Wealth Tax Act (XV of 1963)‑‑‑ ‑

‑‑‑‑Ss.17B & 2(1)(16)(ii)‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's, order‑‑‑Net wealth‑‑‑Liabilities not against any assets created by the assessee‑‑‑Disallowance of‑‑‑Inspecting Assistant Commissioner revised the assessment by adding .the liabilities on the ground that such liabilities were not against any assets created and offered for wealth tax and were not allowable‑‑‑Validity‑‑‑Law did not require that a taxable asset must represent a liability‑‑‑Law clearly provided that a liability, which was incurred for acquiring an asset which was not taxable, or which was secured on an asset which was not taxable, will not be allowed as a deduction‑‑‑Person may incur a liability which was not for acquiring any asset or the assets acquired out of such liability may have been destroyed etc. ‑‑‑Provision of S.2(1)(16) of the Wealth Tax Act, 1963 provided that such liability had to be allowed as a deduction from the total value of assets includible in net wealth‑‑‑Order of the Inspecting Assistant Commissioner was cancelled by the' Tribunal.

Muhammad Mehtab Khan for Appellant:

Syed Riazuddin, D. R. for Respondent.

Date of hearing: 6th November, 2001.

ORDER

INAM ELLAHI SHEIKH (CHAIRMAN). ‑‑‑This is the appeal of a wealth tax assessee against an order, dated 12‑12‑2000 recorded by the learned IAC of Income‑tax/Wealth Tax, Range‑II, Zone‑A, Karachi under section 17‑B of the Wealth Tax Act, 1963 (hereinafter called the Act) whereby the assessment already framed under section 16(3) of the Act was‑ found to be erroneous insofar as prejudicial to the interest of Revenue and modified by disallowing certain liabilities.

2. The relevant facts in brief are that the assessee had been assessed at a taxable wealth of Rs.1,474,712 after allowing certain liabilities. The IAC found that the assessee had been allowed business liabilities amounting to Rs.1,730,000 which, according to the learned IAC, were not against‑ any assets created and offered for wealth tax. Thus, according to the learned JAC, the Assessing Officer had erroneously allowed the liabilities and he asked the assessee to show cause as to why the same should not be disallowed.. Since the assessee failed to provide any ‑satisfactory answer, the learned IAC added the liabilities and revised the assessment and also directed the Assessing Officer to initiate proceedings under section 36 of the Act.

3: The learned counsel of the assessee has strongly attacked the order of the learned JAC with the submission' that the same had been passed without providing an opportunity of being heard. The learned counsel also attacked the action of disallowing the liabilities made by the learned IAC by reference to the provisions of section 2(m)(ii) of the Act. The learned DR on the other hand supported the learned IAC for the reason recorded in his order.

4. The parties have been heard and the relevant orders perused. The main dispute in this case is on the interpretation of the `debt owed' which are to be allowed while computing the net wealth as given in section 2(1)(16) of the Act (previously 2(m)(ii) it would be useful to reproduce the relevant provision of the law which reads as follows:‑‑‑

"(16) `net wealth' means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessed in the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than‑

(i) debts which under section 6 are not to be taken into account; and

(ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act."

5. According to the learned IAC such liabilities as ‑claimed by the assessee are not against any assets created and offered for, wealth tax. Thus according to the learned IAC such liability are not allowable. On the other hand a closer look at the provision of law, i.e., section 2(1)(16)(ii) shows that the aggregate value of all the debts owned by the assessee, other than certain specified exception, have to be deducted from the aggregate of all the assets required to be included in his net wealth. Section 6 of the Act as referred in the above provision of the law, pertains to the exclusion of the assets and debts outside Pakistan, which is not the case of learned JAC. The other type of debt owed which cannot be deducted from the valuation of assets are such debt which are secured and/or which have been incurred in relation to, any assets in respect of which wealth tax is not payable under this Act. A plain reading of this, provision would show that if a liability is incurred in respect of an asset on which wealth tax is not payable, or if a liability is secured on an asset on which wealth tax is not payable, such liability will not be deducted from the value of assets to determine the net wealth. The learned IAC, on the Other hand has disallowed the liability because no asset has been created against such liability, which does not appear to be in line with the provisions of the law mentioned above. The law does not require that a taxable asset must represent a liability. The law clearly says that a liability, which is incurred for acquiring an asset which is not taxable, or which is secured on an asset which is not taxable, will not be allowed as a deduction. A person may incur a liability which is not for acquiring any asset or the assets acquired out of such liability may have been destroyed etc. According to the above provision of the law such liability has to be allowed as a deduction from the total value of assets includible in net wealth. Hence in our view the learned IAC was not justified to invoke the provisions of section 17‑B of the Act and, in our view he has put a wrong interpretation to the provisions of the law. The order of the learned IAC is hereby cancelled.

6. The learned counsel for the assessee has also raised an objection that the assessee was not provided an opportunity of being heard. The attention of the learned counsel of the assessee was invited to the following sentence in the show‑cause notice. However, you are given an opportunity to explain your position." The plea of the learned counsel of the assessee is that this only refers to a written explanation. However, we find this technical objection to be without any basis. There is no bar in the law, which prohibited an assessee from appearing before the Assessing Officer in response to a notice.

7. As a result of the above discussions the appeal of the assessee is allowed.

C.M.A./M.A.K.I188/Tax(Trib.)?????????????????????????????????????????????????????????? Appeal allowed