W.T. As. Nos. 662/LB to 666/LB of 2001, decided on 27th June, 2003. VS W.T. As. Nos. 662/LB to 666/LB of 2001, decided on 27th June, 2003., 2004 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 852 (2003)

(a) Wealth Tax Act (XV of 1963)‑‑‑

‑‑‑‑Ss. 2(1)(5)(ii) & 16(3)‑‑‑Assets‑-‑Property held for purpose of business of construction and sale or letting out‑‑‑Commercial open plots‑‑‑Shares in such plots were assessed in the hands of individual‑‑ First Appellate Authority deleted addition and directed that said plots be appraised for wealth tax purposes collectively in the hands of Association of Persons‑‑‑Validity‑‑‑Plots and land were as bare as they were in the year of purchase i.e. 1993‑-‑Assessing Officer could not close his eyes to this hard ground reality and even if co‑owners did eventually construct a commercial building on plots they would in all likelihood be carrying on their own individual business therein‑‑‑Even if, any vacant space was sold or let out by the individual co‑owners, that too was likely to be in their individual capacity‑‑‑On the valuation date, the individual share holdings of the co‑owners, had to be assessed in their individual hands for purposes of levy of wealth tax and could not be considered for assessment purposes in, the hands of an imaginary Association of Persons that had no actual/real existence‑‑‑Property held by the assessee through her minor son was also liable to be assessed in her personal hands and was not the property of any imaginary Association of Persons‑‑‑Order of First Appellate Authority was vacated by the Appellate Tribunal and Assessing Officer would finalize assessments in case of co‑owners as their having shareholding in properties.

PLD 1975 SC 331; PLD 1974 SC 106; PLD 1965 SC 269; PLD 1973 SC 236; 1996 PTD (Trib.) 114; 1996 S6MR 470 and 1999 PTD 3817 ref.

(b) Wealth Tax Rules, 1963‑‑‑

‑‑‑‑R. 8(3), first proviso & Explanation‑‑‑Valuation of land and building‑‑‑Rule 8(3), first proviso and Explanation of Wealth Tax Rules, 1963 shall apply strictly for valuation of immovable properties held by the co‑owners‑‑‑No question would arise of separate valuation of land and superstructure and Central Board of. Revenue's Circular/Instructions issued in this regard were to be ignored.

Anwar Ali Shah, D.R. and Amjad Zubair Tawana, DCIT for Appellant.

Muhammad Ali Asghar Qazi, ITP for Respondent.

Date of hearing: 11th June, 2003.

ORDER

MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER).-‑‑These appeals by Revenue arise out of order passed by the CIT/WT (A), Zone‑I, Lahore, dated 4‑1‑2001.

2. The facts in these cases are that Messrs Maqsood Ahmad, Farooq Ahmad and Mehmood Ahmad, family members, co‑own the following properties:‑‑

Plot at Sarwar Road, Lahore Cantt.

Plot at Aziz Bhatti Road, Lahore Cantt.

Property at 10‑Jail Road, Lahore.

Property at 25‑Waris Road, Lahore.

3. There is also a fourth family member, Mst. Naseem Begum, who is also co‑owner in the property at Waris Road; Lahore with 1/10th share therein. The share arises to Mst. Naseem Begum from the fact that her son, Mr. Fahad Farooq being minor/co‑owner in the property at Waris Road, Lahore, his share is liable to be assessed in the hands of his mother.

4. In wealth tax assessments finalized under section 16(3), the Assessing Officer has accorded the following treatment:‑

(a) In "the case of plots at Sarwar Road and Aziz Bhatti Road, Lahore Cantt. 1/3rd share of each co‑owner in the three commercial plots have been assessed in their individual hands at the declared purchase price.

(b) The CWT(A) has deleted the addition and directed that the said plots be appraised for wealth tax purposes collectively in the hands of concerned AOP.

(c) In the case of Jail Road Property, the Assessing Officer has bifurcated the total area of 10440 sq. ft. by excluding the area rented out to Messrs Nirala (Pvt.) Limited and the balance area has been appraised for wealth tax purposes in the hands of the co‑owners by appraising land and superstructure separately. The land area has been appraised at applicable DC rate, superstructure has been separately appraised at Rs.350 per sq. ft., 1/3rd share of Messrs Maqsood Ahmad computes at Rs.69,62,733 and that of Messrs Mehmood Ahmad and Farooq Ahmad at Rs.1,13,91,400 respectively.

(d) The CWT(A) has deleted the shares in the said commercial property so included in the individual co‑owners net wealth and. has directed that the same be assessed globally in the hands of the co‑owners collectively treated as "AOP".

(e) In the case of Waris Road property, the Assessing Officer has appraised land area of 192‑Maria at applicable DC rates and the superstructure separately and the assessee's share therein has been worked out in the case of Messrs Maqsood Ahmad at Rs.1,17,70,000; in the case of Mehmood Ahmad at Rs.2,47,90,800 and in the case of Farooq Ahmad and Mst. Naseem Begum at Rs.82,63,600. The CWT (A) has deleted the shares in the said commercial property so included in the individual co‑owners net wealth and has directed that the same be assessed globally in the hands of the co‑owners collectively treated as "AOP".

5. The Department is aggrieved of the' treatment accorded by the CWT(A). It is the departmental contention that there was no justification in law to assess each assessee's individual share holding in the said properties in the hands of so called AOP whose very existence has no where been established on the valuation date.

6. According to the DR, and elaborate scenario visualizing an imaginary AOP comprising the aforementioned family members has been deliberately created to evade due wealth tax liability. It is explained in this context that the family business of sweetmeat manufacture and sale 'under the well known brand "NIRALA" is no longer the mainstay family business 'that it once was in the past. Rather, in the period relevant to the assessment year in appeal, the various family members/co‑owners in the property cited above have statedly branched out into different business enterprises unrelated to the manufacture and sale of sweetmeat. The brand name "NIRALA" is still there but exists as a franchise only (held by INMOL Ltd.) based on the goodwill earned by the family over the years:

7. According to the DR, the three commercial plots purchased by the family members in the Lahore Cantt. area in 1993 remain to ‑date as bare plots of land. No construction whatsoever has been made thereon. No project/plaza "intended" to be constructed thereon has been advertised. No boundary wall has been constructed. In short, in-spite of passage of protracted length of time, there is no overt action on the part of the co‑owners in the said three plots to even suggest that a commercial building/plaza is to be constructed thereon and then the shops/offices/showrooms to be constructed therein are to be let out/sold to corporate and other buyers.

8. It is emphasized by Revenue that the lease documents between co‑owners and the Military estate Officer, Lahore Cantt, simply specifies that plots shall be utilized for construction of commercial building and there is no express stipulation that the shops/offices/showrooms constructed in the commercial building will exclusively be required to be sold out to outsiders and will not be utilized by the co‑owners for their own individual business. That being so, it is the departmental contention that there is no arrangement, formal or otherwise, on the basis of which it can be confidently said that the family members by virtue of lease of cited three properties in Lahore Cantt. are collectively engaged in the business of construction and sale/letting out of property, as envisaged in section 2(1)(5)(ii) of the Wealth Tax Act (since repealed) and Explanation thereto.

9. Similarly, in the case of Waris Road property, it is deposed by the DR that before the Excise and Taxation Authority, the individual co -owners have affirmed their individual ownership in and self‑occupation of, the said property, as borne out by the PT‑I Form in the case of each co‑owner, However, before the Assessing Officer, the individual co owners have statedly falsely declared that the property has been rented out to various tenants. The Assessing Officer has categorically and unequivocally condemned the tenancy arrangements cited by the co owners as FAKE and it is asserted that these have been artificially and arbitrarily contrived by the co‑owners simply to derive unwarranted tax benefit and to evade due tax liability.

10. In the case of Jail Road property, the Department has recognized only the letting out of that part of the property that is in the occupation of Messrs Nirala (Pvt.) Limited and it is accepted that rental of Rs.8,500 per month is being paid by Messrs Nirala (Pvt.) Ltd. to the individual co‑owners, However, the rest of the property has been assessed in the hands of the individual co‑owners as the same remains in their individual self‑occupation and there was therefore no justification to make a collective appraisal for purposes of levy of wealth tax, in the hands of an AOP.

11. AR of assessee/respondent, contests the submissions as made by D.R., in the case of three commercial plots in Lahore Cantt. area, the AR argues that a no objection certificate (NOC) had been issued by the Military Authorities that makes clear mention of construction of commercial building/plaza on the site of the three plots and it was the Stated requirement of The Cantonment Military Authorities that the shops/offices/showrooms constructed therein be sold/let out to corporate and other buyers. It is explained by the AR that an NOC has, been issued on the request of the co‑owners and it was statedly quite evident that the co‑owners are collectively, involved in a business enterprise involving construction and sale/letting out of the shops/offices/showrooms to be constructed in the commercial building/plaza at the given site. It is emphasized by the AR that the co‑owners are bound as per their written agreement with the Military Cantonment Authorities to construct a commercial building/plaza at the given site and then either sell or rent out the shops/showrooms/offices in the said building to corporate and other buyers. That being so, it is contended that the provisions of section 2(1)(5)(ii) and Explanation thereto are squarely attracted and resultantly the collective enterprise of the co owners is required to be treated by law as an Association of Persons for purposes of levy of wealth tax under the Wealth Tax Act, 1963 (since repealed).

12. In the case of Waris Road property, the AR does not deny that in the record of the Excise and Taxation' Authorities, the PT‑1 Form pertaining to each individual co‑owner does show the property to be in the self‑occupation of the co‑owners and there is no mention of the same having been let out to any one. However, it is the AR's contention that the particulars furnished to the Excise and Taxation Authorities in the context of levy of property tax (a provincial subject) were admittedly not correct and had been deliberately furnished to the said authority by each assessee simply to reduce the co‑owners property tax liability. However, before the Assessing Officer the co‑owners statedly intimated the actual/correct state of affairs i.e. that the property had been rented out to various tenants. It is argued that this is not a development that has come as a surprise for the department has in the past, similar arrangements had statedly been accepted by the department and there was therefore no cause to treat the matter differently in these years.

13. As for the Jail Road property, the A.R. pointed out that the Department had accepted the rental of premises to Messrs Nirala (Pvt.) Limited when that property too was co‑owned by the family members. It is the contention of the AP. that having accepted the rental arrangement in the case of the Jail Road property, there was no justification to reject the rental arrangement in the case of the Waris Road property.

14. The DR took issue with the AR of assessment/respondent in matter pertaining to assessee's acknowledgement regarding alleged deliberate furnishing of wrong particulars regarding the Waris Road property by the co‑owners to the Excise and Taxation Authorities. It is emphasized by the DR that a taxpayer cannot approbate and reprobate in the same breath. Thus the co‑owner cannot declare on the one hand to the Excise and Taxation Authorities that the Waris Road property is in their individual self‑occupation and on the other hand declared to the Assessing Officer that the same property has been let out to various tenants. Such conduct was not only unbecoming for a law abiding citizen but also exposed the assessee's true nature and casts grave doubts on his submissions regarding the existence of a genuine AOP.

15. In the case of the Jail Road property, the DR submitted that the Department had only accepted the letting out of a part of the premises to Messrs Nirala (Pvt.) Limited which is a genuine corporate entity in which Mahmood Ahmad and Maqsood Ahmad have no interest and that was entirely reasonable. However, for the rest of the property, the departmental contention remained unchanged and there was no contraction here as alleged by AR.

16. During the course of appeal proceedings, the Tribunal had expressly directed the Department as well as the assessee to compare their status with that of Messrs Rahat Bakers Lahore Cantt, and the commercial building constructed by them at Sarwar Road, Lahore Cantt. on 90 years lease land.

17. After examining the available record the D.R. has deposed that 'Messrs Rahat Bakers at Sarwar Road was just adjacent to the three commercial plots co-owned by the assessees. The property on which Messrs Rahat Bakers, commercial building has been constructed is also co‑owned by fancily members who are offshoots of the original "Rahat Bakery" enterprise. Originally, before the Rabat Bakers commercial building took its present shape, the individual share holding of the, co owners in the said property was assessed by the Department in their individual hands. However, "after the commercial building took its present shape" the property is being assessed as an AOP.

18. AR of assessee/respondent did not offer much comment to either compare or distinguish assessee's case with that of Messrs Rahat Bakers.

19. The following case‑law has been, cited by Revenue and assessee:‑

PLD 1975 SC 331; PLD 1974 SC 106; PLD 1965 SC 269; PLD 1973 SC 236; 1996 PTD (Trib.) 114; 1996 SCMR 1470 and 1999 PTD 3817.

20. We have heard both sides and have examined the available record and have also perused the case‑law cited before us by both parties and our findings are recorded as under:‑‑

(1) An AOP, though not expressly defined in the Wealth Tax Act, 1963, is "a creature of contract explicit or implicit" (1978 PTD (Trib.) 54). In the case of the co‑owners presently in appeal, there is no discernible arrangement, formal or otherwise, that can be reasonably seen as proof of constitution of an AOP. Not only is there, no AOP in existence, there is also presently (i.e. on the valuation date) no immovable property "held for the purpose of the business of construction and sale, or letting out, of property". All that we have (on the valuation date) are three bare plots of land on Sarwar Road Lahore Cantt. co‑owned by the above cited family members. That is the, ground reality as on the valuation date. Whether or not the co‑owners will ever agree to share their individual resources and actually collectively engage in the enterprise of construction of a commercial building/plaza, on the said plots and then having constructed the commercial building/plaza sell and/or rent out the shops/showrooms/offices to be constructed" in the said plaza, is a moot point on which no express finding can be recorded with any degree of certainty as on the valuation date for the simple reason that to date the individual co‑owners in the said property having done nothing whatsoever to show that they will .indeed share their resources and construct a commercial building on the given site and then sell and/or rent out the individual shops/ offices/showrooms to corporate and other buyers.

(2) The individual co‑owners correspondence with the Cantonment authorities places no embargo on the individual co‑owners to use the shops/offices/showrooms in the proposed commercial building for their own individual business, enterprises. The AR of assessee/respondent acknowledged as much during the course of appeal proceedings when questioned on the matter. Admittedly, the family members are no longer predominantly in the sweetmeat business. Rather, they have branched out into other business enterprises, including sale of carpets, jewellery, property etc. It is only reasonable to expect that the present co- owners and their children/legal heirs will in the future set up their own individual business enterprises. It is thus just possible that if and when the commercial building/plaza is even constructed, then there will hardly be any space left to be sold out or rented out to outside parties. Since the individual family members may very well be engaged in their own independent enterprises and there will, in all likelihood, be no collective family sweetmeat business, there is little likelihood of any "family AOP" as such.

(3) "Commonality of purpose" is the hallmark of an AOP. Documentation as well as the ambient circumstances in the present case do not conclusively establish that the co‑owners in the case of the Lahore Cantt. Plots have indeed made a cast iron commitment to get together to build a plaza and to necessarily sell and/or let out the drops/offices/showrooms constructed therein to outside parties only It is quite possible for each of the co‑owners constructed premises to conduct therein separate business enterprises on the three commercial plots in Lahore Cantt., there is little, if any, likelihood of a common business enterprises among the co‑owners, there will also be in all likelihood no AOP, as such. While it may be the stated "intention" of the co‑owners (as per the AR) to construct a commercial building, their actual conduct to date does not inspire much confidence in this regard. The plots and land today are as bare as they were in the year of purchase i.e. 1993. How can the Assessing Officer close his eyes to this hard ground reality and even if co‑owners do eventually construct a commercial building they would in all likelihood be carrying on their own individual businesses therein. Even if, any vacant space is sold or let out by the individual co‑owners, that too is likely to be in their individual capacity. There is thus no commonality of purpose evident in this case.

(4) In the case of the Waris Road property, the ambient circumstances as well as the available evidence does not conclusively establish that the property has indeed been actually rented out by co-owners collectively. As pointed out above, the individual co‑owners have, affirmed before the Excise and Taxation Authorities that the property remains in their individual occupation. During the course of appeal proceedings, the AR was content only to say that the property had indeed been genuinely let out. However, in the face of categorical and unequivocal finding recorded by the Assessing Officer that the arrangements, purported to have been made between the co owners and the, alleged tenants were fake and artificially contrived, the assessee was expected to rebut the Assessing Officer's finding by filing an affidavit at the very least. That has not been done and the CWT (A) has accepted the assessee's contention on the matter merely on the basis of a rambling analysis and has reached the conclusion that any commercial property that is vacant must invariably be treated as available for purposes of letting out. In the real world, much commercial property is purposely held vacant and is not let out either for intended future personal use or held by way of investment. There is thus no immutable "rule" that all commercial property that is vacant is bound to be treated as let out property. The analysis made by the CWT(A) in this regard in the .impugned order is just and correct.

(5) There is no contradiction in the departmental treatment of the Jail Road property and the Waris Road property. While the tenants, in the case of Waris Road property, have been found to be fake; in the case of the Jail Road property, the only tenant Messrs Nirala (Pvt.) Ltd., is a genuine corporate entity and has been rightly recognized as such by the Department. However, only a part of Jail Road property has been let out to Messrs Nirala (Pvt.) Limited and Mahmood Ahmad and Maqsood Ahmad have no concern with `Nirala' and the rest of the property remains in the personal occupation of the co‑owners. There is thus no genuine AOP, as such, here as well.

(6) As far as valuation of the various units of immovable properties held by the co‑owners is concerned, rule 8(3), 1st proviso and Explanation thereto shall apply strictly and there is no question of separate valuation of land and superstructure and any C.B.R. circular instructions issued in this regard are to be ignored.

(7) For the reasons recorded supra, we are of the considered view that as on the valuation date, the individual share holdings of the co‑owners, has to be assessed in their individual hands for purposes of levy of wealth tax and cannot be considered for assessment purposes in the hands of an imaginary AOP that has no actual/real existence. The property held by Mst. Naseem Begum, through her minor son (1/10th share in Waris Road property) is also, liable to be assessed in her personal hands and is not the property of any imaginary AOP.

(8) The case‑law cited by assessee/respondent has been closely examined and we find that it is of no avail to the assessee.

Resultantly, the findings of the CWT(A) in the case of the properties referred to above, ,are hereby vacated and the Assessing Officer will finalize assessments in the case of the co‑owners having share holding in cited properties, as per findings recorded supra. The departmental appeals succeed to the extent and in the manner specified above.

C.M.A./949/Tax(Trib.)Order accordingly.