2008 P T D (Trib.) 19
[Income-tax Appellate Tribunal Pakistan]
Before Munsif Khan Minhas and Syed Nadeem Saqlain, Judicial Members and Syed Aqeel Zafarul Hasan, Accountant Member
I.T.A. No.2133/LB of 2003, decided on 14/09/2005.
Per Munsif Khan Minhas, Judicial Member, Syed Nadeem Saqlain, Judicial Member, agreeing
(a) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Cash gift by husband to wife without banking channel but same was made from known sources out of cash available with the donor---Addition of such amount of gift---Validity---Addition was deleted by the First Appellate Authority with the observation that husband could give gift to his wife and keeping in view the relation, there must not be transaction through crossed cheque---Real thing to be ascertained was genuineness of the transaction that is whether the husband had means to give a gift to his wife---Gift had been accepted as genuine one---Law of "deemed income' was enacted in order to detect bogus transactions made in order to evade proper taxation and not genuine and verifiable transactions---Transaction between husband and .wife was not to be suspected---Departmental appeal being without any merit was dismissed by Appellate Tribunal.
2002 PTD 63 and I.T.A. No.1683/LB of 2002 rel.
Per Syed Aqeel Zafarul Hasan, Accountant Member---[Minority view]
Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Cash gift by husband to wife without banking channel but gift was made from known sources out of cash available with the donor---Addition of such amount of gift---Validity---Fact that a gift was permissible subject to three conditions of a valid offer, its acceptance by the donee and the passing of the corpus from the donor to the donee, however, seen in the context of the income tax law a valid offer must take the form of a crossed cheque, even between a man and his wife---Such condition was neither violative of the Constitution nor did it depend upon the verifiability of the transaction or the availability of adequate sources with the donor.
Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Cash gift by husband to wife without banking channel but gift was made from known sources out of cash available with the donor---Addition of such amount of gift---Validity---Admittedly, the gift was not made through a crossed cheque, it was hit by the provisions of S.12(18) of the Income Tax Ordinance, 1979---Gift from husband to wife should have been made through a crossed cheque drawn on a bank or through banking channels---Strict interpretation had to be made of the words of fiscal law.
2002 PTD 63 and I.T.A. No.1683/LB of 2002 distinguished.
Per Syeed Nadeem Sa lain Judicial Member agreeing with Munsif Khan, Judicial Member]
(b) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Cash gift by husband to wife without banking channel but gift was made from known sources out of cash available with the donor---Addition of such amount of gift---Validity---Cash gift from husband to wife and from brother to sister was distinguishable from the gifts made during an ordinary course of business---Keeping in view the peculiar circumstances and the culture prevalent in Pakistan a gift from husband to wife or involving any other family member could not be anticipated to be made through banking channels.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Object of provision---Intention of the legislature and spirit of law at the time of legislation could not be overlooked---Purpose of provision of S.12(18) of the Income Tax Ordinance, 1979 was to check the bogus and fictitious transactions which were effected to evade taxation---When a husband made a gift to his wife and which stood proved being genuine one, such gift could not be considered to be one which was envisaged by law makers while enacting S.12(18) of the Income Tax Ordinance, 1979.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Gift---Principle that "every thing should be done in a particular manner", application of---If a gift is to be made compulsorily through banking channels it would amount to going against settled law on the issue of gift under Islamic Law because making gift through banking channels equated with the gift made in writing---Principle of `every thing should be done in a particular manner' was not attracted in such a case---First Appellate Authority was justified to deviate from the same while deleting the addition made under S.12(18) of the Income Tax Ordinance, 1979 regarding cash gift made in favour of the assessee by her husband.
2007 PTD (Trib.) 199 and 2006 PTD 529 rel.
(e) Interpretation of statutes---
---Fiscal law---Strict interpretation has to be made of the words of such law.
Gh. Muhammad Zulfiqar Ali, D.R. for Appellant.
Mumtaz Hussain Khokhar for Respondent.
ORDER
MUNSIF KHAN MINHAS (JUDICIAL MEMBER)---This departmental appeal has been directed against the order dated 27-2-2003 recorded by the learned CIT(A) Multan, for the assessment year 1999-2000.
2. It is the departmental contention that the learned CIT (A) has unjustifiably deleted the addition amounting to Rs.5,00,000 made under section 12(18) of the late Income Tax Ordinance, 1979.
3. Facts in brief are that as per reconciliation statement, the assessee declared to have received a gift from her husband amounting to Rs.5,00,000. No proof regarding its receipt through banking channel or by crossed cheque was appended to reconciliation statement. Therefore, an opportunity was afforded to the assessee by issuing a specific notice requiring proof to this effect if any. The notice was issued vide Assessing Officer office No.012360 dated 22-6-2001. In response to this notice, the AR took the plea in his written reply that the gift was made to the assessee by her husband from known sources out of cash available with him. He has further stated that the proviso to section 12(18) read with section 13 says that this deeming provision is not applicable in cases where the assessee offers explanation about the nature and sources of such sum. The AR has stated that the donor is the existing assessee and is in possession of proof regarding nature and source of money he gifted to her wife. In such circumstances, this deeming provision cannot be invoked. Assessing officer has made the addition under section 12(18).
4. In first appeal the learned CIT (A) has deleted this addition with the following observation:---
"Therefore, I find contention of the learned AR to be forceful. A husband can give gift to his wife. Keeping in view relation, there must not be transaction through cross cheque. But real thing to be ascertained is genuineness of the transaction whether the husband has means to give a gift to his wife. In this case gilt has been accepted genuine one. In fact, the law of deemed income was enacted in order to detect bogus transaction made in order to evade proper taxation and not genuine and verifiable) transaction. The Honourable Peshawar High Court, in a reported case 2002 PTD 63 quoted supra has already held that amount received through cross cheques, cash or any other banking channels was not liable to tax under section 12(18) i.e. any amount received through cross cheques, cash or any other banking channel was not liable to tax under section 12(18). Under these facts and circumstances of the case, when the gift obtained by a wife from his husband through cash is verifiable. I feel no hesitation in respectfully following the cases quoted above and deleting the addition of Rs.500,000 made under section 12(18). So ordered."
5. The learned AR has argued that:-
"The insertion of word "Gift" in section 12(18) of Income Tax Ordinance, 1979 through Finance Act, 1998 is directly in collision with Article No.227 of Constitution of Islamic Republic of Pakistan according to which no law shall be enacted which is repugnant to the injunctions of Islam as laid down in the Holy Quraan and Sunnah. He also referred to the judgment of Maulvi Abdullah and others v. Abdul Aziz and others reported at 1986 SCMR 1403 and another reported case 1986 SCMR 1121 for the validity of gift with the aforementioned three requirements.
In the last para of his reply, AR has stated that in this case both the donor and donee are Muslims and the gift by donor to donee cannot be rejected with the only reason that the amount gifted was not given through crossed cheque."
He has further relied upon full bench Tribunal orders dated 22-8-2003 and 26-5-2005 in I.T.A. No.1683/LB of 2002 whereby the Honourable Tribunal relying upon the reported judgment of the Honourable Lahore High Court of writ petition No.13534 of 2001 has deleted the addition. Hence the transaction that too in between husband and wife is not to be suspected. The departmental appeal being without any merit hereby stands dismissed.
(Sd.)
Munsif Khan Minhas
Judicial Member
SYED AQEEL ZAFARUL HASAN (ACCOUNTANT MEMBER, CONTRA).---I am unable to subscribe to the judgment of the learned Judicial Member. The provisions of section 13 cannot be read with those of section 12(18) to infer that only such amounts attract the provisions of section 12(18) as are not explained by the assessee. The only criterion applicable in the present case is that the amount should have been paid through a crossed cheque. The assessee has been unable to meet this criterion and therefore the amount was rightly added to her income under section 12(18).
7. There is no cavil with the fact that a gift is permissible subject to three conditions of a valid offer, its acceptance by the donee and the passing of the corpus from the donor to the donee. However, seen in the context of the income tax law a valid offer must take the form of a crossed cheque, even between a man and his wife. This condition is c neither violative of the Constitution of Pakistan nor does it depend upon the verifiability of the transaction ex the availability of adequate sources with the donor.
8. As regards the ratio laid down in the case reported as 2002 PTD 63 the same has no application to the present case. The Honourable Peshawar High Court while examining the vires of C.B.R. Circulars Nos. 3, 11 and 12 of 1992 and Circular No. 1 of 1993 merely declared those Circulars as intra vires of the law. However, the effect of such declaration is confined to the year 1992-93 and not beyond that. The present appeal relates to the assessment year 1999-2000 and is, therefore, not hit by the aforementioned case-law.
9. Reliance placed by the assessee on the Full Bench decision of the Tribunal in I.T.A. No. 1683/LB of 2002 dated 26-5-2005 is of no avail in the present case as the issue involved in the stated case is not on all fours with the present one. The Full Bench was seized with the case where the addition made under section 12(18) consisted of an investment in the construction of a building which was treated as a loan/advance and taxed under section 12(18) of the repealed Ordinance. The Tribunal held that unless an amount was declared as an advance or a loan, it could not be treated as falling within the ambit of the said section 12(18). Further, it also held that only an amount of money was capable of falling within the ambit of section 12(18) as other transactions could not be transferred through crossed cheque or, other banking channels. The present case, on the other hand, is a case of cash gift from the husband to the wife, which under the law should have been made through a crossed cheque drawn on a bank or through banking channels. It is a universal rule of interpretation that in fiscal laws a strict interpretation has to be made of the words of law.
10. Seen in the foregoing context I am of the opinion that the Commissioner Appeals was not justified in deleting the addition made under section 12(18) of the Ordinance.
11. Admittedly, in the present case, the gift in question was not made through a crossed cheque. It is, therefore hit by the provisions of section 12(18) of the Income Tax Ordinance, 1979. The order of the Commissioner Appeals being unsustainable in law, is hereby vacated while that of the assessing officer is restored.
12. As the difference of opinion has arisen between the two members, so the file be placed before the Honourable Chairperson for entrusting the matter in issue to another Member for his opinion on the following issue:---
"Whether in the facts and circumstances of the case, the principle that where the law prescribes something to be done in a particular manner, it must be done accordingly or not done at all is not attracted and the CIT (A) was justified to deviate from the express provisions of law enunciated in section 12(18) of the income tax Ordinance, 1979 keeping in view the philosophy behind it?"
(Sd.)
Syed Aqeel Zafarul Hasan
Judicial Member
SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---The Honourable Chairperson of the Tribunal referred the titled case to the undersigned for resolving the controversy arising out of difference of opinion between the learned Judicial Member and learned Accountant Member: As per reference by the Honourable Chairperson, following question was posed for seeking the referee's opinion, which is as follows:
"Whether in the facts and circumstances, the principle that "where the law prescribes something to be done in a particular manner, it must be done accordingly or not done at all" is not attracted and the CIT (A) was justified to deviate from the express provisions of law enunciated in section 12(18) of the Income Tax Ordinance, 1979 keeping in view the philosophy behind it?"
14. The facts relevant for disposal of the present issue already stands narrated in the assessment order, first appellate order and divergent views given by the learned Judicial Member as well as the learned Accountant Member in their respective findings. The learned counsel for both the parties have almost reiterated their arguments, which were put forth by them at the time of hearing of main appeal. I have given due consideration to the rival arguments tendered at the bar. I find myself in full agreement with the observations made by the learned Judicial Member on the issue for the reasons given in the following paragraphs.
15. Admittedly, this was a gift of cash which was given by the husband to his wife. It is also a matter of record that genuineness of the gift has not been challenged by the assessing authority. Before I proceed further, it would not be out of place to reproduce section 12(18) of the repealed Ordinance which is as under:
Section-12(18):-
"Section 12(18).---Where any sum, or the aggregate of sums claimed, or shown to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, exceeds one hundred thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance."
Undoubtedly, it refers to the sum received as loan or gift, otherwise than by crossed cheque ..the sum shall be deemed to be the income of the assessee. But, it is not only the plain wording which has been adopted by the legislature which is to be seen at the time of interpretation but also the spirit of law i.e. object of enactment coupled with the judicial interpretation given to the such piece of legislation over the period it went through process of evolution. This issue also came up for hearing before another Division Bench of the Tribunal reported vide (2007 PTD (Trib) 199) wherein it has been held that object of section 12(18) is to check the back-dated fictitious transactions and section 12(18) is not applicable in valuable transactions. The facts in the supra case are somewhat similar to the facts which are being dealt with in the present case. In the said case the husband gave away Rs.6,00,000 in cash as gift to his wife. The assessing officer rejected the same and made addition under section 12(18) ibid. The learned first appellate authority upheld the treatment meted out to the assessee by the assessing , officer, however, on appeal the learned Division Bench of the Tribunal deleted the addition made under section 12(18) of the repealed Ordinance. In another judgment by the Peshawar High Court reported as 2006 PTD 529 (H.C.Pesh.), on the identical issue where 'cash gift was made in favour of the assessee by her brother. It was held by the Honourable High Court that:---
"that was sufficient documentary evidence available in the shape of affidavit in which all the three requisites of a valid gift had been completed. Statement of the donor recorded by the Assessing Officer and letter of Tehsildar to prove that a sum had been gifted by the donor to his sister Gift was discarded without assigning any reason in circumstances."
(8) It is pertinent to mention here that under section 138 of Muhammad Law by Mulla a gift is complete when is a declaration of gift by the donor, acceptance of the gift, express or implied by or on behalf of the donee and delivery of possession of the subject of the gift by the donor to the doneee. Unregistered gift deed, notwithstanding the amendment of section 49 of Registration Act by Registration Amendment Ordinance, 1962 was admissible in evidence. Donor and donee being brother and sister were governed by Muslim Law and as mentioned above the registration of the document was not sine qua non for validity of the gift.
(9) So far as the second as to whether the amount of gift can be accepted if transferred without banking channel is concerned, answer of the same is also in affirmative. Subsection (18) was inserted to section 12 of the Income Tax Ordinance, 1979 by Finance Act, 1987. This subsection was, however, held in abeyance. The Federal Government while exercising powers granted in subsection (2) of section 14 of the Ordinance issued Notification No.S.R.O.838(I)/87 dated October 26, 1987 added clause (7) in Part VI of Second Schedule to the Ordinance. The said 'subsection (18) of section 12 of the Ordinance was brought in force with effect from 1-7-1990 by Finance Act, 1990. It was however, through Finance Act, 1992 that another sub-section i.e. (18-A) was inserted in section 12 of the Ordinance which was made effective from 1-7-1992. It was omitted by Finance Act, 1996 which means that subsection (18-A) of section 12 remained on statute book from 1-7-1992 to 30-6-1996. Due to insertion of subsection (18) of section 12 of the Ordinance certain difficulties had arisen for the assessee, therefore, Central Board of Revenue in order to facilitate the assessee made certain relaxation by issuing Circulars Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993. When we read section 12(18) with the abovementioned Circulars, we are of the view that since the transaction which took place through gift was duly verified by the Assessing officer not only by recording statement of Allauddin, but by the letter of the Tehsildar Timargara also, we feel no hesitation to hold that such transfer could be made without banking transaction."
16. In the light of aforementioned case law, I have no option but to follow the ratio settled by the Tribunal as well as Honourable High Court. Now coming to the question which has been posed for seeking my opinion that "whether in the facts and circumstances of the case, the principle that 'where the law prescribes something to be done in a particular manner, it must be done accordingly or not done at all' is not attracted and the CIT (A) was justified to deviate from the express provisions of law enunciated in section 12(18) of the Income Tax Ordinance, 1979 keeping in view the philosophy behind it". I would like to observe that this "phrase" has three aspects which are as under:---
(i) Constitution of Pakistan provides that every Court or Tribunal invested with powers of judicial function is bound to follow the judgments of superior Courts as well as judgments given by Courts and Tribunals at the same level. Since in the present case the Tribunal as well the Honourable High Court has already held that cash gift from husband to wife and from brother to sister is distinguishable from the gifts made during an ordinary course of business. Keeping in view the peculiar circumstances and the culture prevalent in our country, a gift from husband to wife or involving any other family member could not be anticipated to be made through banking channels.
(ii) Intention of the legislature and spirit of law at the time of legislation could not be overlooked. The notice of this factum has also been taken by the different judicial forums wherein it has been held that the purpose of provision of section 12(18) was to check the bogus and fictitious transactions which are effected to evade taxation. Obviously, when a husband makes a gift to his wife and which stands proved being genuine one, such gift could not be considered to be one which was envisaged by law makers while enacting section 12(18) of the repealed Ordinance.
(iii) The apex Court/authorities pronouncements regarding gift made under the Muslim Law are also worth mentioning since under the Muslim Personal Law an ordinary gift could be made orally if the requisite conditions stood fulfilled i.e. intention of the donor to make gift, acceptance by the donee and delivery of corpus. In my opinion if a gift is to be made compulsorily through banking channels it would amount to going against the ratio settled by the apex Court on the issue of gift under the Muslim Personal Law because making gift through banking channels equates with the gift made in writing.
17. For the foregoing reasons, I am of the considered view that principle of every thing should be done in a particular manner is not attracted in the instant case, therefore, the learned CIT (A) was justified to deviate from the same while deleting the addition made under section 12(18) regarding cash gift made in favour of the assessee by her husband. I do hereby concur with the findings given by my learned .brother, Mr. Munsif Khan Minhas, Judicial Member.
C.M.A./161/Tax(Trib.)Appeal dismissed.