COMMISSIONER OF INCOME-TAX/WEALTH TAX COMPANIES ZONE-I, LAHORE VS ZORAIZ LASHARI, 2005 PTD-LAHORE-HIGH-COURT-LAHORE 2064 (2005)

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

----Second Sched., Cls.7(i) & (ii)---Exemption from Wealth Tax under Cls.7(i) & (ii) of the Second Schedule of Wealth Tax Act, 1963---Scope---Foreign remittance received through normal banking channels---Any asset created from the proceeds of such remittance would also be exempted from the incidence of Wealth Tax for the period specified under Cl. 7(i) of the Second Sched. to the Act; primary basis for the applicability of the exemption under Cls.7(i) and 7(ii) was not the nature of asset but the decisive factors were the origin of the assets or funds, the mode of transmission (of funds only)and the period of exemption i.e. the one mentioned in the said clause---Shares acquired in a private limited company with such funds therefore, were exempt from the incidence of Wealth Tax---Principles.

The exemption under Cls. 7(i) and 7(ii) of Second Sched. of the Wealth Tax Act, 1963 extends to all assets brought or remitted to Pakistan by the assessee for the period specified and such exemption is not limited to or dependant upon the nature of the assets which fact is irrelevant for the purpose of the applicability of Clause 7(i). However, with regard to foreign remittance received through normal banking channels, Clause 7(ii) provides that any asset created from the proceeds of such remittance would also be exempted from the incidence of Wealth Tax for the period specified under Clause 7(i). An analysis of the aforesaid provision of law would make it clear and obvious that the primary basis for the applicability of the exemption under Clauses 7(i) and 7(ii) is not the nature of the assets. The decisive factors are, the origin of the assets or funds, the mode of transmission (of funds only) and the period of exemption i.e. the period specified in the said clause. There is nothing in the said provisions, which can explicitly or impliedly lead to the conclusion that the assessee can only claim exemption with regard to assets acquired through one conversion only. The exemption extends to converted or re-converted assets during the currency and tenure of the exemption' as long as the source of the original funds remains the foreign remittance received through normal banking channels. In this view of the matter, the shares acquired in a private limited company with such funds were exempt from the incidence of Wealth Tax.

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

----Second Sched., Cls. 7(i) & (ii)---Exemption from Wealth Tax under Cl. 7(i) & (ii) of the Wealth Tax Act, 1963---Scope---Assets created or recreated from funds, which were the proceeds of the foreign remittances received through normal banking channels which, at the first instance, were utilized for procuring Foreign Exchange Bearer Certificates, thereafter encashed during the exemption period to create the assets---Such assets were exempt from the incidence of Wealth Tax.

Muhammad Ilyas Khan for Appellant.

ORDER

Through this order we propose to decide W.T.A. 35 of 2003, W.T.A. 154 of 2001, W.T.A. 155 of 2001, W.T.A. 156 of 2001, W.T.A. 157 of 2001, W.T.A. 158 of 2001, W.T.A. 159 of 2001, W.T.A. 160 of 2001, W.T.A. 161 of 2001, W.T.A. 198 of 2001, W.T.A. 339 of 2002, W.T.A. 340 of 2002, W.T.A. 341 of 2002 and W.T.A. 342 of 2002.

2. The instant Wealth Tax Appeal bearing No.180 of 2001 arises out of the order, dated 21-6-2001 passed by the ITAT and the following question of law has been referred to this Court for expression of opinion and decision thereupon:--

"Whether on the facts and circumstances of the case the learned ITAT was justified in holding that the assets purchased out of encashment of FEBCs enjoy exemption from wealth tax under section 5(xv) of Wealth Tax Act, 19637"

3. The respondent-assessee had claimed exemption from the incidence of Wealth Tax upon shares in private limited company purchased' through the encashment of FEBCs acquired from the proceeds of remittance received in Pakistan through normal banking channels. The Assessing Officer declined to grant such exemption under section 5 of the Wealth Tax Act, 1963 by relying upon Clause (9) of Part-I of Second Schedule to the Wealth Tax Act, 1963 on the `ground that the exemption extended only to the FEBCs and not to asset created from the proceeds of the encashment thereof.

4. Being aggrieved, the respondent-assessee filed an appeal before the Commissioner (Appeal) Zone-I, Lahore, who allowed the exemption claimed. The department invoked the jurisdiction of the ITAT, however, the appeal of the Department was dismissed vide impugned order, dated 21-6-2001.

5. It is contended on behalf of the Revenue that Clause 9 of Part-I of the Second Schedule of the Wealth Tax Act, 1963 is applicable and in terms thereof the exemption is limited to FEBCs alone and such exemption does not extend to asset created from the proceeds thereof. There can be no cavil with the proposition that the exemption under Clause 9 ibid is limited to a specified species of assets i.e. FEBCs. And if, the assets loose the said character the exemption would not apply. However, in the instant case, exemption has been claimed under Clauses 7(i) and 7(ii) of the Second Schedule of the Wealth Act 1963, which reads as follows:

"Assets....

(i)brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;

(ii)created by an assessee out of remittance received in, or brought into Pakistan, through normal banking channels, during the period referred to in sub-clause(i);"

6. The aforesaid exemption extends to all' assets brought or remitted to Pakistan by the assessee for the period specified and such exemption is not limited to or dependant upon the nature of the assets which fact is irrelevant for the purpose of the applicability of Clause 7(i). However, with regard to foreign remittance received through normal banking channels, Clause 7(ii) provides that any asset created from the proceeds of such remittance would also be exempted from the incidence of Wealth Tax for the period specified under Clause 7(i) ibid. An analysis of the aforesaid provision of law would make it clear and obvious that the primary basis for the applicability of the exemption under Clauses 7(i) and 7(ii) is not the nature of the assets. The decisive factors are, the origin of the assets or funds, the mode of transmission (of funds only) and the period of exemption i.e. the period specified in the said clause. There is nothing in the said provisions, which can explicitly or impliedly lead to the conclusion that the assessee can only claim exemption with regard to assets acquired through one conversion only. The exemption extends to converted or reconverted assets during the currency and tenure of the exemption as long as the source of the original funds remains the foreign remittance received through normal banking channels. In this view of the matter, the ITAT was wholly justified in holding that the shares in question were exempt from the incidence of Wealth Tax. Hence the question of law as framed is answered in affirmative.

7. In the connected appeals, mentioned at Para. 1 above, the assets in respect whereof the exemption has been claimed by the assessee had been created or recreated from funds, which were the proceeds of the foreign remittances received through normal banking channels. Such funds at the first instance were utilized for procuring FEBCs thereafter encashed during the exemption period to create the assets in question. In the aforesaid cases, the ITAT had also validly held that assets were exempt from the incidence of Wealth Tax.

8. In the aforesaid perspective, the identical questions of law as referred too are answered accordingly.

9. In view of the above, all the appeals mentioned in para. 1 above, along with the instant appeal are dismissed accordingly.

M.B.A./C-87/LAppeal dismissed.