C.W.T., CENTRAL, LAHORE VS Messrs Malik MUHAMMAD ASHIQ, LAHORE
2007 P T D 889
[Lahore High Court]
Before Mian Hamid Farooq and Syed Sakhi Hussain Bokhari, JJ
C.W.T., CENTRAL, LAHORE
Versus
Messrs Malik MUHAMMAD ASHIQ, LAHORE
C.T.R. No.26 of 1995, heard on 07/09/2006.
Wealth Tax Act (XV of 1963)---
----S.5 (1)(xv) & Sched. Cl. (7)(i)(ii)---Income Tax Ordinance (XXXI of 1979), S.136 (1)---Wealth tax---Foreign remittance---Change of residential status---Assessee claimed exemption on the basis of foreign remittance but assessing officer rejected the claim on the ground that residential status of assessee was that of `Resident'---Appellate authority allowed the appeal filed by assessee and found the assessee to be entitled for exemption---Order passed by appellate authority was maintained by Income Tax Appellate Tribunal---Opinion of High Court was sought on the questions whether Income Tax Appellate Tribunal was justified in holding that foreign remittance brought or sent to Pakistan by a non-resident in year 1984-85, enjoyed the exemption from wealth tax for the year in which remittances were brought and also in the following five years irrespective of the fact whether assessee remained a non-resident; and whether Income Tax Appellate Tribunal was justified in holding that once asset was allowed exemption under S.5 (1)(xv) of Wealth Tax Act, 1963, it could not be subsequently withdrawn with the change of residential status of assessee---Validity---Questions referred to High Court had already been answered in the affirmative and decided by High Court in earlier cases---High Court declined to take any contrary view to the judgments already delivered---Reference was disposed of accordingly.
Mst. Zarina Yousaf v. Inspecting Additional Commission of Income Tax/Wealth Tax Sialkot Range, Sialkot and another 2005 PTD 108 and Commissioner of Income Tax/Wealth Tax Companies Zone-I, Lahore v. Zoraiz Lashari 2005 PTD 2064 fol.
Sajjad Ali Jaffari for Appellant.
Khawaja Ibrar Jamal for Respondent.
Date of hearing: 7th September, 2006.
JUDGMENT
MIAN HAMID FAROOQ, J.---Through the instant reference under section 136(1) of the Income Tax Ordinance, 1979 following questions of law have been referred by the Income Tax Appellate Tribunal, Lahore for authoritative opinion of this Court:---
"(1) Whether on the facts and in the circumstances of the case was the Income Tax Ordinance Appellate Tribunal justified in holding that the foregoing remittance brought or sent to Pakistan by a non-resident in the assessment year 1984-85 enjoys the exemption from wealth tax for the year in which remittances were brought and. also in the following five years irrespective of the tact whether the assessee remains a non-resident or not."
(2) Whether on the facts and in the circumstances of the case was the Income Tax Appellate Tribunal justified in holding that once an asset is allowed exemption under section 5(1)(xv) it cannot be subsequently withdrawn with the change of residential status of an assessee."
2. 'The respondent/assessee, who is an "individual" and "resident", declared immovable assets at Rs.1,20,000 and movable at nil, for the assessment year 1984-85 and claimed exemption of Rs.43,70,582 being value of certain shares, a deposit, motor vehicle, furniture and cash in hand under section 5(l)(xv)(ii) of the Wealth Tax Act, 1963. The Assessing Officer/Wealth Tax Officer, after holding that "The exemption on A/C of foreign remittance under section 5(1)(xv)(ii) is only available to those assessees, whose residential status is that of "Non-Resident". In this case the residential status is admittedly that of "Resident". Accordingly no exemption is available in the aforesaid section to the assessee" rejected the claim of assessee, vide order, dated 9-1-1985. The assessee challenged the said decision through the appeal and thereupon the learned Appellate Authority (Commissioner of Income Tax (Appeals) held the assessee to be entitled for exemption and allowed his claim vide judgment, dated 8-6-1985. The department, feeling dissatisfied, filed second appeal, against the decision of the first appellate Court, before the learned Income Tax Appellate Tribunal (Tribunal), which, on 3-12-1992, maintained the judgment of the appellate authority and has held as under:---
"On appeal the learned appellate authority, CIT(A), Zone-3, Lahore through an order, dated 8-6-1985 held the assessee to be entitled to the claimed exemption. On further appeal before the Tribunal we upheld the interpretation of the first appellate authority. While doing this we sought guidance from another case decided by this Tribunal on 26-10-1992 in W.T.A. No.48/LB of 1985-86 (Assessment .year 1984-85). Accordingly we adopted the ratio of the said case in the following words:--
"Therefore, while maintaining the order of the appellate authority we hold:--
(1) The foregoing remittances brought or sent to Pakistan by a non-resident in the assessment year 1984-85 enjoys the exemption from wealth tax for the year in which remittances were brought and also in the following live years irrespective of the fact whether the assessee remains a non-resident or not;
(2) Once an asset is allowed exemption under section 5(1)(xv) it cannot be subsequently withdrawn with the change of residential status of an assessee."
The department filed the reference application before the Tribunal, seeking reference of the aforenoted questions of law to this Court, which application was acceded to by the Tribunal. Hence above questions of law have been referred to this Court for opinion.
3. The learned counsel for the department contends that Wealth Tax is levied with reference to the position of the assets on a particular valuation date and that on such valuation date the claim of exemption will have to be determined to find out the net wealth. He has further contended that the exemption once granted is not valid on the next valuation date due to the change of residential status of an assessee. Conversely, the learned counsel for the respondent has supported both the judgments.
4. We have heard the learned counsel and examined the available record. It appears appropriate to reproduce section 5(1)(xv) of Wealth Tax Act, 1963, around which whole of the controversy revolves:--
"(5) Exemption in respect of certain assets.---(1) Wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee-
(i) to (xiv)
(xv) assets
(i) brought or remitted by an assessee into Pakistan or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;
(ii) created by an assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (i):
Provided that where investment in the assets is not made entirely out of remittances received in, or brought into, Pakistan through normal banking channels, the exemption shall apply the same ratio as the foreign remittances bear to the total investment."
Section 5(1)(xv) of Wealth Tax Act, 1963 and sub-clauses (i) and (ii) of clause (7) of Second Schedule to Wealth Tax Act, 1963, which were added by way of Finance Act, 1996, are similar and worded exactly in the same manner.' Sub-clauses (i) and (ii) of Clause 7 are reproduced below:--
"Wealth tax shall not be payable by an assessee in respect of the following assets, .and such assets shall not be included in the net wealth of the assessee.
(1) to (6)
(7) assets-
(i) brought or remitted by the assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they arc brought, remitted or received and the following five years;
(ii) created by an assessee out of remittances received in, or brought into Pakistan through normal banking channels during the period referred to in sub-clause (i):
Provided that where investment in the assets is not made entirely out of remittances received in, or brought into, Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment;"
5. After examining the aforenoted provisions of law and having deeply gone through the following judgments, we are of the view that the above referred questions of law had already been decided and answered by this Court in the cases reported as Mst. Zarina Yousaf v. Inspecting Additional Commission of Income Tax/Wealth Tax Sialkot Range, Sialkot and another (2005 PTD 108) and Commissioner of Income Tax/Wealth Tax Companies Zone-I, Lahore v. Zoraiz Lashari (2005 PTD 2064). It has been held in the case of Mst. Zarina Yousaf (ibid), while dealing with sub-clauses (1) and (ii) of Clause (7) of Second Schedule to Wealth Tax Act, which, as noted above, is similar to that of section 5(1)(xv) of Wealth Tax Act, 1963 that:--
"(7) After hearing the learned counsel for the parties in the perspective of the operative part of the order recorded by the learned members of the Tribunal on 31-1-2002 as reproduced above, we are of the view that the interpretation by the Revenue authorities of sub-clause (i) of clause (7) of the second schedule to the Wealth Tax Act, 1963 as maintained by the learned Tribunal is necessarily incorrect. Earlier these provisions were part of the statute exactly in the same manner as section 5 of the late Act. The said provision of law added to the Wealth Tax Act as second schedule by way of Finance Act, 1996 read as under:--
"Wealth tax shall not be payable by at assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee.
(1) to (6)
(7) assets---
(i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;
(ii) created by an assessee out of remittances received in, or brought into, Pakistan through normal banking channels during the period referred to in sub-clause (1):
Provided that where investment in the assets is not made entirely out of remittances received in, or brought into, Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment;"
Our reading to the above clause allowing exemption leads us to conclude that the concession given by the statute is necessarily" relatable to the assets and not to an assessee as wrongly concluded by the learned members of the Tribunal. The opening part of clause (7) of the second schedule as reproduced above makes it clear that these two sub-clauses (i) and (ii) encompass two different situations. The principle, however, remains the same that exemption is relatable to the assets and not to the assessee as such. In the first sub-clause the assets brought or remitted by an assessee into Pakistan or received by him from outside Pakistan are exempted for five years starting from the year in which they were brought, remitted or received. The case of the present assessee obviously is not covered by sub-clause (i) which was again wrongly thought to be so by the Revenue authorities as well as the learned members. Then sub-clause (ii) talks of creation of assets by an assessee "out of remittance received in or brought into Pakistan through normal banking channel" during and for the period referred to in sub-clause (i). Sub-clause (ii) without ally iota of doubt visualizes a situation different from sub-clause (i). According to this sub-clause any asset created by an assessee is entitled to enjoy exemption subject to the only condition that it was created out of remittances received in or brought into Pakistan through normal banking channels. This sub-clause does not speak of the recipient of the remittance at all. The only condition being that the remittances were received or brought into Pakistan through normal banking channels."
-----"In our view an asset once having qualified for exemption
will remain so even if it changes hands or ownership by way of death, gift or even sale. Till the period of expiry of the said period, it will carry its exemption along with it even in the hands of a third party. In other words, any person who inherits, or obtains by gift or sale an asset in respect of which an exemption was allowed in accordance with law, will not be liable to wealth tax in respect of that asset for the statutory period. This clearly appears to be the purpose of allowing exemption in order to encourage people to bring foreign exchange through regular banking channels."
Para. 6 of the judgment in the case of Commissioner of Income Tax (supra), reads as follows:
"The aforesaid exemption extends to all assets brought or remitted to Pakistan by the assessee for the period specified and such exemption is not limited to or dependant upon the nature of the assets which fact is irrelevant for the purpose of the applicability of Clause 7(i). However, with regard to foreign remittance received through normal banking channels, Clause 7(ii) provides that any asset created from the proceeds of such remittance would also be exempted from the incidence of Wealth Tax for the period specified under Clause 7(i) ibid. An analysis of the aforesaid provision of law would make it clear and obvious that the primary basis for the applicability of the exemption under Clauses 7(i) and 7(ii) is not the nature of the assets. The decisive factors are, the origin of the assets or funds, the mode of transmission (of funds only) and the period of exemption i.e. the period specified in the said clause. There is nothing in the said provisions, which can explicitly or impliedly lead to the conclusion that the assessee can only claim exemption with regard to assets acquired through one conversion only. The exemption extends to converted or reconverted assets during the currency and tenure of the exemption as long as the source of the original funds remains the foreign remittance received through normal banking channels. In this view of the matter, the ITAT was wholly justified in holding that the shares in question were exempt from the incidence of Wealth Tax. Hence the question of law as framed is answered in affirmative."
6. After having given some thoughts to the questions of law referred to this Court injuxtaposition with the principles of law laid D down by this Court in the aforenoted judgments, we have come tothe irreversible conclusion that those questions clearly stood answered and decided by this Court in the said judgments. We are not persuaded to take a contrary view, thus we answer the questions accordingly.
7. The matter stands finally concluded and disposed of.
M.H./C-3/LOrder accordingly.