I.T.A. No. 2231/LB of 2004, decided on 21st February, 2006. VS I.T.A. No. 2231/LB of 2004, decided on 21st February, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2373 (2006)

Income Tax Ordinance (XXXI of 1979)---

----S. 12(18)---Income Tax Ordinance (XLIX of 2001), S. 39(3)---C.B.R. Circular No.6 of 1987, dated 5-7-1987---Income deemed to accrue or arise in Pakistan---Advance received from purchaser out of total sale consideration of shop---Taxation---Validity---Intention of the legislature while enacting S.12(18) of the Income Tax Ordinance, 1979 was to discourage fictitious loans, advances and gifts---Assessing Officer as well as First Appellate Authority failed to establish the element of fictitious transaction---Amount in question had been paid through government functionary i.e. Sub-Registrar, who had verified the payment of amount which had been mentioned in the Revenue Record also---Evidence in that regard had also been placed before the Taxation Officer as well as before First Appellate Authority---Treatment meted out by the Taxation Officer to the case was ill-founded, misconceived and on wrong assumption of facts and application of S.12(18)of the Income Tax Ordinance, 1979---No fictitious element in the transaction having been involved, there was no justification for application of S.12(18) of the Income Tax Ordinance, 1979---Assessment order as well as the order of First Appellate Authority were vacated and addition made was deleted by the Appellate Tribunal.

1995 PTD 1176; 1997 PTD 453; 2002 PTD 63 and 2002 PTD 2594 rel.

2002 PTD (Trib.) 827 and 2003 PTD (Trib.) 835 ref. Abdul Hameed, ITP for Appellant.

Sabiha Mujahid, D.R, for Respondent.

ORDER

JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).--Through this appeal, the appellant has objected to the impugned order of the learned CIT(A), dated 2-2-2004 for the assessment year 2001-2002 upholding the addition made by the Taxation Officer under section 12(18) of the repealed Income Tax Ordinance, 1979.

Brief facts leading to the present appeal are that during the assessment year under review, the assessee has received an advance amount of Rs.2,50,000 from the purchaser out of total sale consideration of his shop and the Assessing Officer has taxed the same under section 12(18)of the repealed Income Tax Ordinance, 1979.

It has been contended on behalf of the assessee that the purchaser of the shop has paid a token money in the shape of cash to the seller of the shop who arc four brothers and the assessee is one of them. According to the learned counsel, the assessee being co-owner of the property sold out his property in a legal way for a legitimate purpose and received the token money by issuing the receipt of cash and in this respect, a registered sale agreement was executed before Sub-Registrar, Bahawalpur. He has, in this respect, placed before me the registered sale agreement wherein, it has been specifically mentioned that out of total sale consideration of Rs.9,00,000, an amount of Rs.2,50,000 has been paid as advance money. He has contended that such a type of advance does not hit by the mischief of section 12(18) of the repealed Income Tax Ordinance, 1979. He has, in this respect, placed reliance on the decision of the Tribunal reported as 1995 PTD 1176. He has contended that this fact is not disputed and has already been categorically mentioned in the assessment order that the appellant has disposed of his share of property and necessary document in this respect has been filed during the original as well as. re-assessment stage. Likewise, according to the learned counsel, this is an admitted fact that the amount received by-the assessee is earnest money against sale of shop and the assessee has received this amount, and the shop has been transferred to the purchaser and the balance amount has also been received. The purchaser of the shop is a known person and has executed the registered document before Sub-Registrar, Bahawalpur. According to the learned counsel, the language of section 12(18) is very clear and the case of the assessee in no way comes under the ambit of this section. The focus of the legislation is to check the fictitious transactions and to preclude backdated introduction of creditors in the books of account. He has contended that the legislature has used the expression `advance' in between the expression `loan' and `gift' and it cannot be isolated from these two expressions. He has, in this respect, placed reliance on the reported decision of the Hon'ble High Court 1997 PTD 453 wherein it has been held that "meaning to a particular expression is to be assigned in the light of other expressions used by the legislature in a statutory provision". He has contended that in the present case, there is no fictitious element in the advances and the Taxation Officer has also failed to establish that there is any fictitious element involved. The shop has admittedly been sold and consideration of it has been received. Copy of registered sale-deed has already been produced before the Assessing Officer and there is no fictitious element attracting the provisions of section 12(18). He has, in this respect, also referred C.B.R. Circular No.6 of 1987, dated 5-7-1987 wherein it has been clarified that "the proviso to the said subsection implies if the assessee"....for explaining any asset, investment, expenditure etc... but there is no such intentions prove in this case. According to the learned counsel, the said amount has been received in the presence of the registering authority in cash who has on the registered deed verified that the sale price was handed over in his presence. The transaction is fully verifiable. There is no element of unverifiability. He has, in this respect, also referred the decision of the Hon'ble Peshawar High Court reported as 2002 PTD 63 wherein the protection has been given to the Circulars clarifying that: the genuine transaction of the assessee which is unverifiable and indentifiable does not come under the provisions of section 12(18). The learned counsel has also referred the decision of the FTO reported as 2002 PTD 2594 wherein it has been held that "it is necessary to consider that the intention behind the provisions was to check the introduction of fictitious loans--------". He has, therefore, requested that the addition made by the Taxation Officer may please be deleted.

On the other hand, Mrs. Sabiha Mujahid has appeared on behalf of the Department who is supporting the impugned orders of the Officers below. She- has contended that as the transaction of token money was made other than through cross cheque, hence the provision of section 12(18) attracts. Learned DR, in this respect, has referred the provisions of section 12(18) which say that "where any sum claimed, or shown, to have been received as loan or advance or gift by an assessee during any income year commencing on or after first day of July, 1998, from any person, not being banking company, or financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number, the said sum shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance, provided that, where the said loan or advance or gift is claimed or shown by way of the explanation, referred to in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies, the income under this subsection shall relate to the assessment year referred to in the said proviso". She has contended that it is proved that the transaction of advance taken by the appellant was made without banking channel and has been received in cash, hence applicability of section 12(18) has been established without any doubt, as the word `advance' has not been defined nor restricted to as business advance, therefore, the provisions of section 12(18) of the repealed Income Tax Ordinance, 1979 are applicable in the case, as has been held by the Officers below.

I have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIT(A), the assessment order, the agreement to sell, the case-law and circulars of C.B.R. placed before me by the learned representative of the assessee.

While perusal of the registered agreement to sell, I have found that out of the total consideration of sale price of the shop, the assessee has received Rs.2,50,000 which has been added back by the Taxation Officer in the assessed income under section 12(18). On behalf of the assessee, it has been contended that payment through cross cheque is required only if the payer is a person holding National Tax Number and if such payer is not holder of National Tax Number, the condition of payment through cross cheque is not binding upon him or for the person who received such advance money. While on behalf of the Department, it has been contended that the provision stipulates that holder of National Tax Number can in fact make payment through any banking channel. For non-NTN holders, the condition is more rigorous, stringent and only cross cheque drawn on a bank is acceptable in the case. According to the learned D.R., this is due to the logic that verification from NTN holders is much easier as compared to non-NTN holders. In this respect, the decision of this Tribunal reported as 2002 PTD (Trib.) 827 has been referred wherein it has been enunciated that if the lender is not NTN holder, the payment is required through cross cheque, if lender is NTN holder, he may make payments through other banking channels. The learned representative of the Department has further contended that advance or loan is synonymous as has been held by this Tribunal in a case reported as 2003 PTD (Trib.) 835. I have also perused the Circular of C.B.R. No.6 of 1987, dated July, 5, 1987 referred by the learned representative of the assessee, which has specifically clarified that "the proviso to the said subsection implies that if the assessee claims, or shows, the said loans for explaining any asset, investment, expenditure etc. relating to an income year, the assessment in respect of which stands completed, the deemed income under subsection (18) of section 12 shall be treated as income of the income year which relates the assessment year in which such asset, investment, expenditure etc. was discovered". I have further noted that subsection (3) of section 39 of the new Income Tax Ordinance, 2001 is the comparative section of subsection (18) of section 12 of the late Ordinance, 1979 and in subsection (4) of section 39 of the new Ordinance, it has been specifically provided that sub-section (3) shall not apply to an advance payment for the sale of goods or supply of services, which to my view will apply to the sale of land also. I am of the view that as has been held by this Tribunal as well as by Hon'ble Superior Courts, the intention of the legislature regarding section 12(18) was meant only to discourage fictitious loans, advances and gifts. In the present case, the Taxation Officer as well as learned CIT(A) has failed to establish the element of fictitious transactions. The said amount has been paid through government functionary i.e. Sub-Registrar, Bahawalpur, who has verified the payment of amount and has been mentioned in the Revenue Record also. Evidence in this regard has been placed before the Taxation Officer as well as before the learned CIT(A). The treatment meted out by the Taxation Officer is ill-founded, misconceived and on wrong assumption of facts and application of section 12(18) of the late Ordinance, 1979.

Keeping in view all these facts, the provisions of law and the decisions of the Hon'ble Superior Courts and this Tribunal, I am of the view that in the instant case, there is no fictitious transaction element involved and there was no justification for application of section 12(18) of the repealed Income Tax Ordinance, 1979. The assessment order as well as the impugned order of the learned CIT(A) in this regard are, therefore, vacated. The addition made under section 12(18) is deleted and the appeal filed by the assessee is allowed.

C.M.A./82/Tax (Trib.)Appeal accepted.