Wealth Tax Act (XV of 1963)‑‑‑-

‑‑‑‑Ss.2(1)(5)(ii) & ,16(3)‑‑‑Income Tax Ordinance (XXXI of 1979)‑‑ Assets‑‑‑Leased out assets‑‑‑inclusion of such assets in net wealth‑‑ Property was included in Net Wealth on the ground that it had been let out to another concern using the space as storage godown‑ ‑Asses see contended that the property in question had not been leased out but given on licence to cite other concern and was not held for the purpose of letting out and thus slid not fall under the definition of "assets" as an immovable property held for the purpose of letting out or business of letting out under S.2(1)(5)(ii) of the Wealth Tax Act, 1963 and income from such property was being assessed under S.30 instead of S.19 of the Income Tax Ordinance. 1979‑‑‑Validity‑‑‑Both the exclusive possession and right of uninterrupted enjoyment of space had been allowed to the other party though the indenture was described as a licence it was nevertheless a demise as in substance it purports to give exclusive possession of the godown space to the alleged licensee‑‑‑Looking at the substance of the transaction and not merely nomenclature used by parties the document described as licence in fact confers and imposes on the grantee in substance rights and obligations of a ‑tenant and on the grantor in substance right and obligations of the landlord so the document purported to be a license agreement must be treated as a tenancy agreement as distinct from a licence‑‑‑Immovable property thus, was to be included in the "Net Wealth" of the assessee and was taxable as such‑‑‑Order of the First Appellate Authority was confirmed by the Tribunal.

(1989) 59 Tax 50 (Trib.) distinguished.

M.D. Gangat for Appellant.

Bishrat Ahmed Qureshi for Respondent.

Date of hearing: 10th April, 2002.

ORDER

MUHAMMAD MAHBOOB ALAM (ACCOUNTANT MEMBER).‑‑‑These are five appeals for the assessment years 1995‑96 to 1999‑2000 in respect of order passed under section 16(3) of the Wealth Tax Act.

2. The common grounds in all these appeals relate to taxability of the asset being Property No.B‑31 SITE, Karachi. It has been pleaded that the officers below had erred in holding that the immovable property bearing B‑31 SITE, Karachi was held for the purpose of letting out and covered by definition of asset given in section 2(1)(5)(ii) of the Wealth Tax Act. 'The appellant has prayed for vacating the order of the officers below.

3. The learned counsel for the appellants and the learned D.R. have been heard and the relevant orders have been perused. The property bearing B‑31 SITE, Karachi was included in the net wealth of the appellant/assessee on the ground that it had been let out to another concern using this space as storage godown. The treatment was contested by the appellant on the ground that the property had not been leased out but given on license to the other concern and was thus not held by the assessee for the purpose of letting out so that it did not fall under the definition of assets as per provision of section 2(1)(5)(ii) of the Wealth Tax Act. Reliance was placed by the assessee on a number of case‑laws which have been discussed by the Assessing Officer in his order who finally held that no margin could be given to the assessee for the plea that the space had been licensed instead of being leased out to third party and that the income from the property was being assessed under section 30 instead of section 19. This treatment was contested by the appellant before the CIT(A) and again the plea was taken that the property had been licensed and not leased out and it did not, therefore, fall under the definition of assets as an immovable property held for the purpose of letting out or business of letting out. This plea was, however, again rejected by the learned CIT(A) who has given detailed reasons in his order discussing all the issues raised before him and the various case laws were also distinguished by him. It would be proper to reproduce the same ‑for reference:‑‑

" .. The learned counsel for the appellant has been heard. His written submissions and counter‑comments by the learned ACWT as well as the case‑law on the subject‑have been considered. At the very outset it needs to be stated that the acts of every case will have to be examined in the perspective of facts on the ground. It is accepted position that space let out is the surplus space to the business requirements of the appellant which not being needed any more of own business purposes as a result of reduced business has been let out. Further thought the agreements with the parties/tenants to whom the surplus properties have been let out have been termed as merely grant of licenses to the parties and the tenants as licenses but what is to be seen in the cumulative effect of the terms and conditions of the agreements. The agreements with the parties when read as a whole, however, make it clear that the agreements in question are nothing but clear lease agreements and surplus property no more required for business purposes has been let out for enjoyment of rental income as owner of the immovable properties and not has exploitation of the asset as a commercial asset. The appellant has also failed to show that during the period of the lease of the surplus immovable properties the lessors intention, as ascertainable front the cumulative effect of all the 'terms of the lease agreement or other material circumstances, was that during the period of the lease the asset lease out remained and was treated as a commercial asset and was exploited as such.

As far as the contention that the appellant itself is a licensee and, therefore, as the licence of the SITE it is not the‑ owner of the plot on which the superstructure is raised, and therefore, the surplus immovable property let out does not fall under, the definition of `Asset' liable to Wealth Tax, the said plea of the appellant of non‑ownership in view of the factual position discussed in the order under appeal must be rejected in respect of the SI'T'E property. However, in respect of Mardan Property the contention raised by the learned counsel that it belonged to the appellant's sister concern and, therefore, legally was toot its asset to warrant its liability to Wealth tax is correct. Accordingly the DCWT is directed to exclude the same from the wealth of the appellant. So also in respect of the Landhi Property merely entering its sales agreement it cannot be construed that the same is liable to wealth tax in the hands of the appellant. The working of wealth tax in the hands of the appellant. The working of wealth tax on this score is also not tenable and is ordered be excluded from the wealth of the appellant.

The case‑law relied upon, by the learned A.R. being clearly distinguishable on facts, does not help him. In the case of Messrs Mumtaz Ahmed Silk Mills Ltd. v. WTO Special Circle 2. Karachi W.T.As. Nos.74 to 77/KB of 1994‑95 (Assessment Years 1989‑90 to 1992‑93; dated 27‑2‑1999, the license fee receipts that the assessee‑co was getting were not assessed as income from property but as its business income (Its para. 4. page 2 refers) and, therefore, it was held that immovable properties that were allowed to be used for specific purpose under a license granted by the owner who kept on holding control and possession thereof. Called the license to the use who is called the license was not let out property and, therefore, was not chargeable to wealth tax under section 2(e)(ii). The said case being distinguishable on facts does not advance the case of the appellant because the letting out income of the appellant in his Income Tax Assessments has not been assessed as business income and further the cumulative terms of the tenancy agreements clearly show that the agreements have all the attributes of lease agreements. So also the case‑law reported as 2000 PTD (Trib) 1 is distinguishable on facts as there the allottee of the plot was free to deal with it as he pleased but was burdened with many its and buts. This is not the case in respect of the appellant. Therefore; the ratio of the said case‑law does not advance his contention of non‑liability to wealth tax of surplus out immovable property.

In this connection reference may also be made to the ratio of the following case‑law, which is material. In 1997 PTD (Trib.) 1034, 1046. it is held that since the addition of explanation to section 2(e)(ii) by E.A. 1991 an equal emphasis has been placed upon the 'purposes' for which an immovable property is held. So also in the case of Miss Itrath Qasilbash.v. S.O., Wealth Tax. Lahore 1999. PTD 1060, where the assessee was only owner superstructure, it was held that the G.A.R.V. for wealth tax purposes was the rent received by the assessee. Similarly, in W.T.As. Nos.288 to 291/KB of 1999‑2000 (Assessment years 1995‑96 to 1998‑99), dated 15‑12‑1999, wherein the assessee had obtained a piece of land from SITE in pursuance of a lease deed which was sub‑divided and subsequently. The assessee rented out the said property to another party, but contended before the DCWT that the let out shet was not owned by it but by SITE; the said plea was rejected by holding that the appellant was exercising all the attributes of ownership of the land as well as the structure thereon and, therefore, the property belonged to the assessee. In the appellant's case, the appellant is exercising all the attributes of ownership in respect of the no more required for its own business purpose, thereby enjoying rental income as the landlord, which is also assessed as such in its Income Tax Assessments. In this view of the matter, the treatment of the learned ACWT treating the said surplus let out property as being held for letting out and not for own business and thus being as asset for wealth tax purposes covered under section 2(e)(ii) of the Wealth Tax Act 1963 and liable to wealth tax was fully justified."

4. Before us the learned counsel for the appellant has reiterated the plea taken before the learned CIT(A). The main thrust of his argument is that as the property had been licensed out it could not be held to have been held for the purpose of letting out and as income from this source had been taxed for the purpose of Income Tax under section 30 instead of section 19 there was prima facie acceptance by the department of the fact that the property was not yielding rent taxable under section 19 of the Income Tax Ordinance and as such the treatment given by the Wealth Tax Authority in including the said property in the net Wealth of the appellant was not justified.

5. The matter has been considered by us. In order to appreciate the proper facts of the case and to appreciate also the claim of the learned counsel for the appellant that this is a case of a licensing of a property instead of being one of leasing out the terms of the said license agreement produced by the learned counsel by the appellant have to be perused. The terms of this license agreement, dated 14th September. 1996 entered into between the appellant/company Messrs Mogal Tobacco (Pvt.) Ltd. and the other party Messrs Cargo Advisory which are reproduced as under:‑‑

"(1) In consideration of the terms, conditions and convenants therein contained, the company has agreed to grant lease and license to allow warehousing of 4,000 sq. ft. area‑ hereinafter referred to as `the said premises' for a period of 11 months at a monthly license fee of Rs.4.25 per square foot, per month payable month wise in advance and the company shall continue to be so possessed without parting with any possession or creating any right title or interest in the name of the Licensee or of anyone through or under them.

(2) That during the aforementioned period, the Licensee will not cause any alteration to the main structure of the building of the said Warehouse and the company has the right of regular inspection of the said Warehouse. If any major alteration or modification is required within the said Warehouse, the licensee will take the permission from the company in writing and such major alternations or modifications shall be carried out by the company at their own cost.

(3) That the Licensee paying the license fee and observing the covenants on their part shall peacefully enjoy the right of possession and use the said Warehouse without any interruption by the company or any .other person lawfully claiming under them.

(4) That the Licensee shall store the goods at the said Warehouse entirely at their own risk, responsibility and cost,. and will cover the good's with all risks of insurance etc., at their own cost including maintenance of the said Warehouse, vigilance round the clock and the nature and/or costs whatsoever including the risk of theft. pilferage, fire rain. flood and loss of the goods due to any reason.

(5) That the Licensee shall keep the said Warehouse inside and outside in clean and good condition. If any damage is caused to the columns, Beams, Roof and Floor by the Licensee the same shall be repaired by the Licensee at their own cost. The Licensee at the expiry of this agreement will give possession of the said Warehouse in the same condition as was given to them by the company.

(6) That company will be responsible for all rates, cesses, taxes charges, rents, assessments and impositions and water charges whether Government. Municipal or local bodies levied and payable in respect of the said Warehouse.

(7) That the Licensee will be responsible for taxes, duties, rates, charges, cesses fees License, permission etc., etc., for the goods .stored in the said Warehouse.

(8) That the Licensee shall use the said Warehouse for their official working and shall use or suffer to be used the said Warehouse for storing of smuggled, stolen, explosive or legally objectionable material or goods.

(9) That the company and the Licensee have right to terminate this agreement by giving three month's written notice.

(10) That the Licensee shall observe all laws, rules and regulations. Bye‑laws (including. Excise and Labour Laws) issued by any competent Authority, statutory body and Provincial or Federal Government.

(11) That the Licensee shall be responsible for any prosecution under the Factories Act. Workman's Compensation Act, Payment of Wages Act, Standing Orders and other Labour laws or any other laws applicable and if any fine or punishment to be levied by way of or any authority/agency, the tenant shall be responsible and accountable for the same.

(12) That the company shall not be responsible to employ any workman or employees of the Licensee and payment of their salaries, wages, Bonus, gratuity and all other legal dues payable shall be the exclusive responsibility and liability of the Licensee.

(13) The electricity connection for lights, fans, Air‑conditions, etc., will be available by a separate sub‑meter which will be installed by the Licensee and the Licensee will pay every month electricity charges at the rate of Rs.5 per unit according to the reading of the sub‑meter. The electricity charges will be increased in proposition to the percentage of increase announced by KESC during the tenure of this agreement.

(14) That in the event of any dispute or difference arising between the company and Licensee hereto relating to or arising out of these presents such dispute or differences shall be referred to arbitration of two arbitrators one each to be appointed by each party, and in the event of disagreement between such arbitrators the matter shall be referred to an Umpire mutually agreed upon by the arbitrators and decision of such Umpire shall be final and binding upon the parties."

6. Perusal of the above agreement shows that the entire space having area of 4000 sq. ft. has been given to one party @ Rs.4.25 per sq. ft per month so that this is not a case of receipt of charges on account of storage of goods by the assessee as a bailee making the other contracting party a bailor so that the facts of the case reported as (1989) 59 Tax 50 (Trib) cited by the appellant in his support are not held to be applicable. In that case the assessee was providing storage facility to the traders of the locality in its godown at different rates and for different durations and occupation of the space so that the activity could not be held to be one of letting out of the godown itself but was one for storing the goods of other traders and the assessee had become bailee of such goods under section 148 of the Contract Act and the godown itself could not be held to have been let out. In the present case of the appellant/assessee the entire space of the godown had been let out on a monthly basis irrespective of nature of goods to be stored by the other party. It was not therefore, a case of bailment of goods but a transfer of right to enjoy an immovable property. The question which now remains to be examined is whether in the light of the terms of the agreement reproduced above the appellant fulfilled the conditions of a licensor or was in actual terms a lessor. Referring to the provision of Transfer of Property Act relating to the lease of immovable property vis- -vis licensing. it has been observed that as per the established case‑law a lease necessary implies an exclusive right of possession of the leased property and is incompatible with the existence of any right of the possession in the lessor. Therefore, where the right of occupation is given but not a exclusive right, the right is only a license. A deed which .gives a non‑exclusive and interrupted right of enjoyment was not compatible with the grant of a lease. In the present case we find that as per clause (1) of the agreement exclusive right to the entire premises of the godown irrespective of the nature of goods, to be stored has been passed on to the other party. The appellant/assessee has no authority to interfere as to how the godown is to be used. In other words, it has no right to interfere in the manner in which the said space is to be used so that an exclusive right of possession has been bestowed upon the other party which is an important feature of a lease. The other important clause being No.3 listed above stipulates that on payment of the fee and observing the convenants on their parts, the other party shall peacefully enjoy the right of possession and use the said premises without any interruption so that an uninterrupted right of enjoyment of the property has also been assigned to the other party. Thus both the exclusive possession and right of uninterrupted enjoyment of space have been allowed to the other party so that though the indenture is described as a license it is nevertheless a demise as in substance it purports to give exclusive possession of the godown space to the so‑called licensee. Looking thus that the substance of the transaction and not merely nomenclature used by parties the document described as license in fact confers and imposes on the grantee in substance rights and obligations of a tenant and on the grantors in substance right and obligation of the landlord so that the document purported to be a License agreement must be treated as a tenancy agreement as distinct from a license. We therefore, find ourselves in agreement with the conclusion arrived at by the learned CIT(A) in holding that immovable property is to be included in the net wealth of the appellant and is taxable as such. The order of the CIT(A) on this issues is, therefore, confirmed.

7. Before parting with this appeal we would like to observe that the learned counsel for the appellant has placed much emphasis on this Tribunal's orders bearing Nos.74 to 77/KB of 1994‑95; dated 7‑2‑1999, whereby a licensed property was not held as being let out and thus not to be chargeable as a taxable asset under section 2(e)(ii) of the Wealth Tax Act, 1963. In respectful agreement with the order of the Tribunal we 'have in the present case decided the issue on the basis that the agreement purported to be a license agreement but is not in substance such a license agreement and is in fact an arrangement for lease for a specific consideration and as such the said order of the Tribunal is not considered relevant for the decision of the issue involved in the present case. It may also be pointed out that whereas the agreement produced before us shows the same to have been drawn on 14‑9‑1996 being also operative from this date the learned counsel for the appellant has relied upon it for the assessment year 1995‑96 also for which valuation period closes on 30‑6‑1995 i.e. prior to the commencement of the said agreement. It is not clear how a subsequent agreement could cover a transaction of an earlier period where no such specific provision has been mentioned in the said agreement. The appeal for the assessment year 1995‑96 is, therefore, considered to be otherwise also without any merit as being not based on the document relied upon by the learned counsel for the appellant. With this observation all the five appeals are held to be without any merit and stand dismissed.

C.M.A/M.A.K./365/Tax(Trib.)

Appeals dismissed.