BEFORE MUHAMMAD DAUD KHAN, ACCOUNTANT MEMBER AND SYED KABIRUL HASSAN, JUDICIAL MEMBER VS BEFORE MUHAMMAD DAUD KHAN, ACCOUNTANT MEMBER AND SYED KABIRUL HASSAN, JUDICIAL MEMBER
2002 P T D (Trib.) 316
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Daud Khan, Accountant Member and Syed Kabirul Hassan, Judicial Member
W.T.A. No. 533/KB of 1999-2000, decided on 31/05/2001.
(a) Central Board of Revenue Circulars---
----Circulars/instructions by Central Board of Revenue of beneficial nature, are binding on the field officers.
(1992) 65 Tax 102 (SC Pak.) rel.
(b) Wealth Tax Act (XV of 1963)---
----Second Sched., Part I, C1.7(ii)---Exemption---Remittances not proved through normal banking channel---Sale of Foreign Exchange Bearer Bonds---No exemption for the assets created out of sale proceeds of F.E.B.Cs. in any manner whatsoever in case remittance of foreign currencies through normal banking channel is not proved.
2000 PTD 322 rel
(c) Wealth Tax Act (XV of 1963)---
----Second Sched: Part I; el. 7(ii)---Central Board of Revenue Circular Letter No. 8(9) WT/IT-5/79, dated 30-6-1985---Central Board of Revenue Circular No. 8/12 W.T, dated 30-6-1985---Exemption---Foreign remittances---Number of conversions--Sale proceeds of Foreign Exchange Bearer Bonds---Assets created out of sale proceeds of F.E.B.Cs. purchased out of foreign currencies remitted to Pakistan shall enjoy exemption for a period of 6 years from the date of original remittance irrespective of the number of conversions which they undergo during the period but exemption will be restricted to original value of remittance only.---[1997 PTD (Trib.) 1928 reversed].
1997 PTD (Trib.) 1928 reversed.
1999 PTD (Trib.) 1494; 1991 PTD (Trib.) 135 and PLD 1991 Kar. 320 ref.
Akbar G. Merchant and Ms. Yasmin Ajani, F.C.As. for Appellant.
Muhammad Umer Farooq, D.R. for Respondent.
Date of hearing: 12th May, 2001.
ORDER
MUHAMMAD DAUD KHAN (ACCOUNTANT MEMBER).-- This appeal by the assessee-appellant has been preferred against I.A.C's. order under section 17-B of the Wealth Tax Act, 1963. The issue involved is the exemption for assets created out of encashment of F.E.B.Cs. purchased through foreign currencies remittance whether exemption under the law is available to the first assets created out of such encashment or even to assets subsequently created from sale proceeds of the assets created out of such encashment. The Assessing Officer had allowed the exemption as claimed by the assessee but later the IAC holding his order to be erroneous and prejudicial to revenue revised the same under section 17-B and created wealth tax charge on the assets and hence the present appeal. Mr. Akbar G. Merchant and Ms. Yasmin Ajani, F.C.As. appeared for the appellant while Mr. Muhammad Umer Farooq, D.R., represented the respondent Department. We have heard both parties to appeal and also perused the impugned order.
2. Mr. Akbar G. Merchant assailed the order of the IAC on many counts. According to him law i.e. clause (7)(ii) of Part-I of Second Schedule of the Wealth Tax Act (old clause xv(ii) of section 5) provided a blanket exemption to assets created by an assessee out of remittances received in, or brought into Pakistan, through normal banking channels during the prescribed period (the year. in which such assets are created and the following 5 years) irrespective of whether the same remained in their original form or changed the form and that exemption will continue to be available for the prescribed period Respective of the number of conversions which may take place during the period. In this connection he referred to the Budget Speech 1985-86 of the Finance Minister which spelt out the purpose of affecting change in the law i.e. clause (xv) of section 5. At that time the exemption was available only to non-residents. Vide Finance Act, 1985 the exemption was extended to both residents and non-residents and for multiple conversions (page 10 Volume 52, Taxation, statutes, notification, ordinances, jurisdictions and circulars etc.). He also referred to objective clause of the Finance Act, 1985 i.e. notes on clauses appearing at page 27 1985 Tax Volume-52 (statutes) which clarified that clause 3(3) seeks to amend section 5 ....(b) to remove distinction of resident or non -resident for exempting foreign remittances and there would be no restriction on number of conversions. Similarly he referred to C.B.R. Circular Letter No. 8(9)WT/IT-5/79, dated 30th June, 1985 which also clarifies the position of amendment brought about in law in the year 1985. It is reproduced as below:--
Foreign Remittances,
"The existing clause (xv) of section 5(1) required the person claiming exemption of assets brought into Pakistan to remain a non-resident for its exemption period. Under the existing provisions assets brought from abroad enjoyed exemption so long they remained in the same form except for the remittances invested in purchase of shares of public companies. Under the revised clause (xv) there is no restriction regarding the residential status of the assessee and the assets would remain exempt for 6 years even if they changed form.
(2) However, the following precautions need to be taken by the Assessing Officer, namely:---
(i) The owner of the remittances be determined as he would be an assessee who would alone enjoy the exemption for the subsequent five years.
(ii) The value of the remittances be determined in the first year and the exemption period of the following five years be incorporated in the body of the assessment order.
(iii) As provided for in the new proviso to clause (xv), in the case of the conversions the portion of the foreign remittances be determined, and only that portion be allowed during the exemption period."
3. He also referred to extract from C.B.R. Circular No. 8/12 W.T., dated June 30, 1985 which is to same effect namely the exemption will be available to the assets created out of foreign currencies remittances even if they changed form. Referring to all these provisions namely Finance Minister's Speech at the time of introducing 1985 Budget, the notes on clauses, and C.B.R's. Circular letter, he vehemently argued that the assessee did enjoy exemption from levy of wealth tax in respect of assets created out of foreign remittances and that I.A.C's. action under section 17-B was totally uncalled for. All these clarified the matter and left no doubt to the contrary and were enough for the guidance of the field officers to implement the changed law. Moreover, Circular instructions of C.B.R. of beneficial nature are binding on the field officers as held by the Hon'ble Supreme Court in a decision reported as (1992 65 Tax 102 (SC Pak.). The legal position, according to him, was not properly appreciated in the Full Bench decision of this Tribunal (3 members) reported as 1997 PTD (Trib.) 1928 and 1999 PTD (Trib.) 1494. Moreover, according to him, the purpose of amendment was to encourage inflow of foreign exchange by providing tax incentives to the persons who brought much needed foreign exchange and restrictive interpretations defeating the purposes of amendment have to be avoided. The economy would benefit from economic activity and placing restriction as to the conversion is to frustrate the same. Furthermore, the C.B.R.'s Circular and notes on clauses have .not been referred to in any adverse decision of the Tribunal. He, therefore, vehemently urged for our considering the matter in its true perspective and deciding it according to law as placed by him before us. D.R. on the other hand defended the I.A.C's. order-and prayed for our upholding the same as the same is fully in consonance with the dictum laid down by the Tribunal in earlier reported decisions including Full Bench decision referred to above.
4. We have carefully considered the whole matter. It is a fact that there were decisions of this Tribunal both for and against the revenues due to which a Full Bench was constituted to resolve the issue. The Full Bench has decided the issue against the assessee and' categorically held that exemption is available only to assets created for the first time out of foreign remittance and not to assets created out of the conversion of those assets. There is reference to Finance Minister's Speech in the decision which was relied upon by the learned A.R. appearing for the assessee but there are no comments of the Tribunal on the same i.e. as to how and why the intent and purposes set forth in the amendment will not be actually implemented. However, there is no reference to notes on clauses as contained in the Budget documents or even the C.B.R. Circular letter, dated June 30, 1985 which clearly and categorically laid down that assets would remain exempt for 6 years even if they change form. The law amended as per Finance Act, 1985 remains the same albeit in 1996 that it has been brought to Second Schedule instead of section 5 as previously. It has not been made clear in the Full Bench decision as to how a Circular letter, instruction of beneficial nature will not be followed by the tax authorities as held by the Supreme Court and as laid down in section 13 of the Wealth Tax Act, 1963 which makes its obligatory for all officers and persons employed in the execution of the Act to observe and follow the orders and directions of C.B.R. with only exception that no orders, instructions or directions shall be given so as to interfere with the discretion of A.A.C. or C.W.T.(A) in exercise of their appellate functions or any valuer in the exercise of his functions under the Act. We, therefore, feel that some very relevant and cogent material namely the notes on Finance Act, 1985 and C.B.R.'s Circular letter in the matter was not put before the Hon'ble Members of the Bench who decided the issue in favour of revenue on this point. Moreover, the Hon'ble Bench referred to an extract from Tribunal's decisions (1991) PTD (Trib.) 135 = (1991) 63 Tax 19 (Trib.) in which it was held that in case assessee's view point is accepted there will be no restriction as to the period during which the exemption shall be available and wealth tax would never be chargeable on such assets (end of pages 79 and beginning of page 80). This apprehension is, however, not correct since exemption will in any case be available only for the period of 6 years whether the assets retain their original form or change the same number of times. It is not that with every conversion fresh exemption for the stipulated period of 6 years will be available to the assessees. Rationalization is necessary in case of restrictive interpretation i.e. exemption is allowed to assets created out, of bank balance or cash generated from encashment of foreign currencies (first asset created and first conversion and in some cases foreign exchange proceeds into F.E.B.Cs. into cash and then into asset created which itself negates the theory propounded on this behalf. Moreover, we don't see any reason, logic or rationale behind restricting the exemption to one time conversion only when there is no restriction to this effect in the law and intent expressed on its enactment is to the contrary. There is no loss to revenue either since amount of foreign currencies remitted or assets created out of the same shall enjoy exemption only for total period of 6 years and not any more irrespective of the number and dates of conversions. Under the law exemption is available to assets created out of foreign exchange remittances. The assets created out of foreign exchange remittance directly are undisputably exempt-foreign exchange remitted being their source but the assets later created out of the conversions of the same (Love) assets (sale thereof and purchase of other assets) cannot be said to have been created out of some other source. The source remains to be the foreign currency remittances irrespective of the number of conversions which the foreign currency encashment proceeds undergo. It cannot be said that the assets created out of the sale proceeds of an asset created out of foreign exchange proceeds has been created not-from foreign currencies remittance but from other source. Exemption will of course be restricted to the extent of the purchase price of first asset and profit if any will be subjected to wealth tax. is a matter of fact the assessee is claiming exemption only to this extent. Moreover, the Full Bench Judgment reported as 1997 PTD (Trib.) 1928 on certain issues has already been differed. Thus in para. 9 of the judgment is categorically held that the submission that the F.E.B.Cs. purchases abroad from foreign exchange and brought into Pakistan are equivalent to foreign exchange remittance is not acceptable both in fact as well as in law. However, in D.B. decision reported as 1999 PTD (Trib.) 1494 an exactly opposite view has been held on the issue and it was held that F.E.B.C., constitutes foreign exchange/foreign currency. Further, the remarks in Hon'ble High Court's decision reported as (PLD 1991 Karachi 320) are most pertinent in the context and are reproduced as under:---
"A precedent is not binding if it was rendered in ignorance of a statute or a rule having the force of statute. The rule apparently applies even though the earlier Court knew of the statute in question, if it did not refer to and had not pressed to its mind, the precise terms of the statute. Similarly, a Court may know of the existence of a statute and yet not appreciate its relevance to the matter in hand, such a mistake is again such incuria as to vitiate the decision. These are the commonest illustrations of decision being given per incuriam, in order that a case can be decided per incuriam it is not enough that it was inadequately argued. It must have been decided in ignorance of a rule of law binding on the Court, such as a statute ...(see the observation in "Salmand on jurisprudence;. Twelvth Edition pages 150 and 169)".
It has been held by Mr. Justice Waheeduddin in the judgment reported as PLD 1963 Karachi 280 that the law of precedent is not applicable to per incuriam decision which carry no binding force. 'It has been held' by Mr. Justice Wajihuddin as a Judge of Sindh High Court in the case of Abdul Razzak 1995. CLC 1453 (Karachi) as follows:---
'A per incuriam decision of the highest Court does not bind any. Court and it matters little that such Court itself be at the lowest rung in the hierarchy of Courts.'
The decision with reference to which the above observation has been made was by the Hon'ble Supreme Court of Pakistan. The per incuriam decision was not even treated obiter dicta.
5. In Karachi High Court's decision reported as 2000 PTD 322 the assets created out of F.E.B.C. sale proceeds were held not to enjoy exemption from levy of wealth tax under clause (xv)(ii) of section 5(1) of the Wealth Tax Act. However, the decision pertains to F.E.B.Cs. locally purchased and not against the foreign currencies remitted to Pakistan. This matter i.e. purchase of F.E.B.Cs. through foreign exchange remittances and assets out of the same was also considered by the Hon'ble High Court (last para. page 328) but no decision was recorded in respect of the same for the reasons that the issue already stood decided against the assessee for the reason that assessee had not been able to prove that foreign currencies has been brought into Pakistan through normal banking channels and then F.E.B.Cs. were purchased out of the same and assets created out of the sale proceeds thereof. We most respectfully submit to the decision of Hon'ble High Court and hold that there cannot be any question of exemption for the asset created out of sale proceeds of F.E.B.Cs. in any manner whatsoever in case remittance of foreign currencies through normal banking channel is not proved.
6. After full consideration of the matter, the wording of statute, the Finance Minister's Speech for 1985-86 Budget, the notes on clauses and the C. B. R. Circular letter permitting exemption for multiple conversions, we most respectfully disagree with the ratio or dictum laid down in Tribunal's decision reported as 1997 PTD (Trib.) 1928 and hold that assets created out of sale proceeds of F.E.B.Cs. purchased out of foreign currencies remitted to Pakistan shall enjoy exemption for a C period of 6 years from the date of original remittance irrespective of the number of conversions which they undergo during the period but exemption will be restricted to original value of remittances only.
7. In the case before us U.S $ 150,000 were remitted to Pakistan during the income year ended 30th June, 1995 relevant to the assessment year 1995-96 through Bank of America on 25-10-1994 (U.S. $ 81,647 = Pak Rs. 25,00,00 and 30th October, 1994 (U.S. $ 68,353 Pak Rs. 21,74,557). These were given on 25-10-1994 to a family owned concern Messrs. Fish Meal (Pvt.) Ltd. (Rs. 23,07.910) and invested in Property No. F-22/3, Block-VII Clifton, Karachi purchased for Rs. 22,85,000. The advance of Rs. 23,07,910 given to family company remained at constant balance from its inception on 25-10-1994 to 30-6-2000 and wealth tax exemption was allowed from assessment year 1995-96 till the last assessment year 2000-2001 without any dispute. However, Property No. F-22/3, Block-7, Clifton, Karachi acquired through foreign remittance with value of Rs. 22,85,000 enjoyed exemption from first exemption years i.e. 1995-96 to 1997-98 only. For the year under consideration though the DCWT allowed the exemption but the IAC subjected the same to tax under section 17-B. The reason for it was that the property acquired through foreign remittance had been disposed of during the year on 2-2-1998 and as such the exemption is forfeited due to change in shape and form of asset because such exemption is to be granted to the assets created out of foreign remittance and creation is one time phenomenon and afterwards it is only conversion and not creation. Assessee purchased 4 plots out of the sale proceeds of the property or Rs. 28,54,000 i.e. on 12-11-1997 the Plot No. 178/II, phase V, D.H.A. Karachi for Rs. 570,750, on 9-11-1997 the Plot No. 314, Beech Street. Phase-VII, D. H. A. Karachi for Rs. 12,50,250, on 2-2-1998, the Plot No. 108/II, Phase-VI, D.H.A. for Rs. 613,750 and on 21-2-1998 the Plot No. 178/1, Phase-VII, D.H.A. for Rs. 4,19,250. The property had been sold on 2-2-1998. Assessee claims exemption for original cost of the property i.e. Rs. 22,85,000 and has no objection td department's subjecting the profit of Rs. 569,000 to wealth tax. Its explanation regarding two properties purchased before disposal of the property originally purchased through sale proceeds of F.EB.Cs. is that the bridge finance was arranged with the family concern for the period November, 1997 to February, 1998 and on sale of the property the temporary loan arranged was paid back. Thus, according to its arguments even the plots purchased on 12-11-1997 and 9-11-1997 bring virtually purchased out of sale proceeds of F.E.B.Cs. in turn purchased from foreign remittances, were exempt under the law. Alternatively its plea is that the remittance of currencies from aboard represent incremental wealth and that it has to be allowed exemption for full amount of Rs. 45,92,910 remitted during October, 1994 for 6 years and that even if it is held that the plots purchased on 9-11-1997 and 12-11-1997 had not been purchased from sale proceeds of assets created out of foreign currency remittances still the exemption for the amount invested therein to the extent of original cost of the property sold will be available to it as the incremental wealth stands incorporated in the capital in the sole proprietorship concern which had arisen to 1.5 million against debit balance of Rs. 90,320 during the preceding year and cash which has also increased to Rs. 486,164 against penalty sum of Rs. 874 for the preceding valuation date. We, however, don't find any substance in this argument. Had the assessee purchased all the properties out of the sale proceeds of the property originally purchased in 1994 it would have enjoyed exemption for the newly created asset to the extent., of cost of the sold property. However, the properties purchased on 9-11-1997 and 12-11-1997 though bridge finance as alleged cannot by any stretch of the law deemed to be asset created out of foreign remittances. Had assessee invested some foreign remittances in 1994 in business capital he could have take the plea raised before us but as the plain facts before us are both the properties purchased in November, 1997 were not acquired through foreign remittance or even out of the sale proceeds of assets created out of foreign remittance etc. The argument that in case the properties purchased in November, 1997 are not exempted from wealth tax, exemption be given for incremental wealth in shape of capital balance in sole proprietorship concern (Abidin & Co) and cash/prize bonds is equally fallacious and contradictory. On one hand plea is taken to the effect that after sale of property originally purchased in 1994 in February, 1998 the sale proceeds were given to sole proprietorship concern from whom bridge finance had been arranged in November, 1997 to pay for the price of two plots purchased and thus in substance these plots are also acquired to foreign remittances but on the other hand it is being claimed that the amount of sale proceeds is accounted for in the capital balance in sole proprietary concern and cash and prize bonds. We also fail to understand as to how the sale proceeds of Rs. 28,54,000 enabled assessee to purchase the plots of this much value and also to affect increase in its capital and cash balances. The amounts for plots purchased in 1997 were allegedly drawn through family concern probably Fish Meal (Pvt.) Ltd. and understood to be paid back after receipt of said proceeds. How could then increase occur in assessee's capital and cash balances? In wealth tax assessment order for the year no liability owning to any sister concern appears. We, therefore, repel this contention and hold that exemption will be available to the assessee only for two plots purchased in February, 1998 valuing Rs. 10,33,000 and that too on proportionate basis of sale proceeds of the plot and original cost namely for amount of Rs. 827,051 only to exclude the element of profit on sale. The IAC was thus justified to take action under section 17-B but the amount of addition to assesse's wealth over what was assessed by the DCWT will remain (at Rs. 22,85,000 = 827,051) = Rs. 14,57,949 against Rs. 22,85,000 added by the IAC. The assessee thus gets relief of Rs. 827,051 only.
C.M.A./M.A.K./163/Tax (Trib.)Order accordingly.