Messrs SHAN TRADERS, LAHORE VS INCOME TAX APPELLATE TRIBUNAL, LAHORE, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 512 (2006)

(a) Income Tax Rules, 1982---

---R.207-A---Object of Rule 207-A of Income Tax Rules, 1982.

The object of Rule 207-A of Income Tax Rules, 1982 is to curtail the discretionary powers of Income Tax Authorities while estimating the value of a property purchased by an assessee or the exact value/amount of the investment made by him in purchase of a property.

(b) Income Tax Ordinance (XXXI of 1979)-

----S.13(1)(d)--- Income Tax Rules, 1982, R.207-A---Under-statement of investment in plot purchased from Development Authority charge of---Enhancement of value of plot shown in Transfer Letter and its addition towards income while declining to assessee benefit of R.207-A of Income Tax Rules, 1982---Validity---Assessing Officer by enhancing value indicated in Transfer Letter had indirectly found that actually a higher sum had been paid by assessee to the Authority and not the one indicated therein---Such findings were erroneous and were not supported by direct or even circumstantial evidence---Assessee had explained source of such investment by encashment of FEBCs---When valuation of property was being made, such rule was very much in field, thus, principle laid therein for valuation of immovable property could very well be borrowed both on equity and fair play---Section 13(1)(d) of Income Tax Ordinance, 1979 provided that only unexplained investment or amount under stated in books of accounts or wealth statement could be deemed to be income of assessee in relevant assessment year--Transfer Letter issued by Development Authority supporting transaction at a certain amount could not be declared to have been a case of under-statement except by showing an active connivance between assessee and officials of Authority in settling price---Investment in plot declared in wealth statement was supported by Transfer Letter of the Authority, thus, there was no occasion to place a higher valde to plot and deem balance as unexplained income---Provision of S. 13(1)(d) of Income Tax Ordinance, 1979 would not apply to such facts---Impugned order was set aside in circumstances.

(c) Interpretation of statutes----

---Rules are generally not retrospective in operation.

(d) Income Tax Ordinance( XXXI of 1979)-

----S. 13(1)(d)--- Income Tax Rules, '1982, 8.207-A---Under-statement of investment in property---Scope---Such question would be relevant only in a transaction between private parties---Where one of the parties to transaction was a government agency, then possibility of under-statement of value of property would almost be nil---While settling value of property, always open to revenue to bring on record an impropriety or collusion between officials of agency and assessee as private individual.

(e) Interpretation of statutes---

----Fiscal statutes---Deeming clause in a taxation statute must he construed very very strictly.

Rana Munir Hussain for Petitioner.

Sajjad Ali Jafri for the Revenue.

ORDER

This reference application under section 136(2) of the late Income Tax. Ordinance, 1979 seek : admission and answer of the following question of law, which statedly arose out of the order of the Income Tax Appellate Tribunal, Lahore Bench, Lahore on 14-9-2000:---

"Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that Rule 207-A of Income Tax Rules, 1982 is not applicable in the absence of registered deed for purchase of plot."

2. According to the statement of the case, the petitioner/assessee is an individual. For the assessment year, 1996-97 he returned total income at Rs.43,000 derived as a cloth dealer. His claim for acceptance of the return under Broad Based Self-Assessment Scheme (BBSAS) was declined by the Revenue on the ground that as per Central Board of Revenue Circular No.4 of 1996 dated 1-7-1996 the returns filed by the new assessees were not covered by the scheme. In the proceedings that followed the petitioner was served with a notice as regards his declared income from business as well as the valuation of 1/2 share in the Plot No. 178 Shah Jamal Scheme, Lahore purchased on 23-7-1995. While explaining the net wealth declared in the wealth statement at Rs.25,80,000 as on 30-6-1997 the assessee claimed encashment of FEBCs amounting to Rs.25,00,000 and acquisition of 1/2 hare in the said plot at Rs.24,00,000. The encashment of FEBCs was duly supported by the certificate of enacashment.

3. The Assessing Officer on the basis of a parallel case however, estimated the value of the share of the petitioner/assessee at Rs.33,84,000 and the difference of Rs.9,80,000 was added towards his income under section 13(1)(d) of the late Ordinance. The declared sales were also enhanced and by making certain additions out of profit and loss account total income for the year including the aforesaid addition on account of investment in the plot was computed at Rs.10,99,065.

4. The assessment so framed on 29-6-1999 was challenged before Appellate Additional Commissioner of Income Tax/Wealth Tax, Appeal Range, Lahore with partial success. Learned First Appellate Authority by way of his order dated 15-9-1999 directed reduction of sales as well as the applied G.P. rate. In the case of the said addition on account of investment in plot without discussing the facts of the case he ordered fixation of the value of share of the petitioner/assessee at Rs.26,00,000. The relief so given reduced the cost per Marla to Rs.65,000 as against the estimated value by the Assessing Officer at Rs,84,500.

5. On further appeal a Division Bench of the Tribunal refused to interfere both in case of estimation of income from business as well as the fixation of valuation of his share in the said plot as reduced by the First Appellate Authority. The operative part of the impugned order of the Tribunal as contained in para. 6 thereof reads as under:---

"The learned counsel for the appellant's contention that the provisions of Rule 207-A was applicable to the purchase of the assessee's plot as well as despite the fact that the rule was introduced in 1997. Rule 207-A clause (ii) reads as under:---

"in other case value determined by the DC for the purposes of stamp duty."

Apart from the fact that Rule 207-A was introduced in 1997 i.e. subsequent to the assessment year under consideration i.e. 1996-97 the requirements of the said Rule are not fulfilled in the instant case as it cannot be said that the purchase of plot has been registered on rates specified by the D.C. It is clearly mentioned by the Assessing Officer in the assessment order for the assessment year 1996-97 on page 1 para. 3 that the assessee did not file any registered deed of the plot. He only furnished an agreement to sell hence, in the absence of a registered decd the applicability even retrospective, Rule 207-A is out of question."

6. The request of the petitioner/assessee for reference of the aforesaid question to this Court for consideration and answer under section 136(1) of the late Ordinance was also declined on 3-4-2001.

7. Having heard the learned counsel for the parties, we are inclined to agree with the submissions made at the bar for the petitioner/assessee though for some what different reasons. In our view the learned members of the Tribunal were necessarily misdirected when they declined to extend the benefit of Rule 207-A added to the Income Tax Rules, 1982 on 25-7-1997 through Notification S.R.O. No.550(I)/97 that rule on its insertion at the relevant time read as under:---

"207A (Valuation of immovable properties).---The valuation of immovable properties for the purposes of section 13 of the Income Tax Ordinance, 1979 shall be taken to be-

(i) in the case of open plots the value determined by the development authority or government agency on the basis of auction price in respect of similar plots in the area where the plot in question is situated.

(ii) in other cases the value determined by the District Collector for the purposes of stamp duty.

(iii) in the case of properties given on rent, equal to ',ten years' capitalized value based on annual rental value as defined in clause (b) of subsection (2) of section 19 of the Ordinance.

(iv) in the case of agricultural land equal to the average sale price of tilt sales recorded in the Revenue Record of the estate in which the land is situated.

8. The obvious object of the said rule was to curtail the discretionary powers of the Income Tax Authorities while estimating the value of a property purchased by an assessee or the exact value/amount of the investment made by him in purchase of a property. To us it appears that the assessee was not properly advised in seeking the umbrella of the aforesaid rule which was declined by the learned Members of the Tribunal for an irrelevant reason i.e. that the said rule was added after the end of the assessment year in which the property in question was purchased. The legal position that the rules, are generally c not retrospective in operation is' not open to exception. It is however, equally correct that when the estimation of valuation of share of the assessee was being made that rule was very much in the field and the principle laid therein for valuation of immovable property could very well be borrowed both on equity and fair play.

9. Be that as it may, in the case in hand, as observed above, not only the assessee but also the Revenue Authorities kept moving in the dark helter-skelter and remained oblivious of the basic reason behind the enactment of the provisions of section 13 of the late Ordinance, which, inter alia allowed the Revenue Authorities to deem unexplained investments etc. as income of an assessee. Sub-clause (d) of subsection (1) of section 13 of the late Ordinance provided that where an assessee had made investment in any income year or was found to be the owner of any valuable article and the Revenue Officer found that the amount expended on making such investment or in acquiring such valuable article exceeded the amount recorded in that behalf in the books of account or the wealth statement furnished under section 58 in respect of that year or the assessee failed to offer explanation about the nature and source of such sum so invested the value of the investment, money or valuable article, the excess amount or the amount of expenditure shall be deemed to be the income of the assessee of such income year chargeable to tax under the said Ordinance. The words of statute clearly contemplated that it was only the unexplained investment or the amount which could be deemed to be income of the assessee in the relevant assessment year.

10. The facts in hand clearly show that the question of unexplained investment did not arise at all. Admittedly the petitioner/assessee purchased a plot from Lahore Development Authority and the transfer letter issued by that authority was duly placed on record. The registration of that transfer letter was not in issue before the Assessing Officer. He was only to see the consideration paid by the assessee to the L.D.A. and then to ask for his explanation to justify the source. By enhancing the value indicated by the transfer letter the Assessing Officer in directly held that actually a higher sum was paid by the assessee to the Lahore Development Authority and not the one indicated in the letter. These premises were necessarily erroneous and in fact are not supported by direct or even circumstantial evidence. The petitioner on the basis of the transfer letter issued by the official agency claimed an investment of Rs.24,00,000 and the source was duly explained. That source namely encashment of FEBCs of the sum of Rs.25,00,000 was not disputed or doubted by the Assessing Officer as the same was duly supported from the encashment certificate. Generally speaking the question of under-statement of investment is relevant only in a transaction between two private parties. Where one of the parties to the transaction, particularly sale of immovable property is a Government agency, the possibility of under-statement of the value of the property is almost nil. Of course, it is always open for the Revenue Officer to bring on record an impropriety or collusion between the officials of the agency and the assessee as a private individual while settling the value of the property. That has not been done in the case in hand. The Assessing Officer while enhancing the value of the property as against the one mentioned/indicated in the transfer letter considered a parallel case of a sale between two individuals some 2/3 years earlier to the date of purchase by the assessee. The valuation as finally reached by him may very well be in accordance with the price prevalent in the market at the relevant H time. However, that was not relevant as far the additions under section 13(1)(d) of the late Ordinance was concerned. As said above, these provisions authorized the Assessing Officer to deem all these sums as income of the assessee which were under-stated by him in his books of accounts or the wealth statement filed by him. The transfer letter issued by an official agency supporting the transaction at a certain amount could not be declared to have been a case of understatement except, as observed above, where the Assessing Officer had successfully demonstrated an active connivance between the asscssee and the officials of the agency in settling the price. That having not been done, the addition in question was totally bad in law. The assessec was only required to explain the source of investment in the price indicated in the H transfer letter. His encashment of FEBCs of a value of Rs.25,00,000 i.e. one lack more than the investment made in the plot was accepted by the Assessing Officer. Having done so he was not authorized to put up his own price tag to the plot in question on consideration of a private sale or for that matter anything else. The investment made in the plot and declared in the wealth statement being supported by a document issued by an official agency, there was no occasion at all to place a higher value to the plot in question and to deem the balance as unexplained investment. A deeming clause in a taxation statute must be construed I very strictly. The addition made by the Assessing Officer indicates typical mind set of a Revenue Officer while the First Appellate Authority equally erred in approaching the issue in a gunshot manner. Learned members of the Tribunal while maintaining the remaining addition, as stated earlier, equally acted in a way which can only be described as casual.

11. Accordingly our reply to the answer is in the negative with the rider that the provisions of section 13(1)(d) of the late Ordinance were not attracted to the facts in hand.

S.A.K.IS-220/L?????????????????????????????????????????????????????????????????????? Answered in negative.