Income Tax Ordinance (XXXI of 1979)---

----Ss. 30 & 31---Income from other sources---Shop on lease ---Non acceptance of lease arrangement on the ground that the same was collusive arrangement between the family as the, same was not registered---Business of local sale and purchase was assessed in the hands of assessee---Validity---Presumption was that such arrangement was to avoid heavy taxation---Held, assessee could not be deprived of such, an arrangement through mere estimates or surmises---Something stronger, was required to counter such presumption as the allegation of mala fide could not be attributed just by the words of mouth-- Assessment should be made treating the assessee as a lease income holder under S.30 of the Income Tax Ordinance, 1979 against which he shall be entitled to allowable expenditure under S.31 of the Income Tax Ordinance, 1979---Appeal was accepted to the extent of leasehold arrangement and regarding claim of expenses, the same were set aside by the Appellate Tribunal.

Shahid Abbas for Appellant.

Muhammad Asif, D.R. for Respondent.

Date of hearing: 18th January, 2003.

ORDER

Following grounds have been taken up for adjudication for both the years:--

Assessment year 1999-2000:

(1)That the CIT(A) was unjustified to dismiss the appeal without going into the merits of the case, hence the order of the CIT(A) is void ab initio and illegal.

(2)That the DCIT/W. Tax has wrongly rejected the lease arrangement without any solid reason, hence illegal.

(3)That the estimation of sales at Rs.28,00,000 is without any substance, hence, illegal, as there is no sales in this year except lease receipts of Rs.180,000.

(4)That the DCIT/W. Tax has framed assessment at net income of Rs.570,000 without issuance of any notice under section 62, hence the assessment is void ab initio and illegal.

(5)That the disallowance of P&L expenses Rs.10,000 is also without any basis, hence, illegal.

Assessment year 2000-2001

(1)That the CIT(A) was unjustified to dismiss the appeal without going into the merits of the case, hence the order of the. CIT(A) is void ab initio and illegal.

(2)That the CIT/W. Tax has wrongly rejected the lease arrangement without any solid reason, hence illegal.

(3)That the estimation of sales at Rs.30,00,000 is without any substance, hence, illegal, as there is no sales in this year except lease receipts of Rs.1,80,000.

(4)That the DCIT/W Tax has framed assessment at net income of Rs.6,10,000 without issuance of any notice under section 62, hence the assessment is void ab initio and illegal.

(5)That the disallowance of P&L expenses Rs.10,000 is also without any basis, hence, illegal.

Brief facts leading to above grounds are that one person Mr. Javed obtained a shop on lease from Naqi Trust. He subsequently formed a limited company under the name and style of Ittalian Shoes, which continued doing business upto assessment year 1998-99: For the assessment year i.e. 1999-2000 order under appeal, said limited company leased out its assets to another person namely Mr. Yousaf who happened to be son of the Director, of Ittalian Shoe Company. The department on one hand treated it a collusive arrangement between the family and, on the other hand rejected the agreement, as it was not registered. The business of local purchases and sales, therefore, was assessed in the hands of the assessee by adopting sales and application of GP etc. The A.R. started his arguments by saying that the arrangement is a bona fide one and the law does not prohibit even tax avoidance through proper legal arrangement.

The learned D..R. does not agree to the same and says that wherever mala fide is involved such an arrangement can be discarded. He however, could not rebut the argument in .relation to assessment of the same business in the hands of Mr. Yousaf. It is correct that the assessment in the hands of Muhammad Yousaf has been made tinder SAS, however, the department has subsequently kept the same intact till this , date. Obviously, a business cannot be assessed in two hands. Furthermore, the presumption is that the arrangement was to avoid heavy ,taxation, however, assessee cannot be deprived of such an arrangement through mere estimates or surmises. It requires something stronger as the allegation of mala fide cannot be attributed just by the words of mouth. In fact such an arrangement have been accepted by the department in many other cases including a sister concern, i.e. English Shoe Company. In view thereof, we consider that the assessment in the case of this assessee should be made treating him as a lease income holder under section 30 against which he shall be entitled to allowable expenditure under section 31.

For determining of expenditure, we set aside the case, however, receipts having been accepted in, the case of lessor shall be accepted by the department.

In view thereof the assessee appeals stand accepted to the extent of leasehold arrangement, however, regarding claim of expenses, the same are set aside.

C.M.A.673/Tax (Trib.) Appeals accepted.