Wealth Tax Act (AV of 1963)‑‑‑

‑‑‑‑Ss. 2(5)(ii), 14(2) & 17(1)‑‑‑Wealth Tax Rules, 1963, R.8(3)‑‑ C.B,R. Circular No.7 of 1994, dated 10‑7‑1994‑‑‑C:B.R. Circular No. 11 of 1994, dated 17‑7‑1994‑‑‑Assessee, a private limited company, purchased a plot for the purpose of construction thereon for sale or letting out but the purpose was not carried "out due to change of circumstances after lapse of 25 years‑‑‑Taxability of plot being held for the purpose of construction and sale and for letting out the property‑‑-Validity‑‑‑Plot in question was purchased on 14‑5‑1976, and since the incorporation of the Company even after lapse of almost 25 years no other transaction except purchase of the said plot had been conducted by the assessee‑‑‑No further steps had been taken for its construction or its use in such a manner which could be treated as business activity‑‑‑Main object of the Company as per Memorandum of the Association was to acquire, purchase or take on lease pieces of land any where in Pakistan and to construct building and structure thereon for any purpose, and generally to deal in or carry on business related to main object but the fact that nothing was done ever since the company was formed went a long way to prove that merely mentioning of business of the nature could not be made basis to attract wealth tax proceedings‑‑‑Appellate Tribunal found that plot under construction was not being held by the assessee Company for the purposes of construction or letting out during the years under consideration and was not a taxable asset as defined in S.2(5)(ii) of the Wealth Tax Act, 1963.

Civil Appeal No.K‑104 of 1981; 1998 PTD 2017; 1989 PTD 1044; 2001 PTD (Trib.).1790; 1987 PTD (Trib.) 1; 1988 PTD (Trib.) 437; (1999) 79 Tax 76 (Trib.) and (59) Tax 108 ref.

1996 PTD 360; 1992 PTD (Trib.) 1187 and 1997 PTD (Trib.) 1034 rel.

Asim Zulfiqar and Zulfiqar Ahmad, A.C.As. for Appellant.

Yousaf Umar, Muhammad Asif, D.R. and Amjad Iqbal, DCIT for Respondent.

Date of hearing: 19th June, 2001.

ORDER

MRS. SAFIA CHAUDHRY (ACCOUNTANT MEMBER).‑‑ These six appeals have been filed by a private limited company to impugned consolidated order, dated 26‑6‑2000 of the learned CWT(A) on the following common grounds:

"The learned DCWT has erred in levying wealth tax aggregating to Rs. 6,66,265 and additional tax aggregating to Rs.1,74,895 on the value of the land owned by the Company as the assets held by the Company do not fall within the definition of assets as laid down in section 2(5)(ii) of the Wealth Tax Act, 1963."

2. As the issue and ground involved in all the appeals is common these appeals are taken up and disposed of vide this consolidated order.

3. Mr. Asim Zulfiqar alongwith Mr. Zulfiqar Ahmad, ACAS of Messrs Ferguson & Company appeared on behalf of the appellant while Mr. Muhammad Asif, Additional Commissioner of Income‑tax and Mr. Yousaf Umar, Legal Adviser of the Income‑tax Department alongwith the author‑of the assessment order Dr. Amjad Iqbal, appeared on behalf of the respondent.

4. Relevant facts of the case in brief are that the appellant, a private limited company, purchased a plot measuring 14 Kanals, 1 Marla and 42 sq. ft. at Egerton Road, Lahore through conveyance deed, dated 14‑5‑1976. In response to notices under sections 14(2) and 17(1) of the Wealth Tax Act, 1963 (hereinafter referred to as the Act) issued for the assessments years 1999‑2000 and 1994‑95 to 1998‑99 respectively by the DCWT, . the appellant filed returns of wealth declaring nil wealth for all the, years on the contention that the assets owned by the Company did not, fall in the category of assets chargeable to wealth tax under section 2(5)(ii) of the Act.

5. The Assessing Officer's contention was that the plot at Egerton Road was acquired for the purpose of construction thereon for sale or for hire as borne out from the following clauses of the Articles and Memorandum' bf Association of the appellant‑company:

(1)To acquire, purchase take on lease piece or pieces of land anywhere in, Pakistan and to construct, build, raise any building, structure thereon for any purpose and to generally deal in or carry on all or any business relative thereto.

(2)To construct modern office building from time to time to service the office building and to rent out the same. .

(3)To purchase, take on lease, hire or otherwise acquire any property movable or immovable or any rights or privileges in such property or contract and develop, alter or repair any property and to invest or otherwise deal with the money of the Company in such manner as may from time to time be determined by it and to hold in the name of the Company any property which the Company acquires.

6. He confronted the appellant vide show‑cause notice No.588/02, dated 23‑5‑2000 that in view of clauses of the Article and Memorandum of Association of the appellant‑company stated (supra) the said plot was covered under the definition of assets under section 2(5)(ii) of the Act and was chargeable to wealth tax and he intended to value the same under rule 8(3) of the Wealth Tax Rules 1963 read with C.B.R. Circular Nos. 7 and 11 of 1994 as D.C.'s specified rate.

7. It was submitted before the Assessing Officer by the appellant company that although the said plot was acquired with the purpose of construction thereon for sale or for letting out, yet due to change in Government in 1977 this purpose was dropped. It was submitted further that mere mentioning of business of construction of property for sale or letting out in the Memorandum of Articles or Association of the Company was not to determine the taxability or otherwise of the plot held .by the Company as the intention of the Company to construct a building on this plot for sale or letting is to be viewed in the light of the actual overt acts of the Company. It was stressed that since 1976 the, year of acquisition of the plot it was lying vacant and no building had been constructed thereon which shows that the intention of the Company as apparent from clauses 1 to 3 of the Memorandum and Articles of Association was not put into practice and plot is now being held as an investment only. In this respect reliance was also placed on reported case of the Honourable Karachi High Court on Civil Appeal No.‑K‑104 of 1981 in the case of B.P. Biscuit Factory it was held by the Court that:

"Mere mentioning of business of construction of property for sale, or letting out as one of the aims and objects of the formation of Company, in the Memorandum and Articles of Association, would not furnish a ground for assessing the Company to wealth tax under section 2 of the Act‑‑‑Company at the time of incorporation, may include hundred and one objects for its formation but for the purpose of taxation it is to be examined whether a certain particular object is being carried on or not such purpose, therefore. by itself would not suffice for taxation."

8.It was further submitted that:

(i)While interpreting any Act of Legislature or any other documents, the substance contents, spirit and intention is to be seen". 1998 P T D 2017.

(ii)"Provisions of law has to be interpreted and applied in substance and not in form"

The assessee had further relied upon Karachi High Court's judgment cited as (1989 PTD 1044 conclusion of which is as under:

9. The Assessing Officer did not accept these pleas as (i) in his opinion the appellant's case was distinguishable from the case of Messrs B.P. Biscuits as in that case the main business was that of‑manufacturing and sale of biscuits while letting out of building was just one of the other lines of business which the assessee could undertake. It was held by the Honourable Karachi High Court that this being not the main business of the assessee could not be charged to wealth tax while in the case of the appellant (i) construction of multi-storey building for sale or letting out is the main purpose of the Company and (ii) an explanation has been added to section 2(5)(ii) of the Act vide Finance Act, 1991 after the decision of the Honourable Karachi High Court hence provision of law is charged. The explanation reads as under:‑‑

Explanation.‑‑‑For removal of doubt it is hereby declared that immovable property and the purpose, referred to in this sub clause includes‑‑‑

(i)immovable property held for the purpose of letting out or business of letting out of the property;

(ii)immovable property held for the purpose of construction and letting out of property; and

(iii)immovable property held for the purpose of construction and sale of property.

10. The Assessing Officer accordingly valued the plot as per rates specified by the District Collector and completed the assessments at net wealth and also charged additional tax under section 31B of the Act.

11. Feeling aggrieved the assessee filed appeals before the learned CIT(A) who vide his impugned order dismissed all the appeals as being, devoid of merit. Before him the main crux of the appellant's arguments were the same as before the Assessing Officer. To recapitulate briefly that although the Company did have an object of construction of building for sale or letting out yet this object was not realised to-date and hence the plot held by the assessee did not fall in the category of assets chargeable to wealth tax under section 2(5)(ii) of Wealth Tax Act. At this stage for the first time the appellant further pleaded that the appellant was prevented from construction of an office building on the said plot as the Cabinet Division has placed an embargo on the construction of office buildings by the Government owned companies or corporations. As photo copy of the letter of the Cabinet Division was also producted before the CIT(A) who did not accept it for the reason that it was an indirect evidence having not been addressed to the assessee‑company. The learned CIT(A) held that: (1) appellant was incorporated with the main objective of construction of building for sale or letting out as apparent from its Articles and Memorandum of Association; (2) in furtherance of this objective it purchased a plot and spent money on building designing; (3) that decision of Karachi High Court is not applicable as in that case the assessee had different main business and letting out of building was made only once.

12. Feeling aggrieved the appellant has come up in appeal before the Tribunal for all the years under consideration on the common ground stated (supra).

13. Before this Bench of learned A.R. for the appellant submitted that the appellant though a private limited company is in fact a joint venture of four State‑owned enterprises namely:

(1)National Fertilizer Corporation of Pakistan (Private) Limited. NFC.

(2)National Engineering, Services Pakistan (Private) Limited NESPAK.

(3)State Cement Corporation of Pakistan (Private) SCCP.

(4)Pakarab Refinery Limited PRL.

It acquired a plot at Egerton Road in 1976 to construct a building to house offices of the shareholding companies but due to change of Government in 1977 a policy change occurred regarding construction office buildings by State‑owned enterprises and hence the intention of the appellant to construct modern office building on this plot was no more there on the valuation dates under consideration. He referred to a letter of the Cabinet Division, dated 1‑1‑1996 as per which no Government Corporation could construct any office building without prior approval of the Cabinet Divisions. He alleged that the plot is now being held as an investment only.

14. The learned A.R. further referred to the decision of Karachi High Court in which it was held that mere mentioning of business in the Articles and Memorandum of Association is not enough to determine taxability of assets to wealth tax. It was stressed by the learned A.R. that on anology of the same decision even if construction of a plot is the main objection of the appellant as per its Articles and Memorandum of Association since the intention of the Company has not been translated into action by overts act, this plot cannot be charged to

15. The learned A.R. placed reliance on a case cited as 1998 PTD page 2017 to plead that while interpreting any. Act or Legislature or any other document the substance, contents, spirit, and intention is to be seen. He emphasized that intention of an assessee is to be construed in the light of overt acts and not by mere speculation because an intention being a state of mind becomes conspicuous only when translated into an action and as no building was ever constructed on the said plot it cannot be said that the appellant company has intention on the valuation date of constructing building.

16. The learned D.R. in this turn submitted that the appellant; a private limited company is an entity, distinct from its shareholders who happened to be Government‑owned Corporation, and the policy of the Government regarding construction of office building does not apply to the appellant. He went further to say that as per clauses (1) to (3) of the Articles and Memorandum of the appellant‑Company quoted (supra) on pages 2 and 3 of this order the company was incorporated with the sole purpose of construction of building for sale or for letting out and to fulfill this purpose it acquired a large plot at Supreme Commercial location i.e. Egerton Road, Lahore. Thus its intention was put into action. The appellant Company further spent some money on building designing and some spade work as is evident from its audited balance‑sheet for the years under consideration. Thus the main purpose of the appellant to construct building for sale or hire is established and the plot held for this purpose is taxable.

17. He objected that the copy of the letter of Cabinet Division was not produced before the Assessing Officer and‑hence it could not produce at the appellate stage. He stressed that even as per said letter there is no embargo on construction of office building and only prior permission from the Cabinet Division is a prerequisite and this would apply to the appellant‑company if the corporate veil is lifted.

18. He still further submitted that case of the Karachi High Court is distinguishable from the instant case as the main business of the assessee was not hiring and sale of plots whereas the sole objective of the assessee is to construct buildings on plots for sale or hire.

19. The Legal Adviser of the respondent submitted that if the appellant‑Company had dropped intention of constructing a building it should have amended‑ its Articles and Memorandum of Association for which a procedure is prescribed under the Companies Act. He went on to say that company is not a natural person and its intentions are put in black and white in the form of Articles and Memorandum of Association which cannot be changed without consent of the shareholders. He concluded that as the Articles and Memorandum of Association of the appellant‑Company remained unchanged to-date there is no iota of doubt that the company still intends to construct building for sale and hire on this plot.

20. With these arguments from both the sides hearing of the case concluded and at the time of dictation of the\case the undersigned felt that some clarification was needed on some points and hence the case was got re-fixed for hearing.

21. On rehearing of the case the learned A.R. for the respondent sought permission of the Bench to take additional ground regarding assumption of jurisdiction of the case by the Assessing Officer under section 17(l)(a) for the assessment years 1995‑96 to 1998‑99. It was submitted that the notice under section 17(1)(a) was issued without any definite information having come to the possession of the Assessing Officer and without obtaining prior approval of the learned IAC of Wealth Tax as required under proviso to subsection (1) of section 17. The assumption of jurisdiction was illegal and assessments made in pursuance thereof are ab initio void.

22. The learned D.R. and learned Legal Adviser of the respondent at the very outset objected to the submission of additional ground on the ground that this plea is extremely belated and is inadmissible on the following grounds; (i) assumption of jurisdiction under section 17(l) was never questioned before the Assessing Officer, before the learned CWT(A) and before the ITAT as per the grounds of appeals submitted with the memo. of appeal and even at the stage of hearing of the appeals which was concluded so far as the appellant is concerned. He cited 2001 PTD (Trib.) 1790 '(ii) without prejudice to the above grounds are untenable on merit as the appellant responded to notice under section 17(1) and filed return and no objection can be taken to the validity of any notice or validity of service of such notice after compliance thereto under section 41(5) of the Act. The learned A.R. submitted that objection cannot be raised to the service of the notice after compliance thereto but objection can be raised to the validity of issuance of notice as held by the ITAT in its various decisions reported as 1987 PTD (Trib.) 1; 1988 PTD (Trib.) 437 and (1999) 79 Tax 76 (Trib.). The learned D.R. responded that as per decision of Karachi High Court cited as (59) Tax 108 objection cannot be raised even to the validity of notice after compliance thereto; (iii) without prejudice to the above the balance‑sheet of the appellant‑Company showing value of the plot coupled with copy of Articles and Memorandum of Association showing construction of building for sale or hire as the sole objective of the Company was in the possession of the Assessing Officer on the income-tax record of the appellant‑company and as jurisdiction for income‑tax/wealth tax vests in the same DCIT the Assessing Officer issued notice under section 17(1) on the basis of this information which by all standards is a definite information as it did not require any further inquiry etc.

23. To rebut this the learned A.R. for the appellant submitted that balance‑sheet of the Company alongwith copy of Articles and Memorandum of Association were on the income‑tax record of the department for the assessment years preceding those for which notices under section, 17(1)(a) were issued and no action was ever taken for wealth tax Assessments and hence the stance of the assessee regarding change of intention to construct building on plot was tacitly accepted by the department.

24. The learned D.R. in this regard submitted that provisions of section 65 of the Income Tax Ordinance, 1979 are distinguishable from the provisions of section 17(1) of Act. Section 65 applies when a new definite information comes to the hands of the Assessing Officer after completion of original assessment. In the case of section 17(1) proceedings for original assessment can be initiated on the basis of definite information regarding holding wealth which is chargeable to wealth tax but has not been so assessed. As there is nothing on wealth tax record of the assessee to show that its contention regarding change of intention to construct building was accepted by the department the same cannot be interpreted as tacit acceptance.

25. After careful consideration of the arguments of both the sides we feel fully convinced that in the light of Articles and Memorandum of Association of the appellant‑Company which remained unchanged to date and relevant clauses of which some has been cited in the assessment order and impugned appellate order, the Company was incorporated with the sole objective of construction on plots for sale or hire, and even with the alleged change of the Government Policy regarding construction of office buildings and the construction of their own buildings by the two share building companies namely PAR and NFC the main objective of the Company remained unchanged. We also feel convinced that in furtherance of this object it purchased a plot and spent money on designing of building and some other spade work as shown in the balance‑sheet on the relevant, dates. The alleged embargo placed vide Circular letter of Cabinet Division is of no significance as it only imposes a pre‑conditi6n which is applicable only when the corporate veil is lifted. The said Circular letter of the Cabinet Division is incorporated in the impugned order on page 5, para. 11 which reads as under:

"The Cabinet Division received its earlier decision regarding construction of administrative buildings in Islamabad taken in its meeting held on July 3, 1995 (Case No.244/14/5 and decided that no administrative/office buildings should be constructed by any Federal Government Department or Corporation throughout Pakistan without prior approval of the Cabinet ....".

It is abundantly clear from the perusal of the letter quoted above that condition regarding prior approval of the Cabinet Division is in respect of administrative/office buildings only whereas as per clause (1) of the Articles and Memorandum of Association of the Company as quoted on page 2, para. 5 of this order the assessee‑Company was incorporated to acquire, purchase, take a lease any piece of land anywhere in Pakistan and to construct building for any purpose and to generally deal in or carry on ail or any business relative thereto. As regards the additional ground regarding assumption of jurisdiction under section 17(1)(a) the objection of the respondent carry weight. These are extremely belated and appear to, be nothing but an afterthought and even on merit it is untenable as the audited balance‑sheets of the Company together with its Articles and Memorandum of Association is a piece of definite information and issuance of notice under section 17(1)(a) for the assessment years 1995‑96 to 1998‑99 on this basis is well‑warranted. This information being in possession of the DCWT who had jurisdiction over this case did not require any prior approval of his learned IAC under the proviso to section 17(1) of the Act: Again in the absence of any assessment order acceptance of the appellant's plea regarding non- taxability of the plot, question of tacit acceptance of assessee's stance by the Wealth Tax Department does not arise.

26. As regards the' contentions of the learned A. R. that Karachi High Court has decided the ratio which is applicable to the appellant's case the same is not acceptable. As all the other clauses of Articles and Memorandum of Association are ancillary to main objective clause which in the instant case is to construct buildings for sale or hire the same is not applicable. Moreover, in view of the introduction of explanation to section 2(5)(ii) of the Act there remains no doubt the ease of the appellant falls under clause (ii) of subsection (5) of section 2.

27. In the light of the above discussion the impugned orders are confirmed and the appeals are dismissed being devoid of merits.

KHALID WAHEED AHMAD (JUDICIAL MEMBER).‑‑‑With due respect for any learned sitting Accountant Member, I do not agree with her finding on the issue. In my opinion it has not been established that the assessee/appellant was holding the land under consideration for the purpose of the business of construction and sale or letting out of property on the valuation dates of the assessment years 1994‑95 to 1999‑2000. In my view it is not necessary that when a plot or piece of land is owned by a person doing the business of construction and sale or letting out of property it is always held for the same purpose. A plot purchased with the intention of doing the business of construction and sale or letting out may not be used subsequently for the said purpose and similarly a plot not purchased for the purpose of doing the business of construction and sale or letting out may be utilized for such purpose even by the person not doing this business. No doubt the purchase of plot by the Company. Incorporated with one, of its main objects to do the business of construction of building for the purpose of sale and letting out creates impression that it was purchased for the said purpose but in the circumstances like the instant case where the plot is being held as such for a long period the purpose of holding such asset on the' valuation date is relevant for the wealth tax assessment and not the intention with which the, property was purchased. A property may be purchased for one purpose but may be held or used for some purpose. The intention attributed to the person by the Assessing Officer is to be established on the basis of the circumstances prevailing at the relevant time.

29. I also do not agree with the observation of learned A.M. that the company was incorporated with the sole objective of construction on plots for sale or hire and since the Articles and Memorandum of Association remained unchanged till date, therefore, the plot was purchased for the furtherance of this object. No doubt the main objective of the Company as per Article and Memorandum of Association was acquire, purchase, take on lease piece or pieces of land anywhere in Pakistan and to construct building raise any building and structure thereon for any purpose and which generally deal in or carry on all or any business related thereto there were as many as 55 other objectives also mentioned for the purpose of which the Company was established. To carry on any other business covered in those objectives there was no need to bring a change in the Articles and Memorandum of Association.

30. It is important to point out that the components of the assessee company i.e. the Directors/shareholders are 4 State owned corporations namely: ‑‑

(1)National Fertilizer Corporation of Pakistan (Private Limited‑‑‑

(2)National Engineering Services Pakistan (Private) Limited‑‑ NESPAK. .

(3)State Cement Corporation of Pakistan (Private) ‑‑‑SCCP.

(4)Pak‑Arab Refinery Limited ‑‑‑PRL.

In the case before us the assessee‑appellant, is a Private Limited Company, yet the interest involved is of 4 State‑owned corporations the affairs of which are controlled by the Government. The contention of the learned A.R. that the plot was mainly purchased with the intention to construct building for accommodating the offices of four "component" corporations alongwith the object of also hiring on the rent the spare space, appears to be true from the circumstances particularly the fact that no other transaction has been made by the Company. During the 25 years since its incorporation on 27‑4‑19716. The interest of State‑owned corporation being involved therein the assessee‑company in arty opinion could not ignore the instructions of Federal Government issued for State own corporations. Even otherwise to establish that the land under consideration was held by the assessee/Company for the purpose of business of construction and sale or letting out of the property on the valuation date during the years under consideration all the facts and the circumstances are to be taken in their totality for consideration. In the present case the reason given by the Department to establish the purpose is that the main object of the Company as per Articles and Memorandum of Association is the business of construction and sale and letting out of the property whereas the contention of the assessee is that the objective for which property land was purchased could not be carried out due to changed circumstances. It is the contention of the learned A.R. of the assessee that the plot was no more being held for the purpose of construction and sale or letting out but it was being held as an investment. The facts which in my opinion supports the contention of the. assessee are:‑‑‑‑

(a)Though it is mentioned as one of the main objects yet the carrying out of the business of construction of buildings and their sale or letting out is not proved. Not a single transaction during the long period since its incorporation on 22‑4‑1976 has been made by assessee‑company except the purchase of abovementioned plot about 25 years back.

(b)The sole plot was purchased on 14th May, 1976 which is still lying in the same condition after a period of 25 years.

(c)That there was no need to make a change in the Articles and the Memorandum of Association because the object of making investment was covered in the existing articles.

(d)The Directors of the assessee‑company being the four State owned corporations were bound to follow instructions of Federal Government issued to State‑owned Corporation.

(e)The intention to construct the building is not reflected through the physical manifestations. No development work has been done after the purchase of land in 1976. No action has been taken by the assessee in this regard after 30^th June, 1989, no site plan is statedly go approved, no investment of any kind has been made by the assessee‑Company for the furtherance of the object of construction of building after 30^th June, 1989.

31. In my opinion it has not been undoubtedly established that the land was being held by the assessee‑Company for the purpose of construction and sale or letting out, on the valuation dates under consideration, therefore, I do not agree with the finding of the learned Accountant Member in confirming the orders of the 2 authorities below and in rejecting the, appeal of the assessee for the years under consideration.

32. Since the difference of opinion has arisen the case is forwarded to the worthy Chairman for referring the same for 3' Member's opinion on the following issue:‑‑

"Whether under the circumstances of the instant case, it could be held that the plot under consideration was being held by the assessee‑Company for the purpose of business construction or letting out of property on the valuation dates during the years under consideration and was a taxable asset as defined in section 2(5)(ii) of Wealth Tax Act, 1963."

SYED NADEEM SAQLAIN (JUDICIAL MEMBER). ‑‑‑Having difference of opinion in the titled case, the same was referred to me by worthy Chairman of ITAT for resolving the following question:

"Whether under the circumstances of the instant case, it could be held that the plot under consideration was being held by the assessee‑Company for the purpose of business of construction or letting out of property on the valuation dates during the years under consideration and was a taxable asset as defined in section 2(5)(ii) of Wealth Tax Act, 1963?

34. Briefly stated the facts of the case are that the assessee/ appellant, a Private Limited Company, purchased a plot measuring 14 Kanals, 1 Marla and 42 sq. ft. at Egerton Road, Lahore through conveyance deed, dated ‑14‑5‑1976. In response to notices under sections 14(2) and 17(1) of the Wealth Tax Act, 1963 (hereinafter referred to as the Act) were issued for the assessment year 1999‑2000 and 1994‑95 to 1998‑99 respectively by the DCWT Circle‑2., Companies Zone‑III. Lahore: The assessee filed returns of wealth declaring nil wealth for all the years under appeal contending that assets owned by the Company did not fall in the category of assets chargeable to wealth tax under section 2(5)(ii) of the Act. The Assessing Officer rejected the claim of the assessee for the reason that the plot in question was purchased specially for the purposes of construction thereon for sale or for hiring. He came to this conclusion keeping in view the clause of Articles and Memorandum of Association of the appellant‑Company which provides as under:‑‑

(i)To acquire, purchase, take on lease piece or pieces of land anywhere in Pakistan and to construct, build, raise any, building, structure thereon for any purpose of to generally deal in or carry on all or any business relative thereto.

(ii)To construct modern office building from time to time to service the office building and to rent out the same.

(iii)To purchase, take on lease, hire or otherwise acquire any property movable or immovable or any rights or privileges in such property or construct and develop, alter or repair any property and to invest or otherwise deal with the money of the Company in such manner as may from time to time be determined by it and to hold in the name of the Company any property which the company acquires.

35. Having failed before the learned First Appellate Authority, the assessee came up in further appeal before the Tribunal. The learned Accountant Member while affirming the finding passed by both the lower officers observed as follows: ‑‑

"As regards the contention of the learned A.R., that Karachi High Court has decided the ratio which is applicable to the appellant's case the same is not acceptable. As all the other clauses of Articles and Memorandum of Association are ancillary to main objective clause which in the instant case is to construct buildings fox sale or hire the same is not applicable. Moreover, in view of the introduction of explanation to section 2(5)(ii) of the Act there remains no doubt that the case of the appellant falls under clause (ii) of subsection (5) of section 2."

36. However, the learned Judicial Member held the contrary view and differed with the learned A.M. which led to the formulation of following issue;

"Whether under the circumstances of the instant case, it could be held that the plot under consideration was being held by the assessee‑company for the purpose of business of construction or letting out of property o the valuation dates during the years under consideration and wag a taxable asset as defined in section 2(5)(ii) of Wealth Tax Act, 1963."

37. Both the parties have been heard and relevant orders perused. The learned A.R. appearing on behalf of the assessee reiterated almost all the arguments advanced by him at the time of hearing of main appeal before the Division Bench, which stand incorporated by both the Members in their respective findings. However, the learned A.R. cited few more judgments in support of his contentions:

38. One of the Full Bench judgments relied upon by the learned A.R. reported as 1996 PTD 360 where the dispute for the resolution of the Court was with regard to claim of exemption under clause (118‑E), part I of Second Schedule to the Income Tax Ordinance, 1979 and it has been held:

"That it was the actual business activity carried on by the assessee and not the statement of objects as narrated in Memorandum of Association which should determine the exclusiveness of purpose of an assessee‑Company. Exclusiveness of purpose in the light of exemption provision had to be seen in the perspective of the actual activity and not merely the objective clause of Memorandum of Association of the Company'.

"To have the intention of doing a business and being in a business are different matters. Mere mention of an activity in the Memorandum of Association, at best, raised a rebuttal presumption which can be dispelled by showing that the Company actually did not carry cut that business."

Reliance was also placed on judgment reported as 1992 PTD (Trib.) 1187. In the supra referred to case the assessee being a co‑operative housing society duly registered under the Cooperative Societies Act, 1925 acquired 230 acres of land for the benefits/allotment to its members after development. On 11‑1‑1981 the assessee entered into an agreement with a construction company,, for the construction of houses on certain plots, which were to be made out of 10 acres of land out of the total land allotted to the society. These plots according to assessee were after construction to be sold to Overseas Pakistanis. The value of the plots were, subjected to wealth tax by the Assessing Officer. It was held by the Division Bench of the Tribunal that:

"A solitary transaction of sale cannot create inference that the Society was involved in the business of construction and sale and is liable to wealth tax. Concept of taxability is based on real existing fact and not on far‑fetched notional or imaginative facts.

A person may have some intention of doing something but his taxability will be materialized only when he has done something in furtherance thereof."

The learned A.R. also sought strength from a Full Bench judgment of the Tribunal reported as 1997 PTD (Trib.) 1034. In this judgment the issue was almost identical to the one which is the subject‑matter of present appeals. It was held by the Tribunal that:

"A `purpose' in common English language means an object to e attained, a thing intended, a resolution or a determination. An intention to do something further is so personal in nature that it cannot be attributed to a person natural or juristic till some practical steps have actually been taken to accomplish the desired object. Therefore, in order to burden a person/assessee with wealth tax liability, the purpose must be more than a mere desire or an enabling clause such as an object in the object clause of a Memorandum of Association. An enabling provision in a Memorandum of Association of a society/company or any other similar body to construct, sell or let out immovable property at a further time will not by itself mean that all the properties held at that time or in subsequent days are meant for any of the stated 'purpose'."

It was further observed that:

"However, where any act in furtherance of achieving an object stated in the explanation is done e.g. a building is constructed and offered to be let out, all other under construction buildings of the kind available with the assessee may be liable to be treated as being held for the `purpose' of construction and let out. Still, one will not 6e able to say that other open plots with an assessee were also meant for the purpose of construction and sale or letting out etc. Because that would be assuming many things to happen, one after the other."

39. Elaborating his arguments in the light of judgment cited by him before me, it was submitted by the learned A.R. that the assessee Company was incorporated way back in 1976 and since then the solitary transaction conducted by the assessee was purchase of plot which is the subject‑matter of present appeal. He further submitted that though object of the Company, as per Memorandum of Association of the Company, was to acquire, purchase piece of land in order to construct building and raise any building or structure thereon but no further step was taken, hence it is the valuation date which is to be considered. He asserted that mere mentioning of business of construction of the property for sale or letting out as one of the aims and object of the Company in the Memorandum and Articles of Association would not be sufficient ground for assessing the assessee‑Company for wealth tax. He averred that for purpose of taxation, it is to be examined whether certain particular subject has been carried on or not. He, once again, referred to the judgment of the Tribunal reported as 1996 PTD (Trib.) 360 and contended that exclusiveness of purpose is to be seen in the perspective of actual activity and not merely object clause of Memorandum of Association of the Company.

40. He also laid emphasis on his assertion made earlier before the Tribunal that the component of the assessee‑company were four State- owned corporations namely:‑‑‑

(1) National Fertilizers Corporation of Pakistan (Pvt.) Ltd.‑‑‑NFC.

(2) National Engineering Services Pakistan (Private) Limited‑‑‑

(3) State Cement Corporation of Pakistan (Private) Ltd.‑‑‑SCCP.

(4) Pak‑Arab Refinery Limited ‑‑‑PRL.

He submitted, that distinction is to be made between a company where the director or shareholders are State‑owned Corporation from an ordinary Private Limited Company under the Companies Ordinance. He wanted to draw our intention to the notification issued by the Federal Government which prohibited the assessee‑Company from implementation of its 'given objects under the Memorandum of Association. He summed up his arguments by pleading that orders passed by both the learned lower officers in bringing the property of the assessee which the ambit of Wealth Tax Act were not sustainable in the eye of law.

41. The learned D.R. on the other hand supported the order of the learned lower officers as well as order passed by the learned Accountant number.

42. I have given anxious consideration to the arguments advanced by the learned counsel for both the parties and also looked into the relevant law cited at the bar as well as peculiar facts of the case, I find myself in full agreement with the finding given by my learned brother, Judicial Member. I am constrained to observe that plot in question was purchased on 14‑5‑1976. Since the incorporation of the Company, even after lapse of almost 25 years no other transactions except purchase of the plot in question has been conducted by the assessee. Besides, no further steps have been taken for construction or use of it in such a manner which could be treated as business activity. Undoubtedly, the main object of the Company as per Memorandum of the Association was to acquire, purchase or take on lease piece of land or pieces of land anywhere in Pakistan and to construct building and structure thereon for any purpose, which generally deal in or carry on business related to main object but the fact that nothing was done eversince the Company was formed, goes a long way to prove that merely mentioning of business of the nature cannot be made basis to attract wealth tax proceedings. There is not an iota evidence on record except that company was initially formed with the objects of dealing in property as mentioned in the Memorandum of Association of the Company. As aptly observed by my learned brother the J. M. in the case reported as 1992 PTD (Trib.) 1187 that "concept of taxability is based on real existing facts and not on, far‑fetched notional or imaginative facts. A person may have an intention of doing something but his taxability will be materialized only when he has done something in furtherance thereof". I must say that the principle laid down in the supra judgment is on all fours to the case in hand. Because at the time of formation of the Company, and with the Memorandum of Association having the object clause of dealing in property, the Company might have had its object to acquire/sale letting/construction of the property but since it never materialized for more than 25 years during which the company was holding the plot, it can easily be presumed that property was never held by the Company for the purposes of letting out or business of letting out or purpose of construction and sale etc. At this juncture it is worth referring to the judgment 1997 PTD (Trib.) 1034 cited at the bar wherein it has been held that "an intention to do something in future is so personal in nature that it cannot be attributed a person natural or juristic till some practical steps have actually been taken to accomplish the desired object". It was also observed in the said judgment that in order to burden a person/assessee with wealth tax liability, the purpose must be more than a mere desire or .an enabling clause such as an object in object clause of a Memorandum of Association. An enabling provision in a Memorandum of Association of a society/company or any other similar body to construct, sell or let out immovable property at a future time will not by itself mean that all the properties held at that time or in subsequent days are meant for any of the state purpose". It is pertinent to mention here that Tribunal in the said judgment further observed that "where other properties are being offered for construction or offered to be let out and the open plots lying with the assessee were also meant for the construction and sale or letting out. Because that would be assuming many things to happen, one after the other". (Underlining is ours (sic)).

43. In the light of above discussion ‑as well as the case‑law cited at the bar I agree with the finding recorded by my learned Brother, Judicial Member and hold that in the present case the plot under construction was not being held by the assessee‑company for the purposes of construction or letting out during the years under consideration and, was not a taxable, asset as defined in section 2(5)(ii) of the Act.

C.M.A./M.A.K./228/Tax (Trib.)

Appeal accepted.