MESSRS AYENBEE (PRIVATE) LIMITED VS INCOME-TAX APPELLATE TRIBUNAL (HEADQUARTERS), KARACHI
2002 P T D (Trib.) 54
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Sharif Chaudhry, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member
W.T.As-Nos. 845/LB and 846/LB of 1996, decided on 28/06/2001.
(a) Wealth Tax Rules, 1963---
----R.8(3)---Determination of value of land and building with fixtures and fittings---Principles---Rule 8(3) of the Wealth Tax Rules. 1963 prescribes the method for determination of value of lands and buildings and in assessing value of lands and buildings under the said Rule, only the rent charged for land and building could be taken into consideration and not the rent charged for fixtures and fittings---Only one exception to the said Rule was the case where fixtures and fittings were an integral part of the land and building and rent charged for the same could not be separated from the rent of the building---Assesses, in the present case was charging separate rent for fixtures and fittings and the same had been provided in the lease agreement itself---List of accessories had been produced and from a glance at the list one could easily see that these accessories or fittings were not integral part of the building and were separable from, the .same---Rent charged for fixtures and fittings could not, in circumstances, be clubbed with the rent of the building for computation of value of assessee's property on the basis of ALV under R.8(3) of the Wealth Tax Rules, 1963.
(b) Wealth Tax Rules, 1963---
----R. 8(3)---Valuation of fixtures and fittings---Determination-- Connivance of lessor with lessee---Effect---Items of fittings, value of which had been declared at Rs. 1,25,000 could not obviously fetch a rent of Rs. 1,20,000 in a year---Rent of these items, according to a fair and independent assessment, could not be more than Rs. 3,000 per month in any case---Allegation of the Department that rent had been allocated in the agreement deed with connivance of the lessee obviously could not be ruled out in circumstances.
Shahid Zaheer, D.R. for Appellant.
Shahid Abbas for Respondent.
Date of hearing: 20th June, 2001.
ORDER
MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER).---
Cross---appeals have been filed---by revenue as well as by assesses---against appellate order, dated 12-6-1996 passed by Commissioner of Income Tax/Wealth Tax (Appeals Zone-I), Lahore under section 23 of the Wealth Tax Act for the years 1994-95 and 1995-96. The issues raised in grounds of appeals by both the parties pertain to valuation of assessee's house No. 62D/B, Lahore for the purpose of wealth tax. The assesses, agitates against the impugned appellate order on the ground that even the reduced value of the said property to Rs. 25,00,000 in 1994-95 and to Rs. 28,00,000 in the year 1995-96 by the Commissioner is excessive and harsh against declared value of Rs. 19,25,000 in each year which had been worked out on GALV basis. The revenue feels aggrieved with the impugned appellate order on the ground that the Assessing Officer had rightly made valuation of the house at Rs. 30,12,500 in the year 1994-95 and at Rs. 33,12,500 in the year 1995-96 on the basis of ALV but the learned Commissioner has wrongly reduced it to Rs. 25,00,000 and Rs. 28,00,000 respectively in these years.
2. Authorized Representatives of both the parties have been heard and available records-have been perused. Appeals are decided in the light of the facts available on record and the pleadings made at the-bar in the following paragraphs.
3. The learned AR of the assessee has stated that the property in question has been let out by the assesses on total monthly rent of Rs. 25,000 which comprises rent of the premises at Rs. 15,000 and rent of installations and accessories at Rs. 10,000. In support of this statement, he has produced a copy of the agreement to lease executed on a stamp paper of Rs. 10. According to the learned AR, the Assessing Officer fell in serious error in adopting the total rental of the property including the rent of fixtures and fittings for the purpose of working out the value of the said property 'on the basis of ALV. The learned AR pleads that the rent of fixtures and fittings cannot be included in the ALV of the immovable property for the purpose of wealth tax as the `fixtures and fittings' or `installations and accessories' (as Used in lease agreement) do not form part of immovable property. He, therefore, submits that the value of the building should be assessed under Rule 8(3) on the basis of rent of building which is Rs. 15,000 per month and to the value of building worked out in this manner, the value of installation and accessories on cost basis should be added. Thus, in the view of the learned AR, the value of assessee's immovable property would work out to Rs. 19,25,000 (value of, building at Rs. 18,00,000 on the basis of ALV + value of installation and accessories at Rs. 1,25,000) and it would be the same as declared by the assessee herself. Hence, the learned AR asserts that the declared value should be accepted. The learned AR has further submitted that the First Appellate Authority also fell in error in not accepting the appeal and in giving only partial relief to the assessee.
4. The learned DR has strongly controverted the contentions of, the assessee and arguments of her AR. According to the DR, the Assessing Officer had rightly included the rent of fixtures and fittings in the total rent of assessee's house and has rightly assessed the value of the said immovable property on the basis of ALV. The learned DR further states that the security of Rs. 25,000 received by the assessee has also been properly divided in two years and added to the value of assessee's immovable property by the Assessing Officer. But the learned CIT has arbitrarily reduced the assessed value of the said property to Rs. 25,00,000 in the year 1994-95 and to Rs. 28,00,000 in the year 1995-96 without any justification and without any basis. The reliance of the Commissioner on C.B.R. Circular Letter C. No. 14(7)/II.6/WT/79, dated August 21, 1979 for giving relief to the assessee is unjustified in view of the learned DR; as the said Circular is not relevant having been cancelled later on by the C.B.R. itself.
5. From the contentions of both the parties and from the arguments of their learned authorized representatives, it is now clear that question before us for our decision is whether "installation and accessories" (the words used by the assessee in lease agreement) or "fixtures and fittings" (the word used in the orders of the officers below and by the authorized representatives of both the parties) form part and parcel of immovable property and whether rent of these items should be included into the rent of the building for the purpose of valuation of immovable property on the basis of ALV under Rule 8(3) of the Wealth Tax Rules of 1963? Our answer to this question is as follows:---
6. Rule 8(3) of the Wealth Tax Rules of 1963 deals with valuation of lands and buildings. According to this Rule, the value of lands and buildings `excluding agricultural lands' shall be estimated with due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighbourhood of the said locality. The first proviso to this rule, however, provides that the Deputy Commissioner shall not, except with the prior approval of the Commissioner, determine the value of any property at a sum higher than ten times the gross annual rental value of such property and, where such property is an open plot of land, at a sum higher than the value specified by the Collector of District for the purpose of calculation or charging of stamp duty under Stamp Duty Act, 1899. Thus, Rule 8(3) prescribes the method for determination of value i of lands and buildings and in assessing value of lands and buildings under this Rule, only the rent charged for, lands and buildings can be taken into consideration and not the rent charged for fixtures and fittings. There can be only one exception to this Rule and that is in a case where A fixtures and fittings are an integral part of the lands and buildings and rent charged for them cannot be separated from the rent of the buildings. In the case of the assessee, however, we find that the assessee is charging separate rent for fixtures and fittings and this thing has been provided in lease agreement itself. List of accessories has been produced and from a glance at the list we can easily say that these accessories or fittings are not integral part of the building and are separable from it. A Therefore, we hold that in case of the assessee, rent charged for fixtures and fittings cannot be clubbed with the rent of the building for computation of value of assessee's house on the basis of ALV under Rule 8(3) of the Wealth Tax Rules.
7. Following is the list of fixtures and fittings which has been provided by the learned AR of the assessee:---
| (1) | Electric Fans | 15 Nos. |
| (2) | Tube lights | 30 - |
| (3) | Carpets 10' x 14' | 04 - |
| (4) | Exhaust Fans | 09 - |
| (5) | Geaser | 02 - |
| (6) | Wooden Almirah | 08 - |
| (7) | Wooden Cabinet | 03 - |
The value of the abovementioned items has been declared at Rs. 1,25,000. The lease deed shows that a rent of Rs. 10,000 is being charged for the abovementioned fittings whereas rent for the building is being charged at Rs. 15,000 per month. The building of the house has been constructed on a plot measuring 2 Kanals in the most posh locality of Lahore, namely LCCHS or popularly called Defence. The building as per lease agreement consists of 3 bed rooms with attached bathrooms, 1 T.V. lounge, 1 kitchen-cum-pantry, 1 powder room, 2 box rooms, 1 servant quarter with bathroom and 1 room for garden and car accessories on the ground floor. There are, on the first floor, 3 bed rooms with attached bathrooms, 1 box room, 1 T.V. lounge and 1 kitchenette. From the position of the land and building of the house and from the list of the items of fixtures and fittings, the allocation of rent in the lease agreement to the building and to the fittings appears to be just unfair rather ridiculous. The items of fittings whose value has been declared -by the assessee herself at Rs. 1,25,000 cannot obviously fetch in a rent of Rs. 1,20,000 in a year. According to a fair and independent assessment, the rent of these items cannot be more than Rs. 3,000 per month in any B case. Thus the allegation of the learned DR that rent has been allocated in the agreement deed with connivance of the lessee obviously cannot be ruled out.
8. In view of the foregoing discussion, the assessment orders of the WTO and the impugned appellate order of the learned Commissioner are vacated. It would be most appropriate and fair if 90% of the total rent of assessee's immovable property is allocated to building and 10% of the total rent is allocated to fittings and fixtures. The Assessing Officer is directed to make valuation of the building on the basis of ALV as determined above. The value of fittings and fixtures as declared by the assessee should be accepted and added to the value of building so determined. In this manner, the total value of assessee's said immovable property may be assessed.
9. No separate addition on account of security should be made. In the year 1995-96, addition in ALV may be made as per clause `2' of the lease agreement.
10. Consequently, appeals filed by both the parties stand decided in the manner indicated above.
C.M.A./M.A.K./144/Tax (Trib.) Order accordingly.