NOKHAIZ KANWAL, PROPERTY OWNER, KHARIAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2575 (2002)

Wealth Tax Act (XV of 1963)‑‑

‑‑‑‑Ss.3A & 16(2)‑‑‑Income Tax Ordinance (XXXI of 1979), Ss.59D & 13‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑CBR Circular No.4 of 2000, dated 1‑3‑2000, paras. 2 & 8(2)‑‑‑CBR Circular No. 9 of 2000, dated 31‑5‑2000‑‑‑CBR Circular No.11 of 2000, dated 8‑6‑2000‑‑‑Tax Amnesty Scheme, 2000‑‑‑Inherited property‑‑‑Declaration of under Tax Amnesty Scheme‑‑‑Claim of exemption from wealth tax‑‑ Rejection of declaration on the ground that since the property shown in the declaration had been inherited and had not been created out of undisclosed income, the same was not covered, by Tax Amnesty Scheme, 2000‑‑‑Issuance of notice under S.16(2) of the Wealth Tax Act, 1963 for the previous years‑‑‑Validity‑‑‑Undisclosed income for the purpose of Tax Amnesty Scheme was income which could not be charged to tax under the Income Tax Ordinance, 1979 and it did not relate to any assets/other than those representing concealed income which might have escaped taxation under the Wealth Tax Act, 1963‑‑ Only such assets could be considered as covered by the Scheme as represented deemed income under S.13 of the Income Tax Ordinance, 1979 or any other deemed income‑‑‑Property shown as inherited by the complainant, and reflected in the declaration did not admittedly represent any undisclosed income or deemed income and it was, therefore, not covered by Tax Amnesty Scheme, 2000‑‑‑Property declared did not constitute "undisclosed assets declared in accordance with the scheme" for which there was an exemption under para. 8(2) of Circular No.4 of 2000, dated 1-3‑2000‑‑‑Action leading to the rejection of the declaration under Tax Amnesty Scheme, 2000 may be questionable but the fact remained that the declaration filed by the complainant was outside the scope of the scheme and that in any case the assets on which wealth tax exemption had been claimed, had not been declared in accordance with the said Scheme‑‑Assets shown in the declaration did not, therefore, qualify for any exemption under the Wealth Tax Act, 1963 and the withdrawal of the notice issued under the Wealth Tax Act, 1963 could not be recommended‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

Shaukat Ali Babar for the Complainant.

Jafar Nawaz, DCIT for Respondent.

DECISION/FINDINGS

These are three identical complaints relating statedly to the complainant's declaration for the assessment years 1989‑90, 1995‑96 and 1999‑2000 under Tax Amnesty Scheme 2000 contained in CBR Circular No.4 of 2000 dated 1‑3‑2000. In fact, however, the complainant's declaration pertained to assessment year 1988‑89. The points contained in the identical complaints are as under:

(i) The complainant is deriving income from lease of property at G.T. Road Kharian and is an existing taxpayer at Kharian. A declaration of undisclosed assets was filed under Tax Amnesty Scheme 2000 on 24‑4‑2000 in Income Tax/Wealth Tax Circle 23,

Kharian.

(ii) A letter dated 27‑11‑2000 was subsequently issued by the Special Officer, Income Tax/Wealth Tax, Circle 2, Sialkot in which it was stated that the undisclosed assets declared by the complainant did not fall under the definition of undisclosed income contained in para.2 of CBR Circular No.4 of 2000.

(iii) The said letter was illegal, mala fide and unjustified as the Special Officer at Sialkot had no jurisdiction, either original or specially assigned, in the complainant's case.

(iv) The mala fide of the Assessing Officer, Circle 2, Sialkot is, further established by the fact that for the assessment year 1998‑99 (not included in the present complaint) an ex parte wealth tax assessment by the Assessing Officer at Sialkot was cancelled by the CIT (Appeals) for lack of jurisdiction.

(v) In compliance with the direction of the CIT (Appeals) Sialkot, the complainant's records have been transferred to Circle 23, Kharian which pertain to the assessment years 1994‑95 to 1996‑97 and 1998‑99 to 2000‑2001 and notices under section 16(2) of the Wealth Tax have now been issued by the Kharian Circle.

(vi) As per CBR circular No.9 of 2000 dated 31‑5‑2000 the last date for rejecting the declaration under TAS 2000 was 31‑12‑2000 which has elapsed since long but no notice relating to rejection has been received from the DCWT, Circle 23, Kharian who has jurisdiction in the case. The declaration has thus attained finality.

(vii) As regards the letter of rejection issued by the DCWT (actually Special Officer), Circle 2, Sialkot, apart from the fact that he had no jurisdiction in the matter his objection is even otherwise misconceived as the Tax Amnesty Scheme was applicable to both undisclosed income and undisclosed assets. In the complainant's case assets had been inherited by him but had not been declared. Declaration under TAS 2000 was, therefore, filed and 10% tax paid.

(viii) It is against natural justice and equity to hold that a person creating assets in an illegal means can file declaration of undisclosed income to whiten his income and assets but a person who has created assets through legal means cannot file declaration of undisclosed income to cover wealth tax in the previous and coming years.

(ix) As the complainant has not received notice under para. 10(3) of Circular No. 4 of 2000 by December 31, 2000 the declaration is deemed to have been accepted under para.10(2) of the Circular.

It has been prayed that the Income Tax Department through the Commissioner of Income Tax/Wealth Tax, Sialkot may be directed to accept the complainant's declaration under TAS 2000 and to withdraw the notices issued under section 16(2) of the Wealth Tax Act for the assessment yeas 1995‑96 and 1996‑97 and 1998‑99 to 2000‑2001 since as per para. 8(2) of C.B.R. Circular No. 4 of 2000 the undisclosed assets declared in accordance with the Tax Amnesty Scheme are exempt from wealth tax for any assessment year commencing on or before 1st July, 1999 and for five assessment years next following (actually for all subsequent assessment years).

2. The respondent's reply has been received and the representatives of the complainant and the respondent have attended and have been heard. The respondent has contended that the DCIT Circle 2; Sialkot can be considered as having jurisdiction over the complainant's case because all persons having property in Cantonment Area, Sialkot were assigned to that Circle and in fact since the complainant was residing at Wazirabad even the Assessing Officer at Kharian did not have proper jurisdiction in the case. It is contended that in any case since the rejection of the declaration was approved by the CIT, Sialkot who had jurisdiction over both Kharian and Sialkot Circles, it was immaterial which officer issued the letter of rejection. It has, however, been acknowledged that no show‑cause notice appeared to have been issued prior to the rejection. The main point emphasised by the respondent is that the complainant's declaration was not covered by TAS 2000 because the scheme applied to undisclosed income and to assets created out of the undisclosed income. It was contended that since the property shown in the declaration had been inherited and had not been created out of undisclosed income, the declaration was not covered by TAS 2000 and was rightly rejected. It was also stated in the reply that the declared value of the properties was too low, though the values quoted were at present rates and not the rates at the relevant time.

3. The contentions of the two sides have been considered. It does not appear to be clear from Circular 4 of 2000 how declarations considered as outside the scope of the scheme are to be dealt with para. 10(2) of the Circular only deals with deficiencies and mistakes in. the context of which a show‑cause notice had to be issued and for which the deadline of 31‑12‑2000 was subsequently given by CBR. However, natural justice did demand that a show‑cause notice should have been issued even if the rejection was approved by the CIT, Sialkot who had jurisdiction over both the Sialkot and Kharian Circles. The main point in the complaint, however, goes beyond a simple acceptance or rejection of the declaration; the complainant's actual prayer is that since the complainant's declaration is deemed to have been accepted under TAS 2000 the notices issued under the Wealth Tax Act for the assessment years 1995‑96, 1996‑97 and 1998‑99 to 2000‑2001 may be directed to be withdrawn in the light of para.8(2) of CBR Circular No.4 of 2000 which reads as under:

"(2) the undisclosed assets declared .in accordance with the scheme and on which tax has been paid would be exempt from wealth tax under the Wealth Tax Act, 1963 for any assessment year commencing on or before the first day of July, 1999, and all subsequent assessment years."

The important words in the above sub‑para. in the context of the complainant's contention are "undisclosed assets declared in accordance with the scheme". Now it is to be noted that TAS 2000 was not a scheme for declaration of undisclosed assets but a scheme for declaration of undisclosed income. According to the title and scope of the scheme it applied to the "undisclosed income of any income year or years ended on or before 30th day of June, 1999". The meaning of "undisclosed income" given in para.2 of the scheme is as under:

"For the purpose of this Scheme 'undisclosed income' means any income (including any investment to be deemed as income under section 13 or any other deemed income) which was chargeable tax but could not be so charged under the Income Tax Ordinance, 1979, for any income year or years ended on or before 30th day of June, 1999. "

4. Thus undisclosed income for the purpose of TAS 2000 is income which could not be charged to tax under the Income Tax Ordinance and it does not relate to any assets/other than those representing concealed income which may have escaped taxation under the Wealth Tax Act. Thus only such assets can be considered as covered by the Scheme as represent deemed income under section 13 of the Income Tax Ordinance or any other deemed income. The property shown as inherited in assessment year 1988‑89 by the complainant and reflected in the declaration did not admittedly represent any undisclosed income or deemed income and it was, therefore, not covered by TAS 2000. Similarly the property declared did not constitute "undisclosed assets declared in accordance with the scheme" for which there is an exemption under para.8(2) of Circular No.4 of 2000.

5. During the hearing the complainant's representative stated, however, that in many other cases, assets which had not been created out of undisclosed income had been declared under TAS 2000 which declarations have been accepted. On the A.R.'s request he was allowed to file copies of such declarations which he has filed in respect of four cases pertaining to Lahore. It is, however not clear from the declarations that the assets reflected therein have been acquired from exempt or explainable sources and not from undisclosed income. In any case if the assets reflected in the declaration have not been acquired from undisclosed income, the assets cannot be considered as exempt from wealth tax regardless of the status of the declarations.

6. The above point stands further clarified by CBR Circular No. 11 of 2000 dated 8‑6‑2000 referred to by the complainant's A. R. himself. This Circular relates to waiver of penalty and additional tax for persons who could not file their wealth tax returns for the preceding years. According to this Circular if such persons file their wealth tax returns by 30‑6‑2000 alongwith the admitted wealth tax no additional tax or penalty would be charged in respect of the returns. Obviously this Circular would not have been necessary if the assets not disclosed for purpose of wealth tax could also be declared under TAS 2000. It is further added that in 1997 two separate schemes for tax on undisclosed income and tax on undisclosed assets had been framed under section 59D of the Income Tax Ordinance and section 3A of the Wealth Tax Act respectively. The Tax Amnesty Scheme contained in CBR Circular No.4 of 2000, however, pertains only to undisclosed income under section 59D of the Income Tax Ordinance and there is no corresponding scheme for purposes of wealth tax.

7. In the light of the above, it is found that while the actions leading to the rejection of the complainant's declaration under TAS 2000 may be questionable, the fact remains that the declaration filed by the complainant was outside the scope of the scheme and that in any case the assets on which wealth tax exemption has been claimed, had not been declared in accordance with the said scheme. The assets shown in the declaration did not, therefore, qualify for any exemption under the Wealth Tax Act and the withdrawal of the notices issued under the said Act cannot, therefore, be recommended.

8. In the light of the above, no intervention has been found possible in the case and the complaint, therefore, stands dismissed.

C.M.A./M.A.K./374/FTO

Complaint dismissed.