W.T.As. Nos. 77(IB) to 82(IB) of 2001-2002, decided on 4th September, 2004. VS W.T.As. Nos. 77(IB) to 82(IB) of 2001-2002, decided on 4th September, 2004.
2005 P T D (Trib.) 895
[Income‑tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmed, Judicial Member and Mahmood Ahmad Malik, Accountant Member
W.T.As. Nos. 77(IB) to 82(IB) of 2001‑2002, decided on /01/.
4th September, 2004. (a) Wealth Tax Act (XV of 1963)‑‑‑
‑‑‑‑S. 17B‑‑‑C.B.R. Circular No.11 of1994, dated 17‑7‑1994‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑ ‑‑Cancellation of assessments on the ground that Assessing Officer had failed to adopt any basis for assessments and‑that as per parallel cases the valuation adopted was low‑‑‑Validity‑‑‑Notice under S.17B of the Wealth Tax Act, 1963 showed that assessee was not confronted with the facts of any parallel case‑‑‑Size and accommodation available in the said parallel cases had not been given in the order‑‑‑Assessing Officer enhanced the valuation as compared to the valuation made in the preceding years‑‑‑Inspecting Assistant Commissioner had not brought on record sufficient material to show that the valuation made by the Assessing Officer was both erroneous and prejudicial to the interest of revenue.
(b) Wealth Tax Act (XV of 1963)‑‑‑
‑‑‑‑S. 17B‑‑C.B.R. Circular No.11 of 1994 dated 17‑7‑1994‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Amount of allotment money for plot and under construction building‑‑‑Cancellation of assessments on the ground that value of building under construction should have been adopted as per the price that it could fetch in the market rather than the cost‑‑‑Validity‑‑‑Terms and conditions of the allotment letter provided that the lessee was not allowed to transfer the site to any other construction company/firm/ builder or an individual unless construction had been completed on the plot and lease deed was to be executed upon the completion of the building‑‑‑Building was under construction and it could not be transferred or sold in incomplete form‑‑‑Where title had not been transferred the asset could not be included in the "net wealth" and the money invested for acquiring the plot only could be included in "net wealth" and not the value of the plot which did not belong to the assessee‑‑‑Assessing Officer was justified to adopt the declared value which constituted the amount of allotment money paid for the plot of land and the amount spent for construction‑‑‑No action could be taken under S.17B of the Wealth Tax Act, 1963 on account of valuation made by the Assessing Officer in respect of such building.
W.T.As. Nos. 443 to 446(LB) of 2002, dated 22‑9‑2003 and 2000 PTD (Trib.) 1 rel.
(c) Wealth Tax Act (XV of 1963)‑‑‑
‑‑‑‑S. 17B‑‑‑C.B.R. Circular No.11 of 1994, dated 17‑7‑1994‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Where payments were scheduled to be paid in instalments and property was under construction; there was nothing wrong with valuing the property at cost‑‑‑No proceedings could be taken under S. 17B of the Wealth Tax Act, 1963 in respect of such property.
(d) Wealth Tax Act (XV of 1963)‑‑‑
‑‑‑‑S. 17B‑‑‑C.B.R. Circular No.11 of 1994, dated 17‑7‑1994‑‑‑Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Cancellation of assessments on the ground that Assessing Officer had accepted the declared value without obtaining purchase deed, size of plot and year‑wise construction‑‑‑Validity‑‑‑Inspecting Assistant Commissioner had not evolved/given any other basis for calculation/ valuation of the asset and had not shown how the valuation made was erroneous and prejudicial to the interest of revenue‑‑‑Inspecting Assistant Commissioner was not justified to invoke the provisions of S. 17B of the Wealth Tax Act, 1963 in the circumstances.
1999 PTD 3229 rel.
(c) Wealth Tax Act (XV of 1963)‑‑‑
------S. 17B‑‑‑C.B.R. Circular No.l1 of 1994, dated 17‑7‑1994‑ powers "I Inspecting Assistant Commissioner to revise Wealth Tax Officer's order‑‑‑Vacancy of property‑‑‑Lease money‑‑‑Gross Annual Letting Value‑‑‑Cancellation of assessments on the ground that property should have been valued on the basis of expected Gross Annual Letting Value of the vacant shops---Validity---Inspecting Assistant Commissioner himself accepted in his order that the value for the year when lease money was paid would be the same as the actual amount of lease money paid---No objective basis was available to make valuation on the basis of estimated Gross Annual Letting Value---Interference with the order of the Assessing Officer with regardtovaluationofpropertywasdeclined.
(f) Wealth Tax Act (XV of 1963)---
----S. 17B---C.B.R. Circular No.11 of 1994, dated 17-7-1994---Powers of Inspecting Assistant Commissioner to revise Wealth Tax Officer s order---Liabilities claimed comprised of advances from customers against intendedsale/purchaseofpropertyconstructedonvariousplotsofland---Inspecting Assistant Commissioner observed that value of suchproperties including costofplotshadbeendeclaredandassessedattoolowfigures as compared to the liabilities allowed and genuineness of these liabilities had not been looked into---Assessment was cancelled byobservingthatliabilitieshadbeenallowedoverandabovetheamountofadvancesactuallyutilizedintheconstructionofthe buildings---Validity---Liabilities claimed had nexus with the immovable assetssubjectedtowealthtaxandwereallowable---Nojustification wasavailablewiththeInspectingAdditionalCommissionertoinvoketheprovisionsofS. 17BoftheWealthTaxAct,1963.
I.T.C. No.93 of 1992, dated 1-3-2001rel.
2003 PTD 1377 distinguished.
Shahid Pervez Jami, A.R. for Appellant.
Dr. Muhammad Iqbal, D.R. for Respondent.
Date of hearing: 4th September, 2004.
JUDGMENT
KHALID WAHEED AHMED (JUDICIAL MEMBER).---These sixappealshavebeenfiledbyaprivatelimitedcompanythatisengaged inconstructionandsaleofpropertyaswellaslettingoutthe same. Wealth Tax returns were filed declaring negative wealth as under:--
1992-93Rs.(4,248,235)1994-95Rs.(8,335,105)1996-97Rs.(25,542,224)
1993-94Rs.(3,468,012)1995-96Rs.(31,099,349)1997-98Rs.(40,600,570)
2.The learned Assessing Officer made valuation of the assets for wealth tax purposes and made assessment under section 16(3) of the repealed Wealth Tax Act, 1963 vide combined order, dated 10-3-1998. The valuation was made as under:--
| | 1992-93 | 1993-94 | 1994-95 | 1995-96 | 1996-97 | 1997-98 |
| H. 2, ST. 33, F-6/I, Ibid. | 3,600,000 | 3,600,000 | 3,600,000 | 4,200,000 | 4,200,000 | 4,200,00 |
| Bld. No.3, MarkazF-10, Ibid. | 13,761,756 | 14,434,516 | 52,247,528 | 72,900,258 | 135,196,919 | 145,748,37 |
| 16A/B Diplomatic Enclave | 11,204,274 | 14,161,001 | 29,523,823 | 49,893,614 | 57,096,361 | 71,322,742 |
| 8A, 8B & 8C Diplomatic Enclave | 23,000,000 | 16,500,000 | 15,350,000 | 16,400,000 | 17,450,000 | 18,500,000 |
| RovalApartment & PakTower | | | 42,000,000 | 97,000,000 | 156,000,000 | 174,000,00 |
| Rawalpindi Cricket Stadium | | | | | 22,500,000 | 22,500,000 |
| Total wealth | 51,566,030 | 49,695,517 | 142,721,351 | 240,393,872 | 392,443,288 | 436,307,11 |
| Less liabilities claimed by the assessee | 52,748,138 | 50,447,842 | 143,386,129 | 259,992,073 | 416,125,680 | 463,409,55 |
| Net Wealth | (1,182,138) | (752,325) | (664,778) | (19,598,201) | (23,682,392) | (27,102,43) | |
| | BTL | BTL | BTL | BTL | BTL | BTL |
| | | | | | | | | | | |
3.Later on the learned IAC invoked the provisions of section 17B of the repealed Wealth Tax Act and issued notice to the assessee raising issues of valuation of assets and claim of liabilities as summarized below:--
(1)House No. 2, St. 33, F-6/1, Islamabad.
Thishousewaspurchasedbytheappellantcompanyon18-4-1990. This was a double storey house constructed on a plot measuring 666 sq. yards. The house was under self use of the assessee company. The Assessing Officer made valuation on GALV basis at estimated expected rent @ Rs.30,000 per month for the assessment years 1992-93 to 1994-95 and at Rs.35,000 per month for the assessment years 1995-96 to 1997-98. The basis given by the Assessing Officer in the assessment order was that in the previous assessment i.e. in the assessment years 1990-91 and 1991-92 its ALV had been taken at Rs.288,000 by adopting expected rent of Rs.24,000 per month and valuation had been made by the Assessing Officer accordingly. The learned IAC observed in his notice that no reasons had been given by the Assessing Officer to estimate expected rent as per assessment framed for the years under appeal. He observed that no parallel case had been cited by the Assessing Officer to adopt the said GALV. It was further observed that as per Circular No.11 of 1994 the valuation of the plot of land had to be made on the basis of rate fixed by the District Collector, Islamabad which was Rs.5,000,000 for a plot of land measuring 666 sq. yards. The learned IAC confronted the assessee on this issue stating that the valuation adopted by the DCWT was erroneous as well asprejudicial to the interest of revenue.
2.Plot and Building over plot No.3, F-10 Markaz, Islamabad:
This was a project under construction over an area of 11216.66 sq. yards. The property was appearing for the first time in the assessment year 1992-93. The assessee had declared its value for the assessments under appeal as under:--
1992-93Rs.13,761,7561994-95Rs.52,247,5281996-97Rs.135,196,919
1993-94Rs.14,434,5161995-96Rs.72,900,2581997-98Rs.145,784,375
The amount declared as above was shown as being the value of the work-in-progress. The learned Assessing Officer accepted the declared valuation stating that property being still under construction, the declared valuation was to be adopted for wealth tax purposes. The learned IACobserved in the notice that the District Collector, Islamabad had fixed for stamp duty purposes minimum value of a plot measuring 1000 sq. yards in this area at Rs.8,000,000. He observed that on this basis the value of the plot would work out to Rs.89,733,280. He observed that the amount incurred on construction on the said plot would also form part of valuation of the property. He stated that the valuation made was erroneous as the procedure prescribed in Circular No.11 of 1994 had notbeen adopted and no efforts had been made to work out the prevailing fair market value of the property. The learned IAC was therefore of the opinion that the assessment framed was both erroneous as well as prejudicial to the interest of revenue.
(3)16A/16B Diplomatic Enclave, Islamabad:
The Assessing Officer had adopted the value of this property also on declared basis because the project had been shown as work-in-progress and the building was shown as being under construction. The learned IAC observed that the project lies over an area of 3495.56 sq. yards. He further stated that while making assessment the Assessing Officer had neither given details of number of flats constructed/under construction nor of work-in-progress and that approved site plan had also not been obtained from assessee for the purpose of making further investigations. The learned IAC also observed that according to CDA s allotment letter the assessee was obliged to pay four equal instalmentsofRs. 5,571,208eachduringtheperiod1-2-1992 to 1-12-1992 and as per this schedule the cost of the plot up to assessment year, 1993-94 worked out to Rs.22,284,834 and that against this amount the total value of the plot including cost of construction had been declared and accepted at Rs.14,161,001 which clearly was too low. The learned IAC observed that the valuation was erroneous as well as prejudicial to the interest of revenue because it had not been made in accordance with the procedure laid down in Circular No.11 of 1994 and fair market value had not been adopted.
4.8A, B, C Diplomatic Enclave, Royal Apartments, & PakTower:
The learned IAC observed that the Assessing Officer had accepted the value declared by the assessee without obtaining details like purchase deed, size of plot and details of year-wise construction etc. and that the DCWT had not adopted the basis of evaluation as laid down in C.B.R. s Circular No.11 of 1994. In these circumstances, the learned IAC was of the view that the valuation adopted was both erroneous as well as prejudicial to the interest of revenue.
(5)Rawalpindi Cricket Stadium:
The assessee had paid lease money in 1996-97 and copy of lease agreement had been furnished before the Assessing Officer. The Assessing Officer accepted the declared lease money had made valuation for the assessment years 1996-97 and 1997-98 accordingly. The IAC has observed that the said property was taken on lease on 28-12-1995 from District Administration, Rawalpindi for a period of 25 years which was extendable for three further such periods. It is further stated bythe learned IAC that the property consisted of 83 constructed shops which had either been rented out or were held for self use. He observed that if the shops are rented their valuation should have been made at 10 times of the GALV and that if the property was under self-occupation the value was to be taken according to the fair market value. He was therefore, of the view that in both the circumstances the assessment was erroneous as it was prejudicial to the interest of the revenue.
(6)Claim of Liabilities:
The liabilities claimed comprised mostly of advances from customers against intended sale/purchase of the property constructed on the various plots of land. The learned IAC observed that the values of these properties including cost of plots had been declared and assessed at too low figures as compared to the liabilities allowed which was clear from the table given hereunder:--
| Assessment Year | 1992-93 | 1993-94 | 1994-95 | 1995-96 | 1996-97 | 1997-98 |
| Total value of H. 3, Markaz F-10, 16A/B, 8A B, C Diplmatic Enclave, Roayl Apartments, Islamabad | 47,936,030 | 46,095,517 | 13,912,135 | 236,193,872 | 365,743,280 | 409,57 |
| Liabilities allowed | 52,748,168 | 50,447,842 | 143,386,129 | 259,992,073 | 416,125,680 | 463,409.55 |
| Over allowed | 4,782,138 | 4,352,325 | 4,264,778 | 23,798,201 | 50,382,400 | 53,83 |
The learned IAC observed that the genuineness of these liabilities had not been looked into. He further observed that the liabilities had been allowed over and above the amount of advances actually utilized in the construction of the said buildings. He further observed that in these circumstances the assessment from this angle was also erroneous as well as prejudicial to the interest of revenue.
4.The gist of the reply submitted by the AR of the assessee to the show-cause notice of the learned IAC was as under:--
(1)House No.2, St. 33, F-6/1, Islamabad:
It was stated that the DC rates for Islamabad were notified in 1998 and for F-6/1, the same were fixed at Rs.7,000 per sq. yard. It was stated that before this notification the cost of the house was to be adopted for the purposes of wealth tax. It was submitted that in many cases valuation of 600 sq. yards houses had been valued at much lower rates. It was also submitted that the Assessing Officer had made valuation on the basis of history of the case and had made an increase over the valuation made in the assessment years 1990-91 and 1991-92 and therefore the assessment framed was not erroneous and prejudicial to the interest of revenue.
(2)Plot and Building over plot No.3, F-10 Markaz, Islamabad:
It was stated in the reply to the show-cause notice that the valuation proposed by the learned IAC was only for shopping centres and arcades and was not relevant for valuation of buildings located in residential area. The AR of the assessee further stated that as per C.B.R. s circular, dated 17-11-1998, the valuation of the residential flats could be made on the basis of number of flats on the ground floor would bear a higher value while that on higher floors would carry lesser value. It was further submitted that the expenditure incurred by the assessee was properly documented and complete details were available in record and the building being incomplete the valuation had to be adopted on the basis of value as declared. It was therefore submitted that the valuation made by the Assessing Officer was neither erroneous nor prejudicial to the interest of revenue.
(3)16A/16B Diplomatic Enclave, Islamabad:
The submissions made were the same as were given in the case of property in F-10 Markaz, Islamabad. It was stated that this property was also incomplete and under construction and there was no other method to value this property except the cost as declared.
(4)8A, B, C, Diplomatic Enclave, Royal Apartment, & PakTower:
It was stated that the observation made by the learned IAC that assessment had been made on the basis of declared value was not correct because the value as declared by the assessee and that estimated by the Assessing Officer was as under:--
Assessment YearDeclaredEstimated
1992-93Rs.21,233,053Rs.23,000,000
1993-94Rs.14,941,818Rs.16,500,000
1994-95Rs.9,282,940Rs.15,350,000
1995-96Rs.7,402,828Rs.16,400,000
1996-97Rs.9,067,135Rs.17,450,000
1997-98Rs.9,067,135Rs.18,500,000
It was submitted that in these circumstances the valuation made was neither erroneous nor prejudicial to revenue.
(5)Rawalpindi Cricket Stadium:
It was stated that the assessee had purchased the property on lease for 25 years and that the shops were vacant during the assessment years 1996-97 and 1997-98. It was submitted that in these circumstances the valuation as per the lease money was neither erroneous nor prejudicial to the interest of revenue.
(6)Liabilities
It was submitted that the liabilities were properly documented and no bogus liabilities had been claimed and therefore these had been rightly allowed by the Assessing Officer.
5.The learnedIACdidnotconsiderthereplyoftheassesseetobe satisfactory. The summary of the reasons given by the learnedIAC to reject the contention made on behalf of the assessee are as under:--
(1)House No.2, ST. 33, F-6/1, Islamabad:
The learned IAC has observed that in a parallel case existing at NTN 18-9-0245627 a property having the same capacity and size wasrented out @ Rs.34,000 per month w.e.f. 3-10-1987 to a Government organization and that the rent of the said property was later on raised to Rs.45,000 per month during the assessment years 1992-93 to 1994-95. The learned IAC further observed that in a case bearing NTN 18-09-0344439 the property had been given at a rent of Rs.40,000 per month w.e.f. 1-7-1992. He further observed that for the assessment year 1995-96 and onwards assessment was to be made in the light of the instructions as contained in C.B.R. s Circular No.11 of 1994.
(2)Plot and Building over No.3, F-10 Markez, Islamabad:
The learned CIT(A) observed that the contention of the assessee regarding fixation of rates of flats in the F-10, Islamabad Tower at the rate of Rs.1,000,000 for a two bed room flat did not carry weight. He further observed that while making assessments, the Assessing Officer did not mention the description of the property i.e. the number of plots constructed/under construction and number of flats sold out and assessment had been blindly made without obtaining necessary information and details for the purposes of making inquiry into the facts of the case.
(3)16A/16B Diplomatic Enclave, Islamabad:
The learned IAC observed that the Assessing Officer had not taken any pains for valuation of the said property and had not kept in view the location of the property or any other basis for adopting the value under law.
(4)8A, B, C Diplomatic Encalve, Royal Apartments and PakTower:
The learned IAC observed that the contention of the assessee was misplaced because no substantial material, was produced in support of the claim and that the assessment had been made without evolving any basis for assessment.
(5)Rawlapindi Cricket Stadium:
The learned IAC observed that the declared value represented value of the property in the year of purchase and that estimation/ adoption of the same value for the later assessment years was not in line with market value in view of the inflationary trend of the economy.
(6)Claim of Liabilities:
ThelearnedIACobservedthataccordingtoclause 16ofsection 2(1) of the repealed Wealth Tax Act debts are to be allowed to the extent of their utilization in the assets attracting taxation of wealth. He referred to the narration given in sub-clause (ii)ofclause 16ofsection 2(1)oftherepealedWealthTaxAct,1963asdebtswhicharesecuredorwhichhavebeenincurredinrelationtoanyassetinrespectofwhichwealthtaxisnotpayableundertheWealthTax Act. The learned IACobserved that the amounts received in advance had partly utilized for construction of the immovable properties but the un-utilized amounts were appearing as cash in hand which was a movable asset which did not attract wealth tax in case of a company. The learned IAC was of the view that in these circumstances allowing of whole of advances including the said cash in hand renders the assessments in question to be erroneous and prejudicial to the interest of revenue.
6.Accordingly in view of the above discussion the learned IAC held theassessmentstobeerroneousandprejudicialtotheinterestof revenue and cancelled the same under section 17B of the repealed Wealth Tax Act and directed the Assessing Officer to make fresh assessments on merits as per facts of the case according to the provisions of law.
7.The present appeals have been filed on the ground that the order of the learned IAC was arbitrary, unjust and that sufficient reasons were not available to invoke the provisions of section 17B of the repealed Wealth Tax Act, 1963 because the assessments framed by the Assessing Officerwereneithererroneousnorprejudicialtotheinterestofrevenue.
8.The learned AR and DR pleaded their respective positions which were given due consideration. We have also carefully perused the orders of the authorities below. The arguments of the two sides and our findings are as under:--
(1)House No.2, St. 33, F-6/1, Islamabad:
The learned AR stated that this was a three bed rooms house which was in self-use. He submitted that the assessee was not confronted with the facts of any parallel case. He submitted that the learned IAC had relied upon two so-called parallel cases but the facts of these cases were not revealed in the show-cause notice issued to the assessee. The learned AR further submitted that the assessments in the preceding year had been made by adopting expected rent of Rs.24,000 per month. The Assessing Officer had raised the estimate to Rs.30,000 for the first three years under consideration and to Rs.35,000 per month for the subsequent three years under consideration. He submitted that the assessments framed were in order and did not attract the provisions of section 17B. The learned DR stated that the Assessing Officer had failed to adopt any basis for assessment and that as per the parallel cases the valuation adoptedwaslow.Wehaveconsideredtheargumentsofboththesides. The notice under section 17B shows that the assessee was not confrontedwiththefactsofanyparallelcase. ThelearnedARsubmittedthatthepropertyunderconsiderationconsistedofthreebed rooms. The size and accommodation available in the so-called parallel cases have not been given in the order of the learned IAC. The Assessing Officer had enhanced the valuation as compared to the valuationmadeintheprecedingyears.Inthesecircumstancesweare of the considered view that the learned IAC has not brought on record sufficient material to show that the valuation made by the Assessing Officer was both erroneous and prejudicial to the interest of revenue.
(2)Plot and Building over plot No.3, F-10, Markaz, Islamabad:
The learned AR submitted that the observations of the learned IAC are more in the nature of comments on the quality of assessment. He submitted that there was no specified rule for valuation of incomplete buildings. He stated that the Tribunal in W.T.As. Nos.443/(LB) to 446/(LB) of 2002, dated 22-9-2003 had upheld the decision of the first appellate authority in directing that the valuation of the incomplete part of the building be made on the basis of cost. The Tribunal held as under:--
.On this issue, we regret to reject contention of revenue as the ITAT and other appellate forums have already held that the value of a portion of the building or the whole of building as the case may be, should be adopted at cost if such portion or such building is under construction and it has not been completed. Since the action of the learned Commissioner is in accordance with this verdict of appellate forums, no interference is made and the impugned order is maintained on this issue.
The learned AR also referred to the instructions given in C.B.R. s Circular Letter No.14(7)/IT/6 WT 79, dated 20-8-1979 and No.14(7)-WT-VI/79, dated 21-8-1979 to value residential and commercial plots located in approved housing schemes to the original allottees where the allotment authority fixed the value of the plot to be the cost to them as fixed by the authority and in other cases, the actual price of the plot. Further the valuation in case of commercial buildings and shops has also been directed to be the cost of the building to the assessee if these were being used by the assessee and had not been rented out. The learned AR further submitted that the plot had beenallotted to the company by the CDA and the cost was paid in instalments up to February 1996. The learned DR submitted that the appreciation in value due to inflationary trends was not taken into the account by the Assessing Officer. He further submitted that the property was to be valued under rule 8(1) of the repealed Wealth Tax Rules, 1963 which provides that the price would be estimated which in the opinion of the Deputy Commissioner it would fetch if sold in the open market on the valuation date. We have considered the arguments of both sides in this regard. The terms and conditions of the allotment letter issued by CDA provided that the lessee was not allowed to transfer the site to any other construction company/firm/builder or an individual unless construction had been completed on the plot. In this view of the matter of the property could not be sold by the assessee unless construction had been completed on the plot. The building was under construction during the years under consideration and in view of terms of allotment it could not be transferred or sold in the incomplete form. In this view of the matter the argument of the learned DR that the value will be adopted as per the price that it could fetch in the market is not tenable. The property could not be sold in the open market. It was held by this Tribunal in 2000 PTD (Trib.) 1 that where title had not yet been transferred the asset could not be included in the net wealth and accordingly the money invested for acquiring the plot only could be included in net wealth and not the value of the plot which did not belong to the assessee. The terms and conditions further provided that lease deed was to be executed upon the completion of the said building. Keeping these factors in view and the case law cited, we are of the considered view and that the Assessing Officer was justified to adopt the declared value which constituted the amount of allotment money paid for the plot of land and the amount spent for construction as appearing in the books of accounts. No action could be taken under section 17B on account of the valuation made by the Assessing Officer in respect of this building.
(3)16A/16B Diplomatic Enclave, Islamabad:
The facts of the case are similar to those of property in Markaz F-10, Islamabad except that payments were scheduled to be paid to CDA in quarterly instalments upto November, 1992. The property was under construction. Therefore, there was nothing wrong with valuing the property at cost. No proceedings could be taken under section 17B in respect of this property also.
(4)8A, B, C,Diplomatic Encalve, Royal Apartment, & PakTower:
The learned AR submitted that the learned IAC had confronted the assessee with the observation that the Assessing Officer had accepted the declared value without obtaining purchase deed, size of plot and year-wise construction etc. The learned AR stated that this observation regarding acceptance of declared value was not correct because the declared value had not been accepted. The declared value of the property 8A, 8B and 8C Diplomatic Enclave and the assessed value are as under:--
Assessment YearDeclaredAccessed
1992-93Rs.21,233,053Rs.23,000,000
1993-94Rs.14,941,848Rs.15,500,000
1994-95Rs.9,282,940Rs.15,350,000
1995-96Rs.7,402,828Rs.16,400,000
1996-97Rs.9,067,135Rs.17,450,000
1997-98Rs.9,067,135Rs.18,500,000
The learned AR stated that the above would show that the valuation for the assessment year, 1995-96 onwards was about two times of the value declared by the assessee. In case of Royal Apartments and Pak.Towers the declared and assessed values are as under:--
1994-95Rs.41,798,515Rs.42,000,000
1995-96Rs.95,717,628Rs.97,000,000
1996-97Rs.154,942,485Rs.156,000,000
1997-98Rs.173,032,230Rs.174,000,000
He submitted that in view of the above position the learned IAC was not justified to observe that the declared value had been accepted. He stated that the learned IAC s observations were more in the nature of comments on the order of the Assessing Officer and these do not lay down any sound basis for assessment other than the one adopted by the Assessing Officer. The learned A.R. referred to the Tribunal s decision in the case reported as 1999 PTD 3229 wherein the learned JM (now Mr. Justice Mujeebullah Siddiqui) held that mere possibilities and probabilities of coming to some other conclusion, had the desired enquiries been held would not provide sufficient justification for exercise of jurisdiction under section 66A of the repealed Income Tax Ordinance, 1979 (which corresponds to section 17B of the Wealth Tax Act) and that findings required to be given under section 66A have to be objective in nature. The learned DR supported the impugned order and submitted that no basis had been evolved by the Assessing Officer to make valuation. We are oftheconsideredviewthatthelearned IAChasnotgivenanybasis for calculation of the asset. The learned IAC observed probably through inadvertence that the Assessing Officer had accepted the declared value, which was not the case. The learned IAC has notevolved any other basis for valuation of the assets. The learned IAC has not therefore shown how the valuation made was erroneous and prejudicial to the interest of revenue. In these circumstances the learned IAC was not justified to invoke the provisions of 17B in respect of this property also.
(5)Rawalpindi Cricket Stadium:
The learned AR stated that the said shops were vacant during the yearsunderconsiderationandthatthepropertywasnotbringinginanyrevenuetothecompanyandthatinthesecircumstancestherewasnootherbasistovaluetheassetexcepttoacceptthedeclared value of the property which was verifiable being the amount paid by the assessee to the local administration as lease money. The learnedDRstatedthatthepropertyshouldhavebeenvaluedonthebasis of expected GALV of the vacant shops. Wearenotinclinedto endorse the arguments of the learned DR in this respect. Assessment year, 1996-97wasthefirstyearoftheassessmentinrespectofthisproperty.ThelearnedIAChashimselfacceptedinthisorderthatthevaluefortheyearwhenleasemoneypaidwouldbethesameastheactualamountofleasemoneypaid.NoobjectivebasiswasavailabletomakevaluationonthebasisofestimatedGALV for the assessment year 1997-98 either. In these circumstancetherewasnoneedto interfere with the order of the Assessing Officer with regard tovaluation of the property in the Rawalpindi Cricket Stadium.
(6)Liabilities:
The learned AR submitted that under the Wealth Tax Act all debts due on the valuation are to be allowed. Hereferredtothedecision of the Honourable Karachi High Court in I.T.C. No.93/92,dated 1-3-2001. ThisdecisionhasbeenreferredtoinanotherjudgmentoftheKarachiHighCourtreportedas2003PTD1377.The case before the High Court in ITC No.93/92 was of a partnership firm that was engaged in the construction of buildings. The assessee claimeddeductiononaccountofthefullamountofthedebtsownedby the valuation date. These amounts consisted of advances received by the assessee from intending purchases by way of part paymentsofpropertiesbookedintheprojectsnamelyAminaCentreand Amina Corner. The Wealth Tax Officer however allowed such debts only to the extent of the amounts which the assessee has actuallyspent on construction of the buildingstillthevaluationdate.TheassessmentorderwasupheldbythefirstappellateauthoritybutuponfurtherappealtheTribunalheldthattheadvanceswhich had not been adjusted till the valuation date relevant to the assessment yearshouldbeallowedas debtsowed againstthegrossvalueofthe building. The Honourable Karachi High Court upheld thedecisionoftheTribunal.ThelearnedARsubmittedthatthefactsofthe case are on all fours with that of the appellant. He quoted at lengthfromtheorderoftheKarachiHighCourtofPakistanasunder:--
4. We have heard Mr. M.G. Hussan learned counsel for the applicant who has apart from addressing us orally also benefited us with a brief written note of his contentions. Learned counsel has argued that the net wealth of an assessee in terms of section 2(m) of the Act upon which tax is to be calculated after taking into the consideration the debts owedbytheassesseeonthevaluatingdateintermsofsection 2(p) of the Act.
5.Learned counsel argued that the Honourable Tribunal fell into error in assuming that a factual dispute existed between the parties as to the quantum of the amount of debt deductible by way of debt for the purposes of calculation of net wealth in terms of section 2(m) of the Act. Hearguedthatwhilethereturnsfiledbytherespondents/assesseewere not disputed, the authorities below had allowed such part of theadvance received which had actually been spent by him for raising construction till the valuation date. On the other hand the learned Tribunal took the view that the entire amount of advance received was to be deducted.
6.In all fairness to the learned counsel we tend to agree that the question involved was not merely one of fact but did amount to a question of law. We also agree that for the purpose of deduction the debt must exist on the valuation date interm of section 2(m) of the Act. Nevertheless, we are afraid that this does not take the applicant s case very far. The expression debt has not been defined in the Act and therefore, its ordinary meaning has to be resorted to. In Black s Law Dictionary (VIth Edition), it has been defined as a fixed and certain obligation to pay money or some other valuable thing either in the present or in the future . It is not disputed that therespondents had received certain sums of money from their potential customers and the liability to pay the same existed on the valuation date. There is nothing in the Act providing that only such debts are deductible which have actually been used for the purpose of adding to the value of particular property. Indeed section 2(m) stipulatesthat all the debts owed by the assessee on the valuation date are to be taken into account except:--
(i)Debts which are not to be taken into account under section 6 of the Act.
(ii)Debts which are secured or have been incurred in relation to any asset in respect of which wealth tax is not payable under this Act.
Admittedly, the debts in question are only covered by the first sub clause and it could not be said that it was incurred in relation to an asset exempt from the levy of Wealth Tax. Moreover there are number of reported judgments indicating that the expression debt has been usedinsection 2(m) in a wider sense to cover all incurred liabilities up to the valuation date irrespective of the question whether they are to be discharged within the assessment year or at a future date.
For the foregoing reasons, we are of the opinion that the view taken by the Honourable Tribunal is unexceptionable and the question raised has to be answered in the affirmative. The application is therefore dismissed.
The learned AR submitted that all advances received and the debts owed on the valuation date were allowable and the order of the Assessing Officer on this score also did not suffer from any infirmity.
7.The learned DR referred to the case law also cited by the learned AR namely 2003 PTD 1377 wherein it was held that where loan had no nexus with the properties subjected to Wealth Tax, such liabilities were not allowable. The learned DR submitted that tax is to be calculated after taking into consideration the debts owed by the assessee which were utilized for creation of the taxable asset existing on the valuation date.
8.We have carefully perused the case law referred to by the learned D.R. The facts are distinguishable. In that case the Tribunal maintained the order of the authorities below in rejecting the assessee s plea for deduction of amount claimed as loan/liability on the ground that one particular loan had been repaid before the valuation date while the other liabilities appearing in the balance sheet did not bear any nexus to the property, as such the liability claimed was not allowed. The Honourable High Court held that these were findings of fact and that the liabilities claimed under the circumstances were not allowable. We are of the considered view that the facts of the case before us are similar to those of the case-law referred to by the learned A.R. The liabilities claimed have nexus with the immovable assets subjected to wealth tax. Therefore, these were allowable. The learned DR did not refer to any decision of the Supreme Court whereby the decision of the KarachiHigh Court relied upon by the learned AR has been shown to have been reversed. Therefore in view of the ratio of the decision in ITC 93/92 supra we agree with the learned AR that on the issues of liabilities also there was no justification available with the learned IAC to invoke the provisions of section 17B.
9.Accordingly the appeals are accepted. The order of the learned IAC for the years under consideration is vacated and the orders of the Assessing Officer are accordingly restored.
C.M.A./341/Tax(Trib.)Appeals accepted.