SHAHABAL KHAN VS COMMISSIONER OF INCOME TAX/WEALTH TAX, ZONE-I, LAHORE
2005 P T D 1150
[Lahore High Court]
Before Nasim Sikandar and Mian Hamid Farooq, JJ
SHAHABAL KHAN
versus
COMMISSIONER OF INCOME TAX/WEALTH TAX, ZONE-I, LAHORE
W.T.As. Nos. 194, 195 and 196 of 2001, decided on /01/.
7th October, 2004. Wealth Tax Act (XV of 1963)---
----Ss. 5(xv)(ii) & 27---Appeal to High Court---Exemption---Appellant who was an individual, for three assessment years, had declared certain movable assets, part of which were stated to have been created out of encashment of Foreign Exchange Bearer Certificates and claimed exemption in respect therefor in terms of provisions of S. 5(xv)(ii) of Wealth Tax Act, 1963---Assessing Officer refused the claimed exemption and First Appellate Authority maintained said refusal order---Validity---Any conversion/encashment of Foreign Exchange Bearer Certificates whether in the form of Pakistani rupees or a property, both movable or immovable purchased in local currency, was not entitled to exemption---Foreign Exchange Bearer Certificates in the present case, were neither brought or remitted or received by assessee/appellant from outside Pakistan nor were created directly out of remittance received in or brought into Pakistan through normal Banking Channels---Legal position was that only certificate and not its equivalent in Pakistani currency after encashment, was entitled to exemption---Appeal against concurrent judgments of forums below, was rejected.
Shahbaz Butt for Appellant.
Muhammad Ilyas Khan for Respondent.
Date of hearing: 16th March, 2004.
JUDGMENT
NASIM SIKANDAR, J.---Through this single judgment W.T.As. Nos. 194,195 and 196 of 2001 shall be disposed of.
2.These further appeals under section 27(1) of the late Wealth Tax Act, 1963 arise out of a consolidated order recorded by a Division Bench of the Income Tax Appellate Tribunal on 25-8-2001. Following questions of law are alleged to have arisen out of the impugned order:--
(1) Whether on the facts and in the circumstances of the case assets created out of encashment of foreign exchange bearer certificates are a 2nd creation/conversion?
(2)Whether on the facts and in the circumstances, the Tribunal can justifiably refuse exemption under the Wealth Tax Act on the ground that such assets being a 2nd creation/conversion were not entitled to the benefits of exemption?
(3)Whether on the facts and in the circumstances of the case the concept of 2nd creation or conversion is alien to the provisions granting exemption under the Wealth Tax Act, 1963?
2A.The appellant is an individual. For the three assessment years i.e. 1988-89, 1989-90 and 1990-91 he declared certain movable assets, part of which were stated to have been created out of encashment of Foreign Exchange Bearer Certificates and, therefore, were claimed to be exempt in terms of the provisions of section 5(xv)(ii) of the late Act. The Assessing Officer refused the claimed exemption and the learned First Appellate Authority maintained the same with reference to C.B.R. s Circular No. ITJI-1(31)/85, dated August 8, 1990. That Circular reads as under:--
TheundersignedisdirectedtoclarifythatFEBCsasaclassof assets is exempt from the levy of Wealth Tax but the assets created onits encashment in local currency do not qualify for exemption under section 5(1)(xv)(i) or 5(1)(xv)(ii) of the Wealth TaxAct,1963.
3.On further appeal learned Tribunal by way of impugned order maintained the rejection of claimed exemption. Hence this further appeal.
4.Heard the learned counsel for the parties. The relevant provisions at the relevant time reads as under:--
Section 5(xv) .assets.
(i)brought or remitted by anassesseeintoPakistan,orreceivedbyanassesseefromoutsidePakistan, intheyearinwhichthey are brought, remitted or received and the following five years;
(ii)created by an assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (i):
Provided that where investment in the assets is not madeentirely out of remittance received in, or brought into Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment.
5.These provisions contained to exist in the late Act as clause (vii) of the Second Schedule Part-I of the late Wealth Tax Act, 1963 at the time of its repeal. A bare reading of the above provisions supports the view taken by the C.B.R. in the aforesaid circular that it is only the FEBCs asa class which is exempt subject to the conditions stated in sub-clauses (i) and (ii) of section 5(xv) of the late Act. The aforesaid sub-clause (ii) as reproduced above cannot in any manner be stretched to include the assets created on encashment of conversion of an asset created out of remittance received in, or brought into Pakistan through normal banking channels.
6.Learned counsel for the appellant by reference to paras 5 and 6 of the Foreign Exchange Bearer Certificate Deposit Rules, 1985 has attempted to show that even in case of FEBCs purchased in Pakistan the payments were required to be made from a Foreign Exchange Currency Account held in Pakistan in travellers cheques or remittance of the equivalent foreign exchange from abroad. That assertion necessarily pertains to the factual position which was never considered or ruled upon at any stage of proceedings. Hence we may accept the same on its face value. However, the legal position qua the Foreign Exchange Certificates being exempt as a class is not changed. Once these Foreign Exchange Certificates have been converted either into money or movable or immovable assets are purchased out of the converted amount the exemption available to the certificate will cease to be available to their holder. There can hardly be any doubt that the purpose of issuance of FEBCs would stand defeated if the money representing encashment or any movable or immovable asset created on their conversion into Pak rupee, as claimed by the assessee, is held to be exempt. This is so because the period of five years given in sub-clause (i) and referred to in sub-clause (ii) of the said provisions can possibly startonly when the original assets brought or remitted or created out of such exchange come into existence. A Foreign Exchange Bearer Certificate being an asset in its own form and right once created would remain exempted for five yearsfollowing the year in which it was brought remitted or created by an assessee out of the stated foreign exchange. The proviso to the aforesaid section also supports the view adopted by the C.B.R. and followed by the three forums thatwhere price of the FEBC is not entirely remitted, received in or brought into Pakistan the exemption is to apply in the same ratio as the foreign remittance bear to the total investment.Amovablepropertycreatedincludingcashinhandisan asset which was created on encashment of a certificate of the kind under discussion. It was neither brought or remitted or received by an assesseefromoutsidePakistannoritwascreateddirectlyoutofthe remittance received in or brought into Pakistan through normal banking channels. The conditions stated in the aforesaid provisions clearly state the legal position that it is only the certificate and not its equivalent in Pakistani Currency after encashment which is entitled to exemption.
7.The view adopted by the Revenue and maintained by the Tribunal being in accordance with the clear provisions of the statute we will hold that any conversion/encashment of FEBCs whether in the form of Pakistani rupee or a property both movable or immovable purchased in local currency is not entitled to exemption. The question as framed by the assessee are necessarily misdirected inasmuch as there is no question of 2nd conversion as far FEBCs are concerned. Once these have been created in the manner contemplated in the said provisions of the late Act their conversion even first into Pak rupee or an asset purchased by converted Pak rupee is the first conversion which in the aforesaid circumstances is not entitled to exemption. The use of word 2nd conversion as made in the question is, therefore, totally irrelevant as far the proposition of loss before us is concerned.
8.Appeal rejected.
H.B.T./S-317/LAppeal rejected.