KARIM ENTERPRISES, LAHORE VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 451 (2004)

(a) Wealth Tax Act (XV of 1963)---

----Ss.2(16), 3, 16, 17 & 25---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss, 9 & 11---Assessment in respect of property not belonging to assessee, but holding same as "sub lessee"---Plea of authority was that such property belonged to assessee at least for period of tenancy---Validity---Lease deed did not contain any reference to establish that complainant was owner of land or superstructure---Unless ownership was established, property or superstructure could not be said to belong to complainant---Impugned order was contrary to law, rules and regulations---Authority had not proved such action to be bona fide and for valid reason---Federal Tax Ombudsman recommended to Commissioner to set aside impugned assessment, conduct enquiry to ascertain, whether complainant after obtaining lease had made addition/modification or, raised fresh construction, which could be said to belong to him and then frame assessment on basis of findings of enquiry.

W.T.As. Nos.199 to 203/LB of 1996 and W.T.As. Nos. 852 to 858/LB of 2000 ref.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)--

---Ss.2(3) & 9---Procedure adopted or decision taken by revenue - contrary to law/rules/regulations or a departure from established practice/procedure---Validity---Onus would lie on revenue to establish that such action was bona fide and for valid reasons---Failure to discharge such onus would result in maladministration vesting jurisdiction with Ombudsman.

A.A. Zuberi, Advisor, Dealing Officer.

Zahid Parvez for the Complainant.

Abdur Rehman Warriach (D-CIT) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---This complaint relates to the Wealth Tax assessments for the years 1995-96 to 1998-99. The impugned assessments are alleged to have been framed without serving statutory notices and have assessed properties in the hands of Complainants, which do not belong to them.

2. Briefly the facts are that no Returns for Wealth Tax were filed Statutory notices under section 17 of the Wealth Tax Act (hereinafter called the repealed Act) issued on 20-11-2000 calling for Returns were not complied with. Subsequent notices under section 16 issued on 14-12-2000, 15-9-2001 and 25-3-2003 also remained unattended. When yet another notice issued under section 16 on 2-6-2003 was responded, the AR was told that the Return be filed by 4-6-2003 as the assessment was likely to get time-barred on 30-6-2003, still the same was not filed. Information was then obtained from the Tenant (=Pizza Hut) occupying property known as `73-The Mall, Lahore', who informed that rent was being paid by them to the Complainant at Rs.90,000 per month. On this basis, the value of the property, at 10-time of the annual rent, was adopted at Rs.10,800,000 in each year and Net Wealth determined at Rs.9,800,000 in each year raising an aggregated tax demand of Rs.220,000 for the first 3 years and Rs.242,000 for the last. All the assessments were framed ex parte under section 16(5) of the Act and are the cause of grievance.

3. The respondents have forwarded para-wise comments by the R-CIT, Eastern Region, Lahore which deny "maladministration" claiming that the complaint is not competent for admission in view of the provisions of section 9(2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). It is explained that the assessments were completed after issuing statutory notices and, though ex parte, these were 'best judgment' assessments because the Complainant did "not provide any evidence to support the contention that the property-under question was already assessed to Wealth Tax" in the hands of some other concern.

4. Mr. Zahid Parvez (Advocate) appearing for the Complainant explained that three adjacent properties on The Mall, known as Naqi Arcade, Naqi Market and Lords Hotel, are owned by the Naqi Trust. Of these properties, the Lords Hotel is a premises which was leased out to Lords Enterprises (Pvt.) Ltd. on 21-7-1988 for a period of 5 years, renewable from time to time till the year 2018. The Lords Enterprises (Pvt.) Ltd sub-leased the property on 12-12-1994 to Karim Enterprises (the complainant) up to 2018. The complainant, Karim Enterprises, through a sub-lease dated 17-7-1996 rented it to MCR (Pvt) Ltd who now run Pizza Hut restaurant in this premises. To support the view that the Complainant AOP being a lessee, of another lessee, is not chargeable to Wealth Tax, reliance was placed on Appellate Tribunal decision dated 15-11-99 on W.T.As. Nos.199 to 203/LB of 1996 in the case of Messer's SKF situated in yet another property of Naqi Trust known as Naqi Market. The learned Counsel submitted that section 3 of the repealed Act read with subsection (16) of section 2 renders a person liable to Wealth Tax in respect of property "belonging to the assessee". As in the present case, the property does not 'belong' to the Complainant but they hold it as a "sub-lessee", the dispensation by the assessing officer was "contrary to law, rules and regulations" falling in the definition of "maladministration" as per Clause (3) of section 2 of the F.T.O. Ordinance.

5. The DR, Mr. Abdul Rehman Warriach (D-CIT) on his turn submitted that the record of the case was not available as files transferred to MTU are still to be sorted out. Arguing on the basis of assessment order and appellate decisions as also the parawise comments by the R-CIT, the DR canvassed that in any case the property belongs to the Complainant at least for the period of tenancy. The DR referred to the Appellate Tribunal consolidated order on W.T.As. Nos. 852 to 858/LB of 2000 dated 27-8-03, whereby the dispensation by the CIT (A) and the assessing officer was maintained inasmuch as the superstructure was considered as belonging to Lords Enterprises, who has sub-leased the property known as Lords Hotel, although these were not the actual owners of the land. The DR observed that facts in the complaint were markedly identical warranting the same dispensation.

6. The record of the case and documents as brought on record by the two sides were examined in the light of the arguments addressed by them. The terms of tenancy dated 12-12-1994 between the complainant (as a Tenant) of Lords Enterprises (as Lessor), and again Lease Deed dated 17-7-1996 between the Complainants (as a Lessor) do not contain any reference to establish their ownership of the land or the super-structure. There lies the distinction between the facts on which the Appellate Tribunal pronounced its verdict dated 27-8-2003 (ibid) referred to by the D.R. Unless ownership is established, the property or super-structure cannot be said to 'belong' to the complainant. Looked at from this angle, the treatment meted out by the officer below appears to be "contrary to law, rules and regulations" as alleged by the Complainant. It is pertinent that when the C.B.R. or any tax functionary adopts a procedure or takes a decision which is contrary to law, rules or regulations or a departure from the established practice/procedure, the onus to establish that it was bona fide and for valid reasons squarely lies on them. Since the Department has failed to discharge this onus, the emerging "maladministration" as defined in Clause (3) of section 2 of the F.T.O. Ordinance comes into play vesting jurisdiction with the F.T.O. On this visualization, it 'is recommended---

(a) Commissioner Wealth Tax by resort to section 25 of the repealed Act set aside the assessment to be framed de novo.

(b) An enquiry be conducted to ascertain whether after obtaining lease of Lords Hotel, the Complainant made an addition, modification or raised fresh construction which can be said to be belonging to them.

(c) A fresh assessment may then be made on the basis of findings of the enquiry as at `b' above.

7. Compliance report be submitted within 60 days of receipt of this order.

C. M. A./230/FTOOrder accordingly.