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

----Ss. 28, 29 & 132(l)(a)(ii)---Capital gain, computation of---Cost of acquisition and consideration for transfer---Determination of-- Enhancement in assessment without giving opportunity of hearing---Sale of Stock Exchange Card---First Appellate Authority directed the Assessing Officer to assess capital gain without deduction of cost of acquisition of Card as the same had neither been incurred/claimed by the assessee nor the Assessing. Officer showed his intention to allow the same in any of his notices issued to the assessee---Validity---Direction of First Appellate Authority were patently illegal, because cost of Stock Exchange Card was disallowed without issuing any notice to the assessee, notwithstanding that directions would tantamount to enhancement in assessment---Held, for purpose of computation of capital gain provisions of Ss. 28 & 29 of the Income Tax Ordinance, 1979 had to be followed.

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

----Ss. 29(b) & 28---Capital gains, computation of ---Cost of acquisition and consideration for transfer---Determination--Inheritance or devolution---Sale of Stock Exchange Card---First Appellate Authority directed the Assessing Officer to assess capital gain without deduction of cost of acquisition of the Card as the same had not been incurred/claimed by the assessee ---Validity---First Appellate Authority ignored the provision of S.29 of the Income Tax Ordinance, 1979, while directing the Assessing Officer to assess the capital gain on account of sale of Stock Exchange Card without any deduction of cost of acquisition-- Order of First Appellate Authority was cancelled by the Appellate Tribunal and that of Assessing Officer was confirmed allowing the cost of acquisition of card.

Abdul Majeed for Appellant.

Mrs. Shaista Abbas, D.R. for Respondent.

Date, of hearing: 11^th September, 2003.

ORDER

MUHAMMAD ASHFAQ BALOUCH (JUDICIAL MEMBER).-- Above captioned appeal has been filed by the assessee against the order, dated 13-7-2002 passed by the learned Commissioner of Income Tax (Appeal) Zone-IV, Karachi. The appellant has contested that the learned CIT(A) was not justified in directing the Assessing Officer to assess the capital gain on account of sale of KSE Membership Cards at Rs.11.5 Million without deduction of any cost of acquisition, which direction is unjustified and (ii) learned CIT(A) was not justified to observe that the assessee had concealed his income chargeable to tax.

2. The brief facts of the case are that the assessment for the year under consideration was finalized by the DCIT on 28-5-2001 whereby the total income of the assessee was assessed at Rs.1,21,23,975 which was set aside by the learned' Commissioner of Income Tax Zone-C, Karachi vide his order under section 138 of the Income Tax Ordinance, 1979, dated 10-10-2001 for de novo proceedings with following directions:

(i)"Whether the assessee is entitled to 50% of the gains arising out of sale of the Karachi Stock Exchange Membership Card? This claim can be examined by obtaining information from the Karachi Stock Exchange as well as the heir-ship certificate issued by the Court.

(ii)The proposed sale price or the fair market value of the Membership Card at the time of disposal needs to be re confronted to the assessee and further necessary action needs to be taken in accordance with law as warranted on the basis of ,evidence collected/confronted. In this regard purchaser of the card may also be examined under section 148 of the Income Tax Ordinance, 1979 as a witness.

(iii)Estimate of brokerage income should be based on the evidence/ proof of transactions which may be obtained from Karachi Stock Exchange.

(iv)The fact regarding concealment of income can be re-examined in the light of evidence available on record and submission made by the petitioner.'

3. The assessee during the re-assessment proceedings claimed as under:--

(a)The assessee enjoyed 50% share in KSE Membership Card and had earned capital gain of Rs.57,50,000 (being 50% share holder), as a result of sale of KSE Membership Card left behind by his (late) father.

(b)The sale price of his KSE Membership Card was. Rs.1,15,00,000

(c)The assessee did no business of share dealings at all in the assessment year in question and therefore, no income on account of brokerage/commission from Stock Exchange had been earned by him.

(d)The sale price could be verified from file of the purchaser."

4.After serving notice under section 62 of the Income Tax Ordinance and going through the explanation submitted by the assessee the Assessing Officer observed as under:--

"The above explanation has been carefully examined and found unsatisfactory as the KSE has given in writing that Mr. Abbas A. Sutterwala was the full owner of the KSE Membership. Furthermore, the facts of the case reveal that he. sold the card to Mr. Owais Ahmed Dagra as a sole owner. He could not furnish the heirship certificate issued by a competent Court of law regarding his claim of 50% ownership in the card. The assessee's contention that his KSE Membership Card being a dormant and inactive one had a little value is also incorrect because if the defaulted card in the case of Mr. Abdul Hamid Abdul Shakoor (parallel case quoted above) with huge liabilities attached to it and with no goodwill at all, is declared at Rs.1,95,00,000 and assessed even at more value than it is logically very hard to digest that the KSE Membership Card in the case of the assessee was sold at Rs.1,15,00,000. Further more the assessee through his explanation dated 6-2-2002 filed through his A.R. has himself admitted that in his case the KSE Index was higher by 9.96 points. He has further conceded that Mr. Abdul Hamid.Abdul Shako6r's case the KSE Membership Card was sold at Rs.1,95,00,000 during October, 1999. The learned assessee however, wrongly contended that in the case of Mr. Abdul Hamid Abdul Shakoor .(Purchaser) the KSE Membership Card was very much in business and active, on the contrary it was a defaulter card and despite of that was sold at Rs.1,95,00,0,00 where value was subsequently, assessed at Rs.1,98,73,000. So far as the contention of the assessee that he did not conceal anything and the exemption or taxability of an item .of receipts is a simple matter of .difference of opinion is concerned, it is not sustainable in the eye of law particularly as provided in sub-clause (a) of subsection (2) of section 111 of the Income Tax Ordinance, 1979 which says "For the purpose of subsection (1) and section 119 concealment of income or the furnishing of inaccurate particulars of income shall include: (a) the suppression of any item of receipt liable to tax in whole or in part (or failure to disclose income chargeable to tax). "The careful perusal/reading of the aforementioned legal provision is sufficient to believe that the assessee did conceal his income chargeable to tax. It is also duly contended that the worthy CIT Zone-C, Karachi's direction vide his order under section 138 of the Income Tax Ordinance, 1979 that (i) the assessee's claim regarding 50% ownership be examined by obtaining information from .KSE as well as the Heirship Certificate issued by the Court, (ii) the sale price or the fair market value of KSE Membership Card at the time of disposal be re-confronted to the assessee and further necessary action be taken according to law on the basis of evidence collected/confronted, (iii) estimate of brokerage income should be based on evidence/proof obtained from KSE, (iv) the fact regarding concealment of income be re estimated in the light of evidence available on. record have been properly followed in the course of de novo proceedings. The result was that the assessee failed to submit the heirship certificate issued by Court, while KSE gave in writing that the assessee was the full owner of the KSE Membership Card, the sale/price/fair market value of the KSE Membership Card at the time of disposal was re-confronted, on the, basis of solid evidences, which suggested the fair market value of the KSE Membership Card at the time of its disposal was not less than 20.00 (M) evidence regarding brokerage income was also obtained from the KSE, which revealed that the assessee did no business, therefore, no income from this source is being included in his total income and the issue of concealment of income was also confronted to the assessee and as mentioned above as per the provision of section 111(2)(a) of the Income Tax Ordinance, 1979, the assessee has concealed his income for assessment year 2000-2001. "

Consequently the income was assessed by the Assessing Officer as under:---

Income declared

Capital gain on account of

sale of KSE Membership Card2,00,00,000

Less:60% allowance under 2nd Schedule1,20,00,000

Less:Cost/'expenditure under section 28 of the

Income Tax Ordinance, 7940,00,00040,00,000

Total Income Assessed40,23,975

5. The assessee being aggrieved with the order of the Assessing Officer went in appeal before the CIT(A) who observed as under:

"Since the appellant had not incurred/claimed any cost of acquisition of Card, nor the Assessing Officer had shown his intention to allow the said imaginary cost in any of his notices issued to the appellant. The deduction of Rs.,40,00,000 under section 28 from the capital gain is absolutely incorrect: The Assessing Officer is therefore, directed to assess capital gain on account of sale of KSE Card at Rs.11.5 (M) without any deduction of cost of acquisition. "

6. The learned CIT(A) directed to assess the capital gain on account of sale of KSE Card at Rs.11.5 Million without any deduction of cost of acquisition and on the issue of concealment he observed as under:--

"The issue of concealment was also confronted to the assessee and 'the contention of the assessee that he did not conceal anything and the exemption or taxability of an item of receipt is a simple matter of difference of opinion is examined in the light of sub-clause (a) of subsection (2) of section 111 of the Income Tax Ordinance, 1979. which says "For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include (a) the suppression of any item of receipt liable to tax in whole or in part (or failure to disclose income chargeable to tax)" the perusal of the aforementioned provision is sufficient to believe that the assessee did conceal his income chargeable to tax. Consequential action is to be followed accordingly."

7. Mr. Abdul Majeed, Advocate for the appellant has argued that the appellant claimed the entire sales proceeds as exempt from levy of tax as being asset of his deceased father, distributed amongst the legal heirs in accordance with a family settlement, duly registered with the Registrar but the Assessing Officer did not accept the claim which is against the law. Further no concealment of income was made by the assessed therefore, the provision of section 111 is not attracted. The learned D. R. supported the order of the learned CIT(A).

8. We have considered the arguments of both the parties and perused the order of the officers below.

9. It is an admitted fact that K.S.E. Card was initially registered in the name of Asghar A. Suterwala, the father of assessed/appellant who during his life time applied to the concerned authorities for transfer of K.S.E. Card in favour of his nominee, the assessed/appellant. The process of transfer. was finalized after death of father of assessee/ appellant. A letter, dated 9-4-1996 issued by General Manager, Karachi Stock Exchange proves that assessed/appellant Abbas A. Suterwala became 100% owner of K.S.E. Membership Card from April 4, 1996. Thereafter appellant/assessed as a sole owner sold out that said Card to one Ovais Ahmed Dagra. As the assessee has failed to prove that he is only 50% owner of Card and sold out the same at Rs.1,15,00,000, Assessing Officer assessed the value of Card at Rs.2,00,000,00 allowed 60% allowance under Second Schedule, further allowed Rs.4 million as the cost/expenditure under section 28 of the Income. Tax Ordinance, 1979. The learned CIT(A) while deciding the appeal of the assessee, on the issue of capital gain on account of sale of K.S.E. Card had observed as under:

"Since the appellant had not incurred/claimed any cost of acquisition of Card, nor the Assessing Officer had shown his intention to allow the said imaginary cost in any of his notices issued to the appellant, the deduction of Rs.40,00,000 under section 28 from the capital gain is absolutely incorrect. The Assessing Officer is therefore, directed to assess capital gain on account of sale of KSE Card at Rs.11.5 (M) without any deduction of cost of acquisition."

10. These directions of the learned CIT(A) are .patently illegal because cost of KSE Card was disallowed by him without issuing am notice to the assessed/appellant, notwithstanding that his directions were tantamount to enhancement in assessment. Further for the purpose of computation of capital gain provisions of sections 28 and 29 of the Income Tax Ordinance, 1979 have to be followed, the relevant portions of the sections are reproduced as under:

"Section 28. Computation of Capital Gains. (1) In computing the income under the head "Capital Gains", the cost of acquisition of the capital asset and any expenditure incurred wholly, and exclusively in connection with the transfer thereof shall be deducted. ,

(2)The provisions of section 24 shall, so far as may be, apply to the allowances and deductions under this section as they apply to the allowances and deductions in respect of income chargeable under the head "Income from business or profession".

"Section 29: Cost of acquisition, and consideration for transfer, how determined.--(1) Where the capital assets become the property of the assessed--

(a).........................................

(b)by succession, inheritance or devolution; or

(c).........................................

(d).........................................

(e).........................................

The fair market value of the assets, as on the date on which it became the property of the assessee, shall, for the purposes of subsection (1) of section 28, be deemed to be the cost of acquisition. "

11. It is evident from the above referred provisions of law that while computing income under the head `capital gain', the Assessing Officer has to take into consideration two things for the purpose of deduction from the sale price, (1) the cost of acquisition of capital asset and (ii) expenditure incurred wholly and exclusively in connection with the transfer.

12. It is worth to mention here that the case of assessee/appellant also attracts the provision of section 29(b) of the Ordinance, because the' Card in question was transferred in the name of assessee by way of devolution, therefore, the fair market value of asset, for the purpose of subsection (1) of section 28 of Ordinance is deemed to be the cost of acquisition.

13. The upshot of the above discussion is that learned CIT(A) has ignored the above referred provisions of law while directing the Assessing Officer to assess the capital gain on account of sale of K.S.E. Card at Rs.11.5 million without any deduction of cost of acquisition. Therefore, we have reasons to cancel the order of the learned CIT(A) on this ground and restore the order of the Assessing Officer, thereby confirming the allowance of cost of acquisition of Card at Rs.4.0 million as done by the Assessing Officer and acceptance of this value by the appellant/assessee as this was not challenged in appeal before the learned CIT(A).

14. The second point agitated by the assessee is concealment of income. In this respect from perusal of the order of the officers below it appears that the order was passed for issuance of notice under section 116 of the Income Tax Ordinance, 1979 and the learned CIT(A) on this point observed as under:--

"The issue of concealment was alto confronted to the assessee and the contention of the assessee that he did not conceal anything and the exemption or taxability of an item of receipt is a simple matter of difference of opinion is examined in the light of sub-clause (a) of subsection (2) of section 111 of the Income Tax Ordinance, 1979 which says "For the purposes of subsection (1) and section 119, concealment of income or the furnishing of inaccurate particulars of income shall include (a) the suppression of any item of receipt liable to tax in whole or in part (or failure to disclose income chargeable to tax)" The perusal of the aforementioned provision is sufficient to believe that the assessee did conceal his income chargeable to tax. Consequential action is to be followed accordingly."

15. The main objection of the learned A.R. was that the officers below have not proved any concealment, therefore, their order at this stage was without any merit. This argument of the learned A.R. is without any force because at this stage the Assessing Officer has only ordered for issuance of notice under section 116 and was not bound to prove the concealment. The appeal of the assessee on this issue is without any merit and stands dismissed.

16. The appeal of the assessee partially succeeds and is disposed of in the manner as indicated above.

C.M.A./1041/Tax (Trib.)Order accordingly.