W.T.As. Nos.1221/LB to 1224/LB of 2002, decided on 9th August, 2005. VS W.T.As. Nos.1221/LB to 1224/LB of 2002, decided on 9th August, 2005.
2007 P T D (Trib.) 217
[Income-tax Appellate Tribunal Pakistan]
Before Jawaid Masood Tahir Bhatti, Judicial Member and Mukhtar Ahmad Gondal, Accountant Member
W.T.As. Nos.1221/LB to 1224/LB of 2002, decided on 09/08/2005.
Wealth Tax Act (XV of 1963)---
----Ss. 17B, 19(3), 16(3) & 35---Income Tax Ordinance (XXXI of 1979), S.72(2)(b)--Wealth Tax Rules, 1963, R.8(3)---Powers of Inspecting Additional Commissioner to revise Wealth-tax Officer's order---Deceased assessee---Initiation of proceedings under S.17B of the Wealth Tax Act, 1963 after the death of the assessee---Assessee contended that law did not provide proceedings under S.17B of the Wealth Tax Act, 1963 against deceased person---Validity---Inspecting Additional Commissioner had proceeded under S.17B of the Wealth Tax Act, 1963 without issuing notices to legal heirs of the deceased, which was the mandatory requirement of law-Whole proceedings had been completed without impleading the legal heirs of the deceased as a party in accordance with law---Section 19(3) of the Wealth Tax Act, 1963 had specifically provided that the provisions of Ss.14, 14A, 15, 15A, 17 and 17A of the Act shall apply to an executor, administrator etc., but S.17B authorizing Inspecting Additional Commissioner to reopen the case was missing, which clearly showed the intention of legislature to exclude the reopening of the cases, whereas the orders passed by the Assessing Officer were erroneous insofar as these were prejudicial to the, interest of Revenue---When specific S.19 was available in the Wealth Tax Act, 1963, there was no reason to take refuge by applying the provisions of Income Tax Ordinance, 1979 with the observations that "the provisions of Income Tax Ordinance, 1979 were applicable to Wealth Tax Act, 1963 proceedings insofar as the Wealth Tax Act, 1963 was silent on that account"---Proceedings under S.17B of the Wealth Tax Act, 1963 could not be initiated against the dead person and for creating charge against the legal heirs, separate notices on each of them was a legal requirement---No charge could be created against a person unless he was impleaded as a party---Undoubtedly those, who acquire benefit, were responsible for liabilities but the liability of Government revenues were to be established after legal process provided under the law by impleading the liable person as a party-Such having not been done the whole proceedings had become illegal---Orders passed under S.17B of the Wealth Tax Act, 1963 for all the assessment years were declared to be illegal and were cancelled by the Appellate Tribunal.
(2005) 91 Tax 146 (Trib.); I.T.A. No.854/LB of 1999 and Begum Nusrat Bhutto v. ITO 1981 SCMR 1192 rel.
1992 SCMR 687 = 1992 PTD 570; 1998 PTD (Trib.) 1379; 1997 PTD (Trib.) 149; 1993 PTD (Trib.) 234; 1994 PTD 427; (1996) 71 Tax 154; 1999 PTD (Trib.) 394; (1998) 78 Tax 319; 1995 PTD 356, (1990) 184 ITR 149; (1979) 118 ITR 447; (1993 201 ITR 635; (1993) 203 ITR 108; 2005 PTD (Trib.) 344 and 1997 PTD (Trib.) 135 ref.
Shahbaz Butt for Appellant.
S.A. Masood Raza Qazalbash, D.R. for Respondent.
ORDER
Through these four appeals, the appellant has agitated against the four separate impugned orders of the learned IAC passed under section 17-B of the Wealth Tax Act, 1963, one passed, dated 26-6-2002 for the assessment year 1997-98 and three orders, dated 29-6-2002 for the assessment years 1998-99 to 2000-2001 cancelling the two separate orders under section 16(3) of the Wealth Tax Act, 1963, one consolidated order, dated 10-4-2000 for the assessment years 1997-98 to 1999-2000 and order, dated 19-1-2001 for the assessment year 2000-2001 on the common grounds for all the four years as under:--
(1) That the impugned order passed under section 17-B of the Wealth Tax Act, 1963 is bad in law and contrary to the facts of the case.
(2) That the impugned order being without proper and lawful assumption of jurisdiction and impeding all the legal heirs of the deceased is void, ab initio and illegal.
(3) That the very initiation of proceeding is unlawful therefore, all subsequent proceedings including the impugned order are nullity in the eyes of law.
(4) That the Statutory notices under section 17-B of Wealth Tax Act having not been served on all the legal heirs of the deceased, all proceeding subsequently taken including the impugned order are invalid and unlawful.
(5) That the very basis of initiation of proceedings being contrary to the dictates of the superior Courts and Wealth Tax Rules, the same are not tenable in the eyes of law.
(6) That the action of the learned Revising Authority cancelling the original assessment is unlawful, unwarranted, unfounded and baseless.
(7) That the original assessments as well as values determined in respect of immovable properties were lawful, just and fair.
(8) The Revising Authority had failed to prove that the original assessment was erroneous insofar as prejudicial to the interest of Revenue.
(9) That the learned Revising Authority had unilaterally discarded/rejected the submissions made at bar. The very basis for taking action under section 17-B of the Wealth Tax Act were unlawful and contrary to the Wealth Tax Rules.
(10) That the learned Revision Authority has failed to pass a speaking order rather the same is unjudicious and a glaring example of non-application of judicious mind.
The facts of the instant case are that after the completion of assessment for the years under review vide order, dated 14-2-2000 for the assessment years 1997-98 to 1990-2000 and vide order, dated 29-1-2001 for the assessment year 2000-2001 under section 16(3) of the Wealth Tax Act, 1963, the Special Officer of Wealth Tax issued show-cause notices, dated 15-10-2001 for the assessment years 1996-97 to 2000-2001 showing his intention for making rectification under section 35 for the assessment years 1996-97 to 2000-2001 with the following contents:--
"Examination of assessment record in your case indicates that you were the owner of certain commercial properties including Truck Stand, Shop Offices and two Godowns at Church Road, Sialkot which have been declared as Self-Occupied. As the property is commercial in nature so the value of the property should had made by observing the commercial rates, which were not applied while the original assessment was being made. Total land area of the commercial property is measuring at 21-marlas which is equal to 5712 Sq. ft. Rate of the said property in respect of commercial area are appearing at S. No.163 and have been fixed per Sq. ft. at Rs.1200 which are effective up to the assessment years 1998-99 and 1997-98 while for the assessment years 1998-99 to 2000-2001, rate per Sq. ft. for commercial properties have been revised and enhanced to Rs.2500 per Sq. ft.
Thus I intend to make rectification under section 35 by applying the rates specified for the commercial properties in order to calculate the value of land which will be added with the cost of construction which was already adopted by the Assessing Officer while the original assessment for the aforesaid years was being finalized in this way total value of the asses including land and superstructure is readopted in order to calculate the genuine liability".
In response to above show-cause notice, the appellant in letter, dated 23-10-2001 placing reliance on the decision of the Hon'ble Supreme Court reported as 1992 SCMR 687 = 1992 PTD 570, the decision of this Tribunal, dated reported as 1998 PTD (Trib.) 1379, 1997 PTD (Trib.) 149, 1993 PTD (Trib.) 234 and the decision of Indian High Court reported as 1994 PTD 427 explained that any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 35. On the factual plan, it was explained as under:--
"Even factually, this property is partially let out and partially is being used personally. And as per clause C of paragraph (11) of Circular No.11 of 1994, dated 17-7-1994. Where it is not possible to determine the gross annual rental value in accordance with sub-para 1 (b)(i) it may be determined in the manner, given in sub-para 1 (b)(iii).
Paragraph 1(b) (iii) is reproduced below:
(iii) Where valuation through any of these methods is not possible the Assessing Officer may estimate the Gross Annual Letting Value keeping in view the grossly annual letting value of similar property in that or the nearest locality.
From the above, it is crystal clear that the valuation as suggested by your honour cannot be made legally.
It is therefore requested that the proceedings started on the report of audit authorities may kindly be dropped".
The proceeding started under section 35 was dropped. In the meanwhile, the assessee Malik Abdul Salam breathed his last on 7-11-2001 leaving behind widow, three sons and two daughters. After his death, the learned IAC issued show-cause notices, dated 16-5-2002 for initiation of proceedings under section 17B of the Wealth Tax Act, 1963 for all the years under review. In response to notices, one of the legal heirs of the deceased Dr. Abdul Qadir, son of deceased, through counsel submitted to the learned IAC that said Malik Abdul Salam has died and the list of legal heirs along with their complete addresses was provided. Regarding the facts of this case, it was explained that the basis evolved for invocation of the provisions of section 17-B in itself are erroneous for the reason that the properties have rightly been valued and assessed on the basis of GALV in terms of Rule 8(3) of Wealth Tax Rules in this respect placing reliance on the decision reported as (1996) 71 Tax 154 1999 PTD (Trib.) 394, 1999 PTD (Trib.) 394. The Assessing Officer has cancelled all the four assessments for the years 1997-98 to 2000-2001 with the following common observations:--
"The reply of the AR of the assessee has been carefully examined and found to be not satisfactory due to the following reasons:--
(1) The Assessing Officer has adopted GALV in respect of property at Gujranwala, which was demolished one. Thus the value was to be adopted on the basis of rates notified by the D.C. Gujranwala.
(2) The Assessing Officer has adopted residential rates instead of commercial rates in respect of Truck Stand at Sialkot.
(3) It has been laid down in section 74(2)(b) of the Income Tax Ordinance 1979 as follows:--
"Any proceedings which could have been taken against the deceased if he had survived may be taken against the legal representative".
Likewise section 74(3) is also reproduced in this regard.
"The legal representative of the deceased shall, for the purposes of this Ordinance be deemed to be an assessee".
The provisions of Income Tax Ordinance, 1979 are applicable to Wealth Tax proceedings insofar as the Wealth Tax Act, 1963 is silent on that account.
In view of above facts of the matter, the plea of the AR of the assessee is not accepted. Order passed under section 16(3) is hereby cancelled with the directions to S.O. Cricle-07, Sialkot to make the same afresh."
Mr. Shahbaz Butt, Advocate has appeared on behalf of the appellant and has argued the matter at length on factual as well as legal aspects. He has contended that the learned IAC has invoked provisions of section 17-B on the ground that the value of contended property measuring 30-marlas being workshop at Shaheenabad, Gujranwala has been valued at Rs.5,80,000 by the Assessing Officer against declared value of Rs.1,50,000 which should have been valued at Rs.12,60,000 on the basis of application of D.C. rates and the value of truck stand has been assessed in the original assessment at Rs.21,60,000 against declared value of Rs.40,000, which according to learned IAC, should have been at Rs.1,49,70,000 by taking the value of land and construction separately. In this respect, he has argued that the basis evolved for invocation of the provisions of section 17-B in itself are erroneous for the reason that so long as property measuring 30-marlas which is workshop at Shaheenabad, Gujranwala, it was rightly valued and assessed on the basis of GALV in terms of Rule 8(3) of the Wealth Tax Rules,, which specifically state that value of a constructed property can only be determined on the basis of capitalized value of Annual Letting Value. Likewise, according to the learned counsel, the value of truck stand was adopted by the Assessing Officer in accordance with law and the view as taken by the learned IAC is incorrect and contrary to the provisions of law for the reason that a constructed property cannot be valued by taking land and construction separately. He has, in this respect, placed reliance on the decisions reported as (1996) 71 Tax 154, (1998) 78 Tax 319 and 1999 PTD (Trib.) 394. According to the learned counsel, in all these decisions, it has been unequivocally held that the value of constructed property has to be worked out on the basis of Gross Annual Rental Value in terms of Rule 8(3) of the Wealth Tax Rules, 1963 and it has also been held that out of market value and Gross Annual Rental value, lower of two values has to be adopted for the purposes of valuation of compact constructed unit. It has also been held that the value of only open plot can be worked out on the basis of rates specified by the District Collector. Learned counsel for the appellant has also objected the very assumption of jurisdiction in the case of deceased assessee, which according to him, is unlawful and without jurisdiction. He has contended that assessee, in this case, has died and in reply to notice under section 17-B, one of the legal heirs has specifically given the details of all the legal heirs, but the learned IAC without issuing notices to all the legal heirs has passed the impugned order, therefore, the impugned orders and all the proceedings in this regard are nullity in the eyes of law. According to the learned counsel, the revising authority has exercised his power without applying his independent mind, as he has started proceedings on the basis of report of the audit authorities. He has contended that the learned IAC under section 17-B may call for and examine the record of any proceedings, but the record existed at the time of passing the order can only be made basis for further proceedings holding the assessment already completed to be erroneous insofar as prejudicial to the interests of Revenue. He has contended that subsequent development if any cannot be part of proceedings under section 17-B of the revoked Wealth Tax Act. He has argued that the learned IAC has power to revise the order in accordance with law but the law does not provide him to proceed under section 17B against deceased person. He has, in this respect, referred section 19 of the revoked Wealth Tax Act, which is regarding tax of deceased person payable by legal representatives. He has contended that under subsection (3) of section 19, it has been provided that the provisions of sections 14, 14A, 15, 15A, 17 & 17A shall apply to an executor, administrator, or other legal representative, as they apply to any person referred to in those sections, but section 17-B has not been provided. According to learned counsel, it shows the intention of the legislature to exclude the matters of deceased persons regarding invocation of provisions of section 17-B. He has contended that the alleged information referred by the learned IAC is not part of the record and the basis adopted are contrary to Rule 8 (3) of Wealth Tax Rules, 1963. According to learned counsel, section 74(2)(b) of the repealed Income Tax Ordinance, 1979 cannot be brought in the Wealth Tax matters, as the provisions of Income Tax are different from wealth tax. In support of his contention, learned counsel for the assessee has placed reliance on the decisions of the Hon'ble Supreme Court, the Hon'ble High Courts of Pakistan and India and decisions of Tribunal which are given as under;
(1) 1995 PTD 356, (2) (1990) 184 ITR 149 (Gauhati High Court), (3) (1979) 118 ITR 447 (Calcutta High Court), (4) (1993 201 ITR 635 (Delhi H.C.) (5), 1993 203 ITR 108 (Bombay H.C.), (6) (2005) 91 Tax 146 (Trib.), (7) 2005 PTD (Trib.) 344, (8) 1999 PTD (Trib.) 394, (9) 1997 PTD (Trib.) 135, (10) Order of this Tribunal, dated 15-9-1999 in I.T.A. No.854/LB of 1999 (Assessment year 1995-96) and (11) 1981 SCMR 1192.
On the other hand, Mr. Javed Iqbal Rana has appeared on behalf of the Department and is supporting the impugned orders of the learned IAC. He has contended that the Assessing Officer called for the record for the years under review and after perusal of the same, finding the orders already made under section 16(3) to be erroneous insofar as prejudicial to the interests of Revenue after confronting the assessee, has cancelled all the assessments for the years under review with the directions to make the same afresh. He has contended that section 19 of the Wealth Tax Act is not relevant, as it is only for the recovery of the outstanding tax liabilities.
We have heard the learned representatives from both the sides and have also perused the impugned orders of the learned CIT(A), the assessment orders, the provisions of law and the case-law referred by the learned representatives from both the sides.
We have found that the assessments were completed under section 16(3) of the revoked Wealth Tax Act, 1963 for the assessment years 1997-98 to 1999-2000 through consolidated order, dated 10-4-2000, while the assessment for the year, 2000-2001 was completed vide order, dated 29-1-2001. Later on, the Assessing Officer issued a consolidated show-cause notice for the assessment years 1996-97 to 2000-2001 on 15-10-2001 showing his intention for making rectification under section 35 regarding valuation of properties including truck stand, shop offices and two godowns at Sialkot. But after the reply of show-cause notice through letter, dated 23-10-200.1, the proceedings for rectification were dropped. After that, the assessee late Malik Abdul Salam died on 7-11-2001. The learned IAC issued separate show-cause notices for all the years under review vide letter, dated 16-5-2002 for initiation of proceedings under section 17-B of the revoked Wealth Tax Act, 1963 for the reasons that the value of properties measuring 30-marlas workshop at Shaheenabad, Gujranwala and the track stand, 8-shop offices and two godowns at Sialkot has not been properly valued/ assessed. These notices, dated 16-5-2002 were sent through a letter addressed to "Dr. Abdul Qadir, Javed Islam, Tahir Islam and others, legal heirs of Malik Abdul Salam (deceased), Church Road, Sialkot".
In response to the above show-cause notice, the representative of the assessee explained that the above referred notice has been served on Dr. Abdul Qadir (one of legal heirs of the deceased Malik Abdul Salam). The list of the legal heirs including widow, three sons and two daughters along with complete addresses were also mentioned. But the learned IAC without further issuing notices to all the legal heirs has passed the separate impugned order, dated 26-6-2002 for the assessment year 1997-98 and order, dated 29-6-2002 for the assessment years 199899 to 2000-2001 cancelling the assessments with the directions to make afresh. While perusal of the record, we have found that in this case, the learned/IAC has proceeded under section 17B without issuing notices to legal heirs of the deceased, which is the mandatory requirements of law, as has been held by this Tribunal as well as by the superior Courts. The cases referred in this regard by the learned representative of the appellant are discussed as under:--
This Tribunal in a case reported as (2005) 91 Tax 146 (Trib.) has held as follows:--
"It is admitted position that assessee died on 12-6-1996 while the assessment in the assessee's' case was framed on 28-6-1999 exactly three years after the demise of the assessee. However, assessment was made in the name of Messrs Fayyaz Scientific Store and there was nothing on the record to suggest that whether the legal heirs of the assessee were impleaded or any notice was issued to them. It is also worth adding that after the case had been remanded by the learned First Appellate Authority, even in second round of litigation, assessment order passed under section 62/132 of the Act was passed on 2-5-2000 in the name of Fayyaz Scientific Store and no effort was made to bring the legal heirs on record. However, before holding a legal representative liable for the tax liability of his predecessor, necessary conditions are that the liability cannot extend beyond the estate that devolved upon him on assessee's death and that the deemed assessee has a fair chance and adequate notice of being heard. In case an assessee dies during the assessment proceedings, these may continue under section 74(2) but not without properly serving the legal representatives. The person representing the assessee having stepped into the shoes of the assessee by fiction of law in view of the aforesaid provisions of the Ordinance, the whole body of Ordinance, that pertains to the rights, duties and privileges of an assessee shall automatically become applicable to the legal representatives of the deceased. Principle of audi alteram partem is the golden rule of natural justice which is to be observed at all costs. Therefore, the legal representative and all of them if they are more than one shall be entitled to a notice in the like manner as the assessee would Dave been if he was living".
The Hon'ble Supreme Court of Pakistan in the case of Begum Nusrat Bhutto v. ITO reported as 1981 SCMR 1192 has held as under:
"On the footing that the demands have been made on the petitioner in her capacity as one of the two widows of the deceased, she would be liable only to a 1/16th share of the net estate of the deceased. But the demand made on her is for the entire liability of the deceased, and Mr. Bilal was not able to explain how the petitioner, who was entitled to a 1/16th share of the net estate of the deceased could be liable for his entire tax liability. Therefore, on this ground alone the notices are prima facie, illegal. Additionally, on the footing that the notices were issued under section 29, this section has to be read with section 24-B, and as subsection (3) of this section does not exclude a right of hearing, it means that the petitioner should have been heard before the demand for the said amount was made on her and on this ground also, the demand notices are, prima facie, illegal."
This Tribunal vide order, dated 19-9-1999 in ITA No.854/LB/1999 (Assessment year 1995-96) in the case of Pardesi Pan Shop, Lahore v. DCIT following the above said Nusrat Bhutto's case and other case has finally concluded as under:--
"We have gone through the facts of the case and have perused the case-law. It is a settled principle of law that no charge can be created against a person unless he is impleaded as a party. It is also no more disputed that those who acquire benefit also are responsible for the liabilities. However, one can only be made responsible for payment of Government revenues after he has been made a party to the proceedings and is legally impleaded. The para referred by us above is applicable on all fours on the facts of the impugned case. We, therefore, without going into the merits of the case consider the proceedings initiated against all the persons to be illegal and cancel the order of the ITO."
In the present case, whole the proceedings under section 17B have been completed without impleading the legal heirs of the deceased as a party in accordance with law. While perusal of provisions of section 19 of the revoked Wealth Tax Act, 1963, we have found that this section in Chapter V of the Act, which is regarding liability to assessment in special cases and reads as under:--
"(19) Tax of deceased person payable by legal representative:--
(1) Where a person dies, his executor, administrator or other legal representative shall be liable to pay out of the estate of the deceased person, to the extent to which the estate is capable of meeting the charge, the wealth tax assessed as payable by-such person, or any sum, which would have been payable by him under this Act if he had not died.
(2) Where a person dies without having furnished a return under the provisions of section 14 or after having furnished a return which the (Deputy Commissioner) has reason to believe to be incorrect or incomplete, the (Deputy Commissioner) may make an assessment of the person on the basis of such assessment, and for this purpose may, by the issue of the appropriate notice which would have had to be served upon the deceased person if he had survived, require from the executor, administrator or other legal representative of the deceased person any accounts, documents or other evidence which might, under the provisions of section 16, have been required from the deceased person.
(3) The provisions of sections 14, 14A, 15, 15A and 17A shall apply to an executor, administrator or other legal representative as they apply to any person referred to in those sections".
We have found that the above referred subsection (1) is regarding recovery from the executor, administrator or other legal representatives out of the estate of the deceased. While subsection (2) is regarding furnishing of return and further proceedings by the Deputy Commissioner and nowhere any other authority has been mentioned in this subsection. So the IAC being not mentioned in this case is not authorized to use his authority in the matters regarding deceased person. Likewise, in subsection (3), it has been specifically provided that the provisions of sections 14, 14A, 15, 15A, 17 and 17A shall apply to an executor, administrator etc., but section 17B authorizing learned IAC to reopen the case is missing which clearly shows the intention of legislatures to exclude the reopening of the cases, whereas the orders passed by the Assessing Officer are erroneous insofar as prejudicial to the interests of Revenue.
Regarding the application of section 74(2)(b) and 74(3) of the repealed Income Tax Ordinance, 1979, we are of the view that when the above referred specific section 19 is available in the revoked Wealth Tax Act, there is no reason to take refuge by applying the provisions of repealed Income Tax Ordinance with the observations that "the provisions of Income Tax Ordinance, 1979 are applicable to Wealth Tax proceeding insofar as the Wealth Tax Act, 1963 is silent on that account". We are, therefore, of the view that these observations of the learned IAC in the impugned order are misplaced.
After considering the above referred case-law and the provisions of law, we are of the considered view that the proceedings cannot be initiated against the dead person and for creating charge against the legal heirs, separate notices on each of them is a legal requirement. It is further to note that the learned IAC has ignored the settled principle of law that no charge can be created against a person unless he is impleaded as a party. Undoubtedly those who acquire benefit are responsible for liabilities. But the liability of Government revenues are to be established after legal process provided under the law by impleading the liable person as a party. This having not been done whole of the proceedings made by the learned IAC have become illegal.
We, therefore, in the above legal position, without going into the merits of the case, find no justification for invocation of section 17B in this case. The impugned orders passed under section 17B of the revoked Wealth Tax Act, 1963 for all the assessment years under review i.e. 1997-98 to 2000-2001 are declared to be illegal and are cancelled.
All the four appeals filed by the assessee are allowed.
C.M.A./79/Tax (Trib.)Appeals accepted.