I.T.A. No. 389/LB of 2003, decided on 28th April, 2003. VS I.T.A. No. 389/LB of 2003, decided on 28th April, 2003., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2727 (2003)

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

‑‑‑‑‑S. 13(1)(d)‑‑‑Income Tax Rules, 1982, Rr.207A (ii) & (iii)‑‑‑Stamp Act (II of 1899), S.27A‑‑‑Addition‑‑‑Purchase of commercial constructed/rented out property‑‑‑Determination of value according to the District Collector rate rather than to capitalized value on the basis of rent‑‑‑Validity‑‑‑Properties which were covered by R.207A(ii) of the Income Tax Rules, 1982 were the properties having the same kind and character mentioned in R.207A(i) of .the Income Tax Rules, 1982‑‑‑Kind property referred in R:207A(i) of the Income Tax Rules, 1982 was open plots‑‑‑Property which would be covered by R.207A(ii) of the Income Tax Rules, 1982 must also be of the same kind i.e. open property (non constructed)‑‑‑Rule 207A(ii) of the Income Tax Rules, 1982 was attracted in ,cases where, though the property was still open but had not been demarcated into plots by Development Authority‑‑‑Value in such like cases would be determined by District Collector for the purposes of stamp duty attracting S.27A of the Stamp Act, 1899‑‑‑Assessee's property being constructed property and already having been given on rent was covered by R.207A(iii) of the Income Tax Rules, 1982‑‑ Assessing Officer having accepted the Gross Annual Letting Value, he was directed by the Appellate Tribunal to accept the declared value being higher than the capitalized value‑‑‑Addition made was deleted by the Appellate Tribunal.

NTN 1995 (Trib.) 11 and 1991 PTD 488 ref.

(b) Income Tax Rules, 1982‑‑‑

‑‑‑‑R. 207A(iii)‑‑‑Valuation of immovable property‑‑‑Directions by the First Appellate Authority‑‑‑Order must be passed within the confines of the directions‑‑‑First Appellate Authority observed that case of the assessee, was covered by R.207A(iii) of the Income Tax Rules, 1982‑‑ Matter was not agitated by Revenue before the Appellate Tribunal which attained finality‑‑‑Case having been remanded to Assessing Officer, the scope within which the Assessing Officer had to pass re‑assessment order was within the confines of the directions given by the First Appellate Authority‑‑‑Assessing Officer was supposed to apply R.207A(iii) of the Income Tax Rules, 1982 in pursuance of the direction given by the First Appellate Authority‑‑‑Property was a constructed commercial property consisting of number of shops which had been rented out to the different tenants‑‑‑No scintilla existed that assessee's case was covered by R.207A(iii) of the Income Tax Rules, 1982 and the same should be applied to the assessee's case for the purposes of determination of value.

Syed Abid Raza for Appellant.

Nemo for Respondent.

Date of hearing: 5th March, 2003.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).‑‑‑The captioned appeal pertaining to the assessment year 2000‑2001 on behalf of an assessee has been directed against the impugned order, dated 17‑12‑2002 passed by the learned CIT(A), Sialkot .Zone, Sialkot. It is the contention of the appellant that rule 207A(iii) of the Income Tax Rules, 1982 should have been formed basis of adopting the value of the property in question instead of rule 207A(ii) for the reason that the property which is subject‑matter of present appeal is constructed property. It has been further contended that the addition made under section 13(i)(d) of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance), in pursuance of wrongly applied basis and confirmation thereof by the learned First Appellate, Authority is not sustainable in the eye of law, hence liable to be deleted.

2. The relevant facts for the disposal of instant appeal are that the assessee derives income as a member of AOP namely Messrs Sajid Cold Storage, Sialkot and also from 1/3^rd Share in Faiz Plaza, Commissioner Road, Sialkot. The assessee alongwith other two co‑sharers purchased a building known as Royal Plaza (now renamed as Faiz Plaza) on 5‑1‑2000. Value of 1/3rd. share in the said building has been declared at Rs.3,686,667 by the assessee in his wealth statement for the period ending 30‑6‑2000 on the basis of total purchased value of Rs.11,060,000. At the time of original assessment it was noticed by the learned Assessing Officer that the actual value as determined for stamp duty purposes was at Rs.25,250,000 (Rs. 24,040,000 + Rs.1,210,000 incidental charges). In the first round of litigation, the AR while relying upon rule 207A, sub‑rule (ii) of Income Tax Rules, 1982, adopted the value of building at Rs. 24,040,000 as against declared value of Rs. 9,850,000, an addition of Rs. 4,730,000 was made under section 13(1)(d) of the Ordinance to the extent of share of the assessee. The assessee being dissatisfied with the above treatment went in appeal before the learned First Appellate Authority who set aside the assessment and remanded the case with the following observations:

(a)If the Assessing Officer had any doubt that the actual value stated in the registered deed, was other than Rs.9,850,000, he should have summoned the Registering Authority and cross examined as to why the value at Rs.9,850,000 had been shown in the registered deed and attested on 'the backside of the last page as the actual amount paid for purchase of said property whereas the stamp duty has charged for Rs.24,040,000.

(b)The Assessing Officer relied on sub‑rule (ii) of rule 207A of the Income Tax Rules, 1982 whereas the appellant's case clearly falls within the parameters of, clause (iii) of rule 207A.

(c)The Assessing Officer had not properly evaluated the evidence of parallel cases cited by him in the assessment order.

(d)The Assessing Officer never called the wealth statement of the appellant which was a condition precedent to section 13(1)(4).

3. In the second round of litigation, the learned Assessing Officer almost repeated the original assessment and once again made addition under section 13(1)(4) of the Ordinance to the tune of Rs.4,730,000 as, unexplained income. The assessee approached the learned First Appellate Authority but failed in the second round of litigation. The assessee has now filed further appeal before this Tribunal.

4. The learned AR has vehemently argued the case and contended that the assessment order passed by the Assessing Officer and confirmation thereof by the learned CIT(A) is against the law and facts of the case. The learned AR submitted that re‑assessment completed in pursuance of the directions given by the learned First Appellate Authority was in flagrant violation of clear directions of learned CIT(A). Further submitted that Revenue did not file an appeal before the Tribunal against the judgment whereby the case was set aside with specific directions to apply rule 207(iii) of the Income Tax Rules, 1982, thus the same attained finality. He pointed out that the learned CIT(A), in the first round of litigation, categorically observed that rule 207A(ii) of Income Tax Rules, 1982 did not apply to the assessee's case and it was rule 207A(iii), which was applicable to the assessee's case, hence invocation of rule 207A(ii) by the Assessing Officer was contrary to the categoric observations of the learned CIT(A) made in the first round of litigation., Similarly, he assailed the confirmation of re‑assessment by the learned CIT(A) in second round of litigation while pleading that the learned CIT(A) could not overrule the findings given by his predecessor unless reversed in appeal by the competent judicial forum. It was also asserted by the learned AR that another direction given by the learned CIT(A) was not forsaken. He drew the attention of the Bench that as per direction given by the learned CIT(A) the Assessing Officer was supposed to summon the Registration Authority for cross‑examination but he felt contented by just making inquiry from the Sub‑Registrar.

5. On merits the learned AR pressed with emphasis that assessee's case is fully covered by rule 207A(iii) and not by rule 207A(ii), as wrongly held by the Assessing Officer as well as by the learned First Appellate Authority. While dilating upon the issue, he stated that property in question is constructed commercial property which has already been rented out. He commented that rule 207A(i) clearly mentions about "open plots" where the value is determined/regulated by the concerned Development Authority or Government Agency. Further elaborated that sub‑rule (ii) though specifically does not explicitly identifies the future of the property but it provides that "in, other case the value determined by the District Collector for the purposes of stamp duty". The learned AR averred that sub‑rule (ii) is to be read in conjunction with sub‑rule (i), since in rule (i) the word "open plots" and Development Authority has been used. It meant the non‑constructed immovable property, which after having been earmarked into plots is subjected to development scheme by the Development Authority. He asserted that sub‑rule (ii) which follows sub‑rule (i), by, using the word "other cases", the law makers intended to cover the non‑constructed immovable property other than the property which has been marked into plots by the‑Development Authority i.e. agricultural land, the value would be determined by the District Collector keeping in view stamp duty. Further stated that sub‑rule(iii) specifies that in case of properties given on rent, the basis for determination of value would be equal to ten years capitalized value based no annual rental value as defined in clause (b) of subsection 2 of the section 19 of the Ordinance. The learned AR further submitted that the Assessing Officer as well as the learned First Appellate Authority erred in law while invoking section 27A of the Stamp Act, 1899. The learned AR was of the view that rule 207A sub rule (iii) specifically provides for the property which have been given on rent. It was further contended that sanctity of registered sale‑deed could not be simply‑ brushed aside. As regards the issue of addition made under section 13(1)(4) of the Ordinance the learned AR stated that in a number of judgments by the Tribunal as well as the higher judicial forums it has been laid down that the Assessing Officer could not make addition under section 13(1)(4) just for the reason that any investment had been made in any income year unless the Assessing Officer can establish that amount expended on making such investment exceeds the amount recorded in this behalf in the books of account maintained by him or shown in the wealth statement furnished under section 58 of the Ordinance. In other words it is a condition precedent which is to be met with by the Revenue Authorities before they can justify an addition under section 13(1)(4). In this respect he relied upon a judgment of the Tribunal reported as NTN 1995 (Trib.) 11. The learned AR also argued that fixation of consideration/purchase price between the purchaser and the seller is something which is reciprocal between the two consenting parties and no third party including the Revenue department could be allowed to interfere in the said agreement. He elaborated that if this was allowed to happen, no contract would be able to attain finality which is not the spirit of law at all. On this issue the learned CIT(A) sought strength from judgment delivered by the august Supreme Court of Pakistan reported as 1991 PTD 488.

6. None is present on behalf of the Department to repel the arguments advanced by the learned AR.

7. We have heard the learned counsel appearing on behalf of the assessee and have gone through the relevant orders alongwith case‑law cited at the bar. Before we embark upon to adjudicate the issue which is subject‑matter of present appeal, we would like to reproduce rule 207A which is as under:--

"(207A).Valuation of immovable properties. The valuation of immovable properties for the purposes of section 13 of the Income Tax Ordinance, 1979 shall be taken:

(i)in the case of open plots the value determined by the Development Authority or Government agency on the basis of auction price in respect of similar plots in the area where the plot in question is situated;

(ii)in other cases the value determined by the District Collector for the purposes of stamp duty;

(iii)in the case of properties given on rent, equal to ten years capitalized value based on annual rental value as defined in clause (b) of the subsection (2) of section 19 of the Ordinance;

(iv)in the case of agricultural land equal to the average sale price of the sales recorded in the Revenue Record of the estate in which the land is situated.

8. In our view the real issue which is to be dilated upon is that whether sub‑rule (ii) or sub‑rule (iii) is attracted in the assessee's case. Obviously if sub‑rule (ii) applies to the assessee's case then the value of the property which is subject‑matter, of appeal will be determined on the basis of valuation provided by the District Collector for the purposes of stamp duty. However, if we come to the different conclusion, that the assessee's case is governed by sub‑rule (iii) then the value of the property will be fixed on the basis of rent equal‑ to 10 years capitalized based on annual rental value. In this regard we have to see whether the assessee's property is covered by the word (other cases) as narrated in sub‑rule (ii). Since Income Tax Ordinance is silent with regard to the definition/explanation of the word "other cases" we have to take resort to the definition/explanation given in the Black's Law Dictionary where it has been explained that "following an enumeration of particular classes "other" must be read as `other such like' and includes only others of like kind and character. In our view a bare perusal of (supra) definition given by the Black's Law Dictionary evidences that sub‑rule (ii) has strong nexus with sub‑rule (i). In sub‑rule (i), the kind of property which has been mentioned is clearly (open plots); secondly sub‑rule (ii) follows sub‑rule (i) and thirdly, by placing reliance upon the definition given in the Black's Law Dictionary wherein it has been stated that:

"other means following an enumeration of particular classes `other' must be read as `other such like' and includes only others of like kind and character."

Obviously it means that the properties which are covered by sub‑rule (ii) I are the properties having the same kind and character mentioned in sub rule (i). We have already seen that in rule (i) the kind, of property which refers to is open plots. On the basis of meaning given to the word "other" by Black's Law Dictionary the property which would be covered by sub‑rule (ii) must also be of same kind i.e. open property (non constructed). It this view of the fact we have no hesitation in observing that sub‑rule (ii) is attracted in cases where though the property is still open but has not been demarcated into plots by Development Authority. In such‑like cases the value will be determined by District Collector for the purposes of stamp duty attracting section 27A of the Stamp Act. 1899. After having observed/that sub‑rule (ii) applies to the case where the property is still an open property we would like to hold that the assessee's property which is subject‑matter of present appeal, being constructed: property and already having been given on rent, the same is covered by sub‑rule (iii) of rule 207A of the Income Tax Ordinance 1982.

9. Admittedly in the first round of litigation the‑case was remanded by the learned First Appellate Authority after having observed that case of the assessee is covered by rule 207A(iii) of the Income Tax Rules. 1982. It is also matter of record that against the setting aside by the learned First Appellate Authority, in the first round of litigation, the Revenue did not agitate the matter further before the appellate forum hence it attained finality. We would like to add that after the case having been remanded to the Assessing Officer, the scope within which the Assessing Officer had to pass re‑assessment order was within the confines of the directions given by the learned CIT (A), and the Assessing Officer was supposed to apply rule 207A(iii) in pursuance of file‑direction given by the learned First Appellate Authority. It is also worth noting that the property in question is constructed commercial property consisting of number of shops which have been rented out to the different tenants. There is no scintilla that assessee's case is covered by rule 207A (iii) and the same should be applied to the assessee's case for the purposes of determination of value.

10. However, since the Assessing Officer has accepted the GALV amounting to Rs.1,35,000 and if the same is capitalized it comes to Rs.1,350,000. The assessee's 1/3^rd share works out at Rs.4,50,000 and since the assessee himself has, declared the value of 1/3rd share at Rs.3,686,667 which is higher than the capitalized value, the, Assessing Officer is directed to accept the value as declared by the assessee. Therefore, the resultant addition made under section 13(1)(d) read with Rule 207A(ii) of the Income Tax Rules, 1982 is deleted.

11. The appeal filed by the assessee is allowed in the above stated manner.

C.M.A./863/Tax (Trib.)Appeal allowed.