(a) Wealth tax‑‑‑

Ownership‑‑‑Possession‑‑‑Person can be treated as an owner of a property even though he has no‑ possession over it provided other incidents of ownership are complete i.e. title etc.

(b) Wealth Tax Act (XV of 1963)‑‑‑

-------Ss. 17 & 2(16)‑‑‑Wealth escaping assessment‑‑‑Assessment years 1991‑92 to 1995‑96‑‑‑Gold confiscation of ‑‑‑Compensation‑‑Ownership‑ Value for purpose of assessment‑‑‑Gold confiscated in 1958 by the Customs Authorities was not declared by the assessee in the wealth tax return‑‑‑Appellate Authorities decided in favour of assessee in November, 1985 and directed that compensation Q Rs.43.43 per tola be paid in lieu of the gold confiscated from the assessee‑‑‑High Court in further appeal, directed the Customs Authorities either to return the confiscated gold to the assessee or he should be paid compensation at the fair market value‑‑‑Supreme Court upheld the order of the High Court‑‑‑Compensation was paid to assessee in pursuance of High Court order‑‑‑For the period relevant to assessment years 1991‑92 to 1995‑96 Assessing Officer, as a compensation receivable by the assessee from Government, assessed the value of gold on the basis of market value‑‑ First Appellate Authority directed the Assessing Officer to assess the value of gold adopted by the Customs Appellate Authorities @ Rs.43.43 i per tola‑‑‑Validity‑‑‑Waith regard to value of gold, the findings recorded by the First Appellate Authority were unexceptionable for the reason that compensation @ Rs.43.43 per tola had already‑been offered by the Department and that was the value which would have been paid to the assessee, to settle the dispute with the Department, had he opted for it‑‑ After receipt of the compensation by the assessee in lieu of gold and for the fact that no gold was m existence, it was the amount received by the assessee which was taxable and that too in the assessment year. in which the same was paid to the assessee‑‑‑Order of the First Appellate Authority was modified by the Tribunal to that extent.

1996 PTD (Trib.) 905; B.D. Avari v. CIT, 1989 PTD 670; Mehran Associate Ltd. v. CIT, Karachi 1993 PTD 69;‑ (1985) 153 ITR 201; (1983) 144 ITR 304; (1982) 135 ITR 742 and Woodrock v. Temp. State Housing Commission 148 M.Y.S. 2d 849 Misc. 2d 1045 ref.

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

‑‑‑‑S. 91‑‑‑Penalty for non‑payment of tax‑‑‑Penalty was imposed upon assessee's failure to pay the demand, although the appeals were pending before the First Appellate Authority against the said demand‑‑‑Validity‑‑‑Since litigation was still going on the assessee's appeals, and assessee was contesting the original assessment before the appellate forum, there was no willful default on the part of the assessee‑‑‑Imposition of penalty was premature and not in consonance with the law laid down by the superior Courts‑‑‑Penalty imposed was deleted by the Tribunal.

1979 PTD 603 rel.

(d) Wealth tax‑‑‑

‑‑‑‑Refund‑‑‑Assessable asses‑‑‑Amount of refund was received in July, 1996‑‑‑Assessing Officer included the amount of refund and compensation thereof in the total wealth of the assessee for the assessment year 1996‑97 and the same was deleted by the First Appellate Authority‑‑‑Validity‑‑‑Effect to the High Court's order, dated 7‑7‑1994 pertaining to the assessment year 1997‑98 on the income‑tax side was given on .11‑7‑1996 under S.136(5) of the Income Tax Ordinance 1979‑‑‑No refund had yet been created on the relevant valuation date i.e. 30‑6‑1996 so as to constitute entitlement of the assessee to receive the amount‑‑‑Question of determination as to the exact amount due to the assessee was still pending on 30‑6‑1996, although the issue had been settled in assessee's favour by the High Court and a consequent order has been passed by the Income‑tax Appellate Tribunal‑‑‑Such issue had been later on decided on 11‑7‑1996‑‑‑Order of the First Appellate Tribunal was upheld by the Tribunal in circumstances.

S.A. Khan for Appellant.

Ahmad Kamal, D.R. for Respondent.

Date of hearing: 16th March, 2(101.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER). ‑‑‑Titled appeals at the instance of the assessee as well as Revenue have been directed against different impugned orders passed by the learned Commissioner of Income/Wealth Tax. Zope‑1, Lahore For the assessment years 1991‑92 to 1995‑96, cross‑appeals have been filed assailing the impugned order, dated 8‑11‑1998 passed by the learned First Appellate Authority in these years, the assessee has challenged the findings of the learned CIT/WT(A) wherein he has upheld the proceedings completed tinder section .17 of the Wealth Tax Act, 1.963 (hereinafter called the Act) and also called in question the estimated value of gold being without jurisdiction. Whereas, for the assessment years 1997‑98 and 1998‑99 the assessee once again feels aggrieved with the impugned order, dated 6‑4‑2000 passed under section 16(3) of the Wealth Tax Act, 1963. The grounds taken in these appeals are almost identical to the grounds adopted by the assessee for the assessment years 1991‑92 to 1995‑96.

2. While, in cross‑appeals, the Revenue has come‑up before us for the aforesaid assessment years pleading that the learned CIT/WTA (A) was not justified in directing that the valuation of gold weighing 3100 tolas be assessed at the rate of Rs.43.43 per tola. Since, facts in all these appeals are similar and also involved common issues, hence we intend to dispose of these appeals through this consolidated order.

3. Facts leading to the institution of instant appeals are that the original assessment for the assessment years under consideration was finalized as under:

However, on receipt of information by the Department that certain compensation receivable by the assessee from Government has not been declared in the wealth tax returns pertaining to the assessment years 1991‑92 to 1995‑96, the case of the assessee was re‑opened under section 17 of the Act after fulfilling the due legal requirement of issuance of requisite notices and seeking prior approval from learned IAC. In re assessment proceedings conducted thereafter, the Wealth Tax Officer estimated the value of gold as under:

Assessment for the assessment years 1997‑98 and 1998‑99 was completed under section 16(3) of the Wealth Tax Act and value of the gold was adopted at Rs.4,500 per tola against the nil value of the gold as declared by the assessee. Before the case is further discussed, it would be in the fitness of things to highlight the main issue around which all the appeals question revolves. Admittedly, gold weighing 3,100 tolas was confiscated from the assessee by the Customs Authorities, Karachi in 1958. A a result of appeals preferred by the assessee against the said confiscation, the appellate authorities decided in favour of the assessee in November, 1985 and directed that compensation @ Rs.43.43 be paid in lieu of the gold confiscated from ‑the assessee. The assessee went in further appeal before the‑Hon'ble Sindh High Court contending that the compensation awarded should have been as per prevalent market rates. The assessee's said plea was accepted by the Hon'ble Sindh High Court. It was adjudicated by the Hon'ble High Court that either the confiscated gold should be returned to the assessee or ~ he should be paid compensation at the fair market value. This verdict was challenged lay the Customs Authorities before the august Supreme Court of Pakistan. The apex Court, however, upheld the decision of the Hon'ble Sindh High Court vide its judgment, dated 27‑1‑1999. In this backdrop, it was averred by the assessee that subject gold has not been declared by him in his wealth tax returns because it was not owned by him for the reasons that it was not in his possession and the assessee could beneficial use of it.

4. The learned representative of both the parties have been heard.

5. The learned AR as vehemently contested the commenced his arguments by taking as through section 2(16) of the Act to explain the meaning of the word "net wealth" as defined in Wealth Tax Act. For the sake of convenience, abovementioned section is being reproduced as follows:‑‑

S. 2(16):

(16) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of ,all the debts owned by the assessee on the valuation date."

6. The learned AR's main emphasis was on the phrase "belonging to the assessee". While elaborating, he submitted that word "belonging" has been explained to include ownership. He asserted that mere possession unaccompanied by a right to or ownership of a property would not bring it within the definition of `net wealth', for it would not be asset of assessee. He stated that broadly an owner is one who has domain over .property which is subject to ownership. Applying this principle to his case, learned AR contended, that although the Courts have held that he has the right to receive the gold, omits equivalent value but till today he has neither received the gold nor its beneficial control.

For this very reason he cannot be held owner of the gold. To substantiate his arguments, he drew our attention to the meanings given to the word "belonging" by several dictionaries which are being re‑narrated as under.

"According to Black's Law Dictionary, the word "belonging" means to appertain to; to be the property of; to be a member of, to be appropriate, to own. The expression defined in Oxford English Dictionary as to be the property or rightful possession of Words and Phrases, Vol. 5 belonging to connote title to or ownership."

The learned AR further pleaded that contingent right for acquisition of gold on compensation in lieu thereof in future does not come within the definition of asset or net wealth as given in the Act so it could not be taxed under the law. It was also averred at the bar that mere possibility of getting something cannot be taxed. He informed the Court that gold taken from the assessee was got melted and actual nature of the confiscated gold was changed, so it could be termed as confiscation and not seizure of goods. He opined that in seizure goods recovered remain intact and could be returned as such but in case of confiscation and especially in the instant case where actual gold is not in existence, possibility of being returned is not there at all. He submitted that in case of confiscation, the assessee does not remain the owner of the property, hence could not be taxed. In support of his contention, the learned AR relied upon several judgments of the superior Courts including from Indian jurisdiction as well as decisions of the Tribunal.

First case cited at the bar was 1996 PTD (Trib.) 905. The Lahore Bench of the Tribunal interpreted word "belonging" and held that assessee was not rightful owner on the basis of agreement for sale and therefore not assessable to tax. Reliance was also placed on judgment of ‑the Hon'ble Karachi High Court reported as 1989 PTD 670 In re: B.D. Avari v. CIT. It was held in the supra judgment that agreement to sell the property would not create right in the property' and assessee still being owner of the property during relevant year, was liable to tax in circumstances. The learned AR also referred to judgment of Hon'ble Supreme Court of Pakistan In re: Mehran Associated Ltd. v. CIT, Karachi reported as 1993 PTD 69. The issue which came up for determination in this case before august Hon'ble Supreme Court was whether a lessee holding lease of a building for a fixed period renewable periodically and enjoying all rights of ownership of that building could be taxed? It was held by the august Supreme Court that assessee was not owner of the building and could not be treated as being owner of the building in terms of subsection (13) of section 12 of the Income Tax Ordinance, 1979.

From the Indian jurisdiction, reliance was placed on a judgment of Delhi High Court reported as (1985) 153 ITR 201 wherein the assessee was treated as legal owner though assessee had received consideration but transfer deed was not executed. The judgment of Gujarat High Court was reported as (1983) 144 ITR 304 was also relied upon having identical principle laid down. To highlight distinction between seizure and confiscation a judgment of Gujarat High Court (1982) 135 ITR 742 was also‑referred, wherein it has been held that in case of seizure of goods, it does not impair ownership of the assessee. But in case of confiscation, the assessee does not remain the owner of the property.

7. The learned DR on the contrary has opposed the arguments advanced by the learned AR and contended that the learned CIT(A) was not justified to direct that gold should be assessed at the rate of Rs.43.43. per tola.

8. We have heard the learned counsel for both the parties and also have gone through the relevant orders as well as cases‑law cited at the bar. Right from the outset, we must say that there is no cavil to the arguments pressed by the learned AR with regard to the word "belonging". All the dictionaries and cases‑law relied upon by the learned ' AR lead to the unanimous conclusion that "belonging" means ownership but what transpires from the argument advanced by the learned AR that he wanted to make the Bench believe that the word ownership and possession or synonymous or in the alternative, there could be ownership without possession. This is where we do not find assessee in agreement with the learned AR. We are of the firm view that ownership does not necessarily mean that a person having possession of the property becomes owner of the said property. Similarly, it is also not essential that an owner must be in possession of the property which is being claimed by him as an owner. We take cue from civil law. A person having adverse 'possession of a property is not considered owner against the claim of rightful owner vested with the title of the said property, though the rightful owner may not be in possession. Our view is fortified by the two judgments placed on record by the learned AR to strengthen his arguments:‑‑‑

"The word owner asunder in statutes refers to anyone who has a right of possession of property (Woodrock v. Temp State Housing Commission 148 M.Y.S 2d 846 Misc. 2d 1045.

"The term `owner' as used in the statute is defended by Cobbey Replace 533 as meaning not the absolute and unqualified title but meaning a right to possession."

In the light of above discussion, we are constrained to hold that a person can be treated an owner of a property even though he has no possession over the property provided other incidents of ownership are complete i.e. title etc. Coming to the 2nd argument put forth by the, learned AR that since gold recovered from assessee was got melted, having lost its original entity, it could not be returned to the assessee, so it was confiscation and not seizure therefore, the assessee was not owner of the recovered gold hence not liable to be taxed, We are of the opinion that the key date in the instant cases is 1985 in which the Customs Authorities gave verdict in assessee's ‑favour that compensation @ 43.43 per tola should be paid in lieu, of the gold. From then onward there was no dispute with regard to the ownership of the gold; nor alas there any controversy to the effect whether the act of the Customs Authorities amounted to seizure or confiscation. In further appeals filed by the assessee to receive compensation to be paid at prevalent market value, and ultimately, the assessee succeeded on 27‑5‑1998 when Hon'ble Karachi High Court decided the issue in assessee's favour and directed that either the gold should be returned to the assessee or he should be paid compensation at the prevalent fair market value thereof, and after the dismissal of Customs Department's appeal from Hon'ble Supreme Court of Pakistan, the assessee's absolute ownership of gold was established beyond any doubt: It is also pertinent to mention here that the learned AR informed the Court that compensation amounting to Rs.1,59,34,O00 was paid to the assessee in pursuance of Hon'ble High Court order. We think that after the receipt of this compensation by the assessee, all the issues, with regard to ownership/valuation/seizure confiscation become academic.

9. In the light of above discussion, we do hereby hold that issue with regard to ownership was settled in November, 1985 when the Customs Authorities offered to the assessee to be compensated in lieu of gold at the rate of 43..43. By making such an offer, in fact, the Department admitted the assessee to be owner of gold. Thereafter, any litigation by the assessee was to get the compensation at the prevalent market rate or in the alternative for reimbursement of the gold recovered from the assessee. However, receipt of compensation by the assessee meant that he was satisfied with the monetary compensation.

10. In this view of the matter, we have no hesitation in holding that', it was not a contingent claim as pleaded by the assessee. As regards, the value of the gold, it is observed that the findings recorded by the learned CIT(A) are unexceptionable for the reasons that compensation @ 43.43 per tola had already been offered by the Department and we would say that this was the value which would have been paid to the assessee, to settle the dispute with the Department had he opted for it. However, after the receipt of the compensation by the assessee in lieu of gold and for the fact that no gold was in existence, it is the amount received by the assessee which is taxable and that too in the assessment year in which the same was paid to the assessee. Therefore, the impugned judgment on the issue is modified as indicated above. Assessee's appeals as well as departmental appeals stand dismissed.

11. For the assessment years 1997‑98 and 1998‑99, it was also contended in the grounds of appeal by the assessee that the exemption of agricultural land purchased out of foreign remittances has been refused without any basis. The learned A.R. did not put forth any argument on this issue. We have gone through the impugned order in this regard, the reasons which weighted with the learned CIT(A) while confirming the assessment order was that property in question was purchased in the earlier years and does not coincide to the period when foreign remittances were made. Since, the learned A.R. did not argue to rebut the observation made by the Assessing Officer as well as the learned CIT(A), we uphold the impugned judgment on this issue. Assessee"s appeals are hereby rejected.

12. Assessee's Appeals for the Assessment years 1997‑98 and 1998‑99 under section 91 of the Income Tax Ordinance, 1979.

01 Through these appeals, the assessee has challenged the imposition of penalty levied by the Assessing Officer and confirmation thereof by the learned First Appellate Authority.

13. Briefly stated the facts of the case are that upon assessee's failure to pay the demand of Rs. 4,21,877 and Rs.3,81,383 respectively for the assessment years 1997‑98 and 1998‑99, penalty @ 5% amounting to Rs.21,094 and Rs.1,90,693 levied; hence, the present appeal.

14. The learned AR argued the case and contended that the appeals of the assessee were pending before the learned CIT(A). Since the demand was not yet quantified the resultant penalty is void ab initio He further submitted that penalty proceedings are criminal proceedings, the mens rea has not been established the resultant penalty proceedings are void. It was also argued that no penalty under the Wealth Tax Act under section 91 can be imposed for the default of late payment of the demand He pleaded that appeals against the original assessment order accepted before the Hon'ble High Court to levy of penalty was premature: In support of his contention the learned AR relied upon a judgment of the Karachi High Court reported as 1979 PTD 603 which is reproduced as under:

"The next question that has engaged our attention is in relation to the facts and circumstances under which the penalties have been imposed. In fact the question referred is susceptible of a break‑up in regard w justification in imposition of penalty. The concept of penalty has been examined by this Division Bench in the case of Muslims Brothers (I.T.C. 79 of 1971) and we have expressed our view, that proceedings for imposition of penalty are in the nature of judicial proceedings and involve a satisfaction on the part of statutory authorities to come to the conclusion that the default leading to penalty was deliberate and has been committed in such circumstances that must be visited by a penalty. In imposition of penalty for non‑payment, the statutory authorities have to take the circumstances like justifiability of demand. Likelihood of interference with the assessment by the appellate authorities, the financial means of the assessee and various other reasons which might have led to the commission of default into consideration."

Commenting upon the supra judgment relied Ripon by the assessee, AR asserted that since penalty proceedings are of criminal nature, willful, default on the part of the assessee is must to bring him within the mischief of penalty proceedings. He further submitted that in the instant case, the assessee has been pursuing his remedy available under the law before the higher appellate Judicial forums i.e. High Court, so imposition of penalty, in such‑like circumstances when the assessee's appeal was pending before the Court, was uncalled for and against the law as enunciated by the superior Courts. He further contended that during the pendency of appeal, the penalty is technical in nature and not the default which is envisaged under the law warranting imposition of penalty

15. The learned DR has controverted the arguments advanced by the learned AR. However, he has failed to rebut the assertion made by the learned AR of the assessee. After hearing the arguments advanced at bar both by the AR and DR as well as having gone through the relevant orders we feel ourselves persuaded by the arguments advanced by the learned AR. Since litigation was still going on the assessee's appeals, and assessee was contesting the original assessment before the higher appellate forum, there was no willful default on the part of the assessee. In such‑like circumstances, imposition of penalty by the Assessing Officer was premature and mot in consonance with the law laid down by the higher superior Courts. Even otherwise, the perusal of impugned order shows that learned First Appellate Authority though made direction to modify the party orders but did not dilate upon on the issue that C whether the imposition of, penalty was justified or not.

16. For the foregoing, reasons, we allow the appeals of the assessee on the issue and the impugned order recorded by the learned First Appellate Authority is vacated and the penalty imposed by the Assessing Officer is directed to be deleted.

17. Departmental Appeal for the assessment year 1996‑97

Present appeal was preferred at the instance of the Revenue assailing the impugned order, dated 6‑4‑2000 passed by the learned CIT(A), it has been agitated in the grounds of appeal that the learned First Appellate Authority was not justified to delete the amount of refund received by the assessee.

18. Facts of the case are that the Assessing Officer noticed that refund amounting to Rs. 51,55,454 due to assessee alongwith compensation of Rs. 8,85,000 was received by the assessee in July, 1996. Specific notice was served on the assessee to confront as to why this should not be treated as an asset, assessable in his hands. In response to the said notice, the assessee pleaded that since on the relevant date, the amount of refund was not paid to the assessee and since it did not belong to the assessee it was not to be considered as an assessable asset. Finding the reply of the assessee as unsatisfactory, the Assessing Officer included the refund of Rs. 51,55,454 and compensation of Rs. 8,85,000 in the total wealth of the assessee. On appeal, the learned First Appellate Authority deleted the same; hence, department is in further appeal before us.

19. It has been argued by the learned AR appearing on behalf of the assessee that the refund has been erroneously assessed as the same has not been received up to 30‑6‑1996. Perusal of impugned order shows that appeal effect to the Hon'ble High Court's order, dated 7‑7‑1994 pertaining to the assessment year 1997‑98 on the income‑tax said (sic) was given on 11‑7‑1996 under section 136(5) of the Income Tax Ordinance, 1979. It means that as on the relevant valuation date i.e. 30‑6‑1996, no refund had yet been created so as to constitute an entitlement of the appellant to receive the amount. It is further observed that although the issue had been settled in appellant's favour by the D Hon'ble Lahore High Court and a consequent order had been passed by the learned Income‑tax Appellate Tribunal yet the question of determination as to the exact amount due to the assessee was still pending on 30‑6‑1996, the same issue having later on been decided on 11‑7‑1996.

20. The learned DR on the contrary has opposed the arguments advanced‑ by the learned AR but failed to rebut the assertions made by the learned AR. We find ourselves in full agreement with the arguments advanced by the learned AR and did not find any legal infirmity in the impugned order. For the above discussion and in the light of facts obtaining on the record, we hereby uphold the impugned order.

21. Departmental appeal being devoid of any merit stands dismissed.

C.M.A./227/Tax (Trib.)

Order accordingly.