Income Tax Ordinance (XXXI of 1979)---

----S.65---Gift Tax Act, (XIV of 1963)---Constitution of Pakistan (1973), Art. 199---Constitutional petition- --Additional assessment---Rental income of gifted property ---Assessee gifted property in favour of his wife and gift tax determined by the department was duly paid---Rental income of the gifted property was continuously declared by the wife of the assessee as her personal income which was duly processed and assessed by the department-- Subsequently, case of the assessee (husband) was re-opened under S.65 of Income Tax Ordinance, 1979 and rental income of gifted property was included as property income of the assessee---Validity---Department could not re-open the matter to nullify the effect of the proceedings held and finally concluded under the Gift Tax Act, 1963---Gift tax having been duly paid by the assessee once the proceeding under Gift Tax Act, 1963 had been finally concluded by the department, the matter could not be re-opened under S.65 of the Income Tax Ordinance, 1979---Order of Assessing Officer was declared to be without jurisdiction, arbitrary and beyond the scope of S.65, Income Tax Ordinance, 1979---Order was set aside by High Court.

Shaikh Zaheer Ahmad for Petitioner.

Mian Subah Sadiq Klasson for Respondents.

Date of hearing: 25th November, 1999.

JUDGMENT

In the present writ petition the orders of the assessing as well as the appellant and revisional authorities under the Income Tax Ordinance, have been impugned.

2. Briefly stated the facts of the case are, that the petitioner was an income-tax assessee, who had been filing his income-tax returns on the basis of salary, as he had no other source of income. The petitioner was owner of a portion of Plot No.8, Street No.70, F-8/3, Islamabad, on which a residential house was constructed. The other portion. was in the name of his son Muhammad Nasir Khan. After the completion of. construction the petitioner gifted the portion belonging to him in favour of his wife, namely, Mst. Khalida Khanum, through oral gift made on 1-7-1979. The petitioner, on coming to know that he was obliged to file the gift tax return in respect of the gift made in favour of his wife, filed the requisite return gift tax proceedings were held, which were completed by the concerned officer vide order, dated 27-12-1984 and the demand of gift tax made in finalization of these proceedings was duly paid by the petitioner.

3. Thereafter the petitioner's wife filed an ejectment proceedings against the tenants in occupation of the aforesaid house. It seems that on the complaint filed by the tenant the Income-tax Officer Circle II, Zone-B, Lahore, issued notice dated 4-3-1984 in the name of Mst. Khalida Khanun requiring her to inform as to whether she was an existing assessee and if so to quote her national tax number. Mst. Khalida Khanum duly replied the notice and provided the requisite information claiming that she had acquires the property in consequence of the gift made by the petitioner in her favour the rental income she had received during the period 1980-81 to 1982-83 was below the taxable limit, thus, she was under no obligation to file the return in that behalf. Thereafter Mst. Khalida Khanum continuously declared the rental income of the said house as her personal income and filed the return for the year 1986-87, which was duly processed by the Income-tax Office Circle 11 and the rental income of Mst. Khalida Khanum from the said house was assessed at Rs:40,000. On 5-1-1985 the Income-tax Officer Circle 6. Lahore, issued a letter to the petitioner to furnish an information about the aforesaid house, which was duly provided, but the case was reopened under section 65 of the Income Tax Ordinance by illegally including the rental income of both the residential units belonging to Mst. Khalida Khanum and Muhammad Nasir Khan, as the properties of the petitioner and consequently re-assessed the total income of the petitioner for all the three years by adding rental income of the aforesaid property. The petitioner challenged the aforesaid order in appeal which was accepted, the case was remanded to the Assessing Officer with the following observations:

"In view of the factual and legal position it appears to be in the fitness of things to set aside the assessment of the property income. The proceedings are accordingly directed to be taken up in view of the Gift Tax Assessment."

4. The Income-tax Officer thereafter repeated the earlier order of assessment against which the petitioner preferred an appeal which was dismissed, his revision was partly accepted, the rental income of the portion belonging to Muhammad Nasir Khan was excluded from the income of the petitioner, whereas the portion gifted to Mst. Khalida Khanum was kept intact and income thereof was added to that of the petitioner. Hence, this writ petition.

5. Learned counsel for the petitioner has vehemently argued that under the Muhammadan law a gift can be orally made which was complete in all respects and, therefore, the tax Authorities had no jurisdiction to hold that the gift in favour of Mst. Khalida Khanum was to genuine, particularly the proceedings under the Gift Tax Act were finally concluded and the demand raised by the department had already been made by the petitioner. On account of this the gift for all intents and purposes was conclusive and valid and the matter could not be re-opened.

6. I have heard the learned counsel for the parties. Admittedly, in the instant case the proceedings under the Gift Tax Act were initiated, and were concluded finding that the petitioner had gifted the property in favour of his wife, he was also required to pay the amount of gift tax determined by the Tax Department which was duly paid by him. On account of above, the Income Tax Department could not re-open the matter to nullify the effect of the proceedings held and finally concluded under the Gift Tax Act, postulating that the gift tax has been duly paid by the petitioner. All the forums below have not taken this aspect of the matter into account and the impugned orders seem to be result of glaring omission in this behalf. Learned counsel for the respondents has also not been able to rebut the above position, that once the proceedings under the Gift Tax Act had been finally concluded by the same department whether the matter could still be reopened under the provisions of section 65 of the Income Tax Ordinance, 1979.

In the light of above, this petition is accepted, the impugned orders are declared to be without jurisdiction, arbitrary and beyond the scope of section 65 of the Income Tax Ordinance and are hereby set aside. No order as to costs.

C.M.A./M.A.K./M-1268/L Petition accepted.