Wealth Tax Act (XV of 1963)‑‑‑

‑‑Ss.17‑B, 16(3) & Second Sched., Cl. .(12(2))‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000). Ss.2(3) & 9‑‑‑Powers of Inspecting Assistant Commissioner of Wealth Tax to revise Deputy Commissioner's order‑‑‑Exemption‑‑‑Two joint shops‑‑ Assessment was framed under Ss.16(3)/17B of the Wealth Tax Act, 1963 in pursuance to the order passed by the Appellate Tribunal‑‑‑Show‑cause notice was issued again under S. 17B of Wealth Tax Act, 1963 for cancellation of assessment on the ground that exemption allowed to one shop was never occupied by complainant for his own business as it was demolished and 15 new shops were constructed and afterwards sold out‑‑‑Validity‑‑‑No efforts were. made by the Department to verify the date of demolition of shop‑‑‑Inspecting Additional Commissioner hurriedly issued show‑cause notice for cancellation of the assessment framed in pursuance of the order passed by the Appellate Tribunal‑‑ Action by the Inspecting Assistant Commissioner to issue show‑cause notice was without lawful authority .particularly when the assessment order framed by the Assessing Officer under Ss.16(3)/17‑B of the Wealth Tax Act; 1963, had been passed to implement the decision made by the Appellate Tribunal‑‑‑If the Department felt that. the decision by the Appellate Tribunal was based on wrong reporting of fact, a review or recall request could be made to the Tribunal‑‑‑Action by the Inspecting Assistant Commissioner was contrary to law and fell within the definition of "maladministration" as per S.2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000‑‑‑Federal Tax Ombudsman recommended that the notice under S.17‑B of the Wealth Tax Act, issued by the Inspecting Assistant Commissioner be withdrawn.

Habib‑ur‑Rehman for the Complainant.

Laila Ghafoor, D‑CIT for Respondent.

DECISION/FINDINGS

The complainant has been running business at 18‑Hall Road, Lahore in his individual capacity under the name and style of Prince Radio Service. The shop measured 233 sq.ft. and its value in the Wealth Tax Returns was declared at Rh.10,000 up to year ended 30‑6‑1996 (i.e. and .year 1996‑97). In the year ended 30‑6‑1997 and 30‑6‑1998 (relevant to assessment years 1997‑98 and 1998‑99) the value of the shop was declared at Rs.2,810,000 for each year. Wealth Tax assessments for the years 1997‑98 and 1998‑99 came to be framed ex parte under section 16(3). Later both these assessments were cancelled by the I.A.C. on 11‑9‑1999.by resort to supervisory jurisdiction under section 17B of the Wealth Tax Act: It was observed by the I. A. C. that the Shop No. 18 the value of which had been declared at Rs.2,810,000 in fact consisted of two independent units, i.e. 16 and 18, Hall Road, measuring 3 Marlas 75 sq. ft and 233 sq. ft respectively. According to the I.A.C.. Shop .No. 16 measuring 3 Marlas 75 sq. ft. was demolished and reconstructed by creating a number of shops within its area which measured 3 Marlas 75 sq. ft. At the same time individual business continued to Shop No. 18 which measured 233 sq. ft, and he was thus entitled to exemption for Shop No. 18 only. Considering the assessment under section 16(3) for the years 1997‑98 and 1998‑99 to be erroneous and prejudicial to the interest of revenue as these had resulted in allowing exemption to both the shop the I.A.C. cancelled both the assessments which were refrained under sections 16(3)/17B on 30‑6‑2000. Mr. Muhammad Nazir felt aggrieved by this dispensation made under section 17‑B and resorted to appellate course Finally the Income‑tax Appellate Tribunal's decision dated 3‑‑1‑2000 made the observation as under:‑‑

"The assessee's shops admittedly are two, for all intents and purposes. It definitely comprises of 2 units. one bearing No.16 bearing No.18, hence the order of the ITO was definitely erroneous as well as prejudicial to the interest of revenue. The assessee is entitled to exemption on only one shop, which can be either of the two at his option. The Inspector's report and the earlier assessment none is of any help to him as the same does not dislodg the facts on record."

2. The above finding unequivocally holds that the assessee was entitled to exemption of either of the two shops‑‑‑Shop No. 18 or Shop No. 16.

3. In the second round, when passing order under section 16(3)/ 17B keeping in view the observation by the ITAT the A‑CIT granted exemption under clause 12(2) of the 2nd Schedule to Wealth Tax Act for Shop No. 16 Hall Road, Lahore but subjected to tax the valuation of Shop No. 18 by estimating the same at Rs.691,234 and Rs.1,312,567 for the years 1997‑98 and 1998‑99 respectively vide assessment order passed on 30‑6‑2000.

4. The I.A.C., Range Zone‑A, Lahore again issued show‑cause notice under section 17B vide his No.289 R‑I dated 29‑9‑2001 showing his intention to cancel the assessments framed under sections 16(3)/17B on 30‑6‑2000 for the assessment years 1997‑98 and 1998=99 by treating these assessments as erroneous and prejudicial to the interest of revenue. In the show‑cause notice the LAC remarked as under:‑‑

"During the reassessment proceedings the Assessing Officer allowed you exemption of Shop No. 16 Hall Road, Lahore, while valuation of Shop No. 18 was adopted at Rs.691,234. The action of the Assessing Officer is still erroneous insofar as it is prejudicial to the interest of revenue because Shop No. 16 Hall Road was never occupied by you for your own business as it was demolished and 15 new shops were constructed and afterwards sold out. Under `clause 12(2) of the 2nd Schedule to the Wealth Tax Act, 1963 only a shop occupied and used for own business was to be allowed .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From the above facts it .is clear that you were not using Shop No. 16 for own business purposes whereas it was demolished and converted into 15 shops for selling the same to earn profit. Under these circumstances the Assessing Officer wrongly allowed exemption of Shop No. 16 which was not occupied by you.

In view of the above facts the assessments completed are erroneous insofar as it is prejudicial to the interest of revenue."

5. In reply to show‑cause notice the assessee's A.R., Mr. Habib ur‑Rehman submitted a written explanation on 6‑10‑2001 explaining that Shop No. 16 purchased on 6‑10‑1996 was situated exactly at the back of Shop No. 18. Since Shop No. 18 was not sufficient for the business activities, the central wall existing between Shop No. 18 and Shop No. 16 was removed in order to expand the area of the shop where after, during the period relevant to the assessment years 1997‑98 and 1998‑99, own business was conducted in a single enlarged shop which consisted of Shop No. 16 and No. 18. At the same time the complainant approached the CIT, Zone, Lahore also and submitted a written application to him on 6‑10‑2001, requesting to forbid the I.A.C. from the proposed illegal action, because‑‑‑

"the contents of show‑cause notice were contrary to the facts of the case as well as the direction of the ITAT as the construction/sale of shops did not pertain to the assessment years under consideration. All these activities took place in the succeeding years and only after the anti‑encroachment campaign by the Municipal Corporation, Lahore in September, 1999 as is evident from verification made by them in respect to my application which obtaining on record'. In view of the above stated facts and legal scenario of the case the present notice issued under section 17‑B for the same year is sub judice, mala fide and illegal and beyond jurisdiction."

6. The respondent in his reply vide Letter No.RCIT J/85/FTO/SOI/2852 dated 22‑11‑2001 has tried to convince that the action taken by the IAC for revising the assessment under section 17‑B for the second time is justified. It stresses on the point that Shop No. 16 was 'converted into as many as fifteen shops and complainant/assessee was not entitled to exemption under the Second Schedule. According to the respondent, the complainant could enjoy exemption of Shop No. 18 in which he was conducting his own business.

7. Mian Ashiq Hussain, Advocate, Legal Advisor and Mrs. Laila Ghafoor D‑CIT, who appeared for the respondent, emphatically asserted this point, but failed to adduce any documentary evidence to establish that Shop No. 16 had been demolished and further shops constructed during the periods relevant to the assessment years 1997‑98 and 1998‑99. The show‑cause notice under section 17B dated 29‑9‑2001 also did not mention the period during which Shop No. 16 was allegedly demolished and new shops constructed in its. place. If Shop No. 16 was demolished after 30‑6‑1998 the complainant could not be deprived of his right of exemption because in the period relevant to the assessment years 1997‑98 and 1998‑99 he did carry on his business in a single shop bearing Nos. 16/18 by removing the dividing wall but was later on compelled by circumstances, such as the Anti‑encroachment drive by the Municipal Corporation, to make changes in the shape of his property. The complainant had produced before the IAC a certificate dated 28‑6‑1999 issued by the General Secretary. Anjuman‑e‑Tajran, Hall Road, Lahore and another certificate dated 30‑6‑1999 from the Town Planning Officer, Zone‑V, Municipal Corporation which were not given weight by the IAC. The crux of the matter is that no efforts were made by the Department to verify the date of demolition of Shop No.16 and the IAC hurried to issue show‑cause notice for the cancellation of the assessment framed‑by the ACIT on 30‑6‑2000 which as made in pursuance to the order passed by the Appellate Tribunal. It is, therefore, evident that the action by the IAC to issue show‑cause notice under section 17‑B was without lawful authority particularly when the assessment order framed by the A‑CIT under sections 16(3)/ 17B had been passed to implement the decision made by the Appellate Tribunal.

8. In case the department felt that the decision by the Appellate A Tribunal was based on wrong reporting of fact, a review or recall request could be made to the Tribunal. The action by the IAC is contrary to law and falls within the definition of "maladministration" as per section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. It is, therefore, recommended that:

(i)The notice under section 17B of the Wealth Tax Act, issued the IAC, be withdrawn.

9. A compliance report should be submitted within 30 days of the receipt of this order.

C.M.A./M.A.K./338/FTOOrder accordingly.