QASIM ALI VS COMMISSIONER OF INCOME-TAX, ZONE VI, KARACHI, 2000 PTD-KARACHI-HIGH-COURT-SINDH 1288 (1998)

(a) Income Tax Ordinance (XXXI of 1979)---

----S.21---Words "definite" and "ascertainable" used in S.21, Income Tax Ordinance, 1979--Connotation---Words "definite" and "ascertainable" used in S.21 of the Income Tax Ordinance, 1979 could not be interpreted or defined to mean that the share of each co-owner must be capable of physical partition or division and that the partitioned share or portion must be such that it must form an independent unit capable of being identifiable -by metes and bounds.

(b) Income Tax Ordinance (XXXI of 1979)---

---S.21.---'Transfer of Property Act (IV of 1882), S.45---Liability in case of co-owners---Liability of assessees in absence of specific shares in the property rented out or in sale-deed of such property--Determination of---In the absence of specific shares having been assigned to assessees in the sale -deed of the property assessees would have equal shares in the property in accordance with S.45, Transfer of Property Act, 1882.

(c) Income Tax Ordinance (XXXI of 1979)---

----S.21, 19 & 136---Transfer of Property Act (IV of 1882), S.45---Liability in case of co-owners---Rental income ---Reference---Assessees were joint owners in the rented out property and their shares were not mentioned in the sale-deed of the property---Assessing Officer framed assessment of the assessees in the status of Association of Persons under S.19 of the Income Tax Ordinance, 1979 instead of S.21 of the Income Tax Ordinance, 1979 as Was being done in the previous assessment years on the ground that shares of all the co-owners of the property were not definite and "ascertainable within the meaning of the words "definite" and "ascertainable" used in S.21 of the Income Tax Ordinance, 1979, thus, rendering the property incapable of division or partition in equal shares or definite portions and the assessee could not be assessed under S.21 of the Income Tax Ordinance, 1979 in respect of the rental income derived by them from the property ---Assessee contended that although no specific or definite shares were assigned in the sale-deed to the joint owners in the property, the shares of each owner of the property would be definite and ascertainable in view of the provisions of S.45 of the Transfer of Property Act, 1882---Validity---Assessee would be holding equal share in the property in accordance with the provisions of S.45 of the Transfer of Property Act, 1882 and such equal shares were to be held as "definite" and "ascertainable" as used in S.21 of the Income Tax Ordinance, 1979---Assessees, therefore, were to be assessed under S.21 of the Income Tax Ordinance, 1979 on the basis of their independent shares and not as Association of, Persons---Order of the Appellate Tribunal was set aside and the Assessing Officer was directed by the High Court to frame the assessment under S.21 of the Income Tax Ordinance, 1979.

Nizam-ud-Din Amir-ud-Din of Lahore's case (1943) 11 ITR 443; and Abdul Azeez & Brothers v. Commissioner of Income-tax, Kerala (1961) 4 Taxation 155 rel.

Black's Law Dictionary; Chambers' Dictionary (New Edn.), p.92. Stroud's Judicial Dictionary, Fifth Edn. and Baliantine's Dictionary, Third Edn. ref.

(d) Words and phrases---

----"Definite" and "ascertainable"---Connotation.

Muhammad Farid for Applicants.

Shaikh Hyder for Respondent:

Date of hearing: 12th August, 1998.

JUDGMENT

SAIYED SAEED ASHHAD, J.---The Income Tax Appellate Tribunal on the application of the applicant/assessee under section 136(1), of the Income Tax Ordinance (hereinafter referred to as the Ordinance) referred two questions of law to this Court for seeking its opinion. The questions of law are as under:---

(i) Whether the learned ITAT was right in holding that since the shares have not been specified in the registered sale deed, assessment cannot be made under section 21 of the Income Tax Ordinance, 1979 in the case though the legal position is that in case shares are not specified in an agreement it automatically means that shares are equal.

(ii) Whether the learned ITAT was justified in approving the view taken by the Commissioner of Income Tax (Appeals) that for assessment under section 21 of the Income Tax Ordinance, 1979, there must be physical partition of that building that could be identified as this or her share and whose possession could be taken over 'on the basis of absolute ownership and that mere mention in the agreement that the property will be owned by the purchasers in equal shares is not enough. "

The brief facts required for the disposal of this Income Tax Reference are that the applicant/assessee filed its return for the assessment year 1988-89 in respect of the rental income derived by them from Malkani Apartments (hereinafter referred to as the property). The Income Tax Officer framed assessment of the applicants/assessees in the status of an Association of Persons (hereinafter referred to as AOP) under section 19 of the Income Tax Ordinance instead of section 21 of the Income Tax Ordinance as was being done by him in the previous assessment years. Feeling aggrieved with the assessment framed by the Income Tax Officer, the appellants/assessees filed an appeal before the Commissioner of Income Tax (Appeals) who confirmed the assessment framed by the Income Tax Officer. Again feeling aggrieved and dissatisfied with the order of the Commissioner of Income Tax (Appeals), the applicants/assessees filed a second appeal before the Income- tax Appellate Tribunal who vide its order dated 28-4-1992 in I.T.A. No.22 of 1963 K.B. of 1991-92 confirmed the findings of the Commissioner of Income Tax (Appeals). The applicant/assessee submitted a Reference Application being R.A. No.296/K.B. of 1992-93 framing four questions therein and praying the Appellate Tribunal to refer the same to this Court for seeking its opinion. The Appellate Tribunal by its order dated 23-2-1995, referred the aforesaid two questions to this Court.

We have heard the arguments of M/s. Muhammad Farid and Shaikh Hyder, the learned Advocates for the parties, have perused the material on record and the relevant provisions of law.

The contention of Mr. Muhammad Farid, learned counsel for the applicant/assessee is that, admitting for the sake of argument, that no specific or definite shares were assigned in the sale-deed to the joint owners in the property, the shares of each owner of the property would be definite and ascertainable in view of the provisions of section 45 of the Transfer of property Act. He further submitted that the provisions of section 45 of the Transfer of Property Act are very clear and in the absence of any evidence as to the interest in the fund raised for purchasing the property to which they were respectively entitled to or as to the shares which they respectively advanced for raising the above fund, the Applicants would be presumed to have equal share/interest in the property. Mr. Muhammad Farid further submitted that the two Tax Officers as well as the Appellate Tribunal erred in holding that a co-owner would have definite and ascertainable share within the meaning of these words appearing in section 21 of the Ordinance, in the property only if the same could be physically -specified and identified and would be capable of partition so as to represent an independent unit. He further submitted that it would be sufficient if it was proved that the co owners have definite and ascertainable share and such a presumption was warranted by the provisions of section 45 of the Transfer of Property Act in this particular case. In support of his contention he placed reliance on the case of Nizam-ud-Din Amir-ud-Din of Lahore: reported in (1943) II ITR 443. He further submitted that since the shares/interests of each member of the AOP in the property are definite and ascertainable, they ought to have been assessed under section 21 of the Ordinance and not under section 19 of the Ordinance. In order to appreciate the contentions raised by Mr. Farid, it will be necessary to reproduce section 45 of the Transfer of property Act and sections 19 and 21 of the Ordinance. Section 45 of the Transfer of Property Act is as under:---

"S.45. Joint transfer for consideration. ---Where immovable property is transferred for consideration to two or more persons and such consideration is paid out of a fund belonging to them in common, they are, in the absence of a contract to the contrary, respectively entitled to interests in such property identical, as nearly as may be, with the interest to which they were respectively entitled in the fund; and, where such consideration is paid out of separate fund belonging to them respectively they are, in the absence of a contract to the contrary, respectively. entitled to interest in such property in proportion to the shares of the consideration which they respectively advanced.

In the absence of evidence as to the interests in the fund to which they were respectively entitled, or as to the shares which they respectively advanced, such persons shall, be presumed to be equally interested in the property."

Section 19 of the Ordinance is as under:---

"19. Income from house property. ---(I) The annual value property shall be chargeable under the year 'Income from house property'

(2) for the purposes of subsection (2)

(a) 'house property' means any property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, but does not include any such property (or any portion thereof) which is occupied by the assessee for purposes of any business or profession carried on by him the profits whereof are chargeable to tax under this Ordinance; and .

(b) 'annual value' of any property shall 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 .he rent payable by the tenant.

(3) Nothing contained in this section shall apply in the case of any such property which is in the occupation of the owner for purposes of his own residence. "

Section 21 of the Ordinance is as under:---

"21. Liability in the case of co-owners.---Where any property to which section 19 applies is owned by two or more persons and their respective shares are definite and ascertainable, such persons shall not, in respect of such property, be assessed as an association of persons, but the share of each person in the income from the property shall be included in his total income."

Mr. Shaikh Haider, on the other hand defended the order of the Appellate Tribunal as according to him the words "definite" and 'ascertainable" would be taken to mean shares which were capable of being physically divisible by metes and bounds and capable of being partitioned so as to be identifiable as an independent unit separated by metes and bounds of every co-owner which could be sold or disposed of by such co-owner independently without the other co-owners agreeing to sell their independent unit or share in the joint property. He further submitted that for assessment of the rental income from a property jointly owned by several co-owners under section 21 of the Ordinance, the requirement is not merely that the shares of the co-owners must be definite and specific but that such shares should be capable of physical division or partition which the applicants/assessees failed to prove and they were rightly taxed as an AOP under section 19 of the Ordinance.

A bare perusal of section 45 of the Transfer of Property Act is sufficient to conclude that where several persons buy an immovable property without specifying their respective shares in the said immovable property then all of them shall be presumed to be entitled to equal share in the property. In all the previous assessment years the applicants/assessees were being- assessed to tax under section 21 of the Income Tax Ordinance. A deviation was made by the Income-tax Officer in the year 1988-89 when he assessed the applicants/assessees in the status of an AOP and charged them to tax under section 19 of the Ordinance. The reason advanced by the two officers and the Appellate Tribunal was that the shares of all the co-owners of the property were not definite and ascertainable within the meanings of the words "definite" and "ascertainable" used in section 21 of the Ordinance; thus, rendering the property incapable of division or partition in equal shares or definite portions and the applicant/assessee could not be assessed under section 21 of the Ordinance in respect of the rental income derived by them from the property.

In order to decide the controversy it would be necessary to find out the precise meanings of the words "definite" and ascertainable" appearing in section 21 of the Ordinance with a view to determine as to what is meant by the expression "their respective shares are definite and ascertainable". In this connection it is imperative to look to the meanings of the words "'definite" and "ascertainable" given to them in the legal and ordinary dictionaries. In Black's Law Dictionary the word "ascertain" has been defined on page 114 of the 6th Edition to mean; to fix; to render certain or definite; to estimate and determine. In the same dictionary on page 423 the word "definite" has been defined to mean; fixed, determined, defined, bounded. The Chambers Dictionary (New Edition) on page 92 defines the word 'ascertain" to mean; to find out for certain; to verify; prove; to apprise; to assure; to make certain; prove. In the same edition of Chambers Dictionary the word "definite" is defined on page 412 to mean having distinct limits; fixed; certain; sure; exact; clear. Strouds Judicial Dictionary, fifth Edition, defines the word "ascertainable" on page 191 to mean; known, made certain. In Ballantines Dictionary, Third Edition, the word "ascertain has been defined on page 96 to mean; to make certain; to fix, to establish with certainty.

From a perusal of the various meanings of the words "definite" and 'ascertainable" we are unable to subscribe to the view advanced by Mr. Shaikh Hyder on behalf of respondent/department that the share of the co-owners must be capable of being partitioned or bifurcated according to the shares of each co-owner in a manner so as to form independent units capable of transfer/disposal independently. From none of the meanings of the words "definite" and "ascertainable" reproduced hereinabove from the ordinary as well as law dictionaries it can be deduced or inferred that the words "definite" and "ascertainable" used in section 21 of the Ordinance, are not to be interpreted or defined to mean that the share of each co-owner must be capable of physical partition or division and that the partitioned share of portion must be such that it must form an independent unit capable of being' identifiable by metes and bounds. The only meaning which these two words carry is that the shares of the co-owners must be definite and ascertainable. In the absence of specific shares having been assigned to the Applicants/assessees in the sale-deed in questions, they would have equal shares in the property in accordance with section 45 of the Transfer of Property Act. Each of seven applicants/assessees joint co-owners of the property would be having 1/7th share therein which represents a-definite and ascertainable share. It may also be pointed out that in the agreement dated 7-8-1982 between the members of the AOP it was agreed that such member would be having 1/7th share in the property.

The contention raised on behalf of the Department that the shares of each member of the AOP could not be disposed of or sold unless it was physically divided or partitioned an independent unit, is without any force in view of the provisions of sections 8 and 48 of the Transfer of Property tact which authorise transfer of an undivided share.

Mr. Muhammad Farid referred us to the case of Nizam-ud-Din Amir-ud-Din of Lahore, (ibid), in support of his contention that physical division or petition or identification by metes and bounds of the share of a co-owner is not the requirement of section 21 of the Ordinance as the words "definite" and "ascertainable" do not imply any such requirement. We have gone through the aforecited case and find that the Lahore High Court was faced with the question as to whether the heirs of deceased Muslim, who had inherited their respective share in the immovable property according to the law of inheritance, would be subjected to tax as AOP or should be separately assessed on their independent shares and it observed as under:---

"The assessees who were the co-heirs of a Muhammadan inherited after his death under Muhammadan Law specific shares of the property left by him. The assessees did not partition the property and the rent stood in their joint names. They had jointly employed a munshi to manage the property and collect the rents and the income after deducting the cost of collection and other expenses was distributed in accordance with their respective shares. In the assessment year 1987-88 the income tax authorities assessed the assessees as an association of individuals. "

The proposition whether the shares of persons/beneficiaries in immovable property transferred to them according to Muslim Law could be held to be "definite" and whether the assessment of the beneficiaries as association of persons was permissible was considered in detail by Kerala High Court in the case of Abdul Azeez & Brothers v Commissioner of Income-tax, Kerala, reported in (1961) 4 Taxation page 155. In this case six persons who were minor owned house properties, gifted to them by their grand mother. In terms of the deed the properties belonged to them in shares according to Muslim law. The return of income was filed on behalf of the minor co-owners by their-guardian in the status of land owners. The Income Tax Officer made assessment in the status of ACP on the ground that the shares were not determinable and as such section 9(3) of the repealed Indian Income Tax Act was not applicable. Appeals filed by the assessee before the Appellate Assistant Commissioner and the Tribunal were also dismissed which led to the filing of Income-tax Reference to the Karala High Court. 'The Karala High Court observed that where a property was settled by way of gift of several persons in accordance with the Muslim law then the female and male donees would be entitled to share the property in accordance with the Muslim law. It was further observed that the shares of such donees/transferees being "definite" and "ascertainable", they could not be assessed as an association of persons. It will be appropriate to reproduce the relevant portion from the judgment as under:---

"Held that as it was well-settled that under the personal law that governed the parties a gift of property capable of division to two or more persons without dividing was not valid, and a female heir took half of what her brother took, the intention of the lady was that each grandchild should take a definite share in the properties. Section 9(3) of the Income Tax Act applied, the shares of the grandchildren being definite and ascertainable, and they could not be assessed as an association of persons."

The provisions of section 9(3) of the repealed Income Tax Act were in pari materia with the provisions of section 21 of the Income Tax Ordinance, which has already has been reproduced hereinabove. The observations made by the Lahore High Court in the case of Nizam-ud-Din Amir-ud-Din, (supra), and by Kerala High Court (ibid) in the case of Abdul Azeez & Brothers v. Commissioner of Income Tax, relating to the meaning and interpretation of the words "definite" and "ascertainable" appearing in section 9(3) of the repealed Income Tax Act would be applicable in determining the meaning and interpreting the words "definite" and "ascertainable" appearing in section 21 of the Ordinance. Both the Lahore High Court and the Karala High Court held the shares of the heirs of deceased Muslim in immovable property and the shares of Muslims in immovable property acquired by way of gift according to the Muslim law were held to be "definite" and "ascertainable" notwithstanding the fact that in none of the two cases the respective shares of the joint/co-owners were capable of division or petition or were identifiable and separated by metes and bounds. We are satisfied that in the case in hand the applicants/assessees would be holding equal share in the property in accordance with the provisions of section 45 of the Transfer of Property Act as well as the deed of agreement dated 7-8-1992 and such equal shares are to be held as "definite" and "ascertainable" as used in section 2 of the Ordinance. The applicants/assessees, therefore, are to be assessed under section 21 of the Ordinance on the basis of their independent share and not as in association of persons.

Upon the above discussions, we answer both the questions in the negative. This I.T.R. is allowed, order of the Appellate Tribunal dated 28-4-1992 is set aside and the Income Tax Officer is directed to frame the assessment under section 21 of the Income Tax Ordinance as was being done, in the previous assessment years.

C.M.A./M.A.K./Q-1/K Question answered in negative.