W.T.-As. Nos. 986/LB of and 1123/LB 2000, decided on 19th March, 2002 VS W.T.-As. Nos. 986/LB of and 1123/LB 2000, decided on 19th March, 2002, 2002 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2370 (2002)

(a) Wealth Tax‑‑‑

‑‑‑‑Lease‑‑‑Meaning‑‑‑"Lease" means a contract authorizing the use and possession of land and/or building for a fixed time and for specified rent or fee to rent a building or property by contract for a fixed time and rental‑‑‑" Rent" means compensation, fee or payment made at intervals to the owner of ' a property by the tenant or user‑‑‑Rent, as term of economics means the return from agricultural land in excess of production costs or revenue or yield from land as production factor‑‑ Rent also means to let on lease, to be leased or let for rent‑‑‑No difference between 'rent' and "lease" as both the terms are interchangeable.

20th Century Oxford Dictionary; New Webster Dictionary; Concise Oxford Dictionary and Concise Law Dictionary by F. G. Osborn ref.

(b) Wealth Tax Act (XV of 1963)‑

‑‑‑‑S. 2(5)(ii), Expln. (i)‑‑‑Income Tax Ordinance (XXXI of 1979), Ss. 19 & 30(2)(d)‑‑‑Assets‑‑‑Assessee, a Private Limited Company ‑‑ Immoveable property/factory given on lease‑‑‑Charge of wealth tax ‑‑ A4sessee contended that factory was given on lease and since lease was different from rent, therefore, S.2(5)(ii) of the Wealth Tax Act, 1963 was not applicable and only that immoveable property could be charged to Wealth Tax of whose income if let out, was chargeable to tax under section 19 of the Income Tax Ordinance, 1979 and not under S.30 of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Expression" let out" means to permit to enter, to rent or lease, letting for hire‑‑‑Both the activities 'lease' as well as 'rent' were included in letting out‑‑‑Such fact was also supported by the Income Tax Ordinance, 1979 as it uses the word let out in S.19 in connection with income from house property as welt as to S.30(2)(d) to connection with income from letting out of building and machinery ‑‑‑Assessee company had let out its immovable property and so, the provisions of S.2(5)(ii) read with Expin. (i) of the Wealth Tax Act, 1963 was attracted ‑‑‑Assessee had been letting out its immovable property for quite a few years and this very act of the assessee established beyond any shadow of doubt that the property in question was being held for the purpose of letting out ‑‑‑Assessee company was liable to pay wealth tax on such an assets.

20th Century Oxford Dictionary; Mitro's Legal & Commercial Dictionary; W.T.A. No.588/LB of 1999; 1988 PTD (Trib.) 1022; New Webster Dictionary; Concise Oxford Dictionary and Concise Law Dictionary ref.

(c) Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R. 8(3)‑‑‑Valuation of land and buildings‑ ‑‑Lease out property‑‑ Valuation of‑‑‑Expression "gross annual rental value" of property used in R.8(3) of the Wealth Tax Rules, 1963 means the sum for which the property might reasonably be expected to let out from year to year‑‑ Letting out includes leasing‑‑‑Assessing Officer was justified to multiply the lease money received by the assessee by 10 times in order to make valuation of assessee's immovable property.

(d) Wealth Tax‑‑‑

‑‑‑‑Proportionate liabilities ‑‑‑Allowability‑‑‑Assessing Officer was directed by the Tribunal to allow assessee's claim of liabilities relating to immovable assets as deducted from the value of the assets of the company and also as determined by him in his assessment orders.

(e) Words and phrases

‑‑‑‑"Lease"‑‑‑Meaning.

(f) Words and phrases‑‑‑

--------"Rent"‑‑‑Meansing.

Ahmad Kamal, D.R. for Appellant.

Javed Ahmad Qureshi for Respondent.

Date of hearing: 16th January, 2002.

ORDER

MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER).‑‑‑--Two appeals have been filed in the instant case; one appeal by the assessee in the year 1998‑99 against Commissioner's appellate order, dated 18‑11‑1999 and other appeal has been tiled by Revenue in the year 1999‑2000 against Commissioner' appellate order, dated 22‑2‑2001. Both the appeals have been filed under section 24 of the Wealth Tax Act, 1963 and raise only one issue i.e. chargeability of assessee which is a private limited company to wealth tax under section 2(5)(ii). Since the view point of both the rival parties is reflected to some extent in their grounds of appeal so it would not be out of place if the relevant grounds are reproduced verbatim as follows:‑‑‑

The assessee has challenged the action of the learned Commissioner in the year 1998‑99 on the following grounds:‑‑‑

"(2) That the officers below erred in law in confirming to charge to Wealth Tax, the assets of the Company, both moveable and immovable treating the lease as synonymous to RENT which constitute a violation of the STATUTE as held by the honourable Income‑tax Appellate Tribunal in the instant case while deciding the issue in the years 1996‑97 and 1997‑98.

(3) That the officers below erred in not deducting the proportionate liabilities relating to immoveable assets in contravention of the statute and Wealth Tax Rules on the subject. No exercise was ever made to evaluate the balance sheet for the purpose of wealth tax and ignorance of the fact that the shares and deposits held by the shareholders were subject to wealth tax separately in the hands of the shareholder and in ignorance of the Principle of Jurispludena and Accountancy that no double taxation is legally feasible. "

The revenue in the year 1999‑2000 has raised the following grounds:‑‑‑

"(2) That the learned Commissioner of Income Tax and Wealth Tax, Appeals Zone, Gujranwala was not justified to hold that the chargeability of wealth tax cannot be maintained on leasing.

(3) That the findings and directions of learned Commissioner of Income Tax and Wealth Tax, Appeals Zone, Gujranwala are self‑contradictory as on the one hand he says that wealth tax cannot be charged on leasing and on the other hand directions are made to make valuation in accordance with rule 8."

2. Authorized Representatives of both the parties have been heard and available records have been perused.

3. The interesting issue before us for decision in this case is whether a private limited company which is not operating its factory for its own business and has given it on lease to another party is chargeable to wealth tax under section 2(5)(ii) of the Wealth Tax Act, 1963. More interestingly, in the assessment year 1998‑99 assessee's contention has not been accepted‑ by the First Appellate Authority and, therefore, the assessee is in appeal before us; whereas in the assessment year 1999‑2000 the First Appellate Authority has accepted assessee's contention and has rejected the view point of revenue and, therefore, revenue is in appeal before us. The contention of revenue is that the assessee‑company is chargeable to wealth tax under the provisions of section 2(5)(ii) of the Wealth Tax Act because assessee has let out its immoveable property. The assessment order of the Wealth Tax Officer is very brief. He has based his decision of subjecting the assessee to wealth tax on the treatment given in the assessment years 1996‑97 and 1997‑98 which was upheld by the Appeal Commissioner vide his. order, dated 20‑11‑1998 with the exception that the learned Commissioner allowed proportionate liabilities to the assessee which pertained to moveable assets. Following the decision of the preceding years. Wealth Tax Officer in his assessment. order for the year 1998‑99 charged the assessee to wealth tax by multiplying the amount of lease money by ten times against which proportionate liabilities were allowed. Exactly similar treatment to the assessee was given in the assessment year 1999‑2000.

The contention of the assessee, on the other hand, is that it is ‑a private limited company and it created the immovable assets (in the form of factory building and machinery) for the purpose of its own business. Since it could not conduct the business it gave the factory on lease to a third party. According to the assessee, immovable property given on lease is not chargeable to tax as lease does not amount to rent, and it is only the rented out property which can be brought to tax under section 2(5)(ii) and not the property which is leased out. It has been further contended by the assessee that proportionate liabilities relating to immoveable assets have not been allowed in contravention of the statute and Wealth Tax Rules on the subject. No exercise was ever made to evaluate the balance‑sheet for the purpose of wealth tax and a very important fact was ignored that the shares and deposits held by the share holders were subjected to wealth tax separately in the hands of the share holders. Thus, in the view of the assessee, a double taxation of the assets has been made which is not legally sustainable.

4. Speaking on behalf of revenue, the learned D.R. has submitted that since the assessee is a private limited company and it has leased out its immoveable property which comprises land, factory building, and machinery clause (ii) of subsection (5) of section 2 of the Wealth Tax Act is applicable to the assessee. According to the D.R., assessee is holding property for letting out. The learned D.R. has also referred to clause (i) of Explanation to section 2(5)(ii) of the Wealth Tax and has asserted that assessee's case comes under that clause and, therefore, wealth tax has rightly been charged on the letting out of assessee's immoveable assets. The learned DR has criticized the appellate order of the learned Commissioner for the assessment year 1999‑2000. In the view of the learned DR. the Commissioner in this order has wrongly indulged in irrelevant discussion of making distinction between rent and lease and has wrongly held that wealth tax cannot be charged on leasing, The learned DR has further assailed the impugned appellate order on the ground that it is contradictory in itself. On the one hand, the learned Commissioner says that wealth tax cannot be charged on leasing and on the other hand, he has issued directions to make valuation of immoveable assets of the company in accordance with rule 8.

5. The learned AR of the assessee has given very lengthy arguments in support of the contentions of the assessee as raised in the grounds of appeal. According to the learned AR, there is a clear and vide distinction between lease and rent and it is only the rented immoveable property which can be charged to wealth tax under the relevant provisions of Wealth Tax Act and not the leased immoveable property. The learned AR has produced an extract of 20th Century Oxford Dictionary which defines 'rent' on its page 934 as under:‑‑‑.

'rent', rent, n. periodical payment for use of another's property, esp. houses and lands; revenue. ‑‑‑.v.t. to hold or occupy by paying rent; to let or hire out for a rent adj. Rent' able.‑--ns, rental, a rent‑roll; rent: (U.S.) the takings of a circulating library; rent aller, (Scot) a kindly tenant; rent‑charge, a periodical payment charged upon rent; rent‑collector; rent‑day; rente (rant't; Fr.). annual income; (in pl.) French or other government securities or income from them; rent' er, a tenant farmer of tolls or taxes; a theatre shareholder, ‑adj, and adv, rent'‑free without payment or rent, ns. Rentier (ran‑tyd; Fr.), a fund‑holder; one who has a fixed income from stocks and the like; rent' restriction, restriction of landlord's right to raise rent; rent‑roll, a list of tenements and rents; total income from property,‑‑for rent, (U.S.) to let. [Fr. . Rent‑‑‑L, reddita (pecunia), money paid ‑‑‑reddere, to pay, of. Render.]

Regarding definition of 'lease', he has produced an extract of Mitro's Legal and Commercial Dictionary which on its page 490 says:‑‑

"Lease. Lease means a lease of immovable property; and includes also‑

(a) a patta;

(b)a kabuliyat or other undertaking in writing not being a counter part of a lease to cultivate occupy or pay or deliver rent for immovable property;

(c)any instrument by which tolls of any description are let;

(d)any writing on an application for a lease intended to signify that the application is granted, Indian Stamp Act, 1899. S. 2(16).

A lease of immovable property is a transfer of a right to enjoy such property made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically, or on specified occasion to the transferor by the transferee, who accepts the transfer on such terms. The transferee is called lessor, the transferee is called lessee, the price is called premium, and the money, share, service, or other thing to be so rendered is called rent. Transfer of Property Act, 1882, section 105 "Lease' includes a counterpart, kabuliyat, an undertaking to cultivate or occupy."

In support of his view point the learned A.R. also relies on the appellate order of the ITAT, dated 28‑2‑2000 passed in the case of the assessee for the assessment year 1996‑97 in W.T.A. No.588/IB of 1999 and another judgment of the ITAT cited as 1988 PTD (Trib.) 1022. The sum and substance of the arguments of the learned AR is that his client has given its factory on lease and since lease is different from rent, therefore, section 2(5)(ii) of the Wealth Tax Act is not applicable to the assessee. According to the learned AR, only that immoveable property can be charged to Wealth Tax whose income, if let out, is chargeable to tax under section 19 of the Income Tax Ordinance and not under section 30 of this Ordinance.

6. Having gone through the relevant assessment orders of the ITO and the impugned appellate orders of the Commissioner, and having heard the arguments of rival parties, we find that the learned A.R. of the assessee has based his case wholly on the distinction between rent and lease. According to the learned A.R., the assessee has not rented his mill (which comprises land, building, machinery and fittings) rather he has leased it out. In his opinion, renting out immoveable property comes under the ambit of Wealth Tax and not the leasing out of such property. Revenue, on the other hand, holds that there is no difference between rent and lease and since the assessee company has let out its immoveable property, it is liable to pay wealth tax.

7. The words 'rent' and 'lease' have not been defined by the Wealth Tax Law nor by the Income‑tax Law. So, we have to depend on the plain dictionary meanings of these words. The assessee's AR has placed before us the definition of the term 'rent' and 'lease' which have been reproduced by us supra in verbatim. We have also consulted Chambers 20th Century Dictionary, New Webster Dictionary, the Concise Oxford Dictionary, and A Concise Law Dictionary by FPG. Osborn. Briefly speaking, 'lease' means a contract authorizing the use and possession of land and/or building for a fixed time and for specified rent or fee. It means to rent a building or property by contract for a fixed time and rental. 'Rent' means compensation, fee or payment made at intervals to the owner of a property by the tenant or user. As a term of economics, 'rent' means the return from agricultural land in excess of production costs or revenue or yield from land as production factor. Rent also means to let on lease, to be leased or let for rent. Thus there is hardly any difference between rent and lease. Both the words are mutually interchangeable.

However, for the sake of arguments, we agree with the learned AR that rent and lease are different, and the assessee's case is that of lease and not that of rent Even then it does not lend any support to the case of the assessee, because difference between rent and lease is immaterial. Wealth Tax law does not use the word rent or the word lease for bringing the immoveable property of a company under the charge of wealth tax. The relevant provision of law is section 2(5) of the Wealth Tax Act, 1963 which reads as under:‑‑‑

(5) "assets" includes‑‑‑

(i) ..

..

(ii) in the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property;

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 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.

From the wealth tax law as reproduced above, it is crystal clear that any immoveable property held for the purpose of letting out is an asset in the hands of a company and it is chargeable to wealth tax. The words 'letting out' or 'let out' have not been defined by the Wealth Tax Act, 1963. Subsection (2) of section 2 of Wealth Tax Act, however, states that the words and expressions used but not defined in this Act shall have the meaning assigned to them under the Income Tax Ordinance, 1979. The Income Tax Ordinance, unfortunately, also does not define 'letting out'. So, we have again to rely on plain dictionary meanings of this express.

The expression let out, according to simple dictionary meanings, is to permit to enter; to rent or lease; letting for hire. Thus both the activities, lease as well as rent are included in letting out. This fact is also supported by the Income Tax Ordinance, 1979 as it uses the word let out in its section 19 in connection with income from house property as well as in section 30(2)(d) in connection‑with income from letting out of building and machinery. According to the learned A.R., section 19 deals with renting out of property and section 30(2)(d) deals with lease of property and the case of the assessee being that of lease falls under section ,30(2)(d). So, the case of the assessee who has, in the words of his A.R., leased out its property comes under the ambit of letting out.

8. In view of the foregoing discussion, we feel no hesitation to hold that the assessee company has let out its immovable property and so the provisions of section 2(5)(ii) read with Explanation (i) of the Wealth Tax Act are attracted. Assessee has been letting out its immovable property for quite a few years and this very act of the assessee establishes beyond any shadow of doubt that the property in question is being held for the purpose of letting out. Therefore, assessee company is liable to pay wealth tax on this asset.

Now the question arises how to make valuation of this immovable property of the assessee. As the expression "gross annual rental value" of such property used in Wealth Tax Rule 8(3) means the sum for which the property might reasonably be expected to let from C year to year, the case of the assessee falls clearly within the ambit of this Rule. We have already, discussed above that letting out includes leasing out. So, the WTO is justified to multiply the lease money received by the assessee by 10 times in order to make valuation of assessee's immovable property in question.

9. On the issue of allowance of proportionate liabilities relating to immovable assets, the plea of the learned AR of the assessee is correct. Therefore, the Assessing Officer is directed to allow assessee's claim of liabilities relating to immovable assets also as deduction from the value of the assets of the company which has been determined by him in his assessment orders.

10. Thus the appeals of both the parties stand decided in the manner indicated above.

C. M. A. /M. A. K./359/Tax(Trib.)Order accordingly.