W. T. A. No. 88(IB) of 2000-01, decided on 11th April, 2002. VS W. T. A. No. 88(IB) of 2000-01, decided on 11th April, 2002., 2003 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 299 (2002)

Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Second Sched., Part I, Cl. (I)‑‑‑Zakat and Ushr Ordinance (XVIII of 1980), Ss.2(xxvi) & 3‑‑‑Exemption‑‑‑Shares of Private Limited Company were claimed as exempt on the basis of deduction of Zakat on the face value of the shares‑‑‑Assessing Officer determined the break up value and added the so determined value to the net wealth of the assessee as Zakat was deducted on the face value and no Zakat was deducted on the remaining value of the shares‑‑‑First Appellate Authority directed the Assessing officer to exclude the shares from the computation of net wealth on the ground that .those shares were subject to Zakat which had already been deducted and the same were exempt from the wealth tax under the law‑‑‑Validity‑‑‑Shares in a private limited company were an asset and was subject to compulsory levy of Zakat through deduction at source @ 2.5 % of the paid up value on the valuation date in each Zakat year‑‑‑Paid‑up value of each share was Rs.10‑‑‑Break‑up value of shares was not its paid‑up value and the break‑up value had no relevancy for computation and deduction of Zakat, under the Zakat and Ushr Ordinance (XVIII of 1980)‑‑‑Company deducted Zakat at source in accordance with law‑‑‑Shares held by the assessee were subjected to Zakat and were exempt from the levy of wealth tax under cl. (1) of Part I of Second Sched. to the Wealth Tax Act, 1963‑‑‑Order of First Appellate Authority was maintained and appeal of the Department was rejected by the Appellate Tribunal.

Shahid Zaman, D.R. for Appellant.

Khalid Majid, F.C.A. for Respondent.

Date of hearing: 9th April, 2002.

ORDER

KARAMAT HUSSAIN NIAZI (JUDICIAL MEMBER).‑‑‑This appeal relates to assessment year 1998‑99 and is directed against the order dated 20‑5‑2000 passed by the learned CWT(A), Zone‑1. Islamabad, whereby shares in a private limited company were directed to be excluded from the computation of net wealth as these were subjected to deduction of Zakat.

2. We have heard both the learned representatives of the parties and have perused the relevant orders.

3. The relevant facts in brief are that in the assessment proceedings for the charge of wealth tax the assessee, an individual, declared the value of 69166 shares at Rs.20,25,000 held by him in a private limited company and claimed exemption on the ground that the asset had already been subjected to deduction of Zakat. The Assessing Officer was not convinced with the explanation given by the assessee. He was of the view that the Zakat was deducted on the face value of shares of Rs.6,91,660. On the remaining value of shares of Rs.13,33,340 no Zakat was deducted. Accordingly, the Assessing Officer converted this value to 13.334 shares, having face value of Rs. 10 each. Thereafter, he determined the break‑up value of each share at Rs.48.97 and added the value of 13,334 shares so determined to the wealth of the assessee. The learned CWT(A) held that the shares were subjected to Zakat which had already been deducted hence, the share are exempt from wealth tax under the law and directed the Assessing Officer to exclude the shares from the computation of net wealth. In coming to this conclusion, he relied upon the decision of the Tribunal made in W.T.A. No.40/IB/92‑93 dated 31‑1‑1996. Hence, this appeal.

4. The learned D.R. defends the order of assessment. He states that the assessee purchased shares of the face value of Rs.10 by paying more money as premium and therefore, on the premium paid, no Zakat was deducted. Hence, the Assessing Officer was justified to add the premium paid to the wealth of the assessee.

5. The learned AR controverts the contention of the Department. He states that each share has the face value of Rs.10 which value is also its paid‑up value. The company decided to enhance its paid‑up capital by floating further shares, which was offered to the shareholders at a premium of Rs.30. The assessee declared the cost of acquisition of the asset but claimed exemption on the basis of deduction of Zakat on these shares. It is submitted that paid‑up capital in respect of these shares was Rs.85,00,020. It is further submitted that the amount of premium collected was deposited in the capital reserve and shown as such in the balance sheet of the company. It is, therefore, submitted that the premium paid by each shareholder over and above the face value of shares became a part of capital reserve and was in no way, constituted the wealth of, the assessee. The assessee purchased shares of the face value‑of Rs.10 and on the basis of that value of the shares, Zakat was calculated and was deducted from the dividend, at source, distributed by the company. It is, therefore, submitted that Zakat was not levied on the amount of dividend distributed but it was levied on the paid‑up value of the shares held by the assessee but deducted from the dividend. It is, therefore, pleaded that the learned CWT(A) had right excluded the shares from the computation of net wealth as these were exempt from tax under clause (1) of Part‑I of Second Schedule to the Wealth Tax Act, 1963 (hereinafter called the Act). It is further pleaded that the Assessing Officer has no authority under the law to convert the amount of premium paid into the shares of the face value of Rs.10 each and, thereafter, determine the break‑up value of those shares and add it to the wealth of the assessee. Hence, the assessment made s illegal, void and against facts.

6. We have given our anxious consideration to the contentions raised by both the parties and are of the view that the learned CWT(A) has rightly excluded the assets i.e. shares from the computation of net wealth holding that these are exempt from tax under clause (1) of Part I of Second Schedule to the Act. The said clause enumerate the assets upon which the wealth tax shall not be payable by the assessee. For the sake of convenience, we reproduce the said clause as under:‑‑‑

SECOND SCHEDULE

Part‑I, Exemption from Tax

Wealth tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee‑

(1) assets in respect of which Zakat or contribution lieu thereof has been deducted at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), in that year or during the Zakat year commencing immediately before the valuation date.

Shares are an asset and are assessable under the Act: The shares in a company is defined in clause (xxv) of section 2 of Zakat and Ushr Ordinance, 1980 (Shortly Ordinance, 1980), as under:‑

(xxvi) `share' means a share in the share‑capital of a company, or in anybody corporate established by or under a Federal Law or a Provincial Law, and includes stock;"

The charging provision of Ordinance, 1980 are contained in its Chapter 2 Section 3 provides the charge and collection of Zakat. It reads as below:‑

3(i). Charge and collection of Zakat.‑‑‑ (1) Subject to the other provisions of this Ordinance, Zakat in respect of assets mentioned in the First Schedule shall be‑charged and collected, on compulsory basis, for each Zakat year, at the rates and in the manner specified therein, and as may be prescribed, from every person who is on the Valuation Date, and for the whole of the preceding Zakat year been, `Sahib‑e‑Nisab' and who owns or possesses such assets on the Valuation Date:

Provided ...............................................................................

Thus, it is clear that "Zakat" is a tax on asset and is charged and collected in respect of that asset, for each year at the rate and in the manner specified in the Ordinance, 1980 and as may be prescribed. First Schedule to the Ordinance, 1980 enumerates the assets, on which Zakat is leviable and provide the rates and specified the manner of deduction of Zakat at source on such assets. The "shares" are subject to compulsory levy of Zakat through deduction at source vide serial No.8 of the First Schedule to the Ordinance, 1980. It reads as follow:‑‑‑

"Serial No.8. Securities including shares and debentures other than those mentioned at serial numbers 5, 6 and 7 above of companies or statutory corporations excluding those held in the name of a company or a statutory corporation, on which‑ return is payable periodically or otherwise, and is paid."

Serial Nos. 5, 6 and 7 provides the compulsory levy of Zakat in respect of National Investment (Unit) Trust (NIT), ICP mutual Fund certificates and Government securities other than prize bonds and savings certificates. The rates and basis for computation of an amount to be deduced as Zakat is indicated in column No.4 which' reads as under:‑‑

"If listed on the stock exchange, 2.5% of the paid‑up value, or the market value based on the closing rate at the Karachi Stock Exchange, whichever be lower as on the Valuation Date, in each Zakat year. If not listed on the stock exchange 2.5% of the paid- up value on the Valuation Date, in each Zakat year."

The accumulative effect of all the above provisions; is that the share in a private limited company is an asset and is subject to compulsory levy of Zakat through deduction at source @ 2.5 % of the paid‑up value on the valuation date in each Zakat year. The paid‑up value of each share is Rs. 10. The break‑up value of shares is not its paid value and hence the break‑up value has no relevance for computation and deduction of Zakat, under the Ordinance, 1980. The company deducted Zakat at source, in accordance with law, therefore, as the shares held by the assessee were subjected to Zakat, hence these are exempt from the levy of wealth tax under clause (1) of Part‑I of Second Schedule to the Act. We find no illegality or infirmity in the order of the learned CWT(A). Accordingly, it is maintained.

8. Consequently, the appeal fails and is rejected.

C.M.A./549/Tax(Trib.)Appeal rejected.