Wealth Tax Act (XV of 1963)--‑

‑‑‑‑Second Sched., Cl.(12)(1) & First Sched., Para. A(2)(a)‑‑‑Wealth Tax Rules, 1963, R.8(1)(1A) & (3)‑‑‑Income Tax Ordinance (XXXI of 1979), S.19(3)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Exemption‑‑‑Complainant/assessee declared value of his residential house for, wealth tax purpose on the basis of Annual Letting Value being rented out according to the first proviso to sub‑rule (3) of R.8 of the Wealth Tax Rules, 1963‑‑‑Assessing Officer rejected the declared value and assessed the value of such house on the basis of its cost ‑‑‑Complainant/assessee contended that decision of the Assessing Officer besides, being contrary to rules was perverse, arbitrary and unreasonable because no assessee would bargain the exemption of a house property of unlimited value available under Cl. 12(1) of Second Sched. of the Wealth Tax Act, 1963 with an exemption limited to Rs. 25,00,000 allowed under proviso (a) to sub -para. (2) of para. A of the First Sched. to the Wealth Tax Act, 1963‑‑‑Validity‑‑‑Provision of S.19(3) of the Income Tax Ordinance, 1979 and Cl. 12(1) of the Second Sched. to the Wealth Tax Act, 1963 were in parameteria insofar as the requirement of occupation of the house property by the owner for the purposes of his own residence, in regard to exemption of its Annual Letting Value from Income Tax and its value from Wealth Tax, were concerned‑‑‑But for the Explanation added by the Finance Act, 1996 to S.19(3) of the Income Tax Ordinance, 1979 that the exemption had been subjected to the condition of property being in occupation of the occupant in the capacity of owner for his own residence‑‑‑No such condition had been added to the exemption under Cl.12(1) of the Second Sched. of the Wealth Tax Act, 1963, accordingly, exemption was available to the house of the complainant/assessee under Cl. 12(1) of the Second Sched. of the Wealth Tax Act, 1963‑‑‑While adopting the value of house property in accordance with sub‑rule (1A) of R.8 of the Wealth Tax Rules, 1963 instead of its declared value worked out under sub‑rule (3) of R. 8 of the Wealth Tax Rules, 1963, the complainant/assessee was entitled to an opportunity to exercise his option under proviso to Cl.12(1) of the Second Sched. to the Wealth Tax Act, 1963‑‑‑Federal Tax Ombudsman recommended that Commissioner of Wealth Tax, by invoking his suo Motu jurisdiction under S.25 of the Wealth Tax Act, 1963, may consider allowing the complainant exemption under Cl.12(1) of the Second Sched. of the Wealth Tax Act, 1963 instead of exemption under proviso to para. A(2)(a) of the First Sched. of the Wealth Tax Act, 1963.

1989 PTD (Trib.) 917 and Hirjina Company Pakistan Limited v. Commissioner, Sales Tax 1971 PTD 2000 ref.

S.M. Sibtain, Secretary, Dealing Officer.

DECISION/FINDINGS

The complainant has alleged maladministration on the part of Deputy Commissioner, Wealth Tax by taking a decision which according to him is patently against sub‑rule (3) of rule 8 of the Wealth Tax Rules, 1963.

2. Briefly the facts are that the complainant owns a residential House bearing No. 11, St, 39, F.7/1, Islamabad constructed on a plot of land pleasuring 500 Sq. yards. Its costs to the complainant amounted to Rs. 3,000,000. However, since the house supra was let out @ Rs.5,640 per month during the year ending 30‑6‑2000, the

complainant declared its value for wealth tax purposes at Rs.676,900(5640 x 12 x 12) according to the first proviso to sub‑rule (3) of rule 8 of the Wealth Tax Rules, 1963. The Assessing Officer has rejected the declared value and it has been assessed at Rs.3,000,000 on the basis of its costs.

3. The appellant has been heard in person. He submits that the decision of the Assessing Officer besides, being contrary to rules is perverse, arbitrary and unreasonable because no assessee would bargain the exemption of a house property of unlimited value available under clause (12)(1) of Second Schedule with an exemption limited to Rs.2,500,000 allowed under proviso (a) to sub‑paragraph (2) of paragraph A of the First Schedule to the Wealth Tax Act, 1963.

4. Mr. Farooq Ahmed Nasir, the DCWT appearing on behalf of the Revenue Division has contended that sub‑rule (1A) of rule 8 of the Wealth Tax Rules, 1963 is applicable to complainants case. He further submits that exemption under sub‑paragraph (1) of paragraph 12 of the Second Schedule to the Wealth Tax Act, 1963 is not available to the complainant because his house property in the instant year is let out while exemption is available only to such residential house that is owned and occupied by the assessee for purposes of his own residence.

5. Sub‑rules. (1) and (1A) of the rule 8 of the Wealth Tax Act, 1963 are reproduced with benefit hereunder:

"8. Valuation of assets other than cash.‑‑‑(1) Subject to the provisions of sub‑miles (2), (3), 1 [(3A),] (4), 2[(4A), (4C),] (5), (6), (7), (8) and (9), the value of any assets other than cash (shall, for the purpose of assessment to Wealth Tax, be estimated to be the price, which, in the opinion of the Deputy Commissioner, it would fetch if sold in the open market on the valuation date;

(1A) Notwithstanding anything contained in sub‑rule (1), the value of any asset other than cash, motorcar or jeeps in the personal use of the assessee, shares and securities shall not be determined at a value, less than the cost of acquisition of such asset."

6. The learned DCWT has rightly contended that sub‑rule [1A] of rule 8 (supra) overrides the provision of sub‑rule (3) in the instant case. His contention that exemption under sub‑clause (1) of clause (12) of the Second Schedule is also not available to complainant's house because it is let out during the year is, however, contrary to a majority decision of the Income Tax Appellate Tribunal reported in 1989 PTD (Trib.) 917. Disagreeing with Junejo M. Iqbal, Accountant Member of the Tribunal, Siyid Saeed Ashhad, Judicial Member, observed that the Supreme Court of Pakistan has clearly laid down the principle in the case of Hirjina Company Pakistan Limited v. Commissioner Sales Tax reported as 1971 PTD 2000 that "in interpreting the taxing statute the Court must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed. It cannot import provision in the statute so as to support deficiency". He, therefore, has held:

"After taking into consideration the law laid down above by the Supreme Court in interpreting taxing and fiscal statutes, the only interpretation which can be had of subsection (3) of section 19 of the Ordinance is that the Annual Letting Value or the annual rent received by an owner of a house property will be exempt from charge of tax provided that the property is occupied by the owner for his residence. It is absolutely immaterial and of no consequence as to in what capacity the owner occupies it. Even if he occupies the property for his residence as a licensee or as an employee of the employer who has obtained the property on lease and pays rent to him, the benefit of subsection (3) of section 19 will continue to be available to him and the rent received by him will not be subjected to tax."

7. Farhat Ali Khan, Chairman concurring with the learned Judicial Member as observed:

"Moreover, subsection (2) does not lay down that a property should remain in the occupation of an owner for the purposes of his own residence in his capacity of an owner. From plain reading of this subsection, it appears that in order to make subsections (1) and (2) of section 19 inapplicable only two conditions are to be met with namely:‑‑‑

(i) The occupant should be the owner of the property; and

(ii) The occupation should before the purpose of his own residence.

'Here, under the facts and circumstances of this appeal, both the conditions appear to have been met with. If we ask the question, who is the owner? The answer comes that the respondent is the owner. If we put the second, question as to whether he is occupying the house for the purposes of his own residence? The answer again comes in the affirmative. Thus, both these answers clinch the issue in favour of the respondent. In my judgment, the law has laid emphasis on the ownership and not on any other character of the owner. which can co‑exist alongwith his ownership i.e. he may, also be a lessor or mortgagor. Since subsection (3) of section 19 does not lay down that the occupation of a property should be for the purposes of the residence of the owner in the same capacity, I am not prepared to read it in between the lines."

8. Consequently, an Explanation has been added to subsection (2) of section 19 of the Income Tax Ordinance, 1979 by Finance Act, 1996 to be deemed always to have been so added. I shall reproduce hereunder subsection (3) of section 19 as well as the Explanation added to it for convenience of reference:

"Section 19(3). Nothing contained in this section shall apply in the case of any such property which is in the occupation of the owner for purposes of his own residence.

Explanation.‑‑‑For the purpose of this section, any property, the owner of which is in receipt of any rent; whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence."

9. Reference may be made to clause (12) of the Second Schedule to the Wealth Tax Act, 1963 which provides:

"(12)(1). One residential house, owned and occupied by the assessee for purposes of his own residence, where the assessee opts to exclude such house from his assets:

Provided that such option may be exercised by either of the spouse;

Provided further that where an assessee exercises an option under this sub‑clause, proviso (a) to sub‑paragraph (2) of Paragraph A of the First Schedule shall not apply.

(2) One shop owned and occupied by the assessee for the purposes of his own business;

(3) This clause shall apply to an assessee to whom provisions of sub‑para. (2) of paragraph A' of Part I of the First Schedule apply."

10. As evident from the perusal of the provisions of subsection (3) of section 19 of the Income Tax Ordinance, 1979 and sub‑clause (1) of clause (12) of the Second Schedule to the, Wealth Tax Act, 1963, these are in parameteria in so far as the requirement of occupation of the house property by the owner for the purposes of his own residence, in regard exemption of its ALV from Income Tax and its value from Wealth Tax, are concerned. It is but for the Explanation added by the Finance that Act, 1996 to subsection (3) of section 19 of the Income Tax Ordinance, 1979 that the exemption has been subjected to the condition of property being in occupation of the occupant in the capacity of owner for his own residence. However, no such condition has been added to the exemption under sub‑clause (1) of clause (12) (supra).

11. Accordingly, exemption is available to the house of the complainant under sub‑clause (1) of clause (12) of the Second Schedule to the Wealth, Tax Act, 1963. However, while adopting the value of house property in accordance with sub‑rule (1A) instead of its declared value worked out under sub‑rule (3) of rule 8 of the Wealth Tax Rules, 1963, the complainant is entitled to an opportunity to exercise his option under proviso to sub‑clause (1) of clause (12) (1) proviso of the Second Schedule to the Wealth Tax Act, 1963.

12 It is recommended that Commissioner of Wealth Tax by invoking his suo motu jurisdiction under section 25, consider allowing the complainant exemption under sub‑clause(1) of clause (12) (supra) instead of exemption under proviso to sub‑paragraph (2) of Paragraph A of the First Schedule to the Wealth Tax Act, 1963.

C.M.A./571/FTO Order accordingly.