Messrs BUILDING HARDWARE STORES VS COMMISSIONER OF INCOME TAX, 2007 PTD-KARACHI-HIGH-COURT-SINDH 1131 (2007)

Income Tax Ordinance (XXXI of 1979)---

----S. 13(1)(d)---Stamp Act (II of 1899), S.27A---Assessing Officer, for the purpose of making addition under S.13(1)(d), Income Tax Ordinance, 1979, can ignore the valuation shown in the sale deed and for the purpose of ascertaining reasonable value of a property can adopt various measures including placing reliance on the Valuation Table issued by Collector under S.27A, Stamp Act, 1899 and more particularly when the assessee making the investment has accepted valuation of the same property for the purpose of another revenue generating act, to wit, Stamp Act, 1899, without raising any grievance and having recourse to the redress provided under the Stamp Act, 1899.

Commissioner of Income Tax v. Siemens A6 1991 PTD 488; Shoaib Khan v. Collector of Customs 2005 PTD 1069; Income Tax Officer and another v. Messrs Chappal Builders 1993 SCMR 1108; Commissioner of Income Tax v. Safdar Pervaiz 2001 PTD 3939; Durga Sharan UDHO Prasad v. Commissioner of Income Tax, Bihar (1976) Income Tax Reports (Vol. 103) Page 270); Babubhai M. Sanghvi v. Commissioner of Income Tax, Bombay City II (1974) 97 ITR 213; Sivakami Company Private Ltd. and others v. Commissioner of Income Tax, Madras (1973) 88 ITR 311; Commissioner of Income Tax v. Roshan Lal Seth (1989) 178 ITR 660; Syed Azhar Ali v. Director-General, Excise and Taxation and others 2002 PTD 700 and Saitex Spinning Mills, Lahore v. Commissioner of Income Tax, Zone-3, Lahore 2003 PTD 808 distinguished.

Dr. Faroagh Naseem for Applicant.

Aqeel Ahmed Abbasi for Respondent.

Dates of hearing: 25th January and 2nd February, 2007.

JUDGMENT

MUHAMMAD ATHAR SAEED, J.---By the first reference application the Income Tax Appellate Tribunal has referred the following questions of law for the opinion of this Court:--

(1) Whether the Income Tax Appellate Tribunal was justified in holding that the valuation adopted by the District authorities under section 27A of the Stamp Act, 1899 can be made basis for determining the value of investment envisaged under section 13(1)(c) of the Income Tax Ordinance, 1979?

(2) Whether the Income Tax Appellate Tribunal was justified in holding that for the purpose of making addition under section 13(1)(d) of the Income Tax Ordinance, 1979 the Assessing Officer can ignore the valuation shown in the sale-deed and for the purpose of ascertaining reasonable value of a property can adopt various measures including placing reliance on the valuation table issued by Collector under section 27A of the Stamp Act and more particularly when an assesses making the investment has accepted valuation of the same property for the purpose of another revenue generating act, to wit, Stamp Act, without raising any grievance and having recourse to the redress provided under the Stamp Act.

(3) Whether the Income Tax Appellate Tribunal was justified in holding that there was nothing in the Islamic jurisprudence whereby the income-tax authorities can be prevented from ascertaining the correct and true valuation of the property for the purpose of taxation and without frustrating the contract between the parties.

(4) Whether in the facts and circumstances of the case the Income Tax Appellate Tribunal was justified in holding that the ratio decidendi of the judgment of Honourable Supreme Court of Pakistan in the case of CIT v. Siemen A.G. 1991 PTD 488 was not applicable to the facts of the present case.

2. By the' second reference application filed under section 136(2) of the Income Tax Ordinance, 1979, the applicant seeks to refer the following proposed questions which the tribunal refused to refer for the opinion of this Court:--

(1) Whether on the facts and in the circumstances of the case the valuation of property bearing Survey No.64, Sheet No.MR-1 (old Survey No.C-6/148-A) Market Quarters of City of Karachi at Rs.18,78,000 and approval of addition of Rs.11,78,000 to the Total Income of the Applicant by the Income Tax Appellate Tribunal under sections 13(2) and 13(1)(d) of Income Tax Ordinance, (while confirming the treatment of Commissioner of Income Tax Appeal) is correct and justifiable:--

(a) Since it is not based on the valuation as per Stamp Act as alleged and professed by the learned Tribunal?

(b) Which in fact is not based on any factual or reckonable legal justification?

(c) Which is contrary to the evidence and facts admitted on record?

(2) Whether the Income Tax Appellate Tribunal was justified in confirming a valuation of justified in confirming a valuation of Rs.18,78,000 (Rs.21,75,000 including expenses on Stamps. and Registration) and in maintaining in addition of Rs.11,78,000 under section 13(1)(d) read with section 13(2) of the income Tax Ordinance:--

(a) In the absence of a finding by the Income Tax Officer or the Commissioner of Income Tax (Appeals) that the valuation as per Sale-deed (and the sale) was ....too low..?

(b) When the requirements of section 13(1)(d) read with section 13(2) were not fulfilled?

(c) Without any evidence to and in the absence of a finding of fact that the property was, in fact, sold for Rs.18,78,000 but was revealed in Sale-deed at Rs.7,00,000.

(d) When the I.T.As. valuation was based on mere conjecture and surmises and was completely arbitrary?

(3) Whether the valuation of property, as per the Sale at Rs.7,00,000 was reasonable, correct and incapable of being disputed:

(a) on the peculiar facts and in the circumstances of the case?

(b) from the investment return point of view?

(c) When the same consideration of Rs.7,00,000 was accepted in the case of seller without any objections?

(4) Whether the Income Tax Appellate Tribunal was correct in holding that by adopting the valuation at Rs.18,78,000 the sanctity of a contract between two Muslims and the laws of Shariat were not held in any violation.

(5) Whether the Income Tax Officer could have disregarded the binding instructions of Regional Commissioner of Income Tax?

(6) Whether on the facts and in circumstances of the case the learned Tribunal entered into unnecessary, irrelevant and uncalled for lengthy discussions and quotations about the stamp Act and Islamic Fiqah and important arguments and facts were just brushed aside?

3. Brief facts of the case are that during the assessment year 1988-89 the applicant had purchased a building No. MR/ 1/64 and declared it at a total value of Rs.9,66,900. The breakup of which is given below:

4. The Income Tax Officer observed that for the purpose of levy of stamp duty, the total value of the property was determined at Rs.29,64,500 in the following manner:--

and stamp duty of Rs.2,37,200 was levied on such valuation which was paid by the applicant and no appeal was filed against such valuation. On this basis the Income Tax Officer arrived at the opinion that the property was under-valued and after completing the formalities under section 13 confronted the applicant with a show-cause notice for addition of Rs.19,97,600 under section 13(1)(d) and after receipt of the applicants explanation he made the above addition after obtaining the approval of the Inspecting Additional Commissioner as required under the provisions of section 13.

5. Being aggrieved by he order of the Income Tax Officer, the applicant filed an appeal before the CIT (appeals), who vide his order, dated 26-3-1990 in Income Tax Appeal No. CIT(A)IV/226/1988-89, accepted the applicants' explanation the property had certain disadvantages and reduced its value to Rs.21,45,000 on the basis of following discussion:--

"From the above, it is evident that there are 27 tenants who are occupying 2nd, 3rd and 4th floors and from where roughly rent of Rs.60,000 is received per annum. If appreciation in rent permissible fairly under the laws is also kept in view over a number of years then it can be fairly estimated at Rs.65,000 per annum. Had the plot been residential then the value of the residential flat would have been taken equivalent to the rent of 10 years. But since the plot is no doubt commercial and it is thus definitely more valuable than the residential one. I feel that it would meet the ends of justice to estimate the value of 27 plots at the double price of the residential flats i.e., Rupees 13 Lakhs. The value of the ground floor which is used for commercial purposes has rightly been valued at Rs.9,45,000 by Registration Authorities. In this way, the value of the building for Income Tax purposes is valued at Rs.9,45,000 + Rs.12,00,000 equal to Rs.21,45,000 instead of Rs.29,64,500 as determined by the Department. The appellant has declared the value of the building at Rs.9,66,900. In this way, the addition for under-valuation would come to Rs.21,45,000 minus Rs.9,66,900 equal to Rs.11,78,000. The learned Assessing Officer is accordingly directed to add Rs.11,78,000 instead of Rs.19,97,000 under section 13 of Income Tax Ordinance, 1979.

6. Being aggrieved by the above order of the CIT(Appeals), the applicant filed an appeal before the Income Tax Appellate Tribunal where they raised an additional plea that on the basis of the judgment of the Honourable Supreme Court in the case of Commissioner of Income Tax v. Siemens A6 (1991 PTD 488), under the rules of Islamic Jurisprudence no third party can intervene in the mutually agreed transaction. The Income Tax Appellate Tribunal vide their judgment, dated 21-11-1992 in ITA No. 1714/Headquarters of 89-90 through an exhaustive pronouncement rejected the appeal and upheld the order of the CIT Appeals.

7. The applicant then filed a reference application requesting the Tribunal to refer as many as ten questions of law for the opinion of this Court. As pointed out in the preceding paragraphs the Tribunal referred four questions for the opinion of this Court under section 136(1) of the Ordinance whereas the other questions are being sought to be referred to this Court vide application under section 136(2) of the Income Tax Ordinance, 1979.

8. We have heard Mr. Muhammad Faroagh Naseem the learned counsel for the applicant and Mr. Aqeel Ahmed Abbasi the learned counsel for the respondent.

9. The learned counsel for the applicant at the very outset stated that out of the four questions referred by the Tribunal he would advance arguments on questions Nos. 1 and 2 only and will not press questions Nos. 3 and 4.

10. The main contention of the learned counsel for the applicant is that there was no material before the Income Tax Officer to arrive at the finding that the purchase price of the building had been understated and no addition can be made under section 13(1)(d) of the Income Tax Ordinance, 1979 unless the Income Tax Officer finds that the amount expended on the purchase of such property, exceeds the amount recorded in this behalf in the books of accounts maintained by him or shown in the wealth statement furnished under section 58 in respect of that year. The learned counsel argued that without this finding the Income Tax Officer cannot invoke jurisdiction of section 13(1)(d). He stated that this Court in a judgment reported as Sohaib Khan v. Collector or Customs (2005 PTD 1069) has interpreted the meaning' of the word `find' as appearing in section 25-A of the Customs Act and have expressed the opinion that the word `find' envisages the discovery, determination and ascertainment of a fact and drawing a conclusion after due application of mind. He said that in the later part of the judgment this Court has held that the appropriate finding is required to determine that the value of the imported good's declared by the importer is understated. According to the learned counsel, the Income Tax Officer has not undertaken any such exercise and has assumed, without any substantiation on the basis of the value determined for the purpose of levy of stamp duty that the value of the property has been understated. According to the learned counsel, the Income Tax Officer did not pay any heed to the explanation of the applicant and estimated the value of the property on the basis of the estimation of the value for the purpose of levy of stamp duty and added 'the difference under section 13(1)(d). The learned counsel argued that this action of the Income Tax Officer is patently against provisions of section 13. When it was pointed out to the learned counsel that the Commissioner of Income Tax (appeals) has in his appellate order considered the explanation of the applicant and has reduced the value of the subject property estimated by the Income Tax Officer, he argued that once the learned Commissioner of Income Tax (appeals) had arrived at the conclusion that the basis adopted by the Income Tax Officer for the rejection of the declared value of the property and its estimation for the purposes of addition under section 13(1)(d) is not proper, he should have accepted the declared value and deleted the addition made under section 13(1)(d). He further argued that even the method adopted by the CIT (Appeals) and upheld by the Income Tax Appellate Tribunal was not based on any cogent reasons and was like putting the cart before the horse because without giving a finding that the value of the property declared has been understated, the sale price of the property cannot be estimated. In support of his argument, the learned counsel argued that the value of the property in question had been accepted by the department in the hands of the seller. He argued that the department cannot be allowed to blow hot and cold at the same time and one the declared value of the property was accepted in the hands of the seller there was no basis for rejecting the declared value and estimating the same in the hands of the purchaser. In support of his arguments the learned counsel relied on the following case laws:--

(1) Income Tax Officer and another v. Messrs Chappal Builders (1993 SCMR 1108)

(2) Commissioner of Income Tax v. Safdar Pervaiz (2001 PTD 3939).

(3) Durga Sharan UDHO Prasad v. Commissioner of Income Tax, Bihar (1976) Income Tax Reports (Vol. 103) Page 270).

(4) Babubhai M. Sanghvi v. Commissioner of Income Tax, Bombay City II (1974) 97 ITR 213

(5) Sivakami Company Private Ltd. and others v. Commissioner of Income Tax, Madras (1973) 88 ITR 311.

(6) Commissioner of Income Tax v. Roshan Lal Seth (1989) 178 ITR 660.

(7) Syed Azhar Ali v. Director-General, Excise and Taxation and others (2002 PTD 700).

(8) Saitex Spinning Mills, Lahore v. Commissioner of Income Tax, Zone-3, Lahore (2003 PTD 808).

11. Mr. Aqeel Ahmed Abbasi learned counsel for the respondent rebutting the arguments of the learned counsel for the applicant submitted that the value of the property when compared to the value of the property computed for the purpose of stamp duty, was so ridiculously low that it was apparent to naked eye that the value had been understated. He further argued that when section 13(1)(d) is read with section 13(2) it is clear that if there are reasons for the Income Tax Officer to form' an opinion that the declared value is low, he may estimate the value of the property in accordance with the provisions of section 13(2) and make addition of the amount arrived at by deducting the declared value from the estimated value under section 13(1)(d). He said that even in accordance with the judgment of this Court the word find, has been co-related with discovery, determination and, ascertainment of fact and the discovery that the value had been estimated by the authorities implementing the Stamp Act at more than "four times the declared value, is a finding on the basis of which the Income Tax Officer can invoke the provisions of section 13(1)(d). He took us through the contents of the assessment order to show that the Income Tax Officer has given a finding that the value of the property has been understated by the respondent and, therefore, invoked the provisions of section 13(1)(d) of the Income Tax Ordinance. The learned counsel further argued that under the provisions of Income Tax Ordinance the seller and the purchaser are different persons and even if it is conceded that the department has accepted the declared value of the property in the hands of the seller, the purchaser cannot claim amnesty of acceptance of declared value because the provisions of section 13(1)(d) apply only to the purchaser and not to the seller. The learned counsel submitted that a review of the judgments relied on by the learned counsel for the applicant shows that the judgments are not directly on section 13(1)(d) or section 13(2), but most of these judgments have dealt with the concept of definite information for the purposes of the re-opening of assessment under section 65 or the cancellation of assessment by the Inspecting Additional Commissioner under section 66(A). He said that it is a settled law that for reopening or disturbing a finalized assessment, strict conditions are provided which are not applicable when action is taken for the purpose of making any addition during the finalization of the original assessment. He went on to further argue that whereas definite information is required for the reopening of assessment, no such requirement of existence of definite information is mandatory for making an addition under section 13(1)(d) and only a finding and cogent reasons for arriving at the opinion that the declared value is low, is required for invoking these sections. He, therefore, prayed that the referred/proposed questions be answered in favour of the department and against the applicant and the reference applications may be dismissed.

12. We have examined the case in the light of the arguments of the learned counsel and have perused the records of the case including the impugned orders and the judgments relied on by the learned counsel.

Since the subject-matter of controversy in hand arc the provisions of section 13(1)(d) and section 13(2), it will be relevant to reproduce these sections:--

(13) Unexplained Investments etc., deemed to be income.---(1) Where,

???????????

(b) ---------------------------------------------------

(b) ---------------------------------------------------

?(c) ---------------------------------------------------

(d) the assessee has made investment in any such year or is found in respect of any such year to be the owner of any valuable article and the Deputy Commissioner finds that the amount expended on making such investment or in acquiring such valuable article exceeds the amount recorded in this behalf in the books of accounts maintained by him or shown in the wealth statement furnished under section 58 in respect of that year; or

(13)(2) Where the value of any investment or article referred to in clauses (aa), (b), (c) or (d) or the amount of expenditure referred to in clause (e) of subsection (1) is, in the opinion of the Deputy Commissioner, too low, the Deputy Commissioner may determine, after giving a reasonable opportunity to the assessee of being heard, a reasonable value or the amount thereof, as the case may be, and all the provisions of sub-section (1) shall have effect accordingly.

13. We having considered the arguments of the learned counsel for the petitioner that the Income Tax Officer had not given a finding that the value of the property was low and had also not adduced substantial evidence in respect of this presumption. A perusal of the order of the Income Tax Officer reveals that the Income Tax Officer while finalizing the assessment had expressed the opinion and given a finding that the value of building No.MR-1/64 has been under-valued and, therefore, attracts the provisions of section 13(1)(d) of the Income Tax Ordinance. The assessment order therefore, negates the contention of the learned counsel for the applicant. This finding or the opinion was based on the consideration of the fact that the sub-Registrar E-Division had rejected the declared value for the purposes of levy of stamp duty and had valued the property at Rs.29,64,500 on which stamp' duty of Rs.2,37,200 had been levied which was paid by the applicant without any protest and no appeal was filed by the applicant against such estimation of the declared value for the purpose of levy of stamp duty. We are of the opinion that on the basis of the above admitted fact any reasonable person will form an opinion that the value of the property declared at less than 25 per cent of the value assessed by the registration authority is 1'ow and, therefore, in our opinion, the prerequisite of section 13(1)(d) has been fulfilled and the Income Tax Officer has rightly given a finding that the amount expended on purchasing such property exceeds the declared amount. From a perusal of the assessment order it transpires that the Income Tax Officer had issued a notice to the applicant under the provisions of section 13(2) wherein he expressed his intention to value the property at the value computed for the purpose of levy of stamp duty and to add the difference between estimated value and declared value to the income of the applicant. The applicant filed a reply in which he had pointed out the disadvantages of the property in question on the basis of which the seller was compelled to sell the property to him at a lower price. Although, the Income Tax Officer did not pay any heed to the explanation filed by the applicant, but in the first appeal the Commissioner of Income Tax accepted the explanation and after rejecting the valuation of the property made by the Income Tax Officer reduced the estimation of the value in accordance with the explanation of the applicant. The applicant was not satisfied by this partial rejection also and filed an appeal before the Income Tax appellate Tribunal, which was dismissed. We feel that since the basis on which the CIT (appeals) has estimated the property is in accordance .with the factual position of the case, this Court in its advisory jurisdiction, after it arrives at the conclusion that the declared value was low, cannot modify the value arrived at by the CIT(Appeals) as upheld by the Income Tax Appellate Tribunal. Even otherwise, we feel that the value estimated by the CIT(Appeals) is reasonable.

14. We have also perused the judgments relied on by the learned counsel for the applicant and find that all these judgments are distinguishable as they are either on the reopening of assessments or on the taxability of capital gains in the hands of the seller, but none of them are in respect of the powers of Income Tax Officer to make addition under section 13(1)(d) and section 13(2) of the Income Tax Ordinance, 1979. None of the findings in these judgments will be of any help to the assessee in the present case.

15. In the light of the above discussion we would refrain from answering question No.1 referred by the Tribunal as this question has become redundant being of academic interest only as the final valuation which has been made by the CIT(Appeals), has not been made on the basis of valuation adopted by the District authorities under section 27-A of the Stamp Act.

16. Coming to question No.2, we would answer the same in affirmative as in our opinion once the Income Tax Officer has arrived at the opinion that the value declared is too low, he can ignore the valuation shown in the sale-deed and can adopt various measures for arriving at a reasonable valuation. Questions Nos.3 and 4 have not been pressed by the learned counsel for the applicant and require no answer. Reference application No.5 of 1994 is disposed of in the above manner.

17. Coming to the questions proposed in ITR No.15 of 1995 filed under section 136(2) of the Income Tax Ordinance, we are of the opinion that in view of our answer to question No.2, the questions proposed in ITR No.15 of 1995 are based on findings of fact and the Tribunal has rightly refused to refer them.

18. We, therefore,' refuse to answer these questions and dismiss ITR No.15 of 1995.

M.B.A./B-6/K???????????????????????????????????????????????????????????????????????????????????? Order accordingly.