2008 P T D (Trib.) 226
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member and Mian Masood Ahmad, Accountant Member
I.T.As. Nos.2252/LB, 2253/LB and 2283/LB of 2000, decided on 02/11/2007.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.27(2)(a)(ii)---C.B.R. Circular No.10 of 1979 dated 1-10-1979---Constitution of Pakistan (1973), Fourth Sched. Cl. (50)---Capital gain---Assessee engaged in letting out properties---Sale of a piece of agricultural land---Assessing Officer treated the said transaction to be the 'adventure in the nature of trade' which was subject to tax---Appeal on the point of taxing gain earned on the sale of such land was dismissed by the First Appellate Authority---Validity---Transaction undertaken by the assessee-company was not an adventure in the nature of trade as the factsfully established beyond any shadow of doubt that at the time of purchasethe assessee had no intention of sale---Land in question was purchased as agricultural land and at the time of acquisition/purchase there was no intention to sell and earn profit thereon; neither assessee was engaged in business of purchase and sale of plot estate in the past; business was contemplated only after 11 years from the date of purchase of said property; in the entire history of the case the agricultural plot of land was declared as a capital asset and not even once as stock in trade and department. never disputed such proposition in any of the past years and land was purchased with sole intention of investment for establishment of industrial unit i.e. weaving unit and in this regard assessee did his best but could not achieve desired target; for establishment of industrial unit and for fulfilling. this object assessee took steps viz., that letter of credits opened for 100 powerlooms to set up weaving unit; copy of Letter of Credit was submitted before the Assessing Officer along with Debit Advice of bank charges; purchase of 100 powerlooms could not be materialized due to non-fulfillment of required permissions; assessee prepared detailed feasibility studies regarding establishment of Industrial Unit, number of correspondence made with the concerned department regarding required permission but could not get the same---Assessee had been trying to establish the industrial unit but difficulties were enormous which clearly showed that assessee had no intention of making profits at the time of purchase of such plot and the transaction of sale of plot thus was not an 'adventure in the nature of trade.
(1991) 187 ITR 316; 1992 PTD 1051; 1990 PTD (Trib.) 671; (1978) 37 Tax 236 and Messrs Julian Hosong Dinshaw Trust v. I.T.O. (1992) 65 TAX 102 (SC Pak) rel.
1989 PTD 460; 1996 PTD (Trib.) 771; 61 Tax 105 SC; 1994 PTD (Trib.) 1034; Janab Abubucker Sait v. C.I.T. (1962) 45 ITR 37 (Mad.); Sri Gajalakshmi Ginning Factory Ltd. v. CIT (1952) 22 ITR 502 (Mad.); CIT v. Premji Gopalbhai (1978) 113 ITR 785 (Guj.); Sawardas Devram v. CIT (1984) 150 ITR 576 (MP); Naseer A. Shaikh v. CIT 1992 PTD 621 (SC Pak); 1975 PTD (Trib.) 6; 1989 PTD 460; (1959) 35 ITR 594; (1965) 57 ITR 21 (SC); Leeming v. Jones (1930) 15 TC 333; Commissioner of Inland Revenue v. Rinhold (1953) 34 TC 389; Janki Ram Bahadar Ram v. Commissioner of Income Tax (1965) 57 ITR 21 (SC); CIT v. Jalannagar Tea Estate (1962) 45 ITR 626 (Assam); M. Raman Pillai v. CIT (1964) 51 ITR 829 (Ker); CIT v. A. Muhammad Mohideen (1989) 176 ITR 393 (Mad.) Tribhuvandas Vallabhadas v. CIT (1966) 61 ITR 518 (Bom); Vadlamani Kameswara Rao v. CIT (1964) 51 ITR 304 (AP) and CIT v. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC Ind) ref.
(b) Income-tax---
----Adventure in the nature of trade---Onus---Onus lies on the department to show that a transaction was 'adventure in the nature of trade'.?
61 Tax 105 SC rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.23---Income Tax Appellate Tribunal Rules, 1981, R.20---Deductions---Profit and Loss accounts---Add backs---Department had taken vague and unspecific grounds of appeal which were not in accordance with the Income Tax Appellate Tribunal Rules, 1981, which speak that the grounds should be concise and under distinct heads---Departmental appeal was dismissed on such legal plane by the Appellate Tribunal---On factual plane, expenses were fully verifiable and incurred wholly and exclusively for the purpose of business, details of which had been provided to Assessing Officer---Order of First Appellate Authority deleting the add backs made in the Profit and Loss account expenses was maintained by the Appellate Tribunal in circumstances.?
1991 PTD (Trib.) 53, PTCL 1992 CL 383 and I.T.As. Nos.630 and 6371/LB/2005 rel.
M. Jawed Zakaria for Appellant (in I.T.As. Nos.2252/LB and 2253/LB of 2000).
Abdul Rasheed Ch. D.R. for Respondent (in I.T.As. Nos.2252/LB and 2253/LB of 2000).
Abdul Rasheed Ch. D.R. for Appellant (in I.T.A. No.2283/LB of 2000).
M. Jawed Zakaria for Respondent (in I.T.A. No.2283/LB of 2000).
ORDER
For this assessment year cross-appeals have been filed against order passed by the learned CIT (A) dated 29-2-2000. The assessee has assailed confirmation of taxing the capital gain earned by the assessee on sale of landed property by the First Appellate Authority while the departmental grouse pertain to deletion of addition made under heads of the profit and loss account.
2. The facts necessary for disposal of the issues in hand are that the appellant is engaged in the business of letting out the properties. During the year under appeal, a piece of agricultural land was sold by the assessee for a consideration of Rs.46,79,144. However, the Assessing Officer/DCIT treated the said transaction to be the adventure in the nature of trade, which was subjected to tax. Certain disallowances out of the profit and loss account were also made by the DCIT/Assessing Officer. At the first appellate stage, the assessee's appeal was dismissed the assessee's appeal on the point of taxing gain earned on the sale of land. However, the disallowances made by the Assessing Officer in profit and loss expenses were deleted by the first Appellate Authority. This dispensation grieved not only the assessee but also the Department thus each one of them filed appeal before Tribunal. But when these appeals came up for hearing before the Tribunal the assessee's appeal was dismissed on account of non-prosecution while the Departmental appeal was disposed of on merits by virtue of its order dated 29-11-2006. However, the cross-appeals were restored to their original numbers by recalling the order earlier passed by the Tribunal dated supra. This decision was rendered by the Tribunal on 16-8-2007 vide M.As. Nos.22 to 33/LB of 2007 on the Miscellaneous Application filed by the assessee. Hence, the present appeal.
ASSESSEE'S APPEAL
3. Main thrust of assessee's appeal pertains to taxing the gain earned on sale of piece of agricultural land (immovable landed property) which was amounted to Rs.46,79,144 and exemption from charge of tax was claimed thereon being the transaction was not in the nature of trade.
4. It was the contention of Mr. Jawed Zakaria, the learned counsel for the appellant-assessee that the Assessing Officer has fallen in grave error in treating the said transaction to be the adventure in the nature of the trade. It was explained that a plot was purchased by the assessee as back far in the year 1983-84. Pre-dominant intention at the time of acquiring of the said plot was to establish an industrial unit. However, that plot was sold after the lapse of 12 years i.e. in 1995-96 on which gain of Rs.46,79,144 was earned and exemption from charge of tax was claimed thereon. Following reasons were advanced to hold that the said transaction was an adventure in the nature of trade:---
Firstly:????????????? The land has been sold as a non-agricultural (residential) land.
Secondly: ??????? The assessee is engaged in the business of purchase and sale of immovable property, therefore, neither land constitutes a capital asset nor the transaction could be termed as a capital gain.
Thirdly:The land was not acquired by the assessee for agricultural purposes.
Fourthly: ????????? The object clause of the Memorandum of Association to deal in real estate. On the basis of said reasons the Learned Dy. Commissioner of Income tax treated the transaction as adventure in the nature of trade.
5. It is respectfully submitted that the appellant duly informed the department that the said plot was purchased way back in the year 1983-84 which was purchased for investment with the intention to establish industrial unit on it. However, the Department has drawn adverse inference that appellant was engaged in the business of selling and buying of properties. It is submitted that appellant duly explained the entire factual position vide letter dated 29-8-1996 and 21-11-1996 which has been reproduced at pages 2 and 4 of the assessment order and in which it was categorically denied that assessee was never engaged in the business of buying and selling of the properties at the time of acquisition of said plot. It was stated therein and known fact that the assessee had started business of buying and selling of plots/estates only in the assessment year 1994-95, after 11 years from the purchase of said plot. The learned Dy. Commissioner of Income Tax has not considered the explanation. Secondly, to justify the action, the learned Dy. Commissioner of Income Tax has drawn the inference that according to sale-deed this plot was sold as residential property. It is respectfully submitted to prepare sale-deed and to pay local taxes thereon, it is the duty of buyer/purchaser. It is also immaterial with what name it was sold, what was the intention at the time of purchase is relevant. Therefore, the learned CIT (A) was not justified in not considering this aspect.
6. Mr. Jawed Zakaria, the learned counsel for the appellant? assessee has contended that as held in a reported case 1989 PTD 460 if a person buys land with no intention of selling it and ultimately finds it convenient to sell the same, even though by parceling it out into different plots and also by laying out roads and providing other amenities with a view to get more price, it cannot be said that the activity which he carried on has any element of trade, commerce or business and it cannot, therefore, be said that it is an activity in the nature of trade.
7. The learned counsel for the appellant-assessee asserted that the object clause in Memorandum and Articles of Association of the Company cannot be considered to be conclusive against or in favour of company. As held by the Honourable ITAT in a reported as 1996 PTD (Trib) 771 "Even if one of the professed objects of the company is to trade in land still some of its transactions in land may be held to be of capital amount and outside the course of business---Similarly activity outside the object clause may still be determined a transaction in the regular course of business---Provisions of Memorandum and Articles of Association of company cannot be considered to be conclusive against or in favour of company.
8. The learned counsel for the appellant-assessee submitted that it is important that while passing the impugned order, the Learned Dy. Commissioner of Income Tax as well as the learned CIT (A) had ignored and by-passed many crucial facts and had considered certain facts incorrectly and had arrived at incorrect and irrelevant conclusions. Thus grave injustice had been committed by the learned Dy. Commissioner of Income tax in taxing the capital gain on sale of land of Rs.46,79,144 as revenue receipts arising from trading and its confirmation by the learned CIT (A), therefore, was not justified.
9. The learned counsel for the appellant-assessee urged in view of above arguments it is evident that the transaction was not an adventure in the nature of trade more particularly the DCIT as well as CIT (A) has ignored the fact and evidence when the assessee has provided evidence regarding establishing a weaving unit and opened L.C.No.F-A40/01/ Local for Rs.62,00,000 to MCB in favour of Pakistan Engineering Company Limited, 6-Ganga Ram Trust Building, Shahra-e-Quaid-e-Azam, Pakistan for 100 powerlooms, the same was declared in the Balance Sheet as capital Assets (Fixed Asset) right from the year of purchase till its sale, which sufficiently indicate that the dominant intention of the assessee was to establish a project. The same cannot be branded as adventure in the nature of trade as elaborately discussed herein above with the help of well-settled principles of law.
10. The learned counsel for the appellant-assessee further invited our attention towards page 3 of the learned CIT (A) wherein he has categorically admitted that "copy of Letter of Credit and Debit Advice of bank charges have been furnished" The assessee has never shown the same as stock-in-trade, the Income Tax Department has never disputed this fact in any of the past years. However, due to difficulties the same project could not be materialized and the assessee has sold out the same. But the Assessing Officer did not weigh this piece of evidence and discarded the claim of the assessee. The treatment given by the learned Commissioner of Income Tax (A) in maintaining the treatment of the Assessing Officer and taxing the gain on sale of immovable property (land property) is not only bad in law but also ab initio void, without jurisdiction, or of no legal effect, corum non judice, absolutely arbitrary and liable to be annulled.
11. The learned counsel for the appellant-assessee respectfully submitted that in the present case it was specifically brought on record that the purchase was made for business use to establish industrial unit. It has been consistent view of the Court that onus lies on the department to show that a transaction was adventure in the nature of trade. Reliance is placed on the case reported as 61 TAX 105 SC. The important factors to consider whether a transaction is, or, is not an adventure in the nature of trade have been considered by the Honourable Supreme Court of Pakistan in the above case (Edulijee Dinshaw's case).
12. Mr. Zakaria; the learned counsel for the appellant-assessee has submitted that the following principles have to be borne in mind in deciding whether a transaction of purchase and sale amounts to an adventure in the nature of trade:
(i) The commodity purchased plays an important role in deciding whether a person was indulging in an adventure in the nature of trade or was making an investment.
(ii) Whether the transaction was an isolate one or formed part of a series of transaction showing a tendency to indulge in trade is another important factor.
(iii) The facts that the property bought was sold within a short time does not by itself indicate the transaction was in the nature of trade.
(iv) If land has been purchased or a commodity which normally is not treated as stock in trade has been purchased the presumption is that the intention was to made an investment and not to indulge in an adventure in the nature of trade.
(v) If the property purchased was capable of yielding income then again the inference is that an investment was intended and not an adventure. It is not a matter of merely counting the number of facts and circumstances pro and cons. What is important is to consider their distinctive character. In each case it is the total effect of all relevant factors and circumstances that determines the character of the transaction. The onus of proof in cases of transaction of this kind to establish that they were in the nature of trade is entirely on the department and that onus cannot be satisfied by merely surmises."
13. The learned counsel for the appellant-assessee has submitted that the Honourable Supreme Court, referring to another aspect observed as follows:
"The Indian Supreme Court in the case reported in AIR 1959 SC 1252 considered the circumstances in which it is to be decided whether the amount in question is "income" or "capital gains". In this case the assessee who was carrying on business purchased a plot of land and made a profit. The Income Tax Department held., that it was taxable and that the purchase had been made because the assessee had realized that it was a valuable plot on which he should make a handsome profit. However, the Supreme Court struck down this finding and pointed out that the mere fact that the assessee had realized that the property was valuable and would increase in price was no reason to hold that it should be treated as income and reliance was placed on a decision of the House of Lords in which it was held: "An accretion of capital does not become 'income' merely because original capital was invested in the hope and expectation that it would rise in value: if it does so rise its realization does not make it 'income'.
Yet in another case of Learned ITAT reported as 1994 PTD (Trib.) I034"---Assessee a private limited company engaged in hotel business---Property purchased for construction of hotel---Assessee prepared detailed feasibility studies and applied for loan but the request of loan was refused by bank---Property was disposed of by the assessee---Gain on sale of land was claimed for exemption---Income Tax Officer as well as CIT (A) treated the gain from sale of property as taxable and made addition---Whether sustainable---Held no---Profit earned by the assessee-Company---Whether a business venture---Held no."
Mr. Jawed Zakaria, the learned counsel for the appellant? assessee has also placed reliance on the following case-laws:---
Intention must be present at the time of the purchase. [Janab Abubucker Sait v. CIT (1962) 45 ITR 37 (Mad)] if there was no intention to resell at the time of purchase of land, a subsequent selling of land in plots will not make it an adventure in the nature of trade. (Sri Gajalakshmi Ginning Factory Ltd. v. CIT (1952) 22 ITR 502 (Mad.) Unless purchase of land is with intention to resell, it is not an adventure in nature of trade. (CIT v. Premji Gopalbhai (1978) 113 ITR 785 (Guj)/Swandas Devram v. CIT (1984) 150 ITR 576 (MP))
Dealing in shares being not his business---Where no legal evidence was available to support such an inference and sustain the conclusion that the entire exercise as to the subscription of right shares, and their sale later was wholly an adventure in trade and not capital gain, it was wrong to invoke the principle of piercing the corporate veil as transaction of sale of shares was not related to the business normally carried on by the assessee company. Where the assessee acquires fresh shares of company in exercise of his right the profit motive of assessee in embarking upon a transaction is not decisive for an accretion to capital did not become chargeable to tax simply because the asset was acquired with the idea that it would be sold at profit. [Naseer A. Shaikh v. CIT 1992 PTD 621 (SC Pak)]
Solitary transaction of purchase and sale of gold bonds---Burden on Revenue to prove that transaction amounted to an adventure in the nature of trade---No evidence to show that purchase had been made with an intention to re-sell---Profit from sale not assess-able as income from business. [1992 PTD 1051 = (1991) 187 ITR 316]
To bring case within extended definition of "Business" by way of adventure in nature of trade, intentions at time of ACQUISITION and at time of disposal---Necessary elements---NO?? DOMINANT INTENTION AT THE TIME OF ACQUI-SITION SURPLUS AIRING OUT OF SALE OF LAND---Whether venture in the nature of trade---Held no---Whether capital gain---Held yes. [1975 PTD 6 (Trib)] also see [1989 PTD 460]
Whether conclusive to hold that any dealing in land to be constituted as a venture in the nature of trade---Held no---Sale of land of plot---Whether any adventure in the nature of trade---Held no. 1990 PTD (Trib.) 671
"There can be no definition of the words "exercising a trade". It is only another mode of expressing "carrying on a business"; but it certainly carries with it the meaning that business or trade must be habitually or systematically exercised, and that it cannot apply to isolated transaction."*
"That mere frequency of a transaction may not by itself amount to venture in the nature of trade. That intention to make profit may be an important element to be considered while judging the nature of transaction but here again presence of such an intention per se will not make a transaction of "business". *[1994 PTD (Trib) 1034]
In (1978) 37 TAX 236 it was held: "Land is not a commercial commodity. Land alone is also not a trade in itself. Normally the purchase of land represents investment of money in hand. Transaction of purchase of land could not be assumed to be a mode of venture in the nature of trade. An investment in purchasing is also made with a view to earning return on such investment. Therefore, the mere fact that a person invested money for the purposes of reselling whenever a suitable opportunity arises does not give a sufficient ground to hold that the transaction is in the nature of track."
While arriving at this conclusion, reliance was placed on the verdict of Supreme Court given in the case reported as (1959) 35 ITR 594 and (1965) 57 ITR 21 (SC) where in it was held:
"Normally the purchase of land represents investment of money in land. There are cases of commercial commodities but a transaction of purchase of land cannot be assumed to be without mere venture in the nature of trade."
Further reliance was placed by the learned counsel on the observations of Lord Buck Master dealing with controversy in Leeming v. Jones (1930) 15 TC 333 wherein it was observed:
"An accretion to capital does not become income merely because the original capital was invested in the hope and expectation that it would rise in value, if it does so rise, its realization does not make it income."
Dealing with the same question Lord Dune din observed as under:--
"The fact that a man does not mean to hold an investment may be an item of evidence tending to show whether he is carrying on a trade or concern in the nature of trade in respect of his investments but per so it leads to no conclusion whatever."
14. The learned counsel for the appellant-assessee has submitted that both these observations were subsequently referred to and relied upon in the decision of House of Lords in Commissioner of Inland Revenue v. Rinhold (1953) 34 TC 389 and in Janki Ram Bahadar Ram v. Commissioner of Income Tax reported as (1965) 57 ITR 21 (SC) it was observed:---
"It may be emphasized from an analysis of these cases with a profit motive in entering into a transaction is not decisive, for receiving a higher price. The transaction could not be taken to be a trade. It was proved that due to influx of a large number of refugees and consequent demand of houses, the assessee realized enhanced value of his investments. Merely because permission for development was obtained from the Town Planner and the land was thereafter parceled out in plots the surplus money realized could not be regarded as profits from business."
Land purchased without intention to resell but sold subsequently not adventure in the nature of trade. (CIT v. Jalannagar Tea Estate (1962) 45 ITR 626 (Assam)), (M. Raman Pillai v. CIT (1964) 51 ITR 829 (Ker))
In order to hold that an activity is in nature of an adventure, there must be positive materials to prove that assessee intended to trade in such an activity and in absence of evidence, sale of immovable property consisting of land can give rise only to capital accretions. (CIT v. A. Muhammad Mohideen (1989) 176 ITR 393 (Mad))
15. The learned counsel for the appellant-assessee has submitted that onus to prove that transaction was an adventure in nature of trade would be on department and MERE REJECTION OF ASSESSEE'S EXPLANATION WOULD NOT DISCHARGE SUCH ONUS. [Tribhuvandas Vallabhadas v. CIT (1966) 61 ITR 518 (Bom)/Vadlamani Kameswara Rao v. CIT (1964) 51 ITR 304 (AP)]
The onus of prove that the transaction was an adventure in the nature of trade is required to be discharged by the Revenue by pointing out the relevant factors indicating with reasonable certainty that the transaction was an adventure in the nature of trade---Vide Tribhuwandas v. CIT (1966) 61 ITR 518 (Com). It was observed in the case of Deep Chandra & Co. v. CIT (1977) 107 ITR 716 (All) that in a case of purchase and sale of land, it is not possible to assume it to be an adventure in the nature of trade unless something more is established. Burden on the revenue in such case is not a light one. This burden will have to be discharged with reasonable certainty by pointing out such circumstances as could lead to the infallible result that the transaction was in the nature of trade.
16. The learned counsel for the appellant-assessee has submitted that from the above yardsticks, it is clear that the appellant's case cannot be held to fall within the fold of adventure in the nature of trade. It also needs to be stated that normally, the purchase of land represent like investment of money in bank, as such, a transaction of purchase and sale of land cannot be assumed, without mere, to be a venture in the nature of trade. Viewed as above, it cannot be held that the transaction in question is an adventure in the nature of trade. In the case of CIT v. Sutlej Cotton Mills Supply Agency Ltd. (1975) 100 ITR 706 (SC Ind), it was held that a capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced valued motivated the investment. To put it differently, a resale under charged circumstances would only be a realization of capital and would not stamp the transaction with a business character. Thus, the said particular and specific transaction of the impugned land outside the appellant's line of business is not adventure, in the nature of trade. As such treating surplus as of revenue nature was without justification, as it was nothing but mere accretion to capital or a gain of capital nature the taxing the surplus as revenue income is, therefore, liable to be deleted.
17. Mr. Abdul Rasheed Ch., the learned D.R. supported the order of the DCIT as well as that of the learned CIT (A).
18. We have given our anxious thoughts to the arguments of the two parties in appeal and perused the record. Arguments are summarized hereunder: ---
(i) The commodity in the case of the appellant is land and he was not a dealer in properties not the same was its stock in trade.
(ii) At the time of purchase of land, the appellant had no intention to' make a profit out of it by selling it subsequently. The main object was to acquire the land for business use.
(iii) This property was purchased in 1983-84 and sold out in the assessment year 1995-96. The time leg between purchase and sale is more than 12 years the sale effected after 12 years of waiting and effort, as a sale transaction does not partake the character and nature of "trade" or "business" and an "adventure" after the said long duration could not have been on face constructed.
(iv) The mere fact that there was a surplus and a profit cannot make it an adventure in the nature of trade or the profit chargeable as a revenue income.
19. The argument of the learned counsel that at the time of purchase there was no pre-dominant intention to earn profit. The plot was acquired for establishing a 100 powerlooms Unit for assessee's own business. Mr. Jawed Zakaria, referred the cases wherein it was held that when there is no dominant intention to earn profit at the time of purchase of this plot, the transaction is not venture in the nature of trade but rather capital gain. In this connection following cases were referred: 1990 PTD (Trib) 671, 1992 PTD 1015 and (1978) 37 Tax 236.
20. In the light of above discussion and taking into consideration the circumstances of this case the transaction, undertaken by the assessee company was not an adventure in the nature of trade. The departmental findings on the involved issues are untenable as the following facts fully establish beyond any shadow of doubt that at the time of purchase the assessee had no intention of sale.
>????????? The land was purchased by the assessee way back in the year 1983-84 as agricultural land and that at the time of acquisition/ purchase there was no intention to sell and earn profit thereon. Neither the assessee-appellant was engaged in the business of purchase and sale of plot/estate in the past. This business is contemplated only for the assessment year 1994-95 after 11 years from the date of purchase of the said property.
>????????? In the entire history of the case the agricultural plot of land was declared as a capital asset (right from the year of purchase 1983-84 to 1994-95) and not even once as stock in trade. The Income Tax Department/Assessing Officer never disputed this proposition in any of the past years.?
>????????? The said land was purchased with a sole intention of investment for establishment of industrial units.
> ???????? That the appellant wanted to establish weaving unit on the said land and for this connection the appellant did best but could not achieve desired target.
>????????? That for establishment of industrial unit and for fulfilling this object following, among others, steps taken.
(i) Letter of credits opened by the appellant in favour of Messrs Pakistan. Engg. Co. Ltd. 6 Gangaram Trust Building, Shahrah-e-Quaid-e-Azam Lahore, for 100 powerlooms to set up a weaving units on the said land.
(ii) Copy of LC No.FA-40/01/Local for Rs.6,200,000 of Muslim Commercial Bank Ltd submitted before Learned Dy. Commissioner of Income Tax.
(iii) Debit advice of bank charges of Rs.49,625 dt.12-5-1988, Rs.30 dated 28-7-1988 Rs.35 dated 8-8-1988 also submitted before Learned Dy. Commissioner of Income Tax.
(iv) The purchase of 100 power looms could not be materialized due to non-fulfillment of required permissions.
(v) The assessee-appellant prepared detailed feasibility studies regarding establishment of Industrial Unit.
(vi) That number of correspondence made with the concerned department regarding required permission but could not get the same.
(vii) That it is crystal clear that the appellant-assessee has been trying to establish the industrial unit since 1988 but difficulties were enormous.
>????????? The above facts had totally confirmed that the appellant-company was trying to establish industrial units and was holding the land as a capital assets and not as a stock in trade and there was no intention to sell the plot for profit what to say since the time of acquisition. The said plot of land was acquired 10 years way back in the year 1983-84, the rise in prices and any proposal to sell it on profit was unthinkable.
(i) It also transpired that the appellant wanted the establishment of industrial unit but did not find it feasible to establish the same. The project could not get through. Accordingly, the sale has been made in 1995-96 under impelling and compelling circumstances.
> ???????? The burden of proof was on the revenue department to establish adventure in the nature of trade when at the time of acquisition neither was the intention to resell and earn revenue profit nor business carried on, had not been sale of plots/estate.
> ???????? That the taxing capital gain on landed property is violative of clause 50 of the 4th Schedule of the Constitution of Islamic Republic of Pakistan and the capital gains on lands and properties is a provincial subject which reads as under:
"50. Tax on capital value of the assets, -not including capital gains on immovable property"
(i) This proposition has been settled by the Honourable Supreme Court of Pakistan in the case of [(Messrs Julian Hosong Dinshaw Trust v. I.T.O. (1992) 65 TAX 102 (SC Pak)] their lordships have held that according to item 50 of the Federal Legislative List Part 1, Fourth Schedule of the Constitution of Pakistan 1973, "...the imposition of tax on the capital gains arising from the transfer of immovable property is beyond the taxing power of Federation."
> ???????? The above proposition further embodied and provided in section 27(2)(a)(ii) of Income Tax Ordinance, 1979 where capital gains of immovable property is excluded from the consideration of Income Tax Ordinance, 1979 in keeping with the above constitutional provision. The above proposition has been admitted by C.B.R. vide para. 15 of Circular No.10 of 1979 contained in C.No.1(37)IT-1/79 dated 1-10-1979
21. As result of the above discussion we hold that the assessee company had no intention of making profits at the time of purchase of plot and the transaction of sale of plot is not an adventure in the nature of trade.
22. In consequence, assessee's appeal succeeds.
DEPARTMENTAL APPEAL
23. Now, we turn to departmental appeal. The department has filed appeal against deletion of add-backs by the learned CIT (A). The grounds of appeal speak as under:---
"(1) That the order of the learned CIT (A) is bad in law and against the facts of the case.
(2) That the learned CIT (A) deleted the additions on account of profit and loss account expenses holding that the disallowances were made without discussing the genuineness and reasonability of the claim, whereas these were made after thorough examination of account.
(3) That the learned CIT (A) allowed relief in the addition of profit and loss account expenses without assigning any cogent reasons.
(4) That the department may be allowed to add, alter or modify the grounds of appeal at the time of hearing."
24. Mr. Abdul Rasheed Ch., the learned D.R. has submitted that the Assessing Officer has made the above disallowances for want of verifiability and personal. Further, the assessee appellant do maintain proper and regular books of accounts and there is no change in method of accounting regularly employed, therefore, the add-backs were made after examination of accounts.
25. At the very outset Mr. Jawed Zakaria, the learned counsel for the assessee has raised a preliminary objection regarding non-maintainability of the grounds of appeal filed by the department. He said that the above grounds are vague and unspecific inasmuch as the department had not taken separate and specific grounds with regard .to each item of the profit and loss disallowances. In such situation the Tribunal declines to entertain the grounds being vague and not specific. Reliance in this regard was placed on the case-laws reported as 1991 PTD (Trib.) 53, PTCL 1992 CL 383 and I.T.As. Nos. 630 and 6371/LB of 2005 dated 10-3-2007. Therefore, the appeal of the department may be dismissed on this score only.
26. On the factual plane Mr. Jawed Zakaria, the learned counsel for the appellant-assessee submitted that the closed, adjusted and audited books of accounts were furnished before learned Dy. Commissioner of Income Tax who after detailed scrutiny and examination accepted the same, without pinpointing out any discrepancy, flaw or inaccuracy. That while framing assessment under section 62 the learned Dy. Commissioner of Income Tax has disallowed following expenses summarily without any reason/method whatsoever.
| | | Disallowed without out any reason |
| 01 | Legal and professional charges | Rs.80,000.00 |
| 02 | Fees and subscription | Rs. 1,700.00 |
| 03 | Rent, rate and taxes | Rs.62,680.00 |
| | Total | Rs.144,380.00 |
That the said expenses were wholly exclusively incurred for the purposes of business, but the DCIT has failed to point out Specific instance of unverifiability/personal element; the Dy. Commissioner of Income Tax has disallowed the said expenses even without giving any notice/show-cause opportunity to the appellant nor issued any single letter for verification of these expenses what to say about letter/ notice the Learned Dy. Commissioner of Income Tax has not given any specific reason/evidence for disallowances of Rs.144,380.00.
27. Mr. Jawed Zakaria, the learned counsel for the appellant? assessee submitted that the expenses claimed are in accordance with the nature of business; there are rather reasonable expenses and wholly and exclusively incurred for business purposes. But learned Dy. Commissioner of Income Tax disallowed these expenses without giving any reason or evidence, by saying that the assessee has not provided any details. This observation of the learned DCIT is totally false and is of general nature. The Assessing Officer has himself acknowledged in the body of the order that the assessee has produced books of accounts in support of return version. Books of accounts comprising cash book and ledger were produced and examined by the Assessing Officer. Therefore, the disallowance of expenses on pretext of non-filing of details is a sheer mala fide on the part of the Assessing Officer. Further the Audit and legal fee amounting to Rs.80,000.has been paid to Messrs. Rehman Sarfraz, Chartered Accountants, 2nd floor, Nawa-e-Waqat Building, Lahore. Similary, the rent rate and taxes amounting to Rs.62,680 relates to property tax which having been let out. Therefore, the learned CIT (A) has rightly deleted the same.
28. In a nutshell Mr. Jawed Zakaria; the learned counsel for the appellant-assessee submitted that the order of the learned CIT (A) on this score being in accordance with the law and as per various judicial pronouncements, therefore, may kindly be maintained on this ground and the departmental appeal may be dismissed in the interest of justice and fairplay.
29. We have heard the learned representatives of both the sides and perused the record.
30. From perusal of the above case laws and facts of the case the department has taken vague and unspecific grounds of appeal which are not in accordance with the Tribunal's Rules, which speak that the grounds should be concise and under distinct heads. Therefore, the departmental appeal is hereby dismissed on this legal plane. On factual plane, it can also be seen that the expenses are fully verifiable and incurred wholly and exclusively for the purpose of business. The details of which have been provided to the Assessing Officer. Therefore, for all these reasons we maintain the order of the learned CIT (A) deleting the add backs made in the Profit and Loss account expenses. Coming to the assessee's appeal for the assessment year 1997-98 and likewise following the ratio decidendi in the departmental appeal for the assessment year 1995-96 we also allow the assessee's appeal and delete the add-backs under the heads i.e. fee and subscription, audit fee and rent sale and taxes amounting to Rs.8,500,10,000 and 127,625 respectively. This would result into acceptance of the assessee's appeal for the assessment year 1997-98.
C.M.A./167/Tax(Trib.)???????????????????????????????????????????????? Assessee's appeal accepte