Wealth Tax Rules, 1963-----

----R. 8(2)(c)(ii)---Wealth Tax Act (XV of 1963), Ss. 16(3) & 17B-- Companies Ordinance (XLVII of 1984), S.235---Break up value of shares---Surplus of re-valuation of fixed assets-Inclusion of ---Validity-- Surplus arising out of re-valuation of fixed assets could not be included in the working of the break-up of share valuation---Order passed by the Inspecting Additional Commissioner under S. 17B of the Wealth Tax Act, 1963 was cancelled by the Appellate Tribunal and restored that of the Assessing Officer.

W.T.As. Nos. 211 and 1356/LB of 1999 rel.

(1965) 58 ITR 767 (SC) not relevant.

Abdul Qadeer, F.C.A. for Appellant.

Naushad Ali Khan, D.R. for Respondent.

Date of hearing: 15th January, 2003.

ORDER

This order shall dispose of above mentioned three appeals, which have been filed, by the Directors of Ms. Fatima Fazal (Pvt.) Ltd., Islamabad relating to assessment year 1997-98. Assessments in the assessee's cases were framed under section 16(3) of the Wealth Tax Act, which were however found to be erroneous in so far as prejudicial to the interest of Revenue by the learned IAC vide his order, dated 27-6-2001 and were consequently cancelled. A direction was issued for fresh assessment. Learned IAC observed that while working out break up value of shares, a sum of Rs.10-60 was followed instead of 106-64 per share as surplus on re-valuation of fixed assets amounting to Rs.105,649,146 was not added. He , found that due to incorrect application of the break up value a loss amounting to Rs.77,126 in case of Mr. Waqas Masud, a loss of Ks.74,301 in case of Mst. Gulzaina Begum and loss of Rs.71,096 in case of Mr. Shiraz Masud had resulted. Hence these appeals by the assessees on the ground that learned IAC misdirected himself to cancel the original assessments as the surplus of re-valuation of fixed asset could not be added while working up break up value of the shares.

2. Learned AR maintained that Rule 8(2)(c)(ii) of the Wealth Tax Rules, 1963 provides that in determining break up value of the shares, paid-up capital, the debentures reserve and balances as per profit and loss account are to be included and the surplus of re-valuation of assets is no where mentioned He also referred to section 235 of the companies Ordinance, 1984 to contend that surplus arising out of re-valuation of fixed assets is to be. shown in the balance-sheet after reserve and it cannot be said to be a part of reserve. Learned AR also referred to an order passed by this Tribunal W.T.A. No.211 and 1356/LB of 1999, assessment years 1997-98 and 1998-99, dated 18-8-1999. As against this, learned DR maintained that the order of the Tribunal referred to by the learned AR is of no avail as the same does not show that the surplus arising out of re-valuation of fixed asset is not to be included. He mentioned an Indian Judgment, reported as (1965) 58 ITR 767 (SC),, in support of his contention.

3. After hearing the arguments we find that learned IAC while rejecting the-contention of the assessees that surplus arising out of re valuation of fixed assets cannot be included observed with reference to an order passed by this Tribunal in W:T.A. No. 211 and 1356/LB of 1999 assessment years 1997-98 and 1998-99, dated 18-8-1999 that the issues were not threshed out and the order is distinguishable. A perusal of this order of the Tribunal, shows that an identical matter bad been dealt with and it is worthwhile to reproduce an extract of the findings hereunder: --

"The only common issue involved in the appeals is the surplus arising on re-valuation of fixed assets of a company in which the assessee is a share holder, This issue has been decided in favour of the assessee in a number of cases and it has been held by the. Tribunal that the surplus arising on re-valuation of fixed assets is not part of equity of a company. Hence these appeals are accepted and the Assessing Officer is directed to exclude such surplus from the value of shares."

Besides this, we find that Rule 8(2)(c)(ii) of the Wealth Tax Rules, 1963 provides that the surplus arising out of valuation of the fixed assets is not to be included while working up breakup value of the shares. The rule is reproduced as under:--

"The total wealth of the company shall first be determined. This shall be done by adding to the paid-up capital, the debentures, reserves and the balance as per Profit and Loss Account, the provision for liabilities in the balance sheet being carefully scrutinized with a view to excluding therefrom items which should really form part of the reserves. From the total so arrived at the paid-up value of the preference shares and the debentures shall be deducted. The resulting balance shall be divided by the amount of the paid-up ordinary share 'capital to arrive at the value of each rupee of paid-up capital. The value of shares held by the assessee shall then be determined by multiplying the sum so arrived at by the paid up value of such shares.."

In addition to this, section 235 of the Companies Ordinance, 1984 shows the treatment of surplus arising out of re-valuation of the fixed assets and it has been mentioned that such a .sum is to be shown in the balance sheet after the reserves. Subsection (1) of the section 235 is reproduced below:--

"(235). Treatment of surplus arising out of re-valuation of fixed assets.-(1) Where a company re-values its fixed assets, the increase in, or sums added by writing up of, the value of such assets as appearing in the books of accounts of the company shall be transferred to an account to be called "surplus on Re valuation of Fixed Assets Account" and shown in the balance sheet of the company after Capital and Reserves."

4. The learned IAC has- relied on an Indian Judgment "citation whereof is (1965) 58 ITR 767 (SC) which reportedly shows that surplus on account of re-valuation is to be 'taken into consideration for the purpose of determining break-up value of shares. This judgment of foreign jurisdiction probably forced learned IAC to take action under section 17B of the Wealth Tax Act, 1963 who directed for including surplus arising out of revaluation of fixed assets in the working of break up value of shares. We are afraid to, accept the findings of learned IAC who ignored without there being any apparent plausible reasons the order of this Tribunal passed in W.T.A. No. 211 and 1356/LB of 1999 assessment years 1997-98 and 1998-99, dated 18-8-1909. He also seems to have not taken into consideration the requirement of Rule 8(2)(c)(ii) or the Wealth Tax Rules, 1963 and that of mentioning the surplus as per section 235 of Companies Ordinance, 1984 to be after reserves. In these circumstances the action taken by learned IAC by canceling the assessment orders is not approvable. The surplus arising out of re valuation of fixed assets could not be included in the working of the break-up of share valuation. The impugned orders in each of these appeals is liable to be cancelled and resultantly, after canceling the impugned orders, the assessment orders are restored.

C.M.A./670/Tax (Trib.)Appeals accepted.