(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 15(c), 19 & 136(1)‑‑‑Income from "house property"‑‑‑Shop purchased by assessee was being used by his son for business ‑‑‑ Assessee did not disclose income from shop, but Assessing Officer added rental value thereof in his business income‑‑‑First Appellate Authority dismissed the appeal of assessee while distinguishing the case relied upon by him re: C.I.T. v. Mushtaq Ahmed (1989 PTD 1) but Tribunal deleted the addition by referring to said judgment ‑‑‑Validity‑‑‑Assessee had neither asserted that use of shop by his son had amounted to his personal occupation for the purpose of his own business nor such issue had been taken up nor decided by Tribunal to exclude the shop from the definition of term "house property"‑‑‑Had such been the case of assessee, then the matter could have been seen from a different angle as had been done in the case re: C.I.T. v. Mushtaq Ahmed (1989 PTD 1)‑‑‑Assessee had not occupied commercial property for the purpose of his own business, thus, he had to pay tax on notional income thereof.

Karachi Ghimkhana Club v. C.I.T. 1986 PTD 43; C.I.T., Central Zone, Karachi v. Mushtaq Ahmad 1989 PTD 1 and C.I.T. v. Sheeler Club Limited (1963) 49 ITR 52 ref.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 19‑‑‑Applicability of S.19, Income Tax Ordinance, 1979‑‑‑Income from house property, whether actual/real or notional, is includible in total income of assessee as the same having relation with rent on which the same can be let out‑‑‑When property is actually rented out, then its estimated annual letting value ca not be less than the real one i.e. less than the rent payable by tenant‑‑‑Section 19 of the Income Tax Ordinance, 1979 is not applicable to property occupied by assessee for the purpose of his business or profession, the profits whereof are chargeable to tax under the Ordinance; and residential property in occupation of the owner himself.

Mian Yousaf Umar for Appellant.

Nemo for Respondent.

Date of hearing: 6th November, 2001.

JUDGMENT

NASEEM SIKANDAR, J.‑‑‑This is a case stated by the Lahore Bench of the Income‑ Tax Tribunal at the instance of Commissioner of Income‑tax, Faisalabad Zone, Faisalabad.

2. Following question of law is stated to have arisen out of an order by the Tribunal, dated 2‑9‑1996 recorded on the appeal of the assessee, an individual. '

Question of law

"Whether in the facts and circumstances of the case, the Tribunal was justified in deleting the notional income under section .19(2)(b) of the Income Tax Ordinance, 1979?" .

3. For the assessment year 1991‑92 the assessee returned income at Rs.76,500 from manufactures/sale of hosiery goods under Self- Assessment Scheme. However, the Revenue took up the return for process under normal law on the ground that he did not qualify for Self- Assessment Scheme as his income in the year had declined when compared‑ with his assessed income at Rs.1,53,800 in the preceding year

4. During the assessment proceedings that followed it was note that the assessee had purchased a shop for a sum of Rs.7,00,000 but had not disclosed any income from property under section 15 read with section 19 of the Income Tax Ordinance, 1979. The shop was admittedly being used by his son for business. According to the Assessing Officer under the provisions of section 19 of the Income Tax Ordinance, 1979, the assessee was' required to disclose notional income from property on the basis of the annual letting value irrespective of the fact whether he was receiving any rent or not. He relied upon a judgment of the Karachi High Court in re: Karachi Ghimkhana Club, Karachi v. C.I.T. 1986 PTD 43 High Court, Karachi to include notional income from property at Rs.28,800 in his business income and, accordingly the total income for the year was assessed, at Rs.1,54,200.

5. The assessee failed before the First Appellate Authority C.I.T.(A) Faisalabad who distinguished the case relied upon, by him re: C.I.T. Central Zone, Karachi v. Mushtaq Ahmad 1989 PTD 1. It was noted that in the case relied upon the residential property in question was occupied by the parents of the assessee, while in the case in hand the son of the assessee was running his business arid was thus earning taxable income. According to the learned First Appellate Authority, law authorized an Assessing Officer to estimate ALV irrespective of the fact that the property had been rented out or not. Accordingly the treatment meted out to the assessee was maintained.

6. On further appeal before the Tribunal, however, a learned Single Bench without adverting to the distinction earlier drawn by CIT (Appeals) decided in favour of the assessee by referring to the aforesaid case of C.I.T:, Karachi v. Mushtaq Ahmad (supra). Thereafter as said earlier, at the instance of the Commissioner the aforesaid question was framed and referred to obtain our opinion under section 136(1) of Income Tax Ordinance, 1979.

7. Heard the learned counsel for the Revenue. He maintains and we will agree with him that it is not only actual but both the actual as well as notional income from property which is includible in total income of an assessee who owns house property. The phrase house property has been defined in clause (a) of subsection (2) of section 19 of Income Tax Ordinance 1979. The definition clause itself excludes any property or portion thereof which is occupied by the assessee for the purpose of any business or profession carried on by him subject to the condition that its profits are chargeable to tax under the Ordinance. Subsection (3) of section 19 of the Ordinance also excludes the property in occupation of the owner for the purpose of his own residence on a combined reading of the said definition of word "house property" and subsection (3) of section 19 one comes across three simple conclusions. Firstly, that any property occupied by an assessee for the purpose of his business or profession, the profits whereof are chargeable to tax under the Ordinance, is not includible in the definition of the word "house property" and, therefore, is not subject to the provisions of section 19. Secondly, that where a residential property is in occupation of the owner himself, again the provisions of section 19 of the Ordinance will not be attracted. Thirdly, except for the aforesaid two situations, the "annual value" of any property is chargeable under the head income from property whether the property actually did nor did not fetch any rent to the owner assessee. The definition of the word "annual value" and its proviso as given in section 19(2)(b) is again an indicator that it is the annual letting value whether actually realized or not which is chargeable to tax. Being a deeming clause it covers both real as well as notional income which is "the sum for which the property might reasonably be expected to let from year to year". Whether actual or notional as the provisions of section 19 go, income from house property has a relation with the rent on which a property in the market can be let out. The only condition being that when actually rented out, the estimated ALV cannot be less than the real one i.e. less than the rent payable by the tenant.

8. In the above judgments, the Karachi High Court has interpreted the provisions of section 19 from the above angle and we are in respectful agreement with them. In the first case re: Karachi Ghimkhana Club (supra), a Division Bench of that Court was considering following question referred to it by the Tribunal under section 66(1) of the late Income‑tax Act, 1922.

.

Question:

"Whether in the facts and circumstances of the case the Tribunal is right in holding that the notional income of property belonging to the applicants is liable to income‑tax under section 9 of the Income Tax Act?"

9. The assessee in that case showed notional income from properties owned by him as part of his taxable income up to assessment year 1970‑71. Subsequently during the year 1971‑72 the said notional income from property was claimed exempt from income‑tax. On the failure of the assessee before the Revenue Authorities as well as the Tribunal the aforesaid question was referred for the opinion of, their Lordships of the Karachi High Court.

10. Before them it was argued that since the property owned by the assessee was not yielding nor was capable of earning rental income, nothing on that account (house property) could be added while computing his income for the year. Before the Court on the basis of certain cases from English Jurisdiction it was also contended that the word `income' meant anything that "comes in". However, it was the case of the Revenue that under section 9 of the Income‑tax Act, 1922 the income was notional when property was not let out, otherwise it was actual. Learned counsel for the Revenue cited four judgments from Indian Jurisdiction to make his point which was accepted by their Lordships. Accordingly they rejected the contention of the assessee that there being no income, sections 3 and 4 of the Income‑tax Act, 1922 could not be relied upon to tax on the basis of ALV.

11. The second judgment re: C.I.T. v. Mushtaq Ahmad also supports the view adopted by the Revenue. In that case their Lordships were considering following question which was referred to them at the instance of the department:

"Whether in the facts and circumstances of the case, the learned Tribunal was justified in holding that assessee's house at Lahore occupied by the parents was a property in the occupation of the owner for the purpose of his own residence within the meaning of proviso of subsection (2) of section 9 of the Income‑tax Act, 1922?"

12. The assessee in that case owned a residential house in Lahore while he was himself posted at Karachi where he was provided rent‑free furnished accommodation by his employers. The assessee had not shown any income from house property. On being served with a show‑cause notice he pleaded that his parents who were living in the house were depending upon him and that whenever he visited Lahore he would stay with them instead of staying in a hotel. The Assessing Officer however, did not agree. While framing assessments for the years 1972‑73 and 1973‑74 he assumed annual letting value of the house property at Lahore under section 9 of the Income‑tax Act and added it to other income of the assessee. Accordingly the assessee had to file an appeal before the Tribunal where the department did not challenge the fact that the house was not let out on rent and that it was occupied by the parents of the assessee.

13. Their Lordships while answering the question in the affirmative proceeded to hold that the occupation of the house by the assessee himself needed to be interpreted in wider context to include the family of the assessee and that the parents of an assessee were also part of his family. Therefore, it was held that the term "his own residence" will include the residence and occupation of the house by the parents.

14. In our view the ratio settled in this case supports the emerging principle as recounted above that a person is liable to pay tax except in case of the exceptions given where he owned the house or building. In the view of the Allahabad High Court (1963) 49 ITR 52, re: CIT v. Sheeler Club Limited, the liability of an assessee to pay income‑tax from house property arises from the mere fact of his owing the property having an annual letting value and not from his actual deriving of any income from it. Even if he does not derive any income from it, as far example when he occupies it himself or lets it remain vacant, in the view of their Lordships, he is liable to pay tax.

15. The facts in hand when seen in the perspective of provisions of section 19 including the definition of word "house property" as also the exemption contained in subsection (3) of section 19 of the Income Tax Ordinance, 1979, we will agree with the Revenue that the assessee was required to pay tax on notional income inasmuch as the commercial property was not occupied by himself for the purpose of his own business. We would like to explain here that it has never been the case of the assessee that the use of shop by his son amounted to his personal occupation for the purpose of his own business. Had it been so, then the matter could have been seen from a different angle as was done in the case re: C.I.T. v. Mushtaq Ahmad.

16. As the question referred to us indicates we are called upon to opine if the Tribunal was justified in deleting notional income under section 19(2)(b) of the Income Tax Ordinance, 1979. The issue if the occupation of the shop in question by the son of the assessee amounted to his own occupation or carrying on business in the shop owned by him was neither taken up nor decided by' the Tribunal to exclude the shop from the definition of term "house property". As far the tax on notional income is concerned, we will agree with the learned counsel for the Revenue that except for the aforesaid two situations discussed above, annual letting value of a property is liable to be included in the income of an assessee and chargeable to tax under the head "income from house property".

17. Therefore, we will answer the aforesaid question in the negative.

S.A.K./C‑138/LReference answered