Page 19 supra;

(b) in the assessment order at page 4 second last paragraph the WTO states "many similar bodies like CCI, Karachi and All Pakistan Textile Mills Association, Karachi have already been charged to wealth tax for the immovable property held for the purposes of letting out. "

The main thrust of the argument has been that as under the Wealth Tax Act "public purpose of a charitable nature" has not been defined, therefore, the meaning/interpretation as applicable in case of income-tax would be applicable. And in support the A.R. has relied on a number of cases. These have been adequately discussed in detail in the foregoing part of the decision. We have not found ourselves in agreement for the entailed reasons. In supplementing these arguments, I am of the opinion that reliance on interpretation/case-laws from another act (income-tax) when the said law (wealth tax) does not define it as relevant only when there is absence of a decision of a case-law under such an Act (Wealth Tax). I am of the opinion that the assessee's case falls within the ambit of C.W.T. v. Hyderabad Race Club. 115 ITR 453 (A.P.) In fact the assessee's representative, during the course of proceedings, has not been able to distinguish its case from the above cited. I would refer to the findings of their Lordships:

"Held, that in order to attract exemption under section 5(1)(i) of the Wealth Tax Act, the assets must be held, firstly, in trust or other legal obligation and, secondly, for a public purpose of charitable nature. Unless both these ingredients are satisfied, the assessee is not entitled to exemption in respect of the assets held by him. Under the Wealth Tax Act holding of the asset itself rendered the person liable for tax and if such asset is held for a public purpose which was both charitable and non-charitable in nature, the assets held by the assessee liable for tax irrespective of whether it is applied solely for charitable purpose or for non-charitable purpose. The decision rendered under the Income-tax Act which lays down that the dominant intention of the trust and mode of application of income for charitable purposes, should be the criterion for judging the taxability of income has no application to the cases under the Wealth Tax Act". (Emphasis added).

"Once the wealth tax is attracted to the assets held by an assessee the burden lies on such assessee to establish that he comes within the exception laid down under section 5. Primarily all the assets of the assessee would be included in the wealth of the assessee for purposes of assessment to tax unless any such asset is excluded under the exemption provided under section 5 of the Act. "

.... "If there were several objects of a trust some of: which are charitable and some non-charitable, and the trustees in their discretion could apply the income to any of the object; the whole trust must fail and no part of the income would be exempt from tax and, as, in the instant case, even assuming that' there was a charitable purpose in the promotion of athletic sports and games still the exemption was not available as there were other non-charitable purposes" .

... "What is determinative of the liability. of the club for purposes of wealth tax is not the application of the assets or the income thereof for achieving aims and object of the club but the holding of the assets itself that imposes the liability. The assets of the Hyderabad Race Club are, therefore, not exempt from tax". (Emphasis added).

The arguments of the learned A.R. that 'the conditions as laid down under the Income Tax Act have been fulfilled, 'therefore. it is entitled to exemption have already been discussed in detail above. In brief I would on15 add that the burden of proving that the property is held for charitable purposes is on the assessee:-

In H.E.H. Nizam's Religious Endowment Trust v. CIT (1966) 50 ITR 582, the Supreme Court declared (per Headnote):

'It is settled law that the burden is on the revenue authorities to show that the income is liable to tax under the statute; but the onus of showing that a particular class of income is exempt from taxation lies on the assessee. To earn the' exemption, the assessee has to establish that his case clearly and squarely falls within the ambit of the exempting provisions of the Act.

The effect of an excepting or qualifying proviso according to the ordinary rules of construction, is to except out of the preceding portion of the proviso, would be within it'.

The burden .of proving that the assets of the assessee are exempt from tax is, therefore, upon the assessee."

This has also been confirmed in other cases:

Burden of proof. The burden of proving that the property is held for religious or charitable purposes is on the assessee".

Ref.: In re: Lokamany a Tilak, etc., Fund 1942 ITR 26, 33: Karen Kayemeth le Jisroel Ltd. v. I. R. 27 T.C. 27, 58 (H.L.); Chatusile Dassi: In re: 1946 ITR 362, 370, 3'16..

"Reference to Court. The question whether a trust is charitable or whether a particular object is of general public utility, is to be determined by the Court on the evidence before it."

Ref.: In re: Trustees of the Tribune 1939 I.T.R. 415, 421. (P.C.); National Anti-Vivisection Society v. I.R. 1948 I.T.R. Suppl. 1, 7. 28, 29 (H.L.); Animal Defence & Anti, Vivisection Society v. I.R. 32 T.C. 55.

The assessee has nowhere been able to prove that the property has been held for charitable purposes e.g. objectives as referred to in the Articles and Memorandum of Association (4 and 8) of the Chamber reproduced in the body of the order. The qualification for membership-article 2 confines it to:--

"Any firm joint-stock company, partnership, proprietary concern, associated body or an association of persons engaged in the export, import or any other trade or owning a factory who pays or is liable to pay income-tax and has its head office, Regional office, branch office, or place of business in the Lahore Division provided that the Head Office of the Branch Office of the firm/company etc., located at Lahore is the member of a registered regional chamber, shall be eligible for membership. "

Which proves that the public at large cannot even become a member. The statements of income and expenditure furnished by the assessee for the years under consideration show that there is not a single item of expenditure which could be termed as of public charitable purposes. In supporting our above finding I refer to what Lord Russal of Killowen said:

"Matters have been stretched in favour of charities almost to bursting point. But the Courts have firmly drawn the line in at least one direction. The universal rule is that the law recognises no purposes as charitable unless it is of a public character. This is to say, a purpose must, in order to be charitable, be directed to the benefit of the community or a section of the community and not to the benefit of particular private individuals. "

Ref.: In re: Grove-Grady (1929) 1 Ch. 557, 582 (varied, sub nom. A. G. v. Plowden 1931 W.N. 89 (H.L.).

Willian Trustees v. I.R. 1948 ITR Suppl. 41, 50 (H.L.); Trustees of Gordhandas, etc. Trust v. C. I. T. (1992) 21, I. T. R. 231.

The universal rule is that the law recognises no purpose is charitable unless it is of a public character:

. .. "But the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature. If the class is vague and ill-defined the trust would be bad as charity."

Ref.: Oppenheim v. Tobacco Securities Trust Co. Ltd. 1951 A.C. 297 (H.L.): C.I.T. v. Radhaswami Salsang Sabha (1954) 25 I.T.R. 472, 500-1.

In the light of the above I am of the- opinion that the assessee has not been able to make out a case either on fact or law that it fulfils the conditions to be exempt under the provision of section 5(1)(i) of the Wealth Tax Act. The order of the W.T.O. is hence restored.

C.M.A./M.A.K:/102/Tax(Trib.) Order accordingly: