W.T.As. Nos. 32/LB to 34/LB of 2002 VS W.T.As. Nos. 32/LB to 34/LB of 2002, 2004 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 513 (2003)

2004 P T D (Trib.) 513

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member

W.T.As. Nos. 32/LB to 34/LB of 2002, decided on 12/05/2003.

(a) Wealth tax---

----Nature of activity---Finding of facts in income-tax assessment proceedings-- Applicability of such, findings in wealth tax assessment proceedings---If the Assessing Officer had given a finding of fact about the assessee's nature of activity during the income-tax assessment proceedings, even then it will not be applicable to wealth tax assessment proceedings-Both Income Tax Act and Wealth Tax Act were independent enactments or statutes and although both the statutes were administered by one tax machinery but both have got different temperaments and different modes of operation---Finding of fact under one statute did not bind the Tax Administering Authority to apply it to the other statute also.  

2001 PTD (Trib.) 275 and 1998 PTD (Trib.) 363 rel.

(b) Wealth Tax Act (XV of 1963)---

----S.2(1)(5)(ii)---Income Tax Ordinance (XXXI of 1979), Ss. 19, 22 & 30---Assets---"Letting out" or "business of letting out"---Wealth Tax Act, 1963 in its S.2(1)(5)(ii) used the words "letting out" or "business of letting out" for making an immovable property chargeable in the hands of a company---Income from letting out of property under the Income Tax Ordinance, 1979 can be charged to tax under any of the heads of income namely; as property income under S.19, as business income' under S.22 or as income from other sources under S.30 of the Income Tax Ordinance, 1979.

(c) Wealth Tax Act (XV of 1963)---

----Ss.2(1)(5)(ii) & 3---Income Tax Ordinance (XXXI of 1979), S.22-- Assets ---Nature of activity---" Letting out" or "business of letting out"-- Assessee, a company---income from property was assessed as "business income---Subsequently, wealth tax was levied being property held by the assessee/company for the purpose of letting out ---Validity--Irrespective of assessment of income under any of the sections of Income Tax Ordinance, 1979, the letting out of immovable property would be subjected to wealth tax in the hands of assessee/company in terms of S.2(1)(5)(ii) of the Wealth Tax Act, 1963---Assessment of income as business income under S.22 of the Income Tax Ordinance, 1979 would not help the assessee-company if the nature of its activity remains letting out or business of letting out of immovable property.

(d) Wealth Tax Act (XV of 1963)---

----Ss.2(1)(5)(ii) & 3---Assets---"Lease" and "licence" ---Distinction: In case of lease the lessee is granted the exclusive right of possession of the demised premises and the right created is assignable and heritable and constitutes property while in case of licence exclusive right of possession of the demised premises is not given and there is absence of transfer of interest in the immovable property---Such is purely a permissive right and is neither assignable nor heritable.

PLD 1962 Kar. 663; PLD 1957 (W.P.) Kar. 892; PLD 1963 (W.P.) Lah. 418 and NLR 1981 Civil 379 rel.

(e) Wealth Tax Act (XV of 1963)---

----Ss. 2(1)(5)(ii) & 3---Assets---"Rent", "lease" or "licence'--- Distinction---Effect on Wealth Tax Law---Difference between rent or lease or licence is very material so far as the suits for ejectment of the tenant or licensee of property in civil law are concerned but the difference between rent of lease or licensing is immaterial and irrelevant so far as Wealth Tax Law is concerned.

(f) Wealth Tax Act (XV of 1963)---

----Ss.2(1)(5)(ii) & 3---Assets---"Letting out" or "business of letting out"---"Licence"-- Meanings---Word "letting out" has not been defined in the Wealth Tax Act, 1963---Letting out can assume the form of lease or, rent or licence---Activity of assessee/company may fall in the term `licence' and it may help the assessee in getting its licensee ejected from possession in civil suits but it certainly did not help the assessee against the charge of wealth tax---Licensing is also included in the letting out or the business of letting out.

(g) Wealth Tax Act (XV of 1963)---

----S.2(1)(5)(ii)---Income Tax Ordinance (XXXI of 1979), Ss. 19, 22 & 30---West Pakistan Urban Rent Restriction Ordinance (VI of 1959), S.2(8)---Transfer of Property Act (IV of 1882), S.105---Easements Act (V of 1882), Ss.52 & 62---Assets---"Letting out" or "business of letting out"---"Licensing"---Department found that assessee-company had let out its immovable property and its assets, therefore; was chargeable to tax in terms of S.2(1)(5)(ii) of the Wealth Tax Act, 1963---Assessee contended that Company was doing business of "licensing" and therefore was not liable to charge of wealth tax in respect of its immovable property---Validity---Activities undertaken by the assessee-company like control and management etc. were actually ancillary or subordinate to the main activity of letting out of the space in the building to the various shopkeepers and the stall holders---Fixation of period, allocation of specified space, payment of fixed minimum charges or certain percentage of sales, point to the activity of letting out of property in question-- Shopkeepers or stall holders were in 'possession of space allocated to them and so far as their business activity was concerned they had exclusive right of possession as long as they were occupying the said space---Goods were sold on prices fixed by themselves through their salesmen and were responsible for the payment of their taxes concerning their business like Income-tax etc. ---Assessee-company did not share the loss or profit of business of the said shopkeepers and stall holders and to call assessee's activity as licensing business was simply absurd in the circumstances ---Assessee-company though was not receiving the amount of fixed rent as is usual practice but it was receiving either minimum fixed charges or certain specified percentage of sale---Minimum fixed charges or licence fee or specified percentage of sales was nothing else than the compensation received for the space provided to the stall holders and shopkeepers for their use---Such was in fact rental in the form of licence fee or minimum charges or percentage of sales which was being received by the assessee-company for letting out of its property---Jargons and terms used by the assessee were a cover or smoke screen to camouflage the real nature of its activity ---Assessee was not doing any type of licensing business rather it was engaged in letting out of its immovable property---Assessing Officer had rightly treated the said property as chargeable in terms of S.2(1)(5)(ii) read with S.3 of the Wealth Tax Act, 1963---Order of First Appellate Authority was vacated and that of Assessing Officer was restored by the Appellate Tribunal.

PLD 1962 Kar. 663; PLD 1957 (W. P.) Kar. 892; PLD.1963 (W.P.) Lah. 418; NLR 1981 Civil 379 and Civil Appeal No.K-140 of 1981 rel.

2002 PTD 798; AIR 1966 SC 882; AIR 1958 Cal. 423; 2003 SCMR 50; PLD 1964 SC 106; (1996) 74 Tax 83; PLD 1962 (W.P.) Kar. 662; Black's Law Dictionary; I.T.A. No.424/LB of 1999; I.T.As. Nos., 2842 to 2845/LB of 1998 and (2002) 86 Tax 338 ref.

(h) Words and phrases---

------ Lease" and "licence"---Distinction.

(i) Words and phrases---

------ Rent", "lease" or "licence --Distinction.

Muhammad Asif, D.R. and Shahid Jamil Khan, L.A. for Appellant.

Mahmood A. Shaikh for Respondent.

Date of hearing: 26th April, 2003.

ORDER

MUHAMMAD SHARIF CHAUDHRY (ACCOUNTANT MEMBER). ---These three appeals for the years 1996-97 to 1998-99 have been preferred by Revenue against appellate order dated 31-10-2001 passed by Commissioner Income-tax/Wealth Tax Appeal Zone-II, Lahore under section 23 .of the Wealth Tax Act. It has been contended in the grounds of appeal, which are identical in all the years under consideration, that the learned Commissioner was not, justified to cancel the assessments made by the Wealth Tax Officer because the Pace Pakistan Limited holds its Plaza for the purpose of letting out as it receives fixed rent in the form of percentage of sales or the minimum fixed amount and it has no concern with the profit or loss of the stall holders. Therefore, the assessee had been rightly assessed to wealth tax by the Assessing Officer under section 16(5) of the Wealth Tax Act, 1963 as assessee is a company and its activities/nature of arrangements clearly fall within the expression "letting out" or/and "business of letting out" in terms of section 2(1)(5)(ii) of the Wealth Tax Act, 1963.

2. On behalf of appellant D.R. and the Legal Advisor appeared whereas on behalf of respondent the A.R. of the assessee appeared. Both the parties have been heard and available records have been perused. Case-law produced by them has also been appraised and considered. Appeals filed by the Revenue are decided in this combined order as follows.

FACTS OF THE CASE

3. The assessee-respondent in the instant case is a Public Limited Company not registered and enlisted on Stock Exchange. No suo motu returns of wealth tax were filed. DCWT issued notices under section 17 in response to which the A.R. of the assessee submitted reply and contended that Pace Pakistan Limited is exempt from wealth tax and therefore, no wealth tax return is due. The Assessing Officer issued show-cause notices under section 16(3) from time to time asking the assessee to explain, the nature of its activities and to file the requisitioned documents. In response to these show-cause notices the A.R. of the assessee appeared before the Assessing Officer to take the plea that the assessee is not liable to wealth tax. He also filed a written reply explaining the nature of activities/arrangements in detail. Since the whole of the casein these appeals revolves around the pivotal point of nature of assessee's activity and we will have to refer back to it often while deciding these appeals, it would be worthwhile if we reproduce this reply of the learned A.R. in verbatim as it has been reproduced by the Assessing Officer in his assessment order:---

(1) The Wealth tax is not applicable to a company unless it has held immovable property for the purpose of construction and sale or letting out, of property. The Company did not hold any property for letting out. Copy of Memorandum of Association as attached will show that the Company is not authorized even to let out the property on rent (Annexure-I).

(2) The Pace is conducting business by a specialized method of marketing known as "consignment" or "consignment shipment". Under this arrangement, the licensee gives merchandise to Pace to sell the same to the eventual consumers. Ordinarily when the Pace sells the products consigned to it, the revenue minus a selling commission and expenses incurred in accomplishing the sale is paid to the licensee on whose behalf sales were made. In case of the assessee this business is being carried on the title of "Licensee Arrangement". Moreso, it is expressly stated in the licence agreement that the consignor/licensee will not have any exclusive right in respect of the space where (at any given time) the products of the consignor/licensee are displayed and the same can be relocated anywhere suitable in store as per the Pace discretion and desire (the basic essence of rent agreement lacking). It is further agreed that the relationship between the parties is not that of "tenancy or a lease".

(3) That the parties permitted to display their goods at Pace premises are merely licensee and in no sense can be called a tenant. This is supported by the facts that:---

3.1 All goods inward get tagged with the bar codes of Pace and goods inwards department personnel as well as the personnel computer department are the direct employees of Pace.

3.2 All goods are displayed and sold under the total control of Pace management only and all cash is collected by Pace. No licensee is authorized to do self collection of the sales of licensee's stocks. No goods can be sold without entry in computers of Pace and, therefore, no cash can be given to any body else except Pace.

3.3 All times are maintained by Pace and the policy for the opening closing holidays etc. is formulated, exerted, imposed and enforced by Pace.

3.4 The control of all sales/operations is with Pace and the sales/operations can be closed by controlling the computer codes.

3.5 As regards the minimum licensee fee which is based on the minimum guaranteed sale of the licensee/consignor, please note that this is received from the licensees as %age of sales to recover the following overhead charged and the operational cost.

--Electricity charges

--Air-conditioning charges

--Goods inward charges

--Computerization charges

--Security charges

--Cash officer/cashiers

--Canteen charges

--Clearing charges/workshop

--Repair and maintenance/Escalator maintenance

--Advertisements and sale promotions

--Public address system charges

--Management/Head Office charges

--Security

--Packing material and till rolls utilities, gas, water commission, customer services, etc.

Most of licensees do not have a minimum service charges clause in their agreements. A list of licensees based or percentage of sales without minimum service charges clause is enclosed alongwith copies of agreements (Annexure-II).

Since overall management (i.e. goods inward, ware housing, bar coding, display of products, collection of cash at till against sales, repayment to the licensee, cash office management, till maintenance, packing and consumable and shopping bags, salaries of cashiers, carry out and other staff uniforms all administration cost like R/M, security, janitorial etc. rests with Pace and therefore, Pace is also accommodating the licensees for 'their stock loss claims, if any. (Copy of the attached General Ledger Account for your reference will show you the stock loss claim paid to the licensees (Annexure-III).

We trust that it is very clear from the above that it is not a case of rent at all and operational charges are recovered in the form of the sales commission as share of sales from the licensees stock sales".

4. The assessee's viewpoint, however, was rejected by the DCWT in the following words:

--"The reply submitted by the AR of the assessee considered and found unsatisfactory. Therefore, the same is-not accepted on the following grounds:--

--As per agreement filed by the assessee the rent is fixed and the stall holders are bound to pay the same whether they make the sale are not.

--The Pace has provided stall holders space where goods are displayed and the percentage of sales is charged according to the space provided.

--The stall holders make sales through their own sales men and the salary of salesmen are paid by the stall holder.

--The Pace receives fixed rent whether the stall holder is suffering loses or profit. The Pace has no concern with the profit or loss of the area let out.

--Palmist is also running his business in Pace. He is not selling anything and Pace has provided him space from where Pace is receiving monthly rent.

--Keeping in view the above facts the licence fee shown is nothing else but rent and the lease income shown is the GALV of the Company. The explanation of the assessee is discarded and Wealth Tax is charged in the following manner for assessment years 1996-97, 1997-98 and 1998-99".

5. After rejecting assessee's contentions the Assessing Officer proceeded to frame assessments of the Company by treating licence fee shown by the assessee as GALV of the assessee's immovable property. Against this treatment of the DCWT the assessee filed appeals before the Commissioner who in his impugned appellate order accepted these appeals. The learned Commissioner reproduced assessee's grounds of appeal alongwith arguments given by the learned A.R. and also case-law given by the A.R. in his appellate order in detail. On page 9 of the order in para 9 the learned CIT recorded the following brief observations and cancelled the assessment orders of the WTO:

"The Assessing Officer miserably failed to appreciate the view point of the appellant regarding the definition of licensee. He contradicted his own stance as taken by him in the income-tax assessment proceedings wherein for the assessment years he has accepted the licence income as share of sale and not rent. It really alludes me as .to how such a senior officer of the department could go against his own findings as given by him in the income tax orders passed for the same years. What prompted him to treat the licence income as rent is beyond me and I am at a loss to understand as to what was his motive in doing so. By passing the orders under section 16(5) of the Wealth Tax Act, 1963 for the assessment years under appeal the Assessing Officer has accomplished nothing except creating a fictitious demand which resulted in agony and torture to the appellant. Such orders are not sustainable either on facts or in law."

6. It is this action of the learned Commissioner that has prompted the Revenue to come up in appeal before us in all three years i.e. 1996-97 to 1998-99 raising the contentions in the grounds of appeal which have been briefly referred to in first para of this appellate order.

Arguments of Revenue

7. The learned Legal Advisor appeared on behalf of Revenue and has given lengthy arguments to support the case of She Assessing Officer. He has been ably assisted by the learned D.R. The arguments given by the learned L.A. are briefly stated as under:

(I) Space has been provided by the Pace Pakistan Limited to the stall holders in many cases on the basis of commission/percentage of sales or on minimum charges fixed in case of sales lower that certain level. In certain cases only minimum charges are levied or some fixed rental is charged. One palmist is working in Pace who has been provided space and- obviously he is not selling anything on which commission at some percentage could be charged. In fact the relationship between Pace and the stall holders is that of landlord and tenant.

(II) Possession is partially with the tenant also although the respondent claims that it is with him only and is not given to the tenant.

(III) Percentage of sales charged from, the stall holders for space given to them tantamount to rent and, therefore, company's immovable property has been given on lease and hence it attracts the provisions of section 2(1)(5)(ii) of the Wealth Tax Act, 1963. The Wealth Tax Officer has rightly given finding that licence fee charged by the respondent is nothing but rent.

(IV) The contention of the assessee that in Income Tax case assessee's arrangement has been accepted as-business income and has been assessed under section 22 and, therefore, Revenue cannot take licence fee as lease money/rental in wealth tax case is not tenable. Income Tax Ordinance, 1979 and Wealth Tax Act, 1963 are two independent Statutes though authorities to administer these tax laws in both the Statutes are same. Finding of law or finding of fact in one statute cannot apply to the other statute as the taxes in these, Statutes are charged in different situations under different provisions. The principle of estoppel does not apply to tax laws and findings of tax administrator may justifiably differ in different situations. A case-law in support of this contention cited as 2002 PTD 798 has been produced wherein Lahore High Court has held that immovable property occupied by an assessee for the purpose of his business or, profession cannot be subjected to the provisions of section 19. On the basis of this case-law the learned L.A. holds that income of the assessee was not assessed under section 19 in the quoted case because the immovable property held by the assessee was used for the purpose of business of letting out. The learned L.A. has also referred to judgments of the ITAT reported as 2001 PTD (Trib.) 275 and 1998 PTD (Trib.) 363 wherein it has been held by the Tribunal that proceedings of Income Tax are not relevant to Wealth Tax and they do not prejudice the proceedings of Wealth Tax.

(V) The learned Legal Advisor reads section 2(1)(5)(ii) and pleads that the word used by the Legislature is "letting out" and letting out includes licensing also. In support of this plea the learned L.A., quotes the following case-law:---

(a) AIR 1966 SC 882; (b) AIR 1958 Cal. 423 and (c) 2003 SCMR 50.

(VI) The learned L.A. has also tried to make out distinction between "lease" and "licence" by referring to various Dictionaries and judgments of the Courts. He has also referred to definition of licence as given in section 62 of Easement Act, 1882 and definition of rent as given in section 2(8) of Rent Restriction Ordinance, 1959. He says that although licence is not Lease but licence is included in rent. The learned L.A. also relies on section 105 of Transfer of Property Act and cites PLD 1964 SC 106.

(VII) Referring to agreement executed by the assessee-respondent with one of its stall holders the, learned L.A. has tried to make the following points:---

--Possession is not with the assessee wholly as claimed rather it is partially with the assessee and partially with the so-called licensee whom the department calls tenants.

--Pace has no control on sales. Sales are made by the stall holders on their rates and Pace merely collects the sale proceeds on the cash counter.

--Fixtures belong to stall holders.

--Clause 7A is important. Minimum service charges are liable to be increased. It is typical of rent or rental clause.

--Clause 7D(v) makes tenants or licensees to pay their own taxes.

--Agreement is for 11 months which indicates that it is a rent agreement as the rent agreement include such clauses. Three months notice to vacate the premises is also typical of a rent deed. See Clause 7D(v).

--Second party (stall holders or licensees) has to make its own arrangement of insurance and it has to provide secure fixture.

--Customers are of second party and not of Pace.

8. The learned D. R. who appeared to represent the case of Revenue before us has very ably made out the following points:--

(i) Referring to the judgment of the Honourable Supreme Court of Pakistan cited as (1996) 74 Tax 83 the learned D.R. stated that licensing was treated as letting out by the Apex Court although it was not a direct issue before the learned Court. The judgment of the Court and any opinion given by the Court therein even if it is in the nature of Obiter Dicta has to be followed by the lower Courts.

(ii) The assessee's nature of activity is that letting .out although different terminology and jargons have been used to claim it as a business arrangement. According to the D.R. it has been held by the Courts that it is the substance and not the terminology used which matters. Reference is made to PLD 1962 (W. P.) Kar. 662.

(iii) Assessee's arrangement is not in the nature of business as the assessee does not share loss with the licensee.

(iv) Distinction between lease and licence is irrelevant. Licence is included in letting out.

(v) Finding of fact in Income Tax is not applicable to Wealth Tax law, Business of letting out may be assessed under section 22 of the Income Tax Ordinance but it makes asset of immovable property chargeable to tax in Wealth Tax Law.

(vi) Interpretation of fiscal statute has to be made in favour of assessee only in case of charging provisions. Section 2(1)(5)(ii) is not charging provision, rather it is a concessional provision.

(vii) Black's Law Dictionary defines "let out" as "allow" or "permit".

(viii) Case of Kamran Bakers decided by ITAT in I.T.A. No.424/LB of 1999 relates to Income Tax and not to Wealth Tax. In the said case the issue before the Tribunal was whether the income of the assessee should be assessed under section 22 or under section 19 of the Income Tax Ordinance. But in the present case the issue is whether immovable property of the assessee falls within the ambit of "assets" as defined in section 2(1)(5)(ii). Therefore, case of Kamran Bakers is, not applicable to assessee's case.

Arguments of the Assessee Respondent

9. The assessee contends that it is a Public Limited Company not quoted on Stock Exchange and it has set up a super store in its immovable property. Since the said immovable property has not been rented out or given on lease to any third party, therefore, the assessee is not liable to wealth tax assessee's immovable property, does not come within the ambit of expression "assets" as defined in section 2(1)(5)(ii) of the Wealth Tax Act, 1963. Arguing on behalf of assessee, the learned A.R. tried to demolish the contentions/pleas of Revenue one by one. The arguments of the learned A.R. are as under:--

(i) Pace is doing business by a special method of marketing known as "consignment" or "consignment arrangement". In this arrangement the licensee gives merchandise to Pace to sell the same to the eventual consumers. Ordinarily, when the Pace sells the products consigned to it, the Revenue minus a selling commission and expenses incurred in accomplishing the sale is paid to the licensee on whose behalf sales were made. In the case of the assessee this business is carried on in the title of licence arrangement. The learned A.R. has referred, to the letter explaining the nature of business which was filed before the Assessing Officer during the assessment proceedings and has discussed it in detail to prove that assessee is doing business and is not engaged in letting out of properties. According to the learned, X.R. Memorandum of Association of the company does not authorize to let out the property on rent.

(ii) Referring to section 14 of the Wealth Tax Act, 1963 the learned A.R. asks the question "who is required to file wealth tax return' and then himself answers that any person who is liable to wealth tax would file the return. According to the learned A.R., since the assessee is a company and has not let out any immovable property so the assessee is not liable to tax and hence not liable to file the return of wealth.

(iii) Referring to section 2(1)(5)(ii) the learned A.R. reads the definition of assets. According to the definition if any immovable property is held by a company for the purpose of letting out or the business of letting out it comes within the ambit of assets and makes the company liable to pay wealth tax thereon. Since the assessee has not rented any immovable property the assessee is not liable to wealth tax and it, therefore, did not file wealth tax return. The WTO issued notices under section 16(2) and 16(3) which are illegal. Notice under section 16(3) is mala fide also because assessment was made at a higher level than the one confronted to the assessee in each notice issued under section 16(3).

(iv) Pace is dong business in specialized method called licensing arrangement. There is no such relation between Pace and its stall holders which can be called as relationship of landlord and tenant. There is no disagreement between Revenue and assessee that services or contribution to business are being made by Pace besides providing space such as coding computerization, display of goods, all cash collected by Pace Staff, all transactions through Pace computer, security, control, policy, etc.

(v) Minimum charges are fixed to recover overhead expenses. No such charges were fixed in the first year of business and Pace suffered heavy losses. Therefore, in the subsequent years such charges were introduced. However, most of the licensees have no clause of minimum charges as their sales exceed the prescribed level.

(vi) The allegation of Revenue that copies of contracts were not produced is ill-founded. Copies of most of the contracts were provided. Tenure or period of contract is not 11 months or 12 months only as alleged by the L.A. It varies in different contracts from one year to three years or even beyond.

(vii) Since the security and control is that of Pace so Pace paid money to those stall holders whose goods were stolen or damaged.

(viii) Finding of fact in Income Tax proceedings is binding in Wealth Tax proceedings also. In Income Tax the case of the assessee has been assessed as that of a person earning income from business under section 22 and the Assessing Officer had himself computed the assessee's income froth business under section 22. So the Revenue cannot have a turn about and say that assessee derives income from letting out of immovable property and, therefore, the company is chargeable to wealth tax. Case of Imran Bakers decided by ITAT vide its order, dated 27-2-1999 in ITA No.2842-2845/LB/1998 is very much relevant. It has been held by the ITAT in that case that payments received on the basis of percentage of sales are business income chargeable under section 22 of the Income Tax Ordinance and not property income chargeable under section 1-9 of the said Ordinance.

(ix) Referring to PLD 1962 Kar. 663 the learned A.R. quotes meaning of lease as assigned by the Court. Exclusive possession to tenant is essential in lease and lease is an inheritable right. In licence, exclusive possession is not given to the licensee and licence is not an inheritable right.

(x) To prove assessee's activity as licensing arrangement, the learned A.R. referred to the same agreement which was read out and discussed by the L.A. and D.R. According to the learned A.R., if there .is some similarity in some clauses of this agreement with those of a rent deed it does nor mean that this agreement is a rent or lease agreement. The learned A.R. lays emphasis on Articles 1 and 2 and argues that the arrangement of the assessee is that of a business arrangement and not letting out of properties. The leaned A.R. also refers to assessment order and states that some of the conclusions of the Assessing Officer are absolutely contrary to the facts. For example the Assessing officer says that salary was paid to staff by licensee. But the fact is that salary was paid by the licensee only to those staff members who were appointed by licensee at his stall. Although sale price is fixed by licensee in respect of its goods but Pace does not allow fixation of unreasonably higher prices.

(xi) According to learned A.R., letting out includes leasing and renting only and not licensing. In support of this contention he cited judgment of the ITAT reported as (2002) 86 Tax 338 and pleaded that the ITAT has drawn clear distinction between lease and licence in this judgment.

(xii) Last but not the least argument of the learned A.R. is that if there is confusion in interpretation of law and if two interpretations of a provision can be made then one favourable to assessee is to be adopted as held by the superior Courts in so many of their judgments.

Decision

10. We have considered the contentions of both the parties and have weighed the arguments given at the bar by their authorized representatives. We have also considered the facts of the case and have gone through the available record. We have keenly perused the case-law produced before us on behalf of both the parties. The pivotal point around which the whole case revolves is the nature of assessee's activity. The assessee says that it is a limited company and is doing business of licensing and therefore it is not liable to the charge of wealth tax in respect of its immovable property known as Pace. On the other hand the Revenue says that the assessee company has let out its immovable property and is therefore holding an asset which is chargeable to tax it terms of section 2(1)(5)(ii) of the Wealth Tax Act, 1963. We have appreciated the viewpoints of both the parties on this central point Despite lengthy argument given on behalf of both the parties and despite many contentions and counter contentions raised by both the litigants, in our view there are only three main or basic issues which need our active consideration and decision in the instant case. First issue is whether finding of fact given by Assessing Officer in Income Tax is applicable to the proceedings in Wealth Tax or not. Second issue is as to what is the true nature of assessee's activity? Whether it is letting out of immovable property or it is licensing business? And third issue is whether letting out includes licensing if assessee's claim of licensing business is accepted? Let us analyze and discuss the claims and counter claims of both rivals and adjudge what is the correct position. The main issues raised by us are discussed and decided as under keeping in view the respective stands taken by both the parties.

11. First issue involved in the case, as laid down supra, is whether finding of fact given in Income Tax proceedings is also applicable to wealth tax proceedings? The Revenue says that it is not applicable whereas the assessee says that it is very much applicable. Both the parties have expressed their views in the form of arguments which have been narrated above.

From the plain reading of Income Tax assessment orders passed by the Assessing Officer it comes to light that no finding, in fact, has been given by the Assessing Officer while passing the said assessment orders. He has just narrated the nature of business carried on by the assessee which was described to him on behalf of the assessee company. He simply picked it up without showing much concern as to inquire about the exact nature of assessee's activity or arrangement. Perhaps the Assessing Officer did not bother about .it as it did not, make any difference in his view. The assessee filed its returns of income showing income from business. The Assessing Officer, while, describing assessee's source of income, simply narrated what had been told to him by the A.R. of the assessee. Hence, in our view there is nothing in the Income Tax. assessment proceedings which can be called as finding about the assessee's nature of activity.

Suppose that the Assessing Officer has given a finding of fact about the assessee's nature of activity during the income tax assessment proceedings but even then it will not be applicable to wealth tax assessment proceedings. Both Income Tax and Wealth Tax are independent Enactments or Statutes and although both the statutes are administered by one tax machinery but both have got different temperaments and different modes of operations. Finding of fact under one statute does not bind the tax administering authority to apply it to the other statute also. Our source of inspiration for this view is judgments of the ITAT reported as 1998 PTD 363 and 2001 PTD 275.

Even if it is supposed the ITO gave finding of fact in Income Tax proceedings and this finding, of fact is applicable to assessee's/Wealth Tax case, even then it does not bail out the assessee respondent. Wealth Tax Act, 1963 in its section 2(1)(5)(ii) uses the words "letting out" or "business of letting out" for making an immovable property chargeable in the hands of a company. Income from letting out of property under the Income Tax Ordinance can be charged to tax under any of the heads of income namely; as property income under section 19, as business income under section 22 or as income from other sources under section 30. If it is income from letting out a house or a building it is charged to tax under section 19 as property income. If the assessee is doing business and earning income from a factory or a Mill and he lets out this factory and Mill to a third party on lease or rent then income from such lease and rent may be chargeable to tax in special circumstances under the head business income under section 22 according to decisions of many Appellate Courts. If a building alongwith machinery is let out and letting of the business is inseparable from the letting of the said machinery, then income from lease would be charged to tax under section 30 as income from other sources. In all these three different situations although the income is charged to tax under Income Tax Ordinance under different sections, it would not make any difference so far as the basic nature of activity of letting out of immovable property is concerned. Hence, irrespective of the assessment of income under any of the sections of Income Tax Ordinance, the letting out of immovable property would be subjected to Wealth Tax in the hands of a company in terms of section 2(1)(5)(ii) of the said Act. Therefore, in our view, the assessment of income of the respondent in the instant case by the ITO as business income under section 22 would not help the respondent if the nature of its activity remains letting out or business of letting out or immovable property.

12. The second issue involved in the case, as mentioned above, is what is the true nature of assessee's activity. Is it a business of licensing as claimed by the assessee or is it letting out or business of letting out of immovable property as contended by the Wealth Tax Department. We have narrated the arguments given on behalf of both the parties in detail as discussed above and we have given them our cautious consideration. There is no need to repeat the same. We will have, however, to involve ourselves in a little bit discussion as to what is the, leasing and what is licensing and what is the difference between the two. Fortunately both the parties have produced a -plethora of judgments of the superior judiciary on the issue of licensing and leasing to facilitate our work.

"Licensing" as defined by Black's Law Dictionary is a `permission' granted by one to another to do some act or enjoy certain privilege and is not a creation of contract and does not confer any right upon licensee to create any interest etc., In a judgment reported as PLD 1957 (W.P) Kar. 892 lease and licence have been distinguished. It has been held that the essential feature which distinguishes a lease from a licence is the presence of exclusive possession in the case of lease and its absence in the case of licence. In another judgment cited as PLD 1962 (W.P.) Kar 663 difference between licence and lease has been made in a rather detailed way. The observations of the Court in this regard are as under:

"The most distinctive feature between a lease and a licence is that, in the former there is a transfer of interest in immovable property whereas in the latter that element is expressly excluded. The transfer of interest in a case of a least consists of the grant to the lessee the exclusive right of possession of the demised premises. This right, in the first instance, vests in the lessor and is one of the most, important incidents of ownership. In granting a lease the lessor transfers this important right to the lessee. The right of exclusive possession involves an element of ouster' and when the lessor grants this right to the lessee he totally excludes himself from that right, though it may be one for a certain time. This right is assignable and heritable and constitutes property.

On the other hand, in the case of a licence there is a total absence of transfer of interest in the immovable property. A licence is a personal right granted to an individual of to an ascertained, number of individuals, to do or continue to do something in or upon the immovable property of the grantor, which in its absence would be unlawful. It is purely a permissive right and is neither assignable nor heritable. Notwithstanding the permission the grantor retains control over the property. The fact that a licensee occupies the property, that occupation does not confer upon him the right of exclusive possession as understood in law".

After a lot of discussion it was held by the Court:

"Whether there was a transfer of interest in shop premises by an agreement, and possession of the transferee was admitted by transferor to be exclusive, and there was a fixed term and a price, the transaction was held to be a lease and not a licence. The use of expressions such as `licence' instead of `lease' and `fee' and `compensation' instead of `rent' in the document could not alter its true character.

The most important feature of this judgment which would help us later on in reaching our decision is that it has been held that substance of a document should be looked to, not technical terms embodied in that document, to determine whether the arrangement is that of lease or licence. A judgment of Lahore High Court cited as PLD 1963 (W.P.) Lah. 418 refers to section 52 of the Easement Act which defines the `licence" as under:

"Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence."

Another judgment of the Honourable Lahore High Court reported as NLR 1981 Civil 379 attempts to make distinction between relationship of landlord versus tenant and licensor versus licensee. The observations made by the Court in the light of Rent Restriction Ordinance VII of 1959 are as follows:

"Person occupying property owned by another and paying something therefor---Should not necessarily be treated as tenant qua owner of property for person owning property can be a licensor vis-a-vis occupant of his property who pays certain money to owner for using property as a licensee---Mere fact that person agrees to pay something to other for occupying his property--Does not create relationship of landlord and tenant between them.

Rent payable by tenant so as to create landlord and tenant relationship-Rent is compensation for use and occupation of any property it can be hardly disputed that there is marked difference between rent and compensation for use and occupation-This difference can be well illustrated by comparing relationship of landlord and tenant with that of licensor and licensee".

We have briefly discussed in the above para the definition and distinction between lease and licence as made by some of the Courts in their enlightening judgments. Briefly speaking in case of a lease the lessee is granted the exclusive right of possession of the demised, premises and the right created is assignable and heritable and constitutes property. On the other hand in case of licence exclusive right of possession of the demised, premises is not given. There is absence of transfer of interest in the immovable property. It is purely a permissive right and neither assignable nor heritable.

In the case before us the assessee claims his arrangement or activity as that of licensing business. The assessee basis its contention on the claim that in the licence agreement the consignee/licensee is not given any exclusive right in respect of the possession of the space where the products of the later are displayed. It is also claimed that all goods inwards are tagged with the bar code of Pace, all goods are tagged and displayed under the total control of Pace management and cash is collected by Pace; all times are maintained by Pace and overall policy for the opening and closing holidays etc. is enforced by Pace, the control of all sales operation is with Pace and it can be closed by controlling the computer, and minimum charges or minimum licence fee on the minimum guaranteed sale is received from the licensee as percentage of sale to recover overhead charges and the operational cost. The contention of the assessee is that since overall management rests with pace and Pace is also accommodating for their stock loss claims if any, therefore, Pace is earning income from business of licensing and .is not engaged in letting out of immovable property on rent or lease. On the other hand the Revenue says that activity of the assessee is that of renting out or leasing out of immovable property because rent is fixed and the stall holders are bound to pay the same whether they make the sales or not. It is further submitted that the Pace has provided the stall holders space where goods are displayed and the percentage of sales is charged according to space provided, the stall holders make sales through their own salesmen who are paid salary by them, the Pace receives fixed rent whether the stall holder is suffering loss or earning profit, etc.

We have considered the viewpoints of both the parties in the light of the definitions of licence and lease and in the light of illuminating judgments of the Honourable superior Courts. We have also gone through the agreements made by the assessee with the persons whom the assessee likes to call licensees. In our view, the activity of arrangement of the assessee is not that of business licensing. As held by the Honourable Karachi High Court in PLD 1962 (W.P.) Kar 663, it is the substance which matters and not the technical terms embodied in the document. In fact the activity of the assessee is letting out of its immovable property called Pace. Since the building in question has not been permanently partitioned into shops, rooms or apartments and it gives the impression of a single big room or hall on each floor, it is but the compulsion created by circumstances that owners presence is required at the premises. Activities undertaken by the assessee company, the owner of the said building, like control and management, etc. are actually ancillary or subordinate to the main activity of letting out of the space in the building to the various shopkeepers and the stall holders. The fixation of the period, allocation of specified space, payment or fixed minimum charges or certain percentage of sales (which is in fact compensation for the space let out) point to the activity of letting out of the property in question. The shopkeepers or stall holders are in possession of space allocated to them and so far as their business activity is concerned they have exclusive right of possession as long as they are occupying the said space. They sell their goods on prices fixed by themselves through their salesmen. They are responsible for the payment of their taxes concerning their business like Income Tax etc. the assesses company does not share the loss or profit of the business of the said shopkeepers and stall holders and hence to call assessee's activity as licensing business is simply absurd. No doubt the assessee-company is not receiving the amount of fixed rent as is usual practice but it is receiving either minimum fixed charges or certain specified percentage of sales. The minimum fixed charges or licence fee or specified percentage of sales is nothing else than the compensation received for the space provided to the stall holders and shopkeepers for their use. It is in fact rental in the form of licence fee or minimum charges or percentage of sales which is being received by the assessee for letting out of its property. The jargons and terms used by the assessee are a cover or smoke screen to camouflage the real nature of its activity. In view of these facts and circumstances we feel inclined to hold that assessee is not doing any type of licensing business. Rather it is engaged in letting out of its immovable property.

13. The third issue, as raised by us supra, is whether licensing falls under letting out or not, if assessee's claim regarding it is accepted. As discussed by us in the above mentioned paras, assessee's activity is not licensing business. In fact licensing is no business and in the case, of the assessee it cannot be held so in any way because the assessee is not sharing loss or profit. Rather the assessee is getting compensation from the stall holders for the permission to use the space in the form of licence fee or fixed percentage of sales. The assessee has no concern with the profit or loss earned by the concerned business man or stall holder. It is concerned merely with its compensation or rental. As stated earlier licensing is in fact not business neither it has been held so by any Court in plethora of judgments produced by both parties before us. In connection with immovable property licensing is an activity which signifies permission to the licensee regarding the use of licensor's property for some purpose. This method of letting out property on licence instead of lease is used by the landlord as in case of a licence it is easy to eject or dispossess a licensee from the occupation of the property whereas in the case of lease or rent it is not so easy. So difference between rent or lease or licence is very material so far as the suits for ejectment of the tenant or licensee of property in civil law are concerned but the difference between rent or lease on licensing is immaterial and irrelevant so far as Wealth Tax law is concerned.

Section 2(1)(5)(ii) of the Wealth Tax Act 1963 defines the term "assets" in the case of a firm an association of persons or a body of individuals, whether incorporation or not, and a company, as immovable property held for the purpose of business of construction and sale, or letting out of property. Honourable Supreme Court of Pakistan in its judgment, dated 19th January 1999 on Civil Appeal No. K-140 of 1981 held that the provisions, as it stands, is not happily worded and does not convey the intention of legislature. Resultantly an explanation was added to this provision of law which reads as follows:-

"Explanation.-For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause includes-

(i) immovable property held for the purpose of letting out, or business of letting out of property:

(ii) immovable property held for the purpose of construction and letting out of property; and

(iii) immovable property held for the purpose of construction and sale of property."

Thus immovable property held for the purpose of letting out or business of letting out has been defined to be an asset in the hands of a company chargeable to -tax under the provisions of Wealth Tax Act, 1963. The expression "letting out" has not been defined. It is a wide term. An immovable property can be used by the owner for his residence or for his business of trading or manufacturing or it can be let out to third parties. In the instant case the assessee is not using its building for residential purposes or for the purpose of its own business of trading or manufacturing. The property has simply been let out for the use of shopkeepers or stall holders who have set up their business in the premises allocated to them. Letting out can assume the form of lease or rent or licence. The activity of the assessee may fall in the term licence and it may help the assessee in getting its licensees ejected from possession in civil suits but it certainly does not help the assessee against the charge of wealth tax. Because licensing, in the case of immovable property, in our humble view, is also included in the letting out or the business of letting out.

14. In view of the foregoing discussion we do not feel any hesitation to hold that the immovable property known as Pace has been let out by the assessee company and therefore, the Assessing Officer has rightly treated the said property as chargeable to wealth tax in terms of section 2(1)(5)(ii) read with section 3 of the Wealth Tax Act, 1963. The plea of the learned A.R. of the assessee that ambiguity in the interpretation of a Statute should be resolved in favour of subject as held by superior judiciary in so many cases (for example PLD 1957 Kar 300) is irrelevant. We do not find any ambiguity in section 2(1)(5)(ii) of the Wealth Tax Act, 1963 which defines asset and therefore, the assessee is not entitled to any relief on the basis of such plea of its learned A.R. The assessee's activity or arrangement, in connection with its immovable property, as held by us, clearly falls within the ambit of the expression letting out or business of letting out of immovable property and hence assessee is chargeable to wealth tax under section with section 3 of the Wealth Tax Act, 1963. Hence, the impugned appellate order of the learned Commissioner for all the years under considerations is vacated and the assessment orders passed by the DCWT are restored.

15. Consequently, appeals filed by Revenue succeed as indicated above.

C.M.A./941/Tax (Trib.)Appeals accepted.