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

----Ss.129, 66-A, 62 & 59(b)---Appeal to Appellate Additional Commissioner---Jurisdiction---Order was passed under S.62 of the Income Tax Ordinance, 1979 as a result of cancellation of order passed under S.59(b) of the Income Tax Ordinance, 1979---First Appellate Authority adjudicated upon the invocation of provisions of S.66-A of the Income Tax Ordinance, 1979 and restored the original order ---Validity-- First Appellate Authority ,had no jurisdiction to take up matter pertaining to exercise of revisionary jurisdiction under S.66-A of the Income Tax Ordinance, 1979 and his action in this regard was patently illegal-- Assessee went in appeal before First Appellate Authority after order under S.62 of the Income Tax Ordinance, 1979 had been passed by the Assessing Officer consequent to cancellation of original order . under S.59(b) by the Inspecting Additional Commissioner---First Appellate Authority could only have taken up the income determined by the Assessing Officer consequent to finalization of assessment under S.62 of the Income Tax Ordinance, 1979 and First Appellate Authority could not examine the merits of the Inspecting Additional Commissioner's exercise of revisionary jurisdiction under S.66-A of the Income Tax Ordinance, 1979---Observations made in the findings recorded by the First Appellate Authority with regard to exercise of revisionary jurisdiction by the Inspecting Additional Commissioner under S.66-A were ignored by the Appellate Tribunal.

(b) Income Tax Ordinance (XXXI of 1979)-----

----Ss.134, 66-A, 62 & 59(b)---Appeal to Appellate Tribunal---Appeal against order passed under S.62 of the Income Tax Ordinance, 1979 before Appellate Tribunal---Challenge to revisionary jurisdiction of Inspecting Additional Commissioner---Validity---To contest the Inspect ing Additional Commissioner's recourse to the provisions of S.66-A of the Income Tax Ordinance, 1979 was an attempt to contest the action under S' .66-A of the Income Tax Ordinance, 1979 without filing formal appeal against the revision made by the Inspecting Additional Commissioner ---Assessee could not argue and cite case-law against the order passed, under S.66-A of the Income Tax Ordinance, 1979 at this stage as no appeal had been filed by the assessee against such order---Appellate Tribunal ignored the arguments made and case-law cited by the assessee against the order under S-66-A of the Income Tax Ordinance, 1979 against which no appeal had been filed.

(c) Income Tax Ordinance (XXXI of 1979)-----

----Ss.62 & 66-A---Assessment---Finding/observation of Inspecting Additional Commissioner---Complaisance of---Assessing Officer was not bound under all circumstances to pass an order of assessment strictly in line with the Inspecting Additional Commissioner's findings/observations recorded in his revisionary order---If `proof positive' had, been placed before Assessing Officer, the Assessing Officer could have accepted the assessee's contention, notwithstanding the Inspecting Additional Commissioner's revision.

(d) Income Tax Ordinance (XXXI of 1979)---

----S.62---Assessment on production of accounts, evidence etc.---Order under S.62 of the Income Tax Ordinance, 1979 though a sequel- to the Inspecting Additional Commissioner's order under S.66-A of the Income Tax Ordinance, 1979 was an independent order and was appealable before First Appellate Authority---Such order was not akin to an order "to give effect" to a decision in appeal (appeal effect) where Assessing Officer had no choice but to strictly implement the finding of the Appellate Authority.

(e) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 27---Income from business or profession---Gain---Multiple transactions of sale/purchase of property led inescapably to the conclusion that the assessee was actively engaged in the business of purchase/sale of immovable property held as stock in trade and the gains arising therefrom constituted business profits.

(f) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 27---Income from business or profession---Gain---Length of time---Gain would constitute business profits, especially when the property is not held for any significant length of time, but is purchased/sold at relatively short intervals---When property is held as an `investment' the timeframe is invariably extended but when held as business `stock in trade' the retention period is much shorter and the `stock' is frequently rotated.

(g) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 27---Income from business or profession---Gain---Property---Stock in trade---Where immovable property is held as `stock in trade' and it is the business of assessee to buy and sell such property for profit then, in such circumstances, the (immovable) property will not constitute a `capital asset'.

(h) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 27---Income from business or profession---Gain---When immovable property is held as stock in trade, the gain realized on its sale can be brought to tax as business profits under S.22 of the Income Tax Ordinance, 1979.

(i) Income Tax Ordinance (XXXI of 1979)---

----Ss.22 & 27---Income from business or profession---Gain---All gain realized on sale of immovable property is not necessarily capital gain and can be brought to tax by the Assessing Officer as revenue gain/business profits where the situation so warrants.

(j) Income Tax Ordinance (XXXI of 1979)---

----Ss. 27 & 22---Capital gain---Income from business or profession-- Developed property---Profit realized on eventual sale of (developed) property units constitute capital gain.

(k) Income Tax Ordinance (XXXI of 1979)---

----Ss.62, 66-A, 22 & 27---Assessment on production of accounts, evidence etc.---Income from business or profession---Gain---Agricultural land---Gain arising from frequent sale of agricultural land was treated as business profit by the Assessing Officer on direction of Inspecting Additional Commissioner while the assessee claimed it as capital gain not taxable under the Income Tax Ordinance, 1979---Validity---Assessee could not have held the land for agricultural purposes as not only she had no experience in this area but also facts would show that after its purchase the assessee made no efforts to actually utilize the land for agricultural purposes---Neither assessee purchased any machinery or fertilizer nor hired any labour to cultivate such land ---Assessee purchased such land with intention of selling same at an opportune moment without making any improvements thereon---Fact that the land was sold `en bloc' also went to show that assessee was not interested in any scheme for making plots for sale on such land-- Land was rightly treated as assessee's stock in trade in the circumstances and profits 'realized on its disposition .constituted business profits and not capital gain--Order of First Appellate Authority was vacated and that of. Assessing Officer was reinstated by the Appellate Tribunal. 1990 PTD 155; 1992 PTD 1; 1984 MLD 262; 1989 PTD 460; 1975 PTD.(Trib.) 6 and 2001 PTD 1222 distinguished.

Abdul Rasheed and Bashir Ahmad Shad, D.Rs. for Appellant Muhammad Iqbal Kh. for Respondent.

Dates of hearing: 6th November, 2002 and 19th Apri1, 2003.

ORDER

MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER).---This appeal by Revenue has arisen out of order of the C.I.T. (Appeals), Zone-I, Faisalabad dated 31-8-1996.

2. It is the departmental contention that the, C.I.T.(Appeals) has illegally restored original order passed under section 59(b) of the Income Tax Ordinance when the same had been revised/cancelled under section 66-A by the .I. A.C. against which order of the I.A.C. no appeal had been filed by the assessee before the Tribunal. The department further contests the C.I.T.(Appeals)'s deletion of addition amounting to Rs.53,94,048 being business profits from sale of 84 Kanals and 30 Marlas land at Raiwind Road, Lahore for a total consideration of Rs.73,73,750 thereby earning a profit of Rs.53,94,048. It is the departmental contention that this transaction is an adventure in the nature of trade and the gain therefrom constitutes business profits and hence subject to levy of income tax.

3. The D.R. has argued that the assessee having failed to file any appeal before the Tribunal against the order of the I.A..C. under section 66-A assessment year 1998-99 dated 28-6-1993, the assessee had resultantly accepted the I.A.C.'s finding that the gain of Rs.53,94,048 arising from sale of land was an adventure in the nature of trade and hence subject to levy of income tax. It is argued by the D.R. that the Assessing Officer has only implemented the finding of the I.A.C. in this regard. It is further contended that the C.I.T.(A) had illegally adjudicated the assessee's challenge to the I.A.C.'s invocation of the provisions of section 66-A when he had no jurisdiction to do so. The C.I.T.(Appeals)'s restoration of the original order under section 59(b) is assailed as bereft of any lawful authority and hence a nullity in the eye of law.

4. According to the D.R., the assessee can only challenge the order under section 62 passed consequent to cancellation of original assessment under section 66-A if the assessee had first contested the I.A.C.'s order under section 66-A before the Tribunal.

5. According to the A.R., the order of the D.C.I.T. has been framed under section 62 as the original order under section 59(b) had been cancelled by the I.A.C. under section 66-A and as appeal lies before the C.I.T. (Appeals) against an order passed under section 62, the same had been rightly contested by the assessee and the adjudication as made by the C.I.T.(Appeals) was in order.

6. Further according to the A. R., the order passed under section 66-A by the I.A.C. started a sequence of events that led to the finalization of assessment under section 62 read with section 66-A by the D.C.I.T. after cancellation of the original order under section 59(b) by the I.A.C. It is the A.R.'s contention that the very action taken under section 66-A is allegedly illegal and notwithstanding the admitted fact that no appeal has been filed by the assessee against the I.A.C.'s order under section 66-A, nevertheless, it is argued that as the said order of the I.A.C. is patently illegal, the superstructure subsequently built by the D.C.I.T. is of no avail and must therefore, be struck down. In this context, it is argued that the order under section 59(b) that has been "revised" by the I.A.C. is, according to the A.R., not an "order" that can be acted upon by the I.A.C., under section 66-A as under the simplified assessment procedure, under which the return for assessment year 1989-90 has been processed, the acknowledgement form appended with the return of income has been deemed to be an order of assessment. It is contended by the AR that the said acknowledgement form was received by a subordinate official and is not signed by the D:C.I.T. Such acknowledgement form can therefore, not constitute an order of the DX.I.T. that can be revised by the I.A.C. under section 66-A. Furthermore, it is argued that as no documents were statedly attached with the return of income filed by the assessee, there was nothing on record for the I.A.C. to "examine" in order to be able to reach the conclusion that the assessment made under section 59(b) was erroneous insofar as it was prejudicial to the interests of Revenue. Also, it is argued by the A.R. that .under the law, the I.A.C. could only revise an order passed by the D.C.I.T. who is an authority defined under the Ordinance and in the present case no formal order under section 59(b) having been passed by the D.C.I.T. personally, the acknowledegment form received by a subordinate official did not constitute a valid order, of assessment passed by the D.C.I.T. The A.R. emphasized that while, according to the law, the acknowledgement slip was deemed to be an order of assessment, such a deeming order was no order in the eye of law and hence such an order could not be revised under section 66-A.

7. Also, according to the A.R., there is no jurisdictional defect in the order of the C.I.T.(A) as he has adjudicated the appeal filed by the assessee against the order of the D.C.I.T. framed under section 62 and an appeal against such an order does lie before the C.I.T.(A).

8. In matter pertaining to gain on sale of land the A.R. argues that such gain is- a capital gain and hence outside the purview of income taxation under the Ordinance. According to the A.R., income tax can only be levied on what constitutes "income" as defined under section 2(24) of the Ordinance and in the present case what is sought to be tax amounted to capital gain and not income and was therefore, outside the purview of the provisions of the (repealed) Income Tax Ordinance, 1979. It is asserted that the assessee purchased agricultural land and had every intention to cultivate the same but could not do so due to factors beyond her control and she was thus forced to sell it. The A.R. denies that the assessee ever held the land as `stock in trade' and submits that the purchase and, sale of land as a business proposition was never contemplated and such solitary transaction could not therefore be dubbed as an `adventure in the nature of trade'. That being so it is contended that the gain realized on sale of land is a capital gain over which the D.C.I.T. has no jurisdiction, it being beyond the taxation powers of the Federation as the power to levy tax on capital gains is a provisional subject and specifically ousted from the purview of the Federal Legislative List in Entry No.50 Part-1, The Fourth Schedule to the Constitution of Pakistan. Hence the D.C.I.T.'s order of assessment is statedly ultra vires of the Income Tax Ordinance, 1979 and the Constitution of the Islamic Republic of Pakistan and had been rightly set to naught by. the C.I.T.(A), restoring the original assessment framed under section 59(b).

9. The A.R. has referred to case-law as under in support of arguments made:---

1990 PTD 155-(SC Pak.); 1992 PTD 1(SC Pak); 1984 MLD 262 (KHC); 1989 PTD 460; 1975 PTD (Trib.) 6 and 2001 PTD 1222.

10. The D.R. contests submissions trade by the A.R. and argues that the Constitutional challenge to the D.C.I.T.'s jurisdiction is wholly misconceived and that the cases cited are not on all fours with the situation in which the assessee is placed. It is also pointed out that before the D.C.I.T. the assessee only contested the Assessing Officer's assertion that the transaction was an adventure in the nature of trade and the case-law cited before the C.I.T.(A) was not placed before the D.C.I.T. It is also argued that it is not at all evident from the D.C.I.T.'s order of assessment under section 62 that evidence was ever placed before him to establish that the land was agricultural land and.there is no mention of 'any Khasra Girdaveri in the D.C.I.T.'s order. The D.R. assails the A.R.'s contention that the assessee originally intended to put the land to agricultural use and points out that the assessee has no experience in this area and made no effort whatsoever to cultivate .the land. On the other hand it is emphasised that the facts cited by the D.C.I.T. go to. show that the assessee has all along been engaged in the purchase and sale of immovable property as detailed by the D.C. I.T. in the assessment order and the purchase of the Raiwind land had also been made in this context and was disposed. of by the assessee at an opportune moment so as to realize business profits that had been rightly brought to tax under section22 of the Ordinance. The D.R. denies that the sale of Raiwind land pan fairly be described as a solitary transaction and draws attention to the many dealings in immovable property entered into by the assessee duly, detailed in the assessment order. In any case it is argued that even if it were a solitary transaction it could still constitute an adventure in the nature of trade as the circumstances go to show that the assessee has been engaged in this line of business for some time and had purchased the land in question with the intention of selling it after holding it for a short period.

11. We have heard both sides and have perused the case-law cited and examined the available record and our findings are recorded as under:--

(a)The C.I.T.(A) has indeed illegally assumed jurisdiction over 66-A matter and no, appeal against the I.A.C.'s exercise o revisionary jurisdiction lies before the 1^st Appellate Authority. The C.I.T.(A); Zone-I, Faisalabad had no jurisdiction to take up matter pertaining to exercise of revisionary jurisdiction under section 66-A by the I.A.C. and his action in this regard is patently illegal. The assessee went in appeal before the C.I.T.(A) after order under section 62 had been passed by the D.C.I.T. consequent to cancellation of original order under section 59(b)- by the I.A.C. The C.I.T.(A), could only have taken up the income determined by the D.C.I.T. consequent to finalization of assessment under .section 62 and the C.I.T.(A) could not examine the merits of the I.A.C.'s exercise or revisionary jurisdiction under section 66-A. All observations made in the findings recorded by the C.I.T.(A) with regard to exercise of revisionary jurisdiction by the I.A.C. under section 66-A are therefore, required to be ignored. So ordered.

(b)The arguments made by the A.R. contesting the I.A.C.'s recourse to the provisions of-section 66-A is an attempt to contest the I.A.C.'s action under section 66-A without filing formal appeal against the revision made by the I.A.C. In our considered judgment, the assessee cannot at this stage legal arguments and cite case-law against the order passed under section 66-A by the I.A.C., as no appeal has been filed by the assessee against the said order. We will therefore, ignore the arguments made and the case-law cited by the A.R. against the I.A.C.'s order under section 66-A against which appeal has been filed by the assessee.

(c)While it is a fact that the assessee has not contest the I.A.C.'s order under section 66-A before the Tribunal a appeal has been filed, however, in our opinion, this do divest the assessee of the right to contest the D.C.I.T , order under section 62. Once the I.A.C. had cancelled, the original order under section 59(b) only the return of income the year remained in the field and this was then taken up b ape D.C. I.T. for (Fresh) assessment under section 62. No doubt &e D.C.I.T. was required to pass normal law order in cons pence of the IAC's finding that the gain on sale of Raivvi land was a revenue gain being an adventure in the nature of tt.4de and was not a capital gain. However this does not wean that the D.C.I.T.'s role was purely passive and that he was bound under all circumstances to pass an order of assessment strictly in line with the I.A.C.'s findings/observations recorded in his revisionary order. Thus if `proof positive' had been placed before the D.C.I.T. by the assessee to establish conclusively that the gain was indeed a capital gain, the Assessing officer could have accepted the assessee's contention, notwithstanding the I.A.C.'s revision. However, the. record shows that the assessee was unable to lead necessary evidence before the D.C.I.T. to .establish her contention that the gain constituted capital gain. That being so the D.C.I.T. brought the gain to tax as business profits. All this goes to show that the D.C.I.T, was not bound, under all circumstances, to merely implement the I.A.C.'s order and he could have taken a different view under certain circumstances. This leads to the inescapable conclusion that the order under section 62, though a sequel to the I.A.C.'s order under section 66-A, is an independent order and thus is appealable before the C.I.T.(A). This order is thus not akin to an order "to give effect" to a decision in appeal (appeal effect) where the D.C.I.T. has no choice but to strictly implement the findings of the Appellate Authority. We therefore, hold that the C.I.T.(A) adjudication dealing with the D.C.I.T.'s treatment of gain arising from , sale of Raiwind land is within. His jurisdiction and has been rightly contested by Revenue before the Tribunal.

(d)The core issue here is whether the transaction of sale of Raiwind land can constitute an adventure in the nature of trade. To resolve the matter we have to see first what is the assessee's `nature of trade'. As per return of income filed the assessee is a Director in the Sunshine Group of industries in which her father plays a dominant role. The facts on record go to show that the assessee, besides being Director also undertakes sale/purchase of immovable property and the D.C.I.T. has detailed a number of instances of such transactions entered. into by the assessee. What .does this mean? The only logical conclusion is that these transaction have been entered into by the assessee as a-business venture. Notwithstanding the assessee's A.R.'s protestations to the contrary, the multiple transactions of sale/purchase or property lead inescapably to the conclusion that the assessee is actively engaged in the business of purchase/sale of immovable property held as stock as trade and the gains arising therefrom constitute business profits. Given this context, the purchase and sale of Raiwind land would appear to be a purely business transaction. The assessee has emphasised that the Raiwind land was allegedly agricultural land and could not be treated at par with the other immovable property units purchased/sold by her as these were admittedly not `agricultural' in nature. We have looked into this aspect and we find that firstly the necessary documentation (Khasra Girdavari) to establish it's alleged agricultural. character does not appear to have been placed before the D.C.I.T. or even the C.I.T.(A) and was not available with the A.R. when he argued the case before the Tribunal. Further we note that in many cases, land though originally classified as `agricultural' is fast being transformed into urban land as the urban perimeter is pushed outwards. Thus a person with foresight, business acumen and necessary financial resources can always purchase suitable land on the urban outskirts in order to profit from it's escalation in value as the urban perimeter is pushed outwards ---as-the assessee has done, and the resultant gain would constitute business profits, especially when the property is not held for any significant length of time, but is purchased/sold at relatively short intervals---as in the case of the present assessee. Normally when property is held as `investment' the timeframe is invariably extended but when held as business `stock in trade' the retention period is much shorter and the `stock' frequently rotated. In assessee's case it is clears that the land in question has not been held for an extended period and this land alongwith assessee's other property units can be seen as the assessee's overall `stock in trade of immovable property.

(e)Where immovable property is held as `stock in trade' and it is the business of the assessee to buy and sell such property for profit then, in such circumstances the (immovable) property will not constitute a `capital asset'. Thus in such circumstances i.e. when immovable property is held as stock in trade, the gain realized on its sale can be brought to tax as business profits H under section 22 of the Ordinance, 1979. Resultantly, all gain realized on the sale of immovable property is not necessarily capital gains and can therefore, be brought to tax by the D.C.I.T. as revenue gain/business profits where the situation so warrants.

(f)The Apex Court judgment referred to by the assessee has been looked into and is not found applicable in assessee's case as it deals with the sale of immovable property that had been acquired by a limited company from members of a family and which company had been set up as a property holding company to develop the family property. No purchase from outsiders was made at all. In fact the Company was prohibited by its Memorandum of Association from carrying on the business of buying and selling of immovable property. Some land owned by the Company was acquired under the provisions of Acquisition Act at the instance of the Ministry of Defence, Government of Pakistan, and compensation was paid to the Company for the compulsory acquisition. The Company disbursed the compensation amount to the appellant who was owner of the property acquired by the Ministry of Defence/ Government of Pakistan. The gain realized by the appellant on the compulsory acquisition of land by Government was held to be capital gain. It is to be noted that the land in question has not been sold in the open market but has been compulsorily acquired by Government. There is thus no normal purchase/ sale of immovable property (land) here at all. As explained supra, this is not so in the assessee's case. The assessee has actually purchased land from the market and sold it in the open market after a short period without making any improvements thereon and has realized a gain on the disposition which is a revenue gain as it relates to the assessee's business of purchase and sale of immovable property as detailed by the D.C.I.T. in the assessment order.

(g)In the case of the Karachi High Court judgment also, the facts are distinguishable from assessee"s case insofar as that judgment pertains to a "property developer'. Property Development by definition entails significant outlay of resources to `develop' an area as, say, a `housing society'. It entails the plotting of land and investment in infrastructure so as to make it attractive for buyers. As the benefits to the developer are spread over an extended timeframe and as these benefits are consequential to the capital investment made by him in its development, the profits that he realizes on the eventual sale of the (developed) property units constitute capital gains. The present assessee is not placed in such a situation.

(h)The assessee comes from a well-known business family and has sound business credentials. The assessee has no agricultural interests /assets and has no expertise whatsoever in this area. Her assertion that the Raiwind land was intended to be put to agricultural use by her is therefore, not at all plausible: The assessee made no efforts whatsoever to put the land to agricultural use. She made no purchase of fertilizer or agricultural machinery to prepare the land for agricultural use.

(i)'Even if for arguments sake it is conceded that the Raiwind land transaction is unique, even then it can constitute an adventure in the nature of trade as the `ambiegt circumstances' strongly suggest that the property had been purchased with a view to it's sale at an opportune moment and given assessee's other dealings in immovably property, this Raiwind land transaction is part of the overall of business of the assessee.

The "ambient circumstances" are of overriding significance here and these show that the assessee made no effort whatsoever to make any improvements on the Raiwind land purchased by her. No plotting of the land was done and no investment in infrastructure was made. Thus the land was not held by her as an investment because whenever a significant block of land is held an investment then invariably improvements are made by way of investment in infrastructure so as to increase its sale value significantly vis-a-vis the purchase. price. As pointed out above, the assessee could not possibly have held the land for agricultural purposes as not only she had no experience whatsoever in this area but also the facts go to show that after its purchase the assessee made no efforts to actually utilize the land for agricultural purposes. She did not purchase any machinery or fertilizer and did not hire any labour to cultivate the land. Under these circumstances, it is obvious that the assessee has purchased the land with the intention of selling it at an opportune moment without making any improvements thereon. The fact that she sold the land `en bloc' also goes to show that she was not interested in any "plotting" on the land and the sale of land in small units i.e. 1-Kanal or 2-Kanal plots. That being so, the Raiwind land must rightly be treated as assessee's stock in trade and the profits realized on its disposition must therefore, constitute business profits and not capital gain,

We therefore, vacate the order of the C.A.T.(Ay and reinstate theorder of the D.C.I.T.

Resultantly, the Departmental appeal is accepted.

C.M.A./957/Tax (Trib)Appeal accepted.