VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1448 (2008)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 90(4)(a) & 170(4)---Transfers of assets---Gift of usufruct and not corpus---Income from Special Saving Certificates invested by the husband of assessee---Gift of such income to wife i.e. assessee---Returns were filed declaring such income and tax deducted thereon---Claim of refund was rejected with the observation that the letter rejecting the claim may be treated as an order under S.170 of the Income Tax Ordinance, 2001---First Appellate Authority directed to issue refund for all the years---Department contended that First Appellate Authority was not justified to ignore the provisions of S.90 of the Income Tax Ordinance, 2001 as there was no transfer of assets to spouse or minor child, the income of the subject asset would always be considered to be the income of the transferor---Refund, if any arising out of the same was to be claimed/adjusted by the husband of the assessee---Validity---Actual asset namely "investment certificates" were not transferred to the assessee but as per transfer deed executed by the donor (husband) it was the income arising out of the investment certificates which were to be given to the assessee (wife)---Commissioner was supposed to dispose of the application within 45 days which was not complied with and even otherwise, when the application of the assessee with regard to the claim of refund was rejected, the assessee was not given an opportunity of being heard as contemplated vide S.170(4) of the Income Tax Ordinance, 2001---Even if the income from certificates was to be treated as income of the husband, he did not claim refund with regard to the deduction by the concerned authority---Appeals preferred by the Revenue did not have any merit which were dismissed by the Appellate Tribunal and order of First Appellate Authority was upheld.

1982 CLC 2082 and 1979 CLC 587 rel.

Ghulam Kazim Hussain, D.R. for Appellant.

Ahmed Nadeem Ahsan, ITP and M. Waseem Bilal for Respondents.

ORDER

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---Titled four appeals at the behest of the Revenue have been directed against the combined impugned order, dated 1-1-2007, passed by the learned CIT(P) Multan. The sole ground which has been agitated at the bar is that the learned CIT(A) erred in ignoring the provisions of section 90 of the Income Tax Ordinance, 2001.

2. Facts in brief are that the taxpayer in the present case is an individual deriving income from Special Saving Certificates invested by her husband in his own name. Secondly, through a gift deed, income from aforesaid certificates was gifted to the taxpayer vide an agreement, dated 1-7-2002 which was executed on 4-11-2004. Returns were filed declaring income and tax deducted thereon. Tax payable and balance refundable are an under:

3. The taxpayers stance was that since returns filed are treated as assessment order, therefore, the refund claimed stands created on, the date returns were filed. The taxpayer filed refund applications on 12-12-2006 pertaining to the tax years, 2003 to 2006 and on 27-12-2006 for the tax year, 2006. On 10-5-2007, a letter, dated 4-5-2007 was served upon the tax payer rejecting the claim for all the years under consideration with the observation that the letter may be treated as an order under section 170 of the Income Tax Ordinance, 2001. Upon this the taxpayer moved rectification application under section 221, dated 2-7-2007 which was also rejected by the concerned authority vide a letter, dated 2-8-2007. Feeling aggrieving with the treatment meted out to the tax payer, appeal was preferred before the learned first appellate authority who vide an order, dated 1-7-2007 accepted the appeal of the tax payer and thus directed to issue refund for all the years under appeal.

4. Both the parties have been heard and relevant orders perused. The main thrust of the arguments advanced by the learned A.R. is that the learned First Appellate Authority was not justified to ignore the provisions of section 90 of the Income Tax Ordinance, 2001. It was the gist of the arguments of the learned D.R. that there is no transfer of assets to spouse or miner add, the income of the subject asset would always be considered to be the income of the transferor, hence refund if any arising out of the same was to be claimed/adjusted by the husband of the taxpayer.

5. The learned A.R. has opposed the arguments advanced by the learned D.R. It was vehemently submitted that Commissioner was bound to pass an order under section 170(4) within 45 days of the filing of the application for claim of refund. It was further argued that any order which is to be passed by the Commissioner under section 170(4) could only to be passed after providing an opportunity of being heard to the taxpayer. It was stressed that the letter of rejection was sent to the taxpayer but he was not afforded an opportunity to represent his case. This is a clear violation of principle audi alteram partem. It was further argued that even the rectification application was also dismissed without hearing the taxpayer in this regard.

6. As regards the contention of the learned D.R., the learned A. R. submitted that as per Muhammadan Law gifts of the usufruct will always be considered a valid gift, hence no exception could be taken regarding these sort of gifts. The learned A.R. elaborated that section 90 of the Income Tax Ordinance, 2001 is not attracted in the taxpayer's case since there is no transfer of actual assets as envisaged under section 90 ibid. It was only the income of the invested certificates which was gifted to the taxpayer by her husband, hence there was no transfer of actual asset. In support of his contention, the learned A.R. relied upon judgments of superior Courts. The relevant judgments and extract are as under:

1982 CLC 2082 (Lahore)

"But in the present case the intention of the donor appears to be that he did not wish to divest himself or his children of the ownership of the property but wanted to confer only a right of mesne profits of the property on the donee during his lifetime. It is for this reason that he had imposed a condition that the donee would have no right to transfer the property in any manner whatsoever. This appear to be a case the gift of usufruct only and not corpus.

1979 CLC 587 (Lahore).

"It would thus appear that each case has to be decided on its own merits and it is the duty of the Court to discover the intention of the donor on the language of the gift whether it was a gift of corpus or merely of usufruct The donee will not be entitled to transfer or sell or mortgage this property. This appears to be a case similar to the Peshawar case. I am of the view that if the gift had been only subject to right of reversion without any additional condition in accordance with the uniformity of view about Muhammadan law it would have amounted to an absolute gift and the condition of reversion would be a nullity. But in the present case the intention of the donor appears to be that he did not wish to divest himself or his children of the ownership of the property but wanted to confer only a right of mesne profits of the property on the donee during his lifetime. It is for this reason that he had imposed a condition that the donee would have no right to transfer the property in any manner whatsoever. This appears to be a case of the gift of usufruct only and not corpus."

7. I have heard the learned counsel for both parties and gone through the relevant orders. In the light of aforesaid arguments, I am not inclined to interfere in the impugned order passed by the learned CIT(A). I do not subscribe to the view expressed by the learned D.R. that section 90 of the Income Tax Ordinance, 2001 was applicable in the case of the taxpayer. Before I embark upon section 90 ibid, it would not be out of place to reproduce the aforementioned section for ready reference which is as under:--

Sections 90(3) and 90(4) of the Income Tax Ordinance, 2001:--

Transfer of assets: (1) -------------------------------------

(2) ------------------------------------------

(3) For the purpose of this Ordinance, where there has been a transfer of an asset but the asset remains the property of the transferor, any income arising from the asset shall be treated as the income of the transferor.

(4)- For the purposes of this Ordinance and subject to subsection (5), any income arising from any asset transferred by a person directly or indirectly to-

(a) the person's spouse or minor child; to

(b) any other person for the benefit of a person or persons referred to in clause (a).

shall be treated as the income of the transferor.

8. Perusal of section 90 reproduced supra clearly indicates that it refers to the situation where asset has been transferred by the transferor to the transferee while in the case of the taxpayer the actual asset namely "investment certificates" were not transferred to the taxpayer but as per transfer deed executed by the donor (husband) it was the income arising out of the investment certificates which were to be given to the taxpayer (wife). On legal plain the Commissioner was supposed to dispose of the application within 45 days which was not complied with and even otherwise, when the application of the taxpayer with regard to the claim of refund was rejected, the taxpayer was not given an opportunity of being heard as contemplated vide section 170(4) of the Income Tax Ordinance, 2001. Lastly, even if the income from certificates was to be treated as income of the husband, he did not claim refund with regard to the deduction by the concerned authority.

10. For the foregoing reasons, I am of the considered view that appeals preferred by the revenue do not have any merit which are hereby dismissed. The impugned findings recorded by the learned first Appellate authority is hereby upheld.

C. M.A./42/Tax (Trib.)Appeal dismissed.