Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss.17‑B & 5(1)(xv)‑‑‑Protection of Economic Reforms Act (XII of 1992), S.5‑‑‑Finance Act (I of 1995)‑‑‑Income Tax Ordinance (XXXI of 1979), Second Sched., Part IV, Cl. (6-A)‑‑‑S.R.O. 220(I)/91, dated 16‑3‑1991‑‑‑Circulars Nos. 32 & 33 of State Bank of Pakistan (Foreign Currency Account Scheme of State Bank of Pakistan)‑‑‑Powers of Inspecting Additional Commissioner to revise Wealth Tax Officer's order‑‑‑Exemption‑‑‑Foreign remittances‑‑‑Assessment framed by the Assessing Officer was termed as erroneous as well as prejudicial to the interest of revenue for the reason that bona fides of foreign remittances were not ascertained before allowing exemption and it was not verified as to who sent the remittances i.e. remittances have to be appeared in the name of the remitter‑‑‑Credit of the remittances to Bank of the assessee was not sufficient ground to allow exemption of wealth tax ‑‑‑Validity‑‑ Person holding foreign currency was under no legal obligation to disclose the name of the remitter of foreign currency‑‑‑Section 5(1)(xv) of the Wealth Tax Act, 1963 provided that assets brought or remitted were covered by the exemption clause‑‑‑Legislature used the word "brought" alongwith the word "remitted" thus creating a distinction‑‑ Not only when the foreign currency was remitted by someone else that it was covered by exemption clause but foreign currency brought into Pakistan also came within the purview of S.5(1)(xv) of the Wealth Tax Act, 1963‑‑‑Law granting exemption was also to be seen in conjunction with the other laws enacted by the Government from time to time‑‑ Section 5 of the Protection of Economic Reforms Act, 1992 was, also very much relevant which provided that "all citizens of Pakistan resident in Pakistan or outside Pakistan to hold foreign currency accounts in Pakistan and all other persons who held such account, shall continue to enjoy immunity against any inquiry from the Income Tax Department or any other Taxation Authority as to source of financing of foreign currency accounts" ‑‑‑Section 5 of Protection of Economic Reforms Act, 1992 gave absolute and complete immunity to the foreign currency holders irrespective of the fact whether person was resident or non resident and without ascertaining the source of foreign currency‑‑ Inspecting Additional Commissioner was not within the domain of law while exercising his powers under S.17‑B of the Wealth Tax Act, 1963, since neither the original order passed under S.16(3) of the Wealth Tax Act, 1963 was erroneous nor any prejudice was caused to the Revenue‑‑ Original order was restored and order passed under S. 17‑B of the Wealth Tax Act, 1963 was annulled by the Appellate Tribunal.

1995 PTD (Trib.) 1162; 199.6 PTD (Trib.) 344 and W.T.A. No.533/KB of 1999‑2000 rel.

Zafar Iqbal, F.C.A. for Appellant.

Mrs. Talat Altaf Khan, D.R. for Respondent.

Date of hearing: 28th May, 2002.

ORDER

SEED NADEEM SAQLAIN (JUDICIAL MEMBER).‑‑‑The instant appeal has been directed against the impugned order dated 23‑9‑1996 passed by the learned I.N.C., Sahiwal Range, Sahiwal. It has been objected by the assessee that invocation of section 17‑B of the Wealth Tax Act, 1963 (hereinafter called the Act) by the learned I.A.C. in exercise of his revisional jurisdiction was not warranted in the present case just for the reason that the particulars of the remitter have not been disclosed in feeding the foreign currency account maintained by the assessee. Therefore, the assessee was not entitled to the statutory exemption as provided in section 5(1)(xv) of the Act relating to the claim of immunity in respect of foreign currency account.

2. The assessee is a partner of Glaxy Corporation filed return declaring net wealth at Rs.5,51.405. However, the assessee revised his Wealth Tax Return before the completion of the wealth tax proceedings declaring the net assets at Rs.5,11,405. The Assessing Officer accepted the revised return which is as under:

Immovable Property

Movable Assets

Cash and Bank Account

3. The Assessing Officer accepted the claim of the assessee with regard to acquisition of assets out of foreign remittances and treated the same as exempt from levy of wealth tax and thus assessed the assets as BTL. The learned I.A.C. found the assessment framed by the Assessing Officer to be erroneous as well as pre-judicial to the interest of revenue for the reason that bona fide of the foreign remittances were not ascertained by the Assessing Officer before allowing exemption. He~ mentioned that it was not verified that who sent the remittances i.e. remittances have to be appeared in the name of the remitter. Simple credit of the remittances to bank of the assessee was not sufficient ground to allow exemption of wealth tax. This led to the invocation of section 17‑B of the Act and thus, issued a show‑cause notice vide a Letter No. 170; dated 26‑8‑1996. The assessee filed an explanation vide a Letter No. dated 2‑9‑1996 in response to the show‑cause notice by the I.A.C. which was as follows:

".... The foreign currency account maintained by the undersigned enjoys immunity as per provision of clause (6‑A) of Part IV of Second Schedule of Income Tax Ordinance, 1979. The State Bank of Pakistan .had devised Private Foreign Currency Scheme in Pakistan and the same was clarified to (sic) its (F.E. Circulars Nos. 32, 40 and 45 accordingly)."

You would kindly appreciate that as per F.E. Circular No.32 it was clearly mentioned that such account may be fed (sic) by remittances received from abroad, travellers cheques, foreign currency notes and foreign exchange generated by encashment of foreign Exchange Bearer Certificates. No question will be asked about the source of acquisition of such foreign exchange.

You would kindly appreciate that certificates issued by Habib Credit and Exchange Bank Ltd., Jinnah Chowk Branch, Sahiwal clearly indicate that the foreign remittances were made in the account of undersigned and are exactly as per provisions of Foreign Currency Account Scheme of State Bank of Pakistan envisaged in a Circular No.32 a copy of which has already been forwarded to your respective office.

As relating to the point regarding the residential status it is submitted that in order to avail the immunity relating to assets brought or remitted by an assessee into Pakistan or received by an assessee from outside Pakistan the distinction regarding resident or non resident was removed by Finance Act, 1995. Before the said amendment section 5(1)(xv) was as under:

"(xv) In the case of a person who is not resident in Pakistan‑‑‑

(i) assets brought by him into Pakistan in the year in which they are brought and the following five years; and

(ii) any amount invested in the acquisition of shares or stocks of a company out of remittances received in Pakistan through normal banking channels in the year in which it is invested and the following five years;

You would kindly appreciate that as per prevalent wording section 9 (sic) 5(1)(xv) of Wealth Tax Act, 1963 there is no question of residential status in order to avail the immunity."

As relating to the point of creation of assets out of such foreign remittances you would kindly note that the undersigned has brought the following remittances to normal banking channels as per detail below:

National Bank of Pakistan

Habib Bank Limited

With the utilization of US$ 215,466.30 (215,536 69.70) the undersigned has created following assets in Pakistan.

As all the assets were created out of the foreign remittances enjoy immunity under the provision of section 5(xv)(i) and (ii) of Wealth Tax Act, 1963 (XV of 1963) therefore no tax is chargeable on these assets for a period of 5 years. The undersigned will also like to refer to Notification No. S.R.O. 220(I)/91, dated March 16, 1991 which is reproduced under:

"In exercise of powers conferred by subsection (2) of section 5 of the Wealth : Tax Act, 1963 (XV of 1963) the Federal Government is pleased to exempt from the tax payable under the said Act the asset representing the amount deposited in a Private Foreign Currency Account held with any authorized bank in Pakistan in accordance with the Foreign Currency Account Scheme introduced by the State Bank of Pakistan."

From the above submissions you would kindly appreciate that the undersigned has no other asset except Rs.5,11,405 other than the assets exempt under section 5(xv)(i) and (ii) of the Wealth Tax Act, 1963 which are shown in the Wealth Tax Return for the assessment year 1994‑95 for which all the relevant informations are available on record.

It is, therefore, earnestly requested to kindly do not initiate the proceedings under section 17‑B of the Wealth Tax Act, 1963 as the undersigned has rightly declared its assets for the assessment year 1994‑95.

4. Both the parties have been heard and relevant orders perused. The learned A.R. has vehemently argued the case and contended that the learned I.A.C erred in law while invoking section 17‑B of the Act. He submitted that certificates issued by the respective banks duly showing the foreign currency deposits and assessee's name was available on record and was shown to the concerned officer who brushed aside the same since he was hell‑befit to exercise his revisional jurisdiction. The sole reason which weighed with the learned I.A.C. was that particulars of the person who remitted the remittances should have been probed in was a fallacious and misconceived argument. He further argued that the foreign currency account maintained by the assessee enjoyed immunity as per provisions of section 4 of the 2nd Schedule to the Income Tax Ordinance, 1979. He stated that distinction regarding resident or non resident was removed by Finance Act, 1985.

5. To substantiate his contention, the learned A.R. drew our attention to section 5(1)(xv) of the Wealth Tax Act which provides for grant of exemption in respect of foreign currency account. It will be appropriate to reproduce the same for convenience:

assets‑‑‑

(i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;

(ii) created by an assessee out of remittances received in or brought into, Pakistan through normal banking channels during the period referred to in sub‑clause (i):

Provided that where investment in the assets is not made entirely out of remittance received in, or brought into Pakistan through normal banking channels, the exemption shall apply in the same normal banking channels, exemption shall apply in the same ratio as the foreign remittances bear to the total investment;"

6. He also placed on file Circulars Nos. 32 and 33, dated 14‑2‑1991 which permits to the authorized dealer to open foreign currency account which maybe fed from, the remittances received from abroad by foreign cheques, foreign exchange encashment of bearer certificates. It provided that no question will be asked for acquisition of such exchange. The learned A.R. appearing on behalf of the assessee relied upon judgments of the Tribunal reported as:

(i) 1995 PTD (Trib.) 1162; (ii) 1996 PTD (Trib.) 344 and (iii) W.T.A. No. 533/KB of 1999‑2000 (unreported).

7. In the supra cited case reported as 1995 PTD (Trib.) 1162, the Tribunal held that: "The object of law was to generate Foreign Exchange and it was for that purpose that incentive for exemption was given to the non‑resident. So, the only material consideration for the grant of exemption at the relevant time was if the amount relevant pertained to the foreign remittance or not". The learned A.R. also referred to section 5 of 1992 contending that this provides blanket cover to the citizens of Pakistan to hold foreign currency account without being subjected to withholding tax and any inquiry with regard to the source of foreign currency.

8. After hearing the rival arguments tendered by the learned counsel for both the parties, we feel ourselves in full agreement with the contention raised by the learned A. R. We have gone through the law as well as judgments cited at the bar. It has not been provided anywhere‑that person holding foreign currency is under any legal obligation to disclose the name of the remitter of foreign currency. At this stage it would be appropriate to resort to section 5(1)(xv) of the Act which clearly provides that assets ‑brought or remitted are covered by the exemption clause. Obviously, Legislature also used the word brought alongwith the word remitted thus creating a distinction. It is not only when the foreign currency is remitted by someone else that it is covered by exemption clause but foreign currency brought into Pakistan also comes within the purview of section 5(1)(xv). Furthermore, law granting exemption is also to be seen in conjunction with the other laws enacted by the Government from time to time. In this regard section 5 of the Protection of Economic Reforms Act, 1992 is also very much relevant which provides that "all citizens of Pakistan, resident in Pakistan or outside Pakistan to hold foreign currency accounts; in Pakistan and all other person's who hold such account shall continue to enjoy immunity against any inquiry from the Income Tax Department or any other Taxation Authority as to source of financing of foreign currency accounts". Perusal of supra section of Protection of Economic Reforms Act, 1992 is unambiguous and has given absolute and complete immunity to the foreign currency holders irrespective of the fact that whether person was resident or non‑resident or without ascertaining the source of foreign currency.

9. In this view of the matter, we are constrained to observe that the learned I.A.C. was not within the domain of law while exercising his powers under section 17‑B of the Act, since neither the original‑order passed under section 16(3) was erroneous nor any prejudice caused to the Revenue. Hence, original order is restored and order passed under section 17‑B of the Act is hereby annulled.

10. Appeal of the assessee succeeds accordingly.

C.M.A./631/(Trib.) Appeal succeeded.