(a) Capital Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 3, 4, 5, 6, 7, 8 & 9‑‑‑West Pakistan Finance Act (IX of 1963), S.M(1)(2)‑‑‑West Pakistan Immovable Property Tax Act (V of 1958), S.3‑‑‑Sale, exchange or transfer of immovable property‑‑‑Capital gains tax, determination of‑‑‑Procedure elaborated.

(b) Capital. Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 7 & 8‑‑‑West Pakistan Finance Act (IX of 1963), S.16(2)(b)‑‑ West Pakistan Immovable Property Tax Act (V of 1958, S.3‑‑‑Fair market value of immovable property,. determination of‑‑‑Factors to be considered by Assessing Officer; value of consideration of sales or transfers of similarly situated and similarly used urban immovable properties; price paid for adjacent lands possessing similar advantages; price paid within a reasonable time for the property; rates and profits of ,property received shortly before:' the sale and opinion of valuer or 'experts‑‑‑Price at which one property may have been‑sold would not be sufficient, but a number of sales and transfers must be‑ taken into consideration for such purpose.

(c) Capital Gains Tax Rules, 1964‑‑‑

‑‑‑‑Rr. 7, 8, 9, 15 & 16‑‑‑West Pakistan Finance Act (IX of 1963), S 16(2)(b)‑‑‑West Pakistan Immovable Property Tax Act (V of 1958), S.3 ‑‑‑Constitution of Pakistan (1973). Art‑199 ‑‑‑Constitutional petition‑‑ Capital gains tax, determination of‑‑‑Assessing Officer assessed the property at the rate higher than declared by petitioner in his return without taking into consideration sales of similarly situated properties possessing similar advantages‑‑‑Appeal and revision filed against assessment order were dismissed ‑‑‑Validity‑‑‑‑Assessing Authority had made assessment order without application of mind and without assigning any specific reason by use of generalized statement and stock purchases by merely filling in the blanks of stereotyped printed form‑‑‑Court deprecated such method in quasi‑judicial proceedings and Particularly in matters pertaining to creation of fiscal liability‑‑‑Revisional and Appel late Authority had neither considered contentions raised by petitioner nor had realized that Assessing Authority had fixed the valuation of property sold by petitioner without any comparable instance before him or bringing any material whatsoever on record for discarding the declared valuation and arriving at impugned valuation‑‑‑Burden of assigning reason for determining fair market value of property was on the Assessing Authority and it was not for the assessee to produce evidence to the effect that valuation arrived at by Assessing Authority was not in accordance with prevailing fair market value‑‑‑High Court allowed Constitutional petition, set aside impugned assessment order as well as appellate and revisional orders directing the Assessing Authority to accept the declared version of petitioner and refund the amount of capital gains tax recovered in excess of ill amount payable by hill: on the basis of declaration made in his return.

Miss Fasree Fatima v. The Principal, Bolari Medical College PLD 1978 Quetta 17 ref.

(d) Taxation‑‑‑

‑‑‑‑.Burden to justify levy of tax‑‑‑Assessing Authority while levying any tax on a citizen/assessee had to establish that declared version of assessee was not correct and the assessment made by the Revenue was based on substance and material satisfying the judicial conscience.

Muhammad Ali Sayeed for Petitioner.

Nemo for Respondents.

Date of hearing: 21st November, 2001.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.‑‑‑In this petition, under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973, the following reliefs are sought.

(i) petitioner prays that this Hon'ble Court may be pleased to hold and to declare that the petitioner is entitled to have valuation of the Property bearing Plot No.33/I1, Phase VI. Khayabarie Badar, Defence Housing Authority Karachi for purposes of Capital Gains Tax to be assessed at Rs.7,00,000 on the base value as declared by the petitioner and the orders of the respondents herein reducing the base value and enhancing the aforesaid sale value are without lawful authority and of no legal effect;

(ii) petitioner also prays for an order directing the respondents and each of them, their successors and assigns and all those claiming through or under them to refund to the petitioner the ;5sum collected as Capital Gains Tax in excess of the amount that was payable by the petitioner on a sale valuation of Rs.7,00,000 as per, Annexure `E' and the base valuation as declared by him;

The relevant facts giving rise to this petition are that the petitioner owned a plot of land with a residential house built thereon bearing No.33‑II, Phase IV, Defence Housing Authority, measuring 1000 Sq. yd. with a ground and first floor one Unit two bed room house built thereon.

In May 1983, the petitioner retired from service and was in need 11funds. He entered into an agreement to sell the above property for a consideration of Rs.7,00,000. At the relevant time, the la", relating to payment of Capital Gains Tax was operative and the petitioner was required to obtain a Clearance Certificate from Capital Gains Authority before sale could be registered. The petitioner applied for the requisite certificate prescribed under the Capital Gains Tax Rules, 1964 to the Excise and Taxation Officer, declaring therein the sale price of the property at Rs.7,00,000. The Excise and Taxation Officer by an order, dated 20th October, 1983, assessed the value of the said property at Rs.11,75,000. After reducing the amount of depreciation at 2%. per year, he worked out the net gain at Rs.6,95,680 and calculated the capital gain tax at Rs.1,22,136. It is alleged that before making assessment, the petitioner was, never heard and the property was not inspected. The petitioner preferred an appeal before the Director Excise and Taxation, the respondent No.2, contending that the property was not assessed on the basis of fair market value. It was also contended that the Assessing Officer had not taken into consideration; that, at the relevant came, Phase VI of the Defence Housing Authority was totally undeveloped area. It was also pointed out that the permissible built‑up area on the 100 Sq. yds. was 600 Sq. ft. but the actual built up area was 2890 Sq. ft only. All the aforesaid aspects were never taken into consideration by the Assessing Officer and order on stereo‑typed printed form was mechanically passed without application of mind to the facts of the case.

The respondent No.2 partly allowed the appeal, whereby very inadequate relief was given in the value of building. The assessed value was reduced by 10% plus 2% depreciation admissible under rules. According to the petitioner, the respondent No.2 also did not apply his mind to the facts of the case. The petitioner then preferred a revision application before respondent No.2, agitating the same grounds as raised before the Assessing Officer and the respondent No.2. The respondent No.1 by an order, dated 2‑10‑1984‑ remanded the case to respondent No.2 for disposal on merits after full hearing.

Thereafter, the case remained dormant upto 27‑11‑1986, as the case papers were not traceable in the office of respondent No.2. After several reminders by the petitioner, the respondent No.2 directed the representative of department to lay before him a statement of sale of properties made in Phase VI or properties in Phase V, which were in close proximity to the house in question. No detailed hearing took place. Eventually, the case was fixed for rehearing on 27‑4‑1987 and after a summary hearing, the respondent No.2 reserved the orders. The case remained pending for orders for about one and a half years and was fixed for re‑hearing on 13‑11‑1988, before another Director Administration, whose handling of the case was even more perfunctory and disinterested. The petitioner was told by the said Director Administration that the orders will be passed in the case. After some time the petitioner was informed on making inquiries that the appeal was dismissed on 13‑11‑1988, the date on which the hearing was notified. The grievance of the petitioner is that the appeal was dismissed without application of mind. The petitioner again filed a revision application before respondent No.1 and the respondent No.1 without proper hearing disposed of the revision on 10‑1‑1989. According to the, petitioner, the revision was dismissed on irrelevant grounds and the contentions raised by the petitioner were not considered at all. The petitioner, finding no other remedy, preferred the present petition on the following grounds:

(a) The orders passed by the respondents are arbitrary, unjust and contrary to law;

(b) The respondents have prepared schedule of prices in various localities and have applied the schedule of prices blindly without reference to the actual state of property, the nature of construction, the built‑up area; the prices, location and several other, relevant germane considerations. It is, further contended that no schedule in relation to Phase VI of the Defence Housing Authority had, till the relevant time, been prepared. But the respondents blindly applied schedule of Phase V to Phase VI without realizing that at the relevant time no development had taken place in Phase VI;

(c) When a functionary is charged with the duty of determining the fair market value of the property, it is not permissible under law to adopt stereo‑typed formula. According to the petitioner, the value of a built‑up house is to be assessed on the basis of quality of construction and location of the same. The number of floors and the built‑up area is also an important and material consideration. Similarly, the availability of amenities are relevant consideration for determination of fair market value. According to the petitioner, the property in question was never inspected or seen at any stage by any representative of respondents and, therefore; all the orders made at different levels by the Excise and Taxation Department are based on mere imagination and guess work, not warranted in law;

(d) The respondents failed to consider that permissible built‑up area is 6000 Sq. ft. but the actual built‑up area was 2890 Sq. ft. only for both the floors;

(e) The fair market value of the property has to be determined on the basis of sales effected of similar and similarly situated property at the relevant time;

(f) The procedure prescribed by the Capital Gains Tax Rules have been blatantly violated. The petitioner had agreed to sell his property for Rs.7,00,000 only, but the respondents proceeded on initial presumption that the price declared is incorrect. The respondents could form this opinion by following the procedure prescribed in law and the basis upon which the value was to be enhanced ought to have been set aside but this was not done.

Parawise comments have been filed by the learned Additional Advocate‑General, Sindh. It is very interesting to note that in the so called parawise comments, the respondents have merely reproduced the entire memo. of petition, without any comments whatsoever. The caption of the comments reads as "Parawise comments in respect of Constitutional Petition No.438 of 1989". But in fact not a single word has been written by the respondents by way of comments. This fact alone is sufficient to reflect on the working of Excise and Taxation Department as well as the working in the office of Advocate‑General, Sindh. The petition was admitted to regular hearing on 8‑8‑1989‑and notice was issued to the respondents. The petition was fixed for regular hearing on 1‑9‑1998. The' comments were filed by learned Additional Advocate -General, Sindh in the office with the covering letter, dated 1‑1‑2000. The so‑called parawise comments have been signed by Excise and Taxation Department `L' Division on 22‑12‑1999. We can express our shock only on‑these state of affairs. The so‑called comments have been filed after eleven years of the admission of the petition and that too without any comments. It is very strange that the then learned Additional Advocate‑General, Sindh, deemed fit to file the so‑called comments with his covering letter stating that, "parawise comments have been received from the Excise and Taxation Department `L' Division, Karachi and were, submitted for perusal of High Court", like a postman. It is to our great dismay that neither any officer in Excise and Taxation Department `L' Division has bothered to see that so‑called parawise comments were mere reproduction of memo. of petition, nor the learned Additional Advocate‑General, Sindh deemed it proper to have even a cursory glance at the so‑called parawise comments, to ascertain whether any comments were .in fact offered by the Department .or not. With this quality of assistance, provided to this Court by responsible Law Officer, qualitative dispensation of justice is becoming very difficult day, by day. The copy of this ‑judgment should be sent to the Advocate‑General, Sindh so that he may take appropriate creative measures, before the things are totally out of control:. Needless to say that it is already too late in. the day and deterioration should be asserted before there is total deluge.

A perusal of the order‑sheet shows` that on 1‑12‑1999, the learned Additional Advocate‑General, Sindh was not prepared and sought adjournment, which was granted. On 6‑11‑2001, the learned Additional Advocate‑General against sought time and hearing was adjourned to ‑21‑11‑2001, as suggested by learned Additional Advocate‑General. But on 21‑11‑2001, learned Additional Advocate‑General, Sindh chose to remain absent. As the petition was pending since 1989, therefore, we‑ had no option but to hear Mr. Muhammad Ali Sayeed, learned counsel for the petitioner in the absence of learned Additional Advocate‑General.;

Mr. Muhammad Ali Sayeed, learned counsel for the petitioner has submitted that capital gains tax was levied on profits or gains arising from the sale, exchange or transfer of immovable property effected after 30th day of June, 1963, within urban areas, specified by the Government under section 3 of West Pakistan Urban Immovable Act, 1958, under section 16(1) of the West Pakistan Finance Act, 1963. In subsection (2) of section 16, the legislature prescribed the method for computing the profits or gains for the purpose of levy of gains tax. It was provided in proviso (1) to section 16(2)(b) .that where a person who acquires a property from the assessee‑whether by sale, exchange or transfer, is a, person with whom the assessee is directly or indirectly connected or where the authority making the assessment has reason to believe that the sale, exchange or transfer was effected with the object of avoidance or reduction of the liability of the assessee, the full value of the consideration for which the sale, exchange or transfer is made shall be taken to be fair market value of the property on the date on which the sale, exchange or transfer took place. Mr. Muhammad Ali Sayeed has contended that the Department/Respondents have not alleged that the property from the assessee/petitioner was acquired by a person, who was directly or indirectly connected with the petitioner. Thus the case of the Department rests on the second part of the proviso to the effect that where the Assessing Authority has reason to believe' that the sale, exchange or transfer was effected with the object of avoidance .or reduction of liability, the sale consideration shall be taken to be fair market value of the property on the date of sale etc. He has further submitted that in pursuance of section 20 of the West Pakistan Finance Act, 1963 rules were framed, known as West Pakistan Capital Gains Tax Rules, 1964.

The relevant provision of West Pakistan Finance Act, 1963 and the West‑ Pakistan Capital Gains Tax Rules, 1964 came for consideration before a Division Bench of this Court and after detailed examination, the following results were found emerging from the relevant law.

(i) That, after a sale is completed, the seller shall disclose all the particulars as are stated in CGT‑I‑ Form.

(ii) The Assessing Authority shall examine that form to find out the correctness, or, otherwise of the disclosure;

(iii) That out of the sale price, the assessee can deduct the actual cost incurred, or, borne by him for the initial purchase of the property, together with expenditure of capital nature borne by the seller in making any additions or alternations.

(iv) If the Assessing Authority is satisfied with the disclosures in Form CGT‑I, he shall call upon the seller to pay the tax, which is payable on the basis of such disclosures.

(v) If the Assessing Officer, on examination of Form CGT‑I, comes to the conclusion that the seller and purchaser are directly or indirectly connected, , or, if he comes to believe that the transaction has been effected with the object of avoidance and reduction of the liability to pay the tax, then he can open the case by issuing 'a notice is Form CGT‑III.

(vi) After giving the notice in Form CGT‑III the Assessing Authority shall afford to the seller a hearing and also give him, an opportunity to lead evidence on the point.

(vii) After hearing and examination of witnesses, the Assessing Authority shall determine the full value of the consideration for the sale, which shall be taken to be the fair market value of the property on the date of sale.

(viii) For the purpose of arriving at such conclusions in regard to the full value, or, consideration, the Assessing Authority shall have to consider the price at which sales, or, transfers of similarly situated properties have been effected.

(ix) That the decision of the Assessing Authority shall be according to best of judgment.

In the above erudite judgment, it was held that in the cited case, no reasons were assigned while determining fair market value and no material in the shape of comparable sale was available and it was held that conclusion arrived at by the departmental officers were erroneous. The principles were laid down containing guidance for determining valuation of immovable properties as follows:

"No doubt, valuation of immovable property does not follow any scientific process, and it is also true that enquiries in maters of such nature abound in uncertainties. It is also true that the process of valuation is in the nature of guess work. However, through the ages sound principles have been evolved to provide guidance to Court as well as statutory functionaries under the taxation laws. One can hardly overlook that arbitrariness in decision is extremely loathe to any system of law. In such circumstances the West Pakistan Capital Gains Tax Rules have provided adequate principles, which have to be followed by the Assessing Authority. The first principle enunciated in rule 8 is that the value of consideration of sales, or, transfers of similarly situated and similarly used urban immovable property could be adopted for assessing the cost. In that respect, it may be said that the correct criterion to be followed is that the price at which properties situated in vicinity and used for same purposes could be taken into consideration. We would wish to make it clear that the price at which one property may have been sold would also not be sufficient, for the use of plurals viz. sales and transfers is significant, and would point out that the statutory authorities must take into consideration a number of sales and transfers. One of the methods of valuation, which has been recognized by various judicial decisions, is by reference to the following factors;

(i) The price paid within a reasonable time for the land;

(ii) Rates and profits of land received shortly before the sale;

(iii) Price paid for adjacent lands possessing similar advantages; and

(iv) The opinion of valuer or experts.

The consideration of the aforesaid factors would in a vast majority of cases be correct guidelines arid save a statutory functionary from criticism on ground that the decision is arbitrary. " .

Mr. Muhammad Ali Sayeed, learned counsel for the petitioner has pointed out that the assessment order is totally an arbitrary order, in which generalized statement is contained to the effect that taking into account the location, situation and condition of property and having gone through the relevant record the sale value was determined at Rs.11,75,000. The assessment order is in printed pro forma and the Assessing Officer has merely filled in the blanks. In the cited case, it was observed that the arbitrariness has never satisfied the judicial norms and reference was made in this behalf to a passage in the well‑known treatise, "Judicial Revenue of Administrative Action, Fourth Edition, by De Smith at pages 322 and 323. The observations of a Diyision Bench of Baluchistan High Court, in the case of Miss Fasree Fatima v. The Principal, Bola n Medical College, PLD 1978 Quetta 17 was cited with approval, which reads as follows:‑‑‑

"Arbitrary decisions are never considered wholesome in our system of law. One of the dominant tests of a decision being arbitrary is whether it proceeds on any substantial reason or exhibits lack of application of mind. Such manner of exercise of jurisdiction has very often been equated or called by a synonym of abuse of jurisdiction. Such abuse manifests itself by making it patent that the authority that had the list before it or by reason of preconceived notions misdirected itself to arrive at such conclusion, which are either perverse or could not be substantiated on the basis of available evidence. Such arbitrariness or abuse of jurisdiction may very often become patently an ad hoc observation indicating a desire to overlook the available evidence coupled with a longing for evidence which in the imagination of the authority should have been produced. Very often a cloak is provided for arbitrary decision by mention of the words that some better evidence or the best evidence has not been produced, but the fact of the matter may well be that available evidence is overlooked."

Mr.. Muhammad Ali Sayeed has vehemently argued that in all the impugned orders, the respondents have flouted the mandatory provisions of law and in disregard of the principles laid down in the earlier judgment of this Court, cited above; an arbitrary order has been made, which is liable to be quashed with further direction ‑to the respondents, to accept declared version and refund the petitioner, the sum calculated as capital gains tax in excess of the amount that was payable by the petitioner on the basis of valuation declared by the petitioner. Mr. Muhammad Ali Sayeed, learned counsel for the petitioner has further submitted that in the cited judgment, the assessment orders were quashed and the matters were remanded back to the. Excise and Taxation Officer for determining the actual capital gains derived by the assessee. He has submitted that in view of .the fact that capital gains tax has beep abolished, it would not be appropriate to remand the case to Excise and Taxation Officer for reassessment.

We have very carefully considered all the contentions raised‑by Mr. Muhammad Ali Sayeed. We are persuaded to agree with the submission that the facts and circumstances of the present case are fully covered by the judgment in the case of Abid & Sons Ltd. (supra). We further agree that the Assessing Authority made assessment order without application of mind and without assigning any specific reason by use of generalized statement and stock purchases by merely filling in the blanks of stereo‑typed printed form. The superior Courts have never approved such method in any quasi‑judicial proceeding and more particularly in the matters pertaining to creation of fiscal liability. The appellate and revisional authorities have failed to apply, their minds to the facts of the case and have neither considered the contentions raised by the petitioner before them nor they have realized that the Assessing Authority has fixed the valuation of the property sold by the petitioner without any comparable instance before him or bringing any material whatsoever on record for discarding the declared version and to arrive at the impugned valuation. A perusal of law already reproduced in the earlier part of this judgment shows that the burden of assigning reason for determining the fair market value of the property is on the Assessing Authority and it is not on the assessee to produce evidence to the effect that the arbitrary valuation arrived at by the Assessing Authority was not in accordance with the prevailing fair, market value. In fiscal matters and particularly the levy of any tax on any citizen/assessee; it is for Assessing Authority to establish that the declared version of the assessee is not correct and to further show that the assessment made by the revenue was based on substance and material satisfying the judicial conscience.

For the foregoing reasons, we are of the considered opinion than the impugned orders of the respondents and the Assessing Authority are not maintainable in law and consequently the assessment order as well, as appellate and revisional orders impugned in this petition, are hereby quashed. We further agree with the contention of Mr. Muhammad Alt Sayeed, learned counsel for the petitioner that it would not be appropriate to remand the matter to the Excise and Taxation Officer for fresh adjudication in respect of transaction, which took place in the year 1983, and more particularly when Capital Gains Tax, already stands abolished. The petition is, therefore, allowed in the terms as prayed. The respondents and the Assessing Officer are directed to accept the declared version of the petitioner and refund forthwith the amount of Capital. Gains Tax recovered in excess of the amount, which were payable by the petitioner on the basis of declaration made in the return of capital gains CGT‑I.

After hearing Mr. Muhammad Ali Sayeed, learned counsel for the petitioner, the petition was allowed on 21‑11‑2001 by a short order and these are the detailed reasons in support thereof.

S.A.K./A-298/KPetition allowed.