Wealth Tax Act (XV of 1963)

----Ss.5(1), cl.(xv)(i), (ii), Second Sched., cl.7(i), (ii) & 27---Foreign Exchange Bearer Certificate Rules, 1985, R.5---C.B.R. Circular No.I.T.O. 1(42)/1985, dated 22-8-1985---Exemption---Admissibility---Reference-- Assessee claimed exemption from Wealth Tax on account of Foreign Exchange Bearer Certificates---Assessing Officer did not accept the claim of exemption on account of encashment of Foreign Exchange Bearer Certificates and rejected the same on the basis of C.B.R. Circular No.IT0-1(42)/I985, dated 22-8-1985---Such order of the Assessing Officer was confirmed by the Appellate Tribunal on the ground that no proof was adduced regarding receipt of such Foreign Exchange in Pakistan through normal Banking channels---Case of the assessee was, thus, not covered either by para. (i) or (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Contention of the assessee was that he was not required to adduce any evidence to establish that the foreign exchange was received through normal Banking channels in view of sub-clause (i) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Validity-- Case of the assessee was not covered under sub-clause (i) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Foreign Exchange Bearer Certificates purchased from remittance received in Pakistan brought the case of the assessee within the scope of sub-clause (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963-- One of the ingredients, for entitling the assessee to claim exemption in respect of assets/certificates from charge to wealth tax was that assessee would have to establish that money utilized in creating the asset in the shape of purchase of certificate was received or brought into Pakistan through normal Banking channels ---Assessee having failed to establish necessary ingredient, would not be entitled to the exemption provided under sub -clause (ii) of cl. (xv) of S.5 of the Wealth Tax Act, 1963---Order of the Appellate Tribunal was upheld with modification.

Rehan Hassan Naqvi for Appellant.

Jawed Farooqui for Respondent.

Date of hearing: 6th October, 1998.

JUDGMENT

SAIYED SAEED ASHHAD, J.--Income-tax Appellate Tribunal by its order dated 12-8-1991 in R.A. No.129/K.B of 1990-91 referred a question of law to this Court for seeking its opinion. The question of law is as under:---

"Whether on the facts and in the circumstances of the case the learned Income-tax Appellate Tribunal was legally justified in rejecting the claim of the applicant regarding exemption from wealth tax on encashment of the Foreign Exchange Bearer Certificates and to hold that the case of the appellant is not severed either by paragraph (i) or (ii) of clause (xv) of the Wealth Tax Act, 1963?

The brief facts giving rise to this ITR are that the applicant/assessee filed his return of wealth for the assessment year 1988-89 declaring net wealth at Rs.74,82,025. During the assessment proceedings, the Wealth Tax Officer found that the applicant/assessee had claimed exemption on account of Foreign Exchange Bearer Certificates (hereinafter referred to as the Certificates). The applicant/assessee submitted that the Certificates had been encashed in the assessment year 1987-88 and were subjected to wealth tax by the Wealth Tax Officer.- The Wealth Tax Officer also did not accept the claim of exemption of the applicant/assessee on account of encashment of the Certificates and rejected the same on the grounds of C.B.R. Circular No.ITJ 1(42)/1985 dated 22-8-1985 and the order of the Commissioner of Income-tax (Appeals) dated 9-1-1989 whereby the assessment framed by the Wealth Tax Officer for tile assessment year 1987-88 rejecting the claim of extension was upheld by the Commissioner of Income-tax (Appeals). The applicant/assessee challenged the assessment order before the Commissioner of Income-tax (Appeals) who by his order dated 25-1-1990 dismissed the appeal on the, grounds, firstly, that the claim of exemption rejected/disallowed in the assessment year 1987-88 was up-held by his learned predecessor, and secondly, that the same was requirement of C.B.R.'s Circular referred to hereinabove. The applicant/assessee feeling aggrieved filed a second appeal before the Income-tax Appellate Tribunal being Wealth Tax Appeal No.396/H.Q. of 1989-90 which was heard alongwith four other Wealth Tax Appeals bearing Nos.392 to 395/H.Q. of 1989-90. The Tribunal by its order dated 3-9-1990 dismissed all the appeals confirming the findings of the Wealth Tax Officer and the Commissioner of Income-tax disallowing/rejecting the claim of exemption made by the applicant/assessee. The Appellate Tribunal in dismissing the appeals and rejecting/disallowing the claim of exemption observed as under:---

" ....Their case on the other hand, appears to be that they acquired the Certificates out of remittances received in Pakistan. However, in such cases, the exemption can be granted only if it is also established that such remittances were brought into Pakistan through normal banking channels. From perusal of the record, it appears that they have produced the certificate of encashment of such Certificates but no proof has been adduced regarding receipt of foreign exchange in Pakistan through normal banking channels. Thus the case of all the appellants is not covered either by paragraph (i) of (ii) of clause (xv) of section 5 of the Act."

The applicant/assessee again felt aggrieved and dissatisfied and submitted a Reference Application being R.A. No.29/K.B. of 1990-91 framing therein two questions of law and praying the Appellate Tribunal to refer the same to this Court for seeking its opinion. The Tribunal by its order dated 12-8-1991 refrained the two questions of law into one question as reproduced above and referred the same to this Court for opinion.

We have heard the arguments of M/s. Rehan Hassan Naqvi and Jawed Farooqui, the learned counsel for the applicant/assessee and the respondent/department respectively, have perused the material on record as well as the provisions of Foreign Exchange Bearer Certificate Rules, 1985 (hereinafter referred to as the Rules of 1985).

Mr. Rehan Hassan Naqvi, the learned counsel for the applicant/assessee submitted that the Wealth Tax Officer, Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal erred in holding that the applicant/assessee was required to establish that the certificates purchased by him in Pakistan were purchased from foreign exchange which was brought or received by him from outside Pakistan. He further submitted that this finding of the Appellate Tribunal as well as of the two officers below was completely in contravention of the provisions of sub-clauses (i) and (ii) of clause (xv) of section 5 of the Wealth Tax Act, according to which the applicant/assessee was not required to adduce any proof or evidence to establish that the foreign exchange received by him from outside Pakistan or remittances brought by him into Pakistan were through normal banking channels. He further submitted that as a matter of fact neither the Appellate Tribunal nor the two officers below were required to question the applicant/assessee with regard to the money/foreign exchange which was used by the applicant/assessee for purchasing the Certificates in view of sub -clause (i) of clause (xv) of the Wealth Tax Act as well as Rule 5 of the Rules of 1985 and further that in questioning the applicant/assessee with regard to the source of money/foreign exchange used for purchasing the Certificates, the Appellate Tribunal acted in contravention of the provisions of section 5(xv)(i) of the Wealth Tax Act as well .as Rule 5 of the Rules, 1985.

In order to fully appreciate and understand the arguments advanced by Mr. Rehan Hassan Naqvi, we consider it useful to reproduce the provisions of section 5 (xv) (i) and (ii) of the Wealth Tax Act as well as Rule 5 of the Rules, 1985 as under:---

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.

Clause (xv) assets---

sub-clause (i).---brought or remitted by an assessee into Pakistan, or received by an assessee from out-side Pakistan, in the year in which they are brought, remitted or

Sub-clause (ii).---created by an assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (i),

Rule 5 of the Foreign Exchange Bearer Certificates Rules. 1985

"The Certificates may be purchased on payment in foreign exchange equivalent to the face value on the date of purchase. The foreign exchange must be paid in a convertible currency. No application for purchase of these certificates will be needed nor will they be registered. They will be transferable by delivery."

The contention advanced by Mr. Rehan Hassan Naqvi, learned counsel for the applicant/assessee is that in view of the facts and circumstances narrated above, the case of the applicant/assessee is to be governed by sub-clause (i) of clause (xv) of section 5 of the Wealth Tax Act and that a plain reading of above sub-clause (i) is sufficient to conclude that the respondent/department had no right to question the applicant/assessee to establish that the remittances which were applied in purchasing/acquiring the. certificates and said to have been received from outside Pakistan, were brought into Pakistan through normal banking channels. He further submitted that the stand of the Tribunal as well as of the two officers below that such fact was required to be established by the applicant/assessee before the benefit of the concession provided by the above sub-clause (i) could be provided to him was absolutely contrary to the provisions of the above sub-clause (i) and was also in conflict with the principles of interpretation of statute according to which the Court is not required to read words which do not appear in a section or any other provision of a statute so as to give it a meaning other than the meaning which would obviously flew from the language and the words used in a section. He also drew our attention to sub-clause (ii) of clause (xv) of section 5 of the Wealth Tax Act in support of his arguments that if the intention of the Legislature was that the assessee would have to establish the remission or sending of foreign exchange from outside Pakistan into Pakistan through normal banking channels then it would have used the words "through normal banking channels" as has been used in the aforesaid sub-clause (ii). He finally submitted that the absence of the words "through normal banking channels" in sub-clause (i) gives and indicates a clear and unequivocal intention on the part of the Legislature that the assessee in a case where he claims to have acquired the Certificates from money/remittances received from outside Pakistan, then no question or investigation with regard to the alleged receipt or remittances of currency from outside Pakistan is to be undertaken by the respondent/department and the assessee would be entitled to exemption provided for in section 5 of the Wealth Tax Act, whereby the 'same would be exempted and would not be included in the net wealth of an assessee for levying and charging wealth tax.

Mr. Javed, Farooqui, appearing on behalf of the respondent/department vehemently attacked the arguments advanced by Mr. Rehan Hassan Naqvi and submitted that since in sub-clause (ii) of clause (xv) of section 5 of the Wealth Tax Act, the words "through normal banking channels" have been used to establish that the remittances utilized by an assessee for creating an asset were received in or brought into Pakistan, the same would apply in case of sub-clause (i) above. Alternately he submitted that the case of the applicant/assessee is not .governed by sub-clause (i) inasmuch as it is not the case of the applicant/assessee that the asset had been brought or remitted by the applicant/assessee into Pakistan or received by the applicant/assessee from outside Pakistan but that the money utilized in purchasing the certificates had been remitted and/or brought into Pakistan and, therefore, the aforesaid facts attract the provisions of sub-clause (ii) of clause (xv) of section 5 of the Wealth Tax Act. He further, submitted that section 5 (xv) (ii) clearly and ambiguously provides that the assessee who claims exemption in respect of the certificates purchased by him from; remittances received by him in Pakistan or brought by him into Pakistan has to establish that such remittances were received by him or brought by him into Pakistan through normal banking channels. He concluded that in the circumstances. the Appellate Tribunal as well as the two officers below were justified in directing the applicant/assessee to establish that the money/funds utilized in purchasing the certificates were received by him in Pakistan or were brought into Pakistan from abroad through normal channels so as to entitle him to claim the exemption provided by section 5 of the wealth Tax Act.

The case of the applicant/assessee as it appears from the orders of the two tax officers and the Appellate Tribunal as well as the arguments advanced by Mr. Rehan Hassan Naqvi, is that the applicant had acquired/purchased the certificates from the money/funds which were received by him from outside Pakistan. In the circumstances, we are unable to agree with the contentions of Mr. Rehan Hassan Naqvi, that the case of the applicant/assessee is covered by sub-clause (i) of clause (xv) of section 5 of the Wealth Tax Act. Sub-clause (i) of clause (xv) of section 5 relates to an asset/assets brought or remitted by an assessee into Pakistan or received by an assessee from outside Pakistan. It is not the case of the applicant/assessee that the certificates were brought or remitted by him into Pakistan or received by him from outside Pakistan. On the contrary, the case of applicant/assessee is that the money/fund utilized in. purchasing the certificates was brought into Pakistan. Thus the asset which in the present case consists of the certificates was created from -the funds/remittances received in Pakistan or brought into Pakistan from abroad thereby, bringing the case of the applicant/assessee within the scope of sub-clause (ii). of, clause (xv) of section 5 of the Wealth Tax Act. One of the necessary ingredients for entitling the applicant/assessee to claim exemption in respect of the asset/certificates from charge to wealth tax is that the applicant/assessee would have to establish or prove that the money/fund utilized in creating the asset m the shape of purchase of certificates was received in or brought into Pakistan from outside through normal banking channels The applicant/assessee could not establish this factum. The assessee` having failed to establish the necessary and essential ingredient would not be entitled to the exemption provided by section 5 (xv) (ii) of the Wealth Tax Act. Mr. Rehan Hassan Naqvi submitted that he has no cavil with the essential requirement of establishing the factum of remittances received in or brought into Pakistan through normal banking channels as per sub-clause (ii) above but his contention is that in view of the provisions of rule 5 and rule 13 of the Rules of 1985 the provisions of section 5 (xv)(i) and (ii) would not be applicable as Rule 13 of the Rules of 1985 barred the taxation authorities from questioning the source of the funds utilised in purchasing the certificates after their encashment in Pakistan rupees. This contention merits no consideration as neither the two taxation officers nor the Appellate Tribunal even questioned the applicant regarding the source of the funds/moneys received, in or brought into Pakistan and had only asked for proof that they are brought through normal banking channels. Furthermore, the Rules of 1985 would not bypass or supersede the provisions of a statute namely, the Wealth Tax Act.

For the reasons given above and the discussions, we are unable to accept the contention of Mr. Rehan Hassan Naqvi, and hold that the case of the applicant/assessee is governed by sub-clause (ii) of clause (xv) of section 5 of the Wealth Tax Act and he would have been entitled to claim exemption from levy and charge of wealth tax on the certificates if he could have established or proved that the money/funds utilized by him in acquiring the- certificates were received by him in Pakistan or were brought into Pakistan through normal banking channels. Since he has failed to establish this necessary condition, we hold that the applicant/assessee is not entitled to the exemption claimed by him and the Appellate Tribunal as well as the two officers below were justified in rejecting the claim of the applicant/assessee and refusing. to grant him exemption from charge to wealth tax on the certificates/proceeds of the certificates.

Another question which was raised by Mr. Jawed Farooqui, was that even if the applicant/assessee had succeeded in establishing that the money/funds utilized by him in purchasing the certificates were received by him in Pakistan or was brought into Pakistan, the fact is that he would have not been entitled to claim exemption as he had already sold the certificates and as such was not claiming exemption in respect of the value of the asset but in respect of the sale-proceeds of the assets: He further submitted that a plain reading of clauses (i) & (ii) of clause (xv) of section 5 of the Wealth Tax Act indicates that only the assets brought into Pakistan or created in Pakistan through funds/remittances received in Pakistan or brought into Pakistan are exempted from charge to wealth tax and not the sale proceeds thereof. In view of the fact that the applicant/assessee had not been able to establish the necessary condition of the funds/remittances utilized in acquiring the assets in the shape of the certificates had been received by him in Pakistan or were brought into Pakistan through normal banking channels as a result of which he would not be entitled to claim the exemption provided for by section 5 of the Wealth Tax Act, we do not consider it necessary to discuss and dilate upon this issue as a finding thereon would be of no purpose to any of the parties.

Upon the above discussion, we dispose of this IT.R. by answering the question referred to this Court in the affirmative in so far as it relates to rejection of the claim of exemption. However, we hold that the case of tile applicant is covered by sub-clause (ii) of clause (xv) of section 5 of the Wealth Tax. Act. The impugned order 'of the Tribunal dated 3-9-1990 is modified in terms of the above observations.

C. M. A./99/K(Tax) Question answered.