W.T.As. Nos. 202/KB to 204/KB of 2000-01, decided on 14th May, 2002. VS W.T.As. Nos. 202/KB to 204/KB of 2000-01, decided on 14th May, 2002.
2007 P T D (Trib.) 256
[Income-tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman, Jawaid Masood Tahir Bhatti and Syed Kabirul Hassan, Judicial Members
W.T.As. Nos. 202/KB to 204/KB of 2000-01, decided on 14/05/2002.
(a) Wealth Tax Act (XV of 1963)---
----Ss. 2(1)(5)(ii) Explanation, 16(2) & 17---C.B.R. Circular No.568-S (WT)/80, dated 20-9-1980---Finance Act (III of 1998), Preamble---Assets, held for purposes of business of construction and sale or letting out---Sale of land by the legal heirs in order to keep the commitment of their father---Purchaser, advertised commercial projects for construction and sale of shops and flats on such land---Fifteen acres of land left with legal heirs on which Drive-In-Cinemas and poultry farm existed from which business income derived was being regularly assessed---Assessments of the legal heirs were completed for income-tax as well as wealth tax---Assessing Officer of another circle issued notices under S.17/16(2) of the Wealth Tax Act, 1963 in the status as an Association of Persons for the land of 15 acres, on the ground of "sale of land" which was residential and commercial and that on the earlier land sold, projects of construction and sale were undertaken by the purchaser and therefore, the intention of the assessees was to sell land for commercial purposes falling under Explanation to S.2(5)(ii) of the Wealth Tax Act, 1963---Taxation---Assessee contended that property was not held for purpose of business of construction and sale or letting out as their deceased father had always declared their properties for self use---Sale was completed as agreement to sell was made by their deceased father---If at all any action was warranted, notices could be issued in the case of deceased through legal heirs---Notices issued were time barred---Notices treating the legal heirs as Association of Persons were illegal as charge of wealth in the case of an Association of Persons was dependent on the existence of the events mentioned in S.2(1)(5)(ii) of the Wealth Tax Act, 1963---Validity---Assessing Officer had failed to establish that the assesses had let out the property or the property was being held for the purpose of construction and sale or letting out---Intention could not be taxed and the conduct at the time of assessment had to be considered---Department had not been able to bring on record or even point out that the assessees/appellants had ever indulged in construction business---Representative of the department categorically stated that there was no such evidence but there was evidence that the assessee had intention to start construction projects in future and intention was enough for proving the purpose---Such assumption was not approved as there should be actual `sale and construction' during the relevant periods to fasten chargeability on the assessee---Evidence existed for sale of some portion of land out of the total land of Drive-In-Cinema but no evidence of construction or any intentions to indulge in such activity had been brought on record---Assessing Officer failed to bring on record any tangible cogent evidence to establish that there was any letting out of property or the assesses were engaged in construction along with sale of immovable property---Order of First Appellate Authority was vacated and all the orders made by the Assessing Officer were annulled being passed without having jurisdiction---Charge of tax under S.3 read with S.2(1)(5)(ii) of the Wealth Tax Act, 1963 was not justified---Orders already made in the hands of individual owner were upheld by the Appellate Tribunal.?
1996 PTD (Trib.) 114; 1994 PTD 567 (Statutes); PIDC v. Pakistan 1992 SCMR 891 1992 PTD 576; Messrs Phillips's 1990 PTD 389; B.P. Biscutt Factory Limited, Karachi v. The Wealth Tax Officer (Civil Appeal No. K-140 of 1981); 1993 PTD (Trib.) 266; (1959) 36 ITR 9; 1994 PTD 672; C.I.T. UP v. Kanpur Cool Syndicate (1961) 10 Taxation 1975; (2000) 82 Tax 83 (Trib.); 1992 PTD (Trib.) 1187; 1998 PTD (Trib.) 2116 and 1998 PTD (Trib.) 2054 ref.
1997 PTD (Trib.) 1034; 1991 PTD (Trib:) 1058; 1992 PTD (Trib.) 1187; 1996 PTD (Trib. )114; (1990) 62 Tax 29 (Trib.) and Messrs PICICI Ltd. v. CIT (East), Karachi 1980 PTD 322 rel.
(b) Wealth Tax Act (XV of 1963)---
---Ss. 17 & 2(1)(5)(II)---Wealth escaping assessment---Jurisdiction---Issuance of notice under S.17 of the Wealth Tax Act, 1963 on the ground that assessees were liable to wealth tax as an Association of Persons because the land held by more than one person could not be divided and taxed in the hands of individuals separately but will be assessed jointly in the hands of an Association of Persons---Validity---Issue of jurisdiction being the legal issue could be agitated at any stage of proceedings uptill the highest appellate forum---Assessing Officer admitted that in compliance to notice under S.17 of the Wealth Tax Act, 1963 followed by notice under S. 16(2) of the Wealth Tax Act, 1963, assessee had filed wealth tax returns "under protest" declaring Nil wealth in the name of Association of Persons---Returns were filed under protest because assessees were objecting the jurisdiction and had already declared the subject-matter assets already to the Assessing Officer of another Circle---Defect in jurisdiction was rectified which showed that Assessing Officer had no jurisdiction to pass the assessment order.?
Shagufta Begum v. Income Tax Officer PLD 1989 SC 360 = 1989 PTD 544; 1986 PTD (Trib.) 314; 1999 PTD 4037 4053; (1993) 67 Tax 74 (Trib.); 1987 PTD 407 and Pir Sabir Shah v. Shad Muhammad and others PLD 1995 SC 66 rel.
65 Tax 36 H.C. Karachi at page 38 ref.
(c) Wealth Tax Act (XV of 1963)---
---Ss. 2(1)(5)(ii) & 3---Assets---Charge of wealth tax on the assets on the ground that such property could be rented out---Validity---If the proposition of First Appellate Authority that "properties could be rented out and, therefore, they could be subjected to the levy of wealth tax" was accepted then every property held by an Association of Persons should be included in the definition of "asset" because every property could be rented out sometime in future---It will make the entire definition and the explanation added thereto in S.2(m)(ii) of the Wealth Tax Act, 1963 as superfluous and nugatory---View of the First Appellate Authority that "since the property was owned by Association of Persons, wad occupied by a company which was a separate entity, therefore, by virtue of such occupation the property could be assessed on notional rental value even if no rent was paid by the company" could also not be approved which clearly amounted to travelling beyond the express provision of law and such interpretation would make the clear and expressed provision of law nugatory and redundant---Such view of First Appellate Authority was against the established principles of the interpretation of the statues and could not be sustained.?
(d) Wealth Tax Act (XV of1963)---
--S.17---Wealth escaping assessment---Question, whether the notice under S.17 of the Wealth Tax Act, 1963 was legal when there is no escaped asset of the assessee---Assessing Officer issued notice under S.17 of the Wealth Tax Act, 1963 which was regarding escaped assets but there was no escaped assets of the assessee, as the assesses/appellants had already declared the disputed property, and the property had already been assessed in the hands of the individual owner and there was no definite information of escapement available with the Assessing Officer.?
M. Rehman I.T.O. v. Narain Ganj Company (Pvt.) Limited (1971) 23 Taxation 223 rel.
Sirajul Haque Memon for Appellant.
Muhammad Farid assisted by S.M. Attaullah, Special Officer of Income-tax for the Department.
ORDER
JAWAID MASOOD TAHIR BHATTI, JUDICIAL MEMBER.--These three appeals have been filed by the assessee against consolidated order of the learned CWT(A), dated 9-12-2000 for the assessment years 1997-98 to 1999-2000 on the following grounds, which are nearly same in all the three years:--
(1) That the orders of learned Deputy Commissioner of Wealth Tax and the Commissioner of Income Tax (Appeals) are bad in law and on facts.
(2) That the orders of learned Deputy Commissioner of Wealth Tax and the Commissioner of Income Tax (Appeals) are illegal, ultra vires, void and without any justification.
(3) The order passed in the case of alleged AOP under section 17 of the Wealth Tax Act, 1963 is entirely without jurisdiction as the wealth in question stood assessed in the hands of individual members and Wealth Tax Officer should not have jurisdiction to assess the same under section 17 without getting the assessment of the individual members annulled in terms of the judgment of Hon'ble Supreme Court reported as M. Rehman I.T.U. v. Narain Ganj Company (Pvt.) Limited (1971) 23 Taxation 223.
(4) Without prejudice to the above, the mere fact of co-owing the immovable property did not constitute an AOP as the relevant amendment in law was introduced by Finance Act, 1998 as per Clause (iii) in section 2(16) of the Wealth Tax Act. The assessment under section 17 of an AOP without there being statutory recognition of an AOP is without jurisdiction.
(5) The learned Assessing Officer has erred in law and on facts in issuing and passing impugned assessment under section 17 on the basis of C.B.R.'s Circular No. 568-S(WT)/80, dated 20-9-1980.
(6) Without prejudice to the above, the documentary evidence produced before the Assessing Officer clearly proves that the property was not held for the purpose of construction and sale or letting out as defined in section 2(5)(ii) of the Wealth Tax Act, 1963 and the land under question is being used for business of running two Cinemas by the co-owners and before them, the deceased Mr. Azizullah Jung, two Open Air Cinemas are still working and business, is being run without any discontinuation.
(7) Without prejudice to the above, the Assessing Officer has erred in law and on facts in holding that the land is to be valued at Rs.92,308,480 i.e. 13 acres for residential purposes @ Rs.1,084 and two acres for commercial purposes @ Rs.2,490 per sq. yd. since three is no basis for such arbitrary valuation.
(8) Without prejudice to above, the Assessing Officer has erred in law and on facts in not estimating the property by fulfilling the mandatory requirement of Rule 8(3) of the Wealth Tax Rules, 1963.
(9) The learned Assessing Officer has erred in law and on facts in making spot visit to the property without any notice to the appellant.
(10) Without prejudice to the above, the Assessing Officer has erred in law and on facts in not allowing the liability of Rs.69,696,000, when he was utilizing the sale agreements by the deceased as an evidence against the appellant which evidence also proves the liability to be at Rs.69,696,000 as against the liability of Rs.29,040,000 allowed by him.
(11) The learned Commissioner of Income Tax (Appeals) has erred in law and on facts in confirming the assessment of net wealth at Rs.63,268,480.
(12) The computation of wealth and tax is not in accordance with law.
(13) That the appellant, therefore, prays that relief claimed above be allowed and assessment modified accordingly.
2. Facts leading to these appeals as enunciated from the arguments as laid down before us by the learned representatives of both the parties are that the appellants are the legal heirs of Late Mr. Azizullah Jung, who have inherited immovable property due to his death. Late Mr. Azizullah Jung had been granted 10 acres of land in Deh Okewari (Gulshan-e-Iqbal) on lease for 30 years to establish an open air Drive-in-Cinema. Similarly; another 10 acres of land were also leased to him for 30 years for establishing another Drive In-Cinema. After fulfilling all the formalities like agreements, Ijazatnamas etc. the two Drive-In-Cinemas were established and were being run by showing films in the open air as business concern which is being offered for income tax. In 1973, another piece of land of 16 acres was granted on lease to Late Mr. Azizullah Jung for 30 years for establishing a poultry farm. The poultry farm under the name of Canadian Chicks Farm was established on this land the income of which was also being assessed to income tax. According to appellant in the year, 1991, the lease period was about to expire, and the land in and around Deh Okewari was being converted to commercial-?cum-residential purposes. Late Mr. Azizullah Jung after getting the necessary approval and paying Rs.400 per sq. yd. got the lease period extended from 30 years to 99 years for commercial-cum-residential purposes. There was some disputes created by some interested parties on this land and there was litigation in the Hon'ble High Court of Sindh, which continued till after Mr. Azizullah Jung expired. The Government of Sindh, in 1994 cancelled the lease of entire 30 acres earlier leased to Late Mr. Azizullah Jung who filed a Constitutional Petition No.809 of 1994 challenging the order of cancellation of lease and obtained a stay from the Hon'ble Court. He died in August, 1994. After his death his legal heirs moved an application to the Chief Minister of Sindh to restore the land to them. Their request was, accepted subject to withdrawal of the petition. During his lifetime, Mr. Azizullah Jung had made an agreement of sale of 21 acres of land with one Mr. Haji Karim. However, the sale was not registered and final mutation did not take place. According to the appellant the amount received from Mr. Haji Karim was shownas a liability in the wealth statement of Late Azizullah Jung. After his death, his legal heirs, the present appellants, declared the inherited land and liabilities in their respective wealth tax returns which were accepted by the Assessing Officer and assessment under section 16(3) were framed by the DCIT Circle E-16, Zone-E, Karachi in the case of each of the individual legal heir on his/her share in the inherited land. It has been submitted by the learned counsel for the appellant that the legal heirs, in order to keep the commitment of their father, completed the sale proceeds of land of 21 acres to Haji Karim afresh. Mr. Karim being a businessman and a builder advertised commercial projects for construction and sale of shops and flats on the said land and is being assessed separately having no business connection or relationship with the present appellants. After the above said completion of sale process of land to Haji Karim, 15 acres of land left with the legal heirs which was in their occupation and consisted of land on which the Drive-In-Cinemas and the poultry farm in the name of Canadian Chicks Farm exist from which business income derived by the legal heirs is being regularly assessed. The assessments of the legal heirs were completed for income tax as well as wealth tax by Deputy Commissioner of Income Tax, Cricle-E-16. However, in view of the information of the projects of Haji Karim, and a further sale of land admeasuring about one acre to another builder in the name of Mumtaz Construction on 6-11-1999 the Deputy Commissioner of Income Tax, Circle-E-14 issued notices under section 17/16(2) under the Wealth Tax Act, 1963 to the appellants in the status as an AOP for the land of 15 acres of land, on the ground of "sale of land" which in his opinion was residential and commercial and that on the earlier land sold, projects of construction and sale were undertaken by Haji Karim and therefore, the intention of the appellant was to sell land for commercial purposes falling under Explanation to section 2(5)(ii) of the Wealth Tax Act. After confronting the appellants the Special Officer of Income Tax/Wealth Tax Circle-E-14, Zone-E, Karachi framed the impugned assessments for 1997-98 to 1999-2000 under section 16(3) of the Wealth Tax Act.
3. The appellants filed appeals before the learned CWT(A) against the above referred orders of Assessing Officer but the appeals were dismissed through consolidated order for all the three years under consideration which has been agitated before us through instant appeals. Relevant portion of the impugned order of the learned CWT(A) is reproduced hereunder:--
"After perusal of records and giving due consideration to the arguments of the learned counsel and the Special Officer, it was noted that the factual position as highlighted in the impugned orders of the learned Assessing Officer has not been controverted. The learned Assessing Officer has referred to the fact that Late Azizullah Jung had sold, out the total holdings, 21 acres to one. Mr. Haji A. Karim, vide sale agreement, dated 5-8-1992 and that the vendor had appointed the son of the vendee as the vendee's nominee as also the vendor's legal Attorney. He has also recorded the fact that the vendee Mr. Haji Abdul Karim, has admitted transfer of the said piece of land to him which moreover, also stands reflected in the name of their firm, Messrs Karim Associates (AOP) which is assessed in D-9, Zone-D, Karachi. The learned Assessing Officer has further referred to the fact that after the death of the vendor, his legal heirs made Family Settlement, which was duly registered with the Registrar T-Division, III-A, Karachi vide Agreement, dated 30-8-1994, by which among other properties, the said property was also kept jointly with their respective shares. Besides, the said property No. 118, Deh Okewari, has been duly mutated and entered in the names of the aforesaid family members as per the revenue record of DC East, Karachi. Further, to acknowledge the lease, fresh deed was executed on 24-7-1996 by the said legal heirs through Mr. Samiullah Jung with the Sindh Government. He has also recorded the fact that the said heirs had also constituted a fresh General Power of Attorney in favour of the vendee vide agreement, dated 30-6-1996 by confirming the sale of the 21 acres made earlier by the deceased. The learned Assessing Officer has also noted the fact that on the basis of the heirship certificate, on 3.1-8-1994, in the Family Settlement executed with the Registrar T-Division-IV, dated 22-9-1994, the entire 36 acres stand transferred to the said legal heirs, which is followed by another agreement also registered with the Sub-Registrar T-Division, dated 14-3-1995; and that on its basis the Sindh Government vide lease deed, dated 24-7-1996, transferred the leasehold rights of the entire 36 acres to the said legal owners for 99 years period. It is further noted that it is also on record that out of this 36 acres, about 16 acres duly mutated in favour of Mr. M. Samiullah Jung and five other co-owners, they had jointly sold out of plot 118-C, Deh Okewari, 3145 sq. yds. and 2818 sq. yds. On 20-11-1996 to Mr. Hyder Ali and Mr. Shabbir Ali Sons of Taqi Ali Bhai respectively and plot 118-F Measuring 4840 sq. yds. to Messrs Mumtaz Construction on 6-11-1999. The aforesaid factual position has not been disproved by the appellant by any documentary evidence or cogent material. Therefore, treating the said co-owners as an AOP for wealth tax purposes was fully justified and is upheld.
The appellant's other contention that they are still not the legal owners as the plot in question has not. been transferred in their names has also been repelled by the learned Assessing Officer by reference to the legal position as a result of the various actions as supra quoted on the part of the said legal heirs. Likewise, the appellant's contention that it is the vendee who is a builder and is undertaking construction and not the AOP, and that future prospects cannot bring chargeability in the present case is nothing but twisting the facts. As said before, the learned Assessing Officer has shown that the AOP members by joining hands together have ventured in business of sale of plots vide agreements, dated 30-6-1996, dated 21-11-996 and 6-11-1999 respectively. Hence, reliance on the ratio of the decision reported as 1996 PTD (Trib.) 114 is misplaced as it is clearly distinguishable on facts.
As far as the inclusion of the shares of the members in their respective wealth tax return is concerned, it was pointed out by the Assessing Officer that the wealth tax assessment orders of the co-shares have been rectified and their respective shares in this joint property have been deleted from their net wealth.
In view of the foregoing factual position, the impugned action of the learned Assessing Officer by treating the co-sharers as AOP and taxing the AOP under section 2(e)(ii) being in accordance with law is confirmed:
In the result, all the appeals being without substance fail and are dismissed."
The appellants have now come up before this Tribunal on the grounds as set forth in the memo. of appeal.
4. Mr. Sirajul Haque Memon, Advocate, learned counsel for the appellant has raised objections to the impugned assessments framed in the case. He has mainly contested on the following points:-
(i) The territorial jurisdiction of the Assessing Officer;
(ii) The validity of jurisdiction of making the assessment in the hands of an AOP;
(iii) The assumption of jurisdiction under section 17 and sec?tion 16(3) of the Wealth Tax Act to assess the same property in the hands of an AOP which had already been assessed in the hands of individual legal heirs;
(iv) The chargeability of self-occupied property under section 2(1) (e)(ii) of the Wealth Tax Act, 1963 as amended under section 2(1)(5)(ii); and
(v) Disallowance of liabilities in case the other objections are not accepted by this Tribunal.
5. Mr. Memon regarding the issue of territorial jurisdiction has submitted that when the assessment of the individuals being legal heirs of Mr. Azizullah Jung are assessed by the Deputy Commissioner of Income Tax, Circle-E-16, the assessment cannot be framed in the case of the AOP by the Special Officer of Income Tax, Circle-E-14 unless specifically assigned and delegated jurisdiction under section 5(1) of the Income Tax Ordinance, 1979 and section 10(1) of the Wealth Tax Act in accordance with law by the C.B.R., RCIT and the CIT. He has contended that by Notification C. No. 2(1)(DTA/II/94, dated 1-3-1994 at item No.20(c)(i) which is reported in 1994 PTD 567 (Statutes), the jurisdiction of Gulshan-a-Iqbal was with the Commissioner, B-Zone, Karachi. He has forcefully contended that there is no fresh specific or special jurisdiction assigned to the Commissioner, Zone-E and Special Officer or DCIT, Circle E-14 regarding developers and those who are engaged in sale and construction or business of letting out in Gulshan-e-Iqbal. Mr. Memon has pointed out that Notification No. RCIT/SR/801/2001/4642, dated 20-6-2001 transferring the jurisdiction of the present appellant to Zone-E, Karachi is a fresh Notification of change of jurisdiction in June, 2001 which clearly implies that earlier, the Commissioner, Zone-E, Karachi and the present Assessing Officer, DCIT, Circle-E-14, did not have territorial jurisdiction under section 10 of the Wealth Tax Act, 1963 in the case of the appellant. Learned counsel on this issue has placed reliance on the judgment of the Hon'ble Supreme Court of Pakistan reported as PLD 1989 SC 360.
The learned counsel of the assessee on the issue of the assessment in the status of the AOP has submitted that chargeability of an AOP was removed by a Finance Act, 1996 through section 3 of the Wealth Tax Act and was re-introduced by Finance Act, 1997. He has pointed out that the charge of wealth tax on every assessee under section 3 is on the net wealth the "valuation date". According to him for the assessment year 1997-98, the valuation date in this case was 30th June, 1997 on which date, there was no charge of wealth tax on an AOP because of its omission through Finance Act, 1996 which was restored only on 1-7-1997 by Finance Act, 1997. He has pleaded that since on the "valuation date" for the assessment year 1997-98 the event of taxability on the valuation date was not there the assessment for assessment year 1997-98 was invalid. He has argued that when the right, title or interest in immovable property is vested in more than one person, the assessment was to be made as an AOP but this provision was also omitted by Finance Act, 1997 along with the chargeability of an AOP under section 3. However, according to learned A.R. chargeability of such an AOP, in the case of co-owned immovable property was not restored by Finance Act, 1997 but a year later i.e. by Finance Act, 1998 relevant for the assessment year 1998-99 by insertion of clause (iii) in section 2(1)(16) of the Wealth Tax Act, 1963. He has submitted that as in the case of chargeability of an AOP in general under section 3 the case of co-owned property to be assessed as AOP was also not available in law on the "valuation date" for the assessment year 1998-99 i.e. 30-6-1998 but it was brought in on 1-7-1998 (Finance Act, 1998), the date of enforceability of Finance Act the assessments for the assessment years 1997-98 and 1998-99 in the status of An AOP were, therefore, not valid. Mr. Sirajul Haque Memon has further argued that assuming that the status of an AOP was valid though not conceded, as the net wealth consisting of the impugned property had already been declared by the individual legal heirs in their own returns of wealth and were duly assessed by the Deputy Commissioner of Income Tax, Circle-E-16 upto the assessment year 1999-2000, the same property cannot be assessed again in the hands of an AOP without first cancelling the assessments in the hands of individual members. In this case according to learned counsel, the Assessing Officer has himself mentioned in the impugned assessment orders that "intimation should be sent to ACIT, Circle-E-16 to rectify the assessments of all the individual co-owners by deleting the value of land of Deh Okewari, Gulshan-a-Iqbal Karachi". Mr. Memon has reiterated that neither at the time to issue of notice under section 17 nor even at the time of the completion of assessments of the AOP, the assessments of the individual members/co-owners on the same property were cancelled or rectified, therefore, the impugned assessments have no legal sanctity and are therefore, liable to be quashed. In this regard, he has placed reliance on the decision of the Hon'ble Supreme Court of Pakistan in the case of M. Rehman, ITO v. Narain Ganj Co. (Pvt.) Limited reported as (1971) 23 Tax 223, wherein the principle has been laid down that same income cannot be assessed in the hands of an AOP if it has already been assessed in the hands of member/partners unless these assessments are first cancelled and it is only then that notice for reopening of assessments can be issued. Learned A.R. has, therefore, contended that notice under section 17 in the instant case was totally without jurisdiction as per the Hon'ble Supreme Court dictum.
On the issue that the assessments cannot be made on the same income or property as it would amount to double taxation, he has cited the decision of the Hon'ble Supreme Court of Pakistan in the case of PIDC v. Pakistan 1992 SCMR 891 = 1992 PTD 576.
As regards the issue of notices under section 17, learned counsel has pointed out that since the property had already been assessed in the hands of the members, the Wealth Tax Officer did not have "definite information" that wealth-tax assessment of the property had escaped assessment. He has, therefore, submitted that in such a case, section 17 required approval of the learned Inspecting Additional Commissioner, which in the present case has not been obtained and the orders are, therefore, unlawful. He has argued that the term "or" used in Proviso to section 17(1) of the Wealth Tax Act, 1963 on the issue of definite information and the approval of the Inspecting Additional Commissioner has been dealt with on the income tax side by the Hon'ble Sindh High Court in the case of Messrs Phillips reported as 1990 PTD 389 wherein it has been held that since reopening of an assessment was a serious matter affecting vested rights of citizen taxpayers, the term "or" was to be read as "and". According to learned counsel, on the same principle, if the word "or" is read as "and", existence of both the incidents i.e. definite information as well as the "previous approval" of the Inspecting Additional Commissioner was required to reopen the assessments, and since this has not been done by the Special Officer, the notices under section 17 were without jurisdiction.
The learned counsel has, next, dilated upon the applicability of section 2(1)(5)(ii) of the Wealth Tax Act, 1963 he has submitted that in the case of companies, firms and AOPs, the jurisdiction to assess immovable property is hedged by simultaneous conditions. According to him, after the judgment of the Hon'ble Supreme Court, dated 9th January, 1989 in Civil Appeal No. K-140 of 1981 in the case of B.P. Biscutt Factory Limited, Karachi v. The Wealth Tax Officer, an explanation was inserted with retrospect effect in section 2(1)(5)(ii) of the Wealth Tax Act as under:
"Explanation".---For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes---
(i) immovable property held for the purpose of letting out, or business of letting out of property;
(ii) immovable property held for the purpose of construction and letting out of property; and
(iii) immovable property held for the purpose of construction and sale of property.
Mr. Memon has stressed that unless the immovable property is held for sale as ' well as for construction or it is held for construction and letting out or for letting out and business of letting out, it cannot be charged to tax. He has pointed out that none of these parameters are present in this case as the Assessing Officer has failed to establish the above said three criteria, not a single foot has been let out, on the land the assessee was running Drive-In-Cinema and Poultry Farm, the income of which is being charged to tax in the status of unregistered firm consisting of the legal heirs. He has vehemently argued that the Assessing Officer has brought no evidence whatsoever, that the assessee had undertaken any construction. According to learned counsel, the late father of the appellant had sold 21 acres of land to Mr. Karim who had undertaken constructions projects on such land. The projects were undertaken by Mr. Karim's firm and not Mr. Jung or his legal heirs. Similarly, out of the remaining 15 acres, the legal heirs have sold only about one acre i.e. 4940 sq. yeds. to one Mumtaz Construction on 6-11-1999 which is not relevant to the years under consideration. According to him, it is wrongly alleged by the Assessing Officer that this was a construction project which has advertised sale of shop and flats. It is pointed out by the learned counsel that the assessee had nothing to do with Mumtaz Construction nor any one among the legal heirs has any connection whatsoever with it. He has reiterated that as pointed out by the Hon'ble Supreme Court mere sale of land alone cannot be the basis of chargeability of wealth tax. The word "and" as legislated through clause (ii) of subsection (5) of section 2(1) is conjunctive and both conditions are jointly to be fulfilled before charge can be fastened as held by the Hon'ble Supreme Court, that only one incident does not invite chargeability which in the present case is self-occupied property for business other than construction (cinema and poultry farm). He has submitted that the sale as described by the Assessing Officer in the assessment order to Mumtaz Construction is dated 6-11-1999 i.e. beyond the three impugned assessments. Learned counsel has submitted that keeping in view the above discussion all the three orders passed by Assessing Officer under section 16(3) of the Wealth Tax Act, 1963 as a an AOP may please be annulled and the assessment already made by the DCWT Circle E-16 in the case of each of the individual legal heirs on his/her share in the inherited land may please be restored. He has further submitted that in case the assessment in the hand of individual legal heirs is not restored the liabilities as claimed by the appellants in all the assessment years may please be allowed as the Assessing Officer has erred in law and on facts in not allowing the liability when he was utilizing the sale agreements by the deceased as an evidence against, the appellant which evidence also proves the liability.
6. Mr. Muhammad Farid, Advocate, has appeared on behalf of the department who is assisted by Mr. S.M. Attaullah, Special Officer of Income Tax/Wealth Tax, Circle E-14, Zone-E Karachi, who is also the author of impugned assessment orders made under section 16(3) of the Wealth Tax Act, 1963. Mr. Farid regarding the territorial jurisdiction has contended that it cannot be challenged before this Forum, as the appellant has not raised this point before the Assessing Officer, at the stage of 1st appeal before learned CWT(A) and has not even raised this point in his grounds of appeal before this Tribunal. He has in this regard placed reliance on the cases reported as. 1993 PTD (Trib.) 266 and (1959) 36 ITR 9.
He has argued that whatever defect there was in the jurisdiction it has been rectified by the RCIT's clarificatory notification, dated 20-6-2001 assessing jurisdiction to CIT "E" Zone and the Assessing Officer C-14, E-Zone. He has stressed that since this is a clarificatory and curative notification, it is, therefore, retrospective in its impact. He has further submitted that the case quoted by the learned A.R. reported as (1989) 60 Tax 83 (S.C. Pak.) was an ex parte judgment and therefore, the reliance cannot be placed on this decision of the Hon'ble Supreme Court of Pakistan. He has contended that the assessee is cleverly manoeuvring to show that the AOP is not chargeable for the reason that they are not engaged in sale and construction. He has contended that construction of huge projects of Mr. Karim and Mumtaz Construction clearly shows that the assessee had the "intention" of construction, because they got approved the "maps" of the projects of the developers like Mr. A. Karim and Messrs Mumtaz Construction who wanted to build flats and shops. Mr. Farid has in this respect placed reliance on the case reported as 72 Tax 125 and 1994 PTD 672. As regards section 17 of the Wealth Tax Act, Mr. Farid argued that it is not relevant because under the Income Tax Law, necessary amendment was made in section 65 and "or" was amended to "and" but the same exercise was not undertaken in section 17 of the Wealth Tax Act, therefore, the judgment of the Hon'ble Supreme Court of Pakistan reported as (1971) 23 Tax 223, is not applicable in this case. According to learned counsel the principles laid down in the decision of the Hon'ble Supreme Court of Pakistan cited as (1971) 23 Tax 223 are not applicable to the facts of this case at all for the reason that the judgment was delivered in the income tax case before amendment of section 3 long ago and it is not applicable now even to the income tax cases because this judgment was based on Supreme Court of India judgment reported as C.I.T. UP v. Kanpur Cool Syndicate (1961) 10 Taxation 1975. Learned counsel has argued that under the Income Tax Law at the time the ITO had two options either to assess the individual members of an AOP or an AOP itself and in that case First assessment of the individual members were completed and after that ITO wanted to assess the AOP. He has, therefore, contended that to follow this judgment even in income tax cases now would be unjustified not to speak of the wealth tax cases where the law for assessment of individual members of an AOP and the AOP itself is different. According to him, in the present case there is no question of overlapping of double taxation now. In this case the individual members of AOP which is not notional as claimed by the learned counsel for the appellant but is a real AOP as the appellants have been themselves filing the returns of income for cinema business and other business namely trading in chicken feeds in the status of AOP. According to Mr. Farid as the assessees themselves are getting assessed as an AOP in two separate cases how can it be notional AOP. He has in this respect placed before us the copy of one return of income and one assessment order in each case in proof. In regard to point raised by the learned counsel for the appellant that the property was not held for the purpose of construction or letting out and therefore not qualified as "assets" within the meaning of section 2(1)(5)(ii) of the Wealth Tax Act, 1963 learned counsel for the department has contended that this issue has already been decided by this Tribunal in a case reported as (2000) 82 Tax 83 (Trib.) holding that the wealth tax charged in the plot of land was correct in spite of the fact that the assessee in that case has taken the plea that the land was agricultural and not liable to tax. He has, therefore, argued that mere intention is enough and the actual construction and then sale or letting out are not essential ingredients. On the factual side learned counsel has rebutted the contentions made by the learned counsel for the appellant that the land was allotted for the purpose of construction of two cinemas and chicken farm. According to Mr. Farid in fact there is only one Open Air Cinema and there is no Chicken Farm. According to him only a small portion of land is reserved in the name of chicken farm but there is no actual poultry farm or hatchery. Only chicken feed is purchased and sold, the entire remaining portion of land is let out and rental income is declared for this land in another case of Pak Canadian Chicken Farms in the status of AOP comprising of the same persons who are being assessed as partner of cinema business. According to him, this is also an act of irregularity. According to learned counsel the land was allotted to Mr. Azizullah Jung for two cinemas and chicken farms but only one cinema was constructed and therefore, allotment was cancelled but was re-allotted for residential and commercial purposes. According to him, Mr. Sirajul Haque Memon has merely created a confusion by repeating the old story of allotment of land for construction of cinema and poultry farm. He has stressed that there is only one cinema at present which hardly covers two or three acres out of 15 acres of land and they are being assessed as an AOP by the Income Tax Department as per their returns filed by themselves in the status of AOP. Learned counsel has stated there is no poultry farm on this land at present at all only a small portion is earmarked for trading in poultry feed. According to Mr. Farid the members of the AOP fraudulently filed their individual returns of wealth tax and the assessments were completed at a very low figure which have now been got cancelled and proper assessment has been made in the name of AOP. According to learned counsel for the Department the counsel for the appellants Mr. Memon has created a distinction between the cancellation of assessments prior to issuance of notice under section 65 of Income Tax Ordinance, 1979 and section 17 of the Wealth Tax Act, 1963 which according to Mr. Farid is quite farcical. He has contended that if such a type of arguments are accepted at this Tribunal's level this will play havoc with the revenue concealment. According to him concealment is concealment and it is the duty of the Assessing Officer to detect and assess it. Mr. Farid regarding the amendment in section 2(l)(5)(ii)of the Wealth Tax Act, 1963 contended that this amendment was made in the year, 1997 and according to him it is applicable for the assessment year 1997-98. He has in this respect placed before us the copy of Circular No. 8 of 1997. Mr. Farid further to elaborate this point has submitted that like income tax, wealth tax amendments are also applicable in the assessment year in which these are made and not one year after. He has in this respect placed before us the assessment order in one case for the assessment year 1963-64 and an extract from Indian Commentary of Wealth Tax Law to prove his point. He has submitted that the Indian Wealth Tax Act was promulgated in 1957 and first assessment was made for the year 1957-58 and in Pakistan Wealth Tax Act was promulgated in, 1963, and first assessment was made for the year 1963-64.
7. Using the right of reply of the objection raised by the learned representative of the department the learned counsel for the assessee has pointed out that the question of jurisdiction is a question of law which goes to the root of the matter and can be taken up at any appellate stage and even at the stage of the Hon'ble Supreme Court. He has in this respect placed reliance on the following reported decisions:
(1989) 60 Tax 83 (S.C. Pak.) = PLD 1989 SC 360 at page 363. 65 Tax 36 H.C. Karachi at page 38. 1986 PTD (Trib.) 314 1999 PTD 4037 at page 4053.
With regard to reopening of the assessment, Mr. Memon has stated that here again our own Hon'ble Supreme Court case is binding on us. He has further pointed that the Hon'ble Karachi High Court's case relied upon by the learned Legal Advisor of the department was decided in 1962 whereas the Hon'ble Supreme Court decided M. Rehman's case in 1971 and as such impliedly Karachi case stands overruled. As regards the "intention" to indulge in developing and construction business the learned counsel has stated that, what the assessee might do in the future is not relevant for taxing any person. The present conduct of the assessee has to be seen, and the actual fact which is that the department is assuming the "purpose" of assessee from the projects launched by Mr. Karim. He has submitted that there are numerous cases decided by this Tribunal that is the present conduct which is relevant and the fact is that the assessee has not constructed even a single square foot of land although in November, 1999 one acre land has been sold which is not relevant for the years under consideration. He has in this regard placed reliance on the following reported decisions:--
1992 PTD (Trib.) 1187;
1998 PTD (Trib.) 2116
1998 PTD (Trib.) 2054
1997 PTD (Trib.) 1034.
8. We have heard the learned representatives of the two parties and have also perused the impugned order of the learned CWT(A), all the three orders under section 16(3) passed by the Special Officer, the various documents placed before us by both the parties and the case law referred by both the learned representatives of the two parties. Before embarking on the agitated issues in the three appeals under consideration, we want to give reasons for convening this Full Bench. These appeals were heard by a Bench consisting of Learned Judicial Member, Mr. S. Kabirul Hassan, and Learned Accountant Member, (as he then was) Mr. Shahid Jamal on 20-2-2001 and the order was reserved. Meanwhile. Mr. Muhammad Farid. Advocate/Counsel for the Department addressed a letter to the learned Accountant Member making a request for construction of a Larger/Full Bench. A copy of the said letter was also endorsed to the learned Chairman and also to learned Judicial Member, Mr. Kabirual Hassan. Since both the learned counsel raised legal issues which require deep consideration. The learned Accountant Member, Mr. Shahid Jammal (as he then was) in the circumstances requested the learned Chairman that he may consider constitution of Full Bench for resolving the legal complexities of the issues involved. The learned Chairman agreed to this suggestion and passed an order, dated 22-2-2001 for constitution of a Full Bench. Case has been argued at length by both the learned counsel, we are of the view that due to multiplicity of the detailed arguments of the learned counsel, it is not possible to dilate on each issue argued before us, we, therefore, find it reasonable to restrict ourselves on the following three points which will cover the whole controversy between the parties to meet the ends of justice:
(i) Whether the Special Officer, Income Tax/Wealth Tax Circle-E-14, Zone-E, Karachi has the jurisdiction to reopen and assess the matter under section 16(3) of the Wealth Tax Act in the presence of assessment already made by the DCIT, Circle E-16, Zone-E, Karachi?
(ii) Whether the case of the assessee falls within the definition of an AOP under section 2(1)(5)(ii) of the Wealth Tax Act, 1963?
(iii) Whether the notice under section 17 of the Wealth Tax Act, 1963 is legal when there is no escaped assets of the assessee, disputed wealth being already declared and assessed and there being no definite information of escapement?
On the issue of jurisdiction, we have observed that the Special Officer of Income Tax/Wealth Tax, Circle-14, Zone-E, Karachi has booked the appellant being an AOP on the tax roll of his circle issuing notice under section 17 of the Wealth Tax Act for the reason that according to him appellants are liable to wealth tax as an AOP because the land held by more than one person cannot be divided and taxed in the hands of the individuals separately but will be assessed jointly in the hands of an AOP. We have found that the Assessing Officer has initiated proceedings without having jurisdiction in this regard as upon our queries during the course of arguments from the department's representative an administrative order, dated 23-6-2001 has been furnished, which is reproduced hereunder:--
"OFFICE OF THE COMMISSIONER OF INCOME TAX, ZONE-E, KARACHI
No. Jud. I/CIT/ZE/2000-2001/3771??????????????????????????????????????? ??????????? Dated: 23-6-2001
ORDER
The jurisdiction in the following cases (transferred to Zone-E), under section 5(1)(b) of Income Tax Ordinance, 1979 and sub-section 10(1) of Wealth Tax Act, 1963 from the Regional Commissioner of Income Tax, Southern Region, Karachi, (vide No. RCIT/SR/SO-1/2001/4624, dated 20-6-2001) is hereby given to Circle-E-14, Zone-E, Karachi with immediate effect:--
Name of the Case
(1) Messrs Karim Associates, 118 Deh, Okewari.
(2) Mr. Muhammad Bux Jumani, Colachi Co-operative Housing Society.
(3) Mr. Mansoor Sharif Hamid Block-2, Gulistan-e-Johar, Karachi.
(4) Messrs Samiullah Jung and others, 118 Deh Okewari, Karachi.
(5) Mst. Mahpara Shakeel, Survey Nos. 68, 69, 80 and 81 Deh.
Safooran Gulistan, Karachi.
(Sd.)
(Agha Kafeel Barik)
Commissioner of Income Tax
Zone-E, Karachi
Copy to:
(1) The Regional Commissioner of Income Tax, Southern Region, Karachi for his kind information.
(2) All Inspecting Additional Commissioners of Income Tax, Range-I, II and III, Zone-E, Karachi.
(3) All DCITs, ACITs, ITOs, Special Officer, Circle-E-14, Zone-E, Karachi for information.
(Sd.)
(Agha Kafeel Barik)
Commissioner of Income
Tax Zone-E, Karachi"
The above letter clearly shows that the jurisdiction has been assigned to Circle-E-14, Zone-E, Karachi with immediate effect from 23-6-2001 and no proof whatsoever has been placed before this Bench showing that the Assessing Officer Circle E-14 was having the jurisdiction in this regard prior to issuance of the above referred order regarding jurisdiction.
As far, the objection of the learned legal advisor of the department that under subsection (5) of section 10 of the Wealth Tax Act, 1963, the issue of jurisdiction cannot be raised before this Tribunal, we are of the view that the arguments of learned legal advisor in this regard are misconceived. In this respect we may refer the decision of this Tribunal reported as (1993) 67 Tax 74 (Trib.), wherein the distinction between "jurisdiction to asses and objection to the jurisdiction in the assessment proceeding" has been dealt by this Tribunal. Relevant paragraph from page 284 is reproduced hereunder:--
"(23)??.Thus, it is abundantly clear from the resume of law as interpreted in Pakistan by this Tribunal and in India by superior Courts that the question of jurisdiction to assess any person cannot be made subject-matter of appeal before the A.A.C./C.I.T. or Tribunal and it lies exclusively within the domain of the administrative hierarchy contemplated in the Ordinance. It is, therefore, held that the objection to the jurisdiction of the ITO to assess the appellant cannot be raised in appeal and this Tribunal has no jurisdiction to entertain such objection and consequently the objection stands overruled.
(24) Before parting with our finding on this issue we would like to clarify that a distinction is always to be made between an objection to the jurisdiction to assess any person and objection to the jurisdiction in the assessment proceedings. The objection to asses any person cannot be made subject-matter of appeal but the objection to jurisdiction in the assessment proceedings can always be raised in appeal and can be entertained by the appellate authorities. In other words no objection can be raised in appeal to the effect that as Assessing Officer has no jurisdiction to assess an assessee but the objection can always be raised that while making assessment the Assessing Officer has not exercised his jurisdiction properly and, therefore, any addition to the total income etc. is not sustainable for want of jurisdiction. For example if completed assessment is to be reopened with prior approval of I.A.C./C.I.T./RCIT or Board and no prior approval has been obtained or accorded or if an addition on account of deemed income is to be made with the prior approval of IAC and no such prior approval of IAC has been obtained or accorded the objection can always be taken that the addition is without jurisdiction and such objection shall be entertained because such objection is not related to the jurisdiction to assess any person but it relates to the jurisdiction in the proceedings. Thus, objection to the assessment of any person cannot be made subject-matter of appeal but objection in the assessment of any person can always be made subject-matter of appeal."
Even otherwise, there is a plethora of judgments on the issue of jurisdiction that this issue being legal issue can be raised at any stage up to the highest Appellate Forum even if not agitated in the lower authority/Court. Some of the cases referred by the learned representative of the appellant are reproduced hereunder:--
1986 PTD (Trib.) 314
"--------Obviously if an Assessing Officer has no jurisdiction to make an assessment such jurisdiction cannot be conferred by the assessee merely by filling a return nor the appellate authority can be debarred from determining as to whether the Income Tax Officer had jurisdiction to make an assessment or not. If another interpretation is made that would lead to chaos. In that case any Income Tax Officer would assess any assessee whether falling under his jurisdiction or not. An ordinary assessee would not normally know as to whether the Income Tax Officer who had issued the notice had the jurisdiction in his case or not. Where the jurisdictions of the Income Tax Officer are changed every now and then it is very difficult for an ordinary to know as to whether that particular Income Tax Officer had in fact jurisdiction to issue notice to the assessee to file a return. It has brought to my notice that the notification issued on 31-7-1983 referred to above had not been even reported. Thus the assessee, even if he wanted to know had no means to know before filing the return that the Income Tax Officer, Circle-R had in fact jurisdiction to issue notice to her or not."
1987 PTD 407.
Para-5. "Objection to the jurisdiction of the assessing Income Tax Officer, Central Reporting Agency, Karachi was agitated before the learned Appellate Tribunal. The objection was turned down by the learned Appellate Tribunal on the ground that it had not been agitated earlier. The learned counsel appearing for the respondent has made reference to second proviso to sub-section (3) of section 64 of Income Tax Act, 1922, which lays down that the place of assessment shall not be called in question by an assessee if he had disclosed in his return the principal place where he had carried on his business, profession or vocation or if he has not filed a return he shall not call in question the place of assessment after the expiry of the time allowed by the notice under subsection (2) of section 22 or under section 4 of the Act for making of a return. But the place of assessment has not disputed in the cases before us. What has been agitated by the applicants herein is the jurisdiction of the assessing Income Tax Officer, Central Reporting Agency, Karachi. Since the Income Tax Officer, Central Reporting Agency, Karachi did have jurisdiction at the time the returns were filed with him, there was no question for throwing challenge to his jurisdiction. His jurisdiction is deemed to have been taken away by the notification, dated 29-9-1967, referred to above. Of course, the assessment proceedings were conducted thereafter and no jurisdiction objection seems to have been raised at that stage, but it has been stated by the applicants that they were not aware of the notification, dated 29-9-1967 at that time. According to the applicants, they became conscious of the change of the jurisdiction after the filing of the appeals. The objection to the jurisdiction was advanced before the learned Income Tax Appellate Tribunal and it should not have been brushed aside on the ground that it had not been raised earlier, particularly in the circumstances that it involved the question of law." PLD 1989 SC 360 - 1989 PTD 544.
"------It is well known that a plea regarding the assumption of jurisdiction by a Tribunal or a Court is available to a litigant even when appearing before the highest Court in the country..."
1999 PTD 4037 (Kar. H.C.)
Para. 17. "Mr. Shaikh Haider, learned counsel for the respondent submitted that challenge with regard to the authority and jurisdiction of respondent No.3 to initiate and finalize the proceedings under section 52 read with section 86 of the Ordinance against the petitioners during the course of assessment proceedings relating to the petitioners could not be taken up in these petitions as the petitioners had not raised such objections in reply to the show-cause notices issued to them as to why proceedings under section 52 read with section 86 of the Ordinance should not be initiated and that they had participated in the proceedings initiated in consequence of the aforesaid show-cause notices voluntarily. Mr. Shaikh Haider further submitted that in view of the provisions of subsection (5) of section 5 of the Income Tax Ordinance, 1979 the petitioners are stopped from raising objection relating to the jurisdiction of respondent No.3. From a perusal of section 5(5) of the Income Tax Ordinance we are unable to find any force in the contention advanced by Mr. Shaikh Haider as the aforesaid subsection (5) would not be applicable to the facts and the circumstances of these cases inasmuch as the petitioners were neither required to file returns of total income nor show-cause notices issued to them related to the filing of such returns within the specified period. The provisions of section 5(5) of the Ordinance cannot be pressed into service regarding issuance of show-cause notices relating to initiation of proceedings under sections 52 and 86 of the Ordinance. Even, otherwise failure of the petitioners to question the authority or jurisdiction of respondent No.3 to issue the alleged notices and to initiate the said proceedings against them would not confer jurisdiction on respondent No.3 which did not vest in him in law. It is an established principle that submission to jurisdiction of a Court or Authority does not counter jurisdiction on such Court or Authority and in support thereof reliance is placed on the case of Muhammad Afzal v. Board of Revenue, West Pakistan and others reported in PLD 1967 SC 314. It may also be pointed out that the objection as to the jurisdiction can be raised at any stage and for the above reliance is placed on the cases of (i) Shagufta Begum v. The Income Tax Officer reported in PLD 1989 SC 360 = 1989 PTD 544 and (ii) Pir Sabir Shah v. Shad Muhammad and others reported in PLD 1995 SC 66. The objection raised by Mr. Shaikh Haider is not sustainable and is overruled."
After going through the above citation, we are of the considered view that the issue of jurisdiction being the legal issue can be agitated at any stage of proceedings uptill the highest appellate forum. In the present case Assessing Officer in the impugned order has admitted that in compliance to his notices under section 17 followed by notice under sections 16(2) and 16(4) "Mr. Saleem of Messrs Ebrahim & Company, FCA/AR, attended along with Mr. Amanullah, the Manager of assessee and filed wealth tax returns `"under protest" declaring Nil wealth in the name of AOP". It clearly shows that the returns were filed under protest because appellants were objecting the jurisdiction and have already declared the subject-matter assets already to the DCIT Circle E-16. We, therefore, find force in the contention of the learned counsel for the appellant that the very fact that the defect in jurisdiction was rectified in the Notification, dated 20-6-2001 shows that Assessing Officer had no jurisdiction to pass the assessment order. The issue is, therefore, decided in favour of the appellant.
9. Regarding the issue that whether the case of the assessee falls within the definition of an AOP under section 2(1)(5)(ii) of the Wealth Tax Act, 1963, we have found that the appellants have contended that subject-matter property is not held for purpose of business of construction and sale or letting out as defined in section 2(1)(5)(ii) of the Act. They have contended that property was not acquired for purpose of sale and they and their deceased father has always declared their properties purchased for self use but the Assessing. Officer without any basis has reopened the case and has assessed as an AOP. In this regard it has been contended on behalf of the appellants that the sale was contemplated and agreement to sale was made by the deceased late Mr. Azizullah Jung. Consequently if at all any action is warranted, notices could be issued in the case of deceased through legal heirs but such notices are obviously time barred as the agreement to sell was made in 1992. Notices under section 17 of the Wealth Tax Act treating the legal heirs as AOP are illegal as the charge of wealth in the case of an AOP is dependent on the existence of the events mentioned in section 2(1)(5)(ii) of the Act and explanation thereof which for the facility of judgment is reproduced hereunder:--
"Section 2(1)(5)(ii).
(ii) In the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out of property;
Explanation:--For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes
(i) immovable property held for the purpose of letting out, or business of letting out, of property;
(ii) immovable property held for the purpose of construction and letting out of property; and
(iii) immovable property held for the purpose of construction and sale of property.
We have observed that none of the events mentioned above are available in the present case. The Assessing Officer has failed to establish that the appellants have let out the property or the property is being held for the purpose of construction and sale and letting out, as the only transaction referred by the Assessing Officer, of one Acre to Messrs Mumtaz Construction has taken place in November, 1999 not relevant to the years under review. The learned counsel for the appellant has rightly contended that the intention cannot be taxed and the conduct at the time of assessment has to be considered. The case law referred in this regard are reproduced hereunder:--
1991 PTD (Trib.) 1058
"Now reverting to the merits of these appeals it appears from the discussion made above, that the respondents shall be liable to wealth tax as an AOP for those properties which have been let out by them. The direction of learned CWT(A) that the WTO should determine the GARV of such properties after proper verification from the Muslim Commercial Bank or other sources, therefore, appears to be correct and is hereby confirmed. The departmental appeals, therefore, on this issue fail and stand rejected accordingly. Similarly, the finding of learned CWT(A) that the self-occupied property of AOP does not fall under the ambit of section 2(e)(ii) also seems to be correct in view of Explanation added to paragraph (ii) of clause (e) of section 2 of the Wealth Tax Act, for the simple reason that wealth tax on an AOP could be imposed only for those immovable properties which are 'held by an AOP for any of the purposes mentioned in aforesaid Explanation added by Finance Act of 1991 and that self-occupied property does not fall within any of such purposes."
1992 PTD (Trib.) 1187
"Now we come to the second contention, whether a solitary transaction of sale can create inference that the society was involved in the business of construction and sale and is liable to wealth tax. In this respect, we would like to observe that concept of taxability is based on real existing facts and not on far-fetched notional or imaginative acts. A person may have some intention of doing something but this taxability will materialize only when he has done something in furtherance therefor. The line of action adopted by the assessing authority is unique and even if it is presumed that from the date of agreement the assessee became taxable under section 3 read with section 2(e) of the Wealth Tax Act then still its chargeability cannot be back-dated on simple assumption. Also in wealth tax proceedings the valuation date is very important because the net wealth of an assessee consist of all assets, wherever located, belonging to the assessee on the valuation date. From the definition of valuation date mentioned above it appears that even if the assets are sold 3 or 4 days of the earlier than valuation date then they would not be included in the net wealth of the assessee unless such assets are required to be included in his net wealth in view of the other provisions contained therein. Therefore, in this case, both the authorities have misdirected themselves and ignored the fact that the assessee after entering into agreement with Messrs K??.K??K??I??on 11-1-1981 becomes liable to wealth tax for preceding years. What if the agreement is considered sales simpliciter than the property becomes the property of Messrs K...K...K...I... and still the assessee would not be liable to wealth tax".
1996 PTD (Trib.) 114
"???We are not persuated to agree with the observations of the
learned CIT(A) that the properties could be rented out and, therefore, they could be subjected to the levy of wealth tax. If this proposition is accepted then every property held by an AOP shall be included in the definition of asset because every property could be rented out sometime in future and thus it will make the entire definition and the explanation added thereto in section 2(m)(ii) of the Wealth Tax Act as superfluous and nugatory. The facts are to be considered as they are and as they could be in future. We further do not approve the view held by the learned CIT(A) that since the property is owned by AOP is occupied by a company which is a separate entity, therefore, by virtue of such occupation the property can be assessed on notional rental value even if no rent was paid by the company. This clearly amounts to travelling beyond the express provision of law and such interpretation makes the clear and expressed provision of law nugatory and redundant. Thus the view held by the learned CIT(A) is against the established principles of the interpretation of the statutes and cannot be sustained."
1997 PTD (Trib.) 1034
Para 18, "The Explanation read with the Circular leads to the obvious, that engagement of an assessee in "business" of construction and sale or of letting out is at par with the other situation where the immovable property as held for similar "purpose" and therefore, is covered by the definition of "asset".
As far the assets held for the "business" and for the "purpose of business" of the three kinds, letting out, construction and letting out and construction and sale, no difficulty is likely to arise to bring them in 'the tax net. Finding a person to be engaged in business of the above kinds cannot be a problem. A negative finding will be equally easy if the tests indicated in the reported judgments cited at the bar e.e. re: Habib Insurance Company Ltd. (supra) are applied objectively. Whether or not a venture is in the nature of trade or business is not far to seek. A business activity nowadays is so expressed or declared that it cannot remain untraceable for a long time. Also the availability of voluminous case-law on the subject can make the job easier both for the Revenue Collector as well as the assessee. The view of this tribunal and those of superior Courts in this regard have been summed up in 1994 PTD (Trib.) 1034. A difficulty, however, is likely to arise before concluding for or against an assessee if the immovable property held by it is meant for any one or more of the three "purpose" contemplated in the explanation. In cases of Cooperative Housing Societies the enigma of "purpose" will be all the more complexed except in cases where an assessee openly declares any one or more of the said purposes to hold immovable property, it would not be possible for an Assessing Officer to lay a firm hand upon an assessee. A "purpose" in common English language means an object to be attained, a thing intended, a resolution or a determination. An intention to do something to thus is so personal in nature that it cannot be attributed to a person natural or juristic till some practical steps have actually been taken to accomplish the desired object. Therefore, in order to burden a person/assessee with wealth tax liability, the purpose must be more than a more desire or an enabling clause such as an object in the object clause of a memorandum of association. An enabling provision in a memorandum of association of society/company or any other similar body to construct, sell or let out immovable property at a future time will not be itself meant that all the properties held at that time or in subsequent days are meant for any of the stated "purpose". In this regard distinction between the main object and subsidiary or subordinate objects will have to be kept in mind. Besides the main object clause, other stated in a memorandum, generally, are merely enabling and given only in order to keep day to day affairs of a company or association flowing normally. In 1994 PTD (Trib.) 1034 Mr. Iftikhar Ahmad Bajwa, learned Accountant Member, opined that it was common practice to incorporate a wide range of activities in Memorandum of Associations but unless a concrete shape was given to a subsidiary object, a company could not be regarded as having ventured in business other than the main business. It was further found that to have the intention of doing a business and being in a business are different matters. Further that mere mention of an activity in the Memorandum of Association at best, raised a rebutable presumption which could be dispelled by showing that the company actually did not carry out that business. Reference in this regard was also made to other reported decision of this Tribunal cited as (1990) 62 Tax 29 (Trib.). Reliance was also placed upon the examination of the proposition as made by the Karachi High Court in 1980 PTD 322 re: Messrs PICIC Ltd. v. CIT (East), Karachi. However, where any act in furtherance of achieving an object stated in the Explanation is done e.g. a building is constructed and offered to be let out, all other under-construction buildings of the kind available with the assessee may be liable to be treated as being held for the "purpose" of construction and let out. Still, one will not be able to say that other open plots with an assessee were also meant for the purpose of construction and sale or letting out etc. Because that would be assuming many things to happen, one after the other. Another issue needs to be taken notice of. It is that all the purposes referred to in sub-clause (ii) of section 2(e), the Explanation as also those detailed in the said C.B.R. Circular refer to the "business" or "purpose" to be accomplished by an "assessee" and not by a third party. This is the only result one is derived at when the section, explanation and the C.B.R. Circular are read together. It means that if an assessee does not itself engage in letting out, construction and sale and construction and letting out business and simply sells out of leases a plot by way of an isolated transaction on which another person raises a construction to be let out or to be sold, the other similar open plots available with the assessee will not be taken as being held for the said "Purpose". A Cooperative Housing Society or for that matter any person to which the provisions under discussion are applicable, cannot be made liable to pay wealth tax unless an Assessing Officer brings home in exact and unambiguous terms that the "purpose" for which the assessee held any immovable property was manifested clearly by any act done. An equally clear finding of fact will have to be recorded to hold an assessee to be engaged in "business" of the kind discussed above."
10. After perusal of the above decisions, we are of the view that the Assessing Officer without establishing, that the property has been held for the purpose of letting out or business of letting out, for the purpose of construction and letting out or for the purpose of construction and sale, cannot assess the appellants as an AOP. We find that the department has not been able to bring on record or even point out to us that the appellants have ever indulged in construction business. We repeatedly asked the Assessing Officer who was in attendance before this Bench and the learned D.R., if there is any such evidence but they have categorically stated that there is no such evidence, but it has been contended by the learned counsel for the department that there is evidence that the appellant had intention to start construction projects in future and intention is enough for proving the purpose. We are afraid, we cannot agree upon this assumption'. We are of the considered view that there should be actual `sale and construction during the relevant periods to fasten chargeability on the assessee. In this case there is evidence of sale of some portion of land out of the total land of Drive-In-Cinema. But no evidence of construction or any intentions to indulge in such activity has been brought before us.
11. Regarding the last point that, whether the notice under section 17 of the Wealth Tax Act is legal when there is no escaped assets of the appellants, we have found that the Assessing Officer has issued notice under section 17 of the Wealth Tax Act, which is regarding escaped assets but in the present case there is no escaped assets of the assessee, as the appellants have already declared the disputed property, and that property has already been assessed in the hands of the individual owner and there were no definite information of escapement available with the Assessing Officer. We find that the case relied upon by the learned counsel of the appellant reported as 23 Tax 223 is eminently applicable because the Hon'ble Supreme Court in this case has laid down a principle of law which is binding on subordinate Courts in view of the Article 189 of the Constitution. The Hon'ble Supreme Court has held at page 227 that:--
"It was also anomalous to maintain that an income which had already been taxed has escaped assessment or has been taxed at too low a rate etc. The position which emerges out therefore is that the income derived from the joint venture by the three associates having been charged to tax in their respective hands and no step taken for annulment of their assessments the same income could not be taxed again in their hands as income of separate entity".
As regards, Mr. Farid's attempt to doubt the efficacy of the Hon'ble Supreme Court's judgment and the observation that "the ruling of the Hon'ble Supreme Court in Shagufta Begum case being ex parte does not merit serious consideration", we reject the same with the vehemence at our command. The Hon'ble Supreme Court is the ultimate arbiter and we are not prone to disagree in view of the Article 189 of the Constitution. Even otherwise, the decisions of superior authorities are always binding on the lower authorities.
12. We have finally, considering all the above cited case law and the facts of the case come to conclusion that Assessing Officer has failed to bring on record any tangible cogent evidence to establish that there was any letting out of property or the appellants are engaged in construction along with sale of immovable property. As such section 2(1)(e)(ii) after amendment section 2(1)(5)(ii) of the Wealth Tax Act, 1963 are not even remotely applicable in this case. The impugned order of the learned CWT(A) is therefore, vacated and all the three orders made by the Special Officer, Income Tax/Wealth Tax Circle E-14 are annulled being passed without having jurisdiction. It is held that the subject matter property held by the legal heirs of late Mr. Azizullah Jung chargeable to wealth tax under section 3 read with section 2(1)(5)(ii) of the Wealth Tax Act, 1963 was not justified. The orders already made by the DCWT Circle E-16 regarding subject matte property in the hands of individual owner for the assessment years under review are upheld.
13. All the three appeals are allowed.
C.M.A./71/Tax (Trib.)????????????????????????????????????????????????????????????? Appeals allowed.