Mst. MUSARRAT UMAR DARAZ VS INCOME TAX APPELLATE TRIBUNAL, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 1743 (2005)

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

----Ss. 5(xiv) & Second Schedule, Part-I, C1.12(1)---Exemption in respect of certain assets---Provision of S.5, Wealth Tax Act, 1963 which continued to be applicable law till the valuation date 30-6-1996 but effective from 1-7-1996, S.5, was substituted through Finance Act, 1996, therefore for the wealth tax returns of 1996-1997, the valuation date was 30-6-1996 as such original and the un-substituted provision of S.5 applied to the returns of 30-6-1996 and under the proviso to CI. (xiv) thereof, option of exemption of one residential house could only be exercised by either of the Spouses and not by both---Appellate Tribunal, therefore, validly applied the proviso to Cl. (xiv) of original section 5 of the Act to returns for the relevant year and denied the claimed exemption of another house to the assessee whose husband had already been allowed exemption of a residential house.

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

----Second Sched., Part I, Cl. (12)(1), Ss.5 & 27---S.R.O. No.595(I)/96 dated 9-7-1996---Exemption in respect of certain assets---S.R.O. 595(I)/96 dated 9-7-1996 lacked the status of law as the same was not placed by the Federal Government for the approval of National Assembly as was mandated in S.5(2), Wealth Tax Act, 1963 and effect thereof was that Cl. (12) of Second Schedule Part I of the Act as introduced on 9-7-1996 through S.R.O. 595(1)/96 obliterated and dissolved into meaningless---Clause (12)(1) and its proviso thus rendered ineffective, would be considered not to have substituted Clause (12) of the Second Schedule of the Act---Consequently Clause (12) as introduced through Finance Act, 1996 continued to be the law applicable as if the same had never been amended or substituted---Appellate Tribunal, in circumstances, could not have applied the provisions introduced by S.R.O. 595(I)/96 dated 9-7-1996 to decide assessee's claim to the exemption---Claim of the assessee to the exemption of a residential house for the relevant year would need to be re-decided---High Court, however, observed and held that the matters which had finalized and no appeals were pending thereagainst, could not be reopened being the past and closed transaction.

Muhammad Iqbal Hashmi for Appellant.

Shahid Jamil Khan for Respondents.

Date of hearing: 12th December, 2005.

JUDGMENT

MUHAMMAD SAIR ALI, J.----Through this common judgment, connected I.T.A. No.140 of 2000, I.T.A. 141 of 2000, I.T.A. No.147 of 2000 and I.T.A. No.148 of 2000 involving the identical .questions of the law and facts have been dealt with and decided together.

2. In the wealth tax returns for the years 1996-97 and 1997-98, the appellant claimed and obtained exemption of one half share of the residential house i.e. 31-G, Gulberg-III, Lahore in lieu of the statutory exemption of Rs. 10,00,000.

3. On notice, the exemption was disallowed by the Assistant Commissioner of Income Tax/Wealth Tax, Faisalabad through order dated 17-6-1998 on the ground that the appellant assessee's husband had already obtained exemption in respect of one residential house and in the case of spouses, only one of them could avail of such exemption. The appellant's appeal thereagainst was dismissed by the Commissioner of Income Tax/Wealth Tax (Appeals), Faisalabad through order dated 5-12-1998. Second appeal filed before the learned Income Tax Appellate Tribunal, Lahore also failed per learned Tribunal's order dated 29-10-1999. Hence the present further appeal seeking opinion of this Court on the following question:---

"Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was justified in holding that under clause (12)(1) of Part-I, Second Schedule of the Wealth Tax Act, 1963, the exemption in respect of the house is available only to one spouse and not to both the spouses."

4. The learned counsel for the parties have been heard.

5. Wealth Tax Act, 1963 (now repealed through the Finance Act of 1996) in section 5 pristinely provided for "exemption in respect of certain assets". Clause (xiv) thereto exempted "one residential house owned and occupied by the assessee for the purposes of his own residence where such assessee opts to exclude such house from his assetProvided that the option may be exercised by either of the spouses".

6. The above provisions of law continued to be the applicable law till the valuation date of 30-6-1996. Effective from 1-7-1996, the above said section 5 was substituted through the Finance Act of 1996. For the wealth tax returns of 1996-97, the valuation date was 30-6-1996. As such, the above referred original and the unsubstituted provisions in section 5 applied to the returns of 30-6-1996. Under the proviso to clause (xiv) thereof, option of exemption of one residential house could only be exercised by either of the spouses and not by the both. The learned Appellate Tribunal therefore validly applied the said proviso to clause (xiv) of the original section 5 of the Wealth Tax Act, 1963 and denied the claimed exemption of another house to the assessee whose husband had already been allowed exemption of a residential house. As such in I.T.A. No.140 of 2000 titled "Mst. Musarrat Umar Draz v. Income Tax Appellate Tribunal etc." and I.T.A. No.14,7 of 2000 titled "Mst. Fakhra Khalid v. Income Tax Appellate Tribunal", the answer to the question as raised has to be in the affirmative. As a consequence, the above appeals are dismissed.

7. The remaining two appeals i.e. I.T.A. No.141 of 2000 and I.T.A. No. 148 of 2000 respectively arise from the wealth tax returns for the assessment years 1997-98; the valuation date whereof was 30-7-1997.

8. As above recorded w.e.f. 1-7-1996, the provisions of section 5 were substituted by the existing provisions of section 5 which prescribed for the "exemption of assets, classes of assets, persons or classes of persons" specified in the Second Schedule. Subsection (2) of the above referred substituted section 5 further empowered the Federal Government to amend the Second Schedule by notification in the official Gazette subject to the important condition imposed through the proviso to subsection (2) ibid that the Federal Government shall place before the National Assembly, the amendments made by it in the Second Schedule during the financial year.

9. Corresponding with the above referred substituted section 5, the Finance Act of 1996 also added the Second Schedule to the Act of 1963. List of assets exempted from the wealth tax was specified in this Schedule; clause (12) whereof related to the exemption of one residential house. This clause read as under:

"(12) one residential. house owned and occupied by the assessee for purposes of his own residence where the assessee opts to exclude such house from his assets to which the provisions of sub-para. (2) of paragraph A of Part-I of the First Schedule apply."

10. Through S.R.O. 595(I)/96 dated July 9, 1996 this clause was again substituted and provided that:---

"(12)(1) one residential house, owned and occupied by the assessee for purposes of his own residence, where the assessee opts to exclude such house from his assets:

Provided that such option may be exercised by either of the spouse:

Provided further that where an assessee exercises an option under this sub-clause, proviso (a) to sub-paragraph (2) of paragraph A of the First Schedule shall not apply.

(2) One shop owned and occupied by the assessee for the purposes of his own business;

(3) This clause shall apply to an assessee to whom provisions of sub-para (2) of paragraph A of Part I of the First Schedule apply."

11. The above recounted legislative history of the provisions providing for the exemption of one residential house to an assessee concisely shows that:---

(a) Clause (12) of the original section 5 of the Wealth Tax Act, 1963 obtained till 30-6-1996. The proviso to this clause restricted the exemption of one residential house to either of the spouses;

(b) Effective from 1-7-1996, the re-enacted provisions of section 5 and the Second Schedule thereto, as introduced by the Finance Act of 1996, became the applicable law. Clause (12) of the Second Schedule regulated one-residential-house provisions but without the restrictive proviso as in the above referred clause (12) of the original section 5;

(c) On 9-7-1996, S.R.O. No.595(I)/96 provided for substitution of the above referred clause (12) of the Second Schedule. In the clause 12(1) thereof, the proviso conforming to clause (12) of the Original section 5 (as existing prior to the Finance Act of 1996) was reintroduced.

12. On the basis of the above referred proviso to the substituted clause (12)(1), the Assessing Authority denied exemption to the assessee. The appeals of the assessees were also dismissed. The reason recorded in the impugned orders was that the assessee's husband had availed of the exemption in respect of one residential house, wherefor, the assessee was ineligible to claim exemption; option of which was available only to either of the spouses. Hence the present appeals seeking Court's answer to the question above reproduced.

13. The answer to the question lies in the provisions and the status of S.R.O. No.595(1)/96, which on July 9, 1996 had substituted clause (12) of the Second Schedule. The vires of this S.R.O. were examined by an Hon'ble Division Bench of this Court in I.T.A. No.440 of 1998 and it was held in the judgment dated 29-9-2005 that S.R.O. 595(I)/96, dated July 9, 1996 lacked the status of law as it was not placed by the Federal Government for the approval of National Assembly as was mandated in subsection (2) of section 5 of the Act.

It was held that:---

" .all changes made in the Second Schedule needed to be placed before the National Assembly and that the failure on the part of the Federal Government has nullified these amendments in the schedule"

AND

" ..the condition of placing of amendments in the

Second Schedule before the National Assembly is mandatory and irrespective of the party in default the failure in such placing as said above has rendered the amendment ineffective"

AND

The Federal Government, by virtue of section 5(2) of the Wealth Tax Act, has been granted the power to make amendments in the Second Schedule. This power however is subject to the proviso that the Federal Government shall place all amendments made by it in the Second Schedule before the National Assembly. In the present case this condition as discussed above, has not been fulfilled. The amendment, therefore, which is subject-matter of the present case and which is being relied upon by the appellants in these appeals cannot possibly be treated as law."

14. The effect thereof is that the substituted clause (12) in the Second Schedule as introduced on 9-7-1996 through S.R.O. 595(I)/96 obliterated and dissolved into nothingness. Clause 12(1) and its proviso thus rendered ineffective, would be considered not to have substituted clause (12) of the Second Schedule. Consequently the said clause (12) as introduced through the Finance Act of 1996 continued to be the law applicable as if the same had never been amended or substituted. It flows therefrom that the learned Tribunal could not have applied the provisions introduced by S.R.O. 595(I)/96 to decide assessee's claim to the exemption.

15. The question as raised in I.T.A. No.141 of 2000 and I.T.A. No.148 of 2000 is answered in the negative. The claim of the assessees to the exemption of a residential house will need to be redecided. It is however observed and held that the matters which had been finalized and no appeals thereto remained pending thereagainst, cannot be reopened being the past and closed transactions.

16. Appeals bearing I.T.A No.141 of 2000 and I.T.A No.148 of 2000 relating to the assessment years 1997-98 are accepted in the above terms. I.T.A. No.140 of 2000 and I.T.A. No.147 of 2000 relating to the assessment years 1996-97 are dismissed in view of the observations made in para. 5 above.

M.B.A./M-253/LOrder accordingly.