VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 425 (2007)

(a) Income Tax Ordinance (XLIX of 2001)---

----S.122(5)---Amendment of assessment---'Definite information'---Assessment of Gross Annual Letting Value by the Provincial Excise and Taxation Authorities constitute the 'definite information'.

1993 PTD 1108 distinguished.

(b) Income-tax---

----Gross Annual Letting Value---Assessment of Provincial Excise and Taxation Department---Contention that agreement of lease could not be questioned halving been entered into by two Muslim signatories could sustain under the law if there had been no information to the contrary---Where assessment of Gross Annual Letting Value by the Provincial Excise and Taxation Department belied the taxpayer's claim, the lease agreement had no sanctity.

1991 PTD 488 distinguished.

(c) Income Tax Ordinance (XLIX of 2001)---

----Ss.39(1)(j), 15 & 122---Income from other sources---Property income---Provisions of S.39(1)(j) of the Income Tax Ordinance, 2001 provided for assessment of the benefit derived from the use or exploitation of property on the basis of fair market value of the benefit---Departmental action in invocation of said provision instead of S.15 of the Income Tax Ordinance, 2001 was justified.

1991 PTD 488 distinguished.

(d) Income Tax Ordinance (XLIX of 2001)---

----S.111(2)---Unexplained income or assets---Departmental action regarding inclusion of rental income of last five years in a single year was justified as the provisions of S.111(2) of the Income Tax Ordinance, 2001 provided for inclusion of person's income chargeable to tax in the tax year immediately preceding the financial year in which it was discovered.

(e) Income Tax Ordinance (XLIX of 2001)---

----S.122(9), (5) & (5A)---Amendment of assessment---Opportunity of being heard---Action under 5.122 of the Income Tax Ordinance, 2001 could not be taken unless the taxpayer was provided with an opportunity of being heard as provided under S.122(9) of the Income Tax Ordinance, 2001---Plea that no notice was issued under subsection (5) or (5A) of S.122 of the Income Tax Ordinance, 2001 was not tenable---Departmental action in providing an opportunity of being heard as per subsection (9) of S.122 of the Income Tax Ordinance, 2001 was justified.

2007 PTD (Trib.) 1959 distinguished.

Muhammad Iqbal Khawaja for Appellant.

Muhammad Akram, D.R. for Respondent.

ORDER

This appeal, filed at the instance of the taxpayer, is directed against the order dated 31-3-2007 of learned C.I.T. (A) whereby he had confirmed the action of the Taxation Officer regarding estimation of annual rent.

2. Facts, in brief, are that original assessment in the case of taxpayer and individual who derives income from salary, property and other income was completed at net income of Rs.2,46,780, under section 120(1) of the Income Tax Ordinance, 2001. Later on a complaint was received that the taxpayer (i) had purchased properties in the name of his spouse or children (ii) understated the rental income in respect of Property No.97-B from different companies, (iii) constructed a double storey building cost of which had not been declared and (iv) constructed a swimming pool worth over Rs.2 million which had not been declared. In order to verify the genuiness of the complaint inquiries were conducted, and information from Excise & Taxation Department was obtained. The taxpayer was also confronted through a notice under section 122(9) in this regard. The reply tendered by the taxpayer was considered unsatisfactory and the income was determined under section 111(2) at Rs.6,66,428. When this treatment was assailed in appeal the learned C.I.T. (A) upheld the action of the Taxation Officer which had grieved the assessee. Hence this appeal.

3. The learned AR for the assessee strongly agitated the departmental action both on legal as well as factual plane. Firstly, he contended that no definite information was available with the Department to re-open the already completed assessment. Secondly, no notice under section 122(5) or 122(5A) confronting the assessee with the proposed action was issued and the provisions of section 122(9) were directly applied. Since, the procedure laid down in law had not been followed the order passed under section 122 was patently illegal and liable to be cancelled. In support of his contention the learned AR has relied upon following case-law:--

(i) 1993 PTD 1108 (SC), (ii) 1991 PTD 488 (SC) and (iii) 2007 PTD (Trib.) 1959.

On merit, he argued that property income falls under section 15 and not urider section 39 which deals with the income from other sources. According to him, addition on account of rent was made under section 111(2) which was also not applicable for estimating the GALV. The learned AR continues that under repealed Income Tax Ordinance, 1979 addition under section 13 was to be treated as income from other sources under section 30 whereas no such provision in new Ordinance was available. The learned AR also pleaded that tax year comprises 12 months but in this case income for five years was added in a single year which by no stretch of imagination could be held as justified.

The learned DR, on the other hand supported the orders of the authorities below for the reasons recorded therein. He contended that the Assessing Officer is empowered to assess property income on fair market value and thus he had proceeded accordingly. Further, that the income falling under section 111 could also be added under section 39(j). Therefore, the assessment order does not suffer from any legal lacuna. He, therefore, prayed for dismissal of the assessee's appeal.

4. We have heard the parties and perused the available record. The case-law produced at the bar have also been considered. First of all we would consider the AR's contentions on legal plane. It has been pleaded before us that order under section 122 was framed without confronting the taxpayer in terms of subsection (5) or (5A) of the said section. Moreover the Department had no definite information in its possession to amend the deemed order under section 120 (1). Lump sum addition of alleged receipt of rental income of five years in a single year and that too under clause (j) of subsection (1) of section 39 of the Ordinance has also been called into question.

5. Perusal of record shows that the Department had initiated the amendment proceedings on the basis of a complaint. All the issues pointed out in the complaint were duly investigated. Explanation regarding investment in the renovation of property was accepted and no adverse inference was drawn. Information regarding under declaration of rental income was proved from the P.T.1. Form issued by the Provincial Excise and Taxation Department. The GALV so determined was never appealed against by the taxpayer meaning thereby that PT-1 Form was an undisputed document. The taxpayer was duly confronted with the information, Subsection (5) of section 122 provides that the assessment order could be amended on the basis of definite information. In the instant case the assessment of GALV by the Provincial Excise & Taxation Authorities constituted the definite information. The taxpayer has taken the plea that agreement of lease could not be questioned having been entered into by two Muslim signatories to such agreement. This argument could sustain under the law if there had been no information to the contrary. But here in the instant case the uncontroversial assessment of GALV by the Provincial Excise & Taxation Department belies the taxpayer's claim. Hence the alleged lease agreement has no sanctity it has also been argued that, since the lessees were family concerns, therefore, either nil or lesser (than the market rate) rent was received. This contention is also not tenable as the limited companies were independent juridical persons and the lease agreement should have been concluded on "arms length" basis. Regarding merits of the case, it is observed that section 39(1) (i) provides for assessment of the benefit derived from the use or exploitation of property on the basis of fair market value of the benefit. Therefore, the departmental action in invocation of the said provision---instead of section 15---was justified. Subsection (2) of section 111 provides for inclusion of person's income chargeable to tax in the tax year immediately preceding the financial year in which it was discovered. Hence, the departmental action regarding inclusion of rental income of last five years in a single year---under appeal---was justified. It is further observed that the intended action under various subsections of section 122 could not be taken unless the taxpayer is provided with an opportunity of being heard as provided under subsection (9) of section 122. Therefore, the taxpayer's plea that no notice was issued under subsection (5) or (5A) of section 122 is also not tenable. The departmental action in providing an opportunity of being heard as per subsection (9) of section 122 is justified. In nutshell, we hold that arguments put forward by the learned counsel of the taxpayer appellant are not tenable on legal as well as, on factual plane.

6. In the end, we would like to dilate upon the case-law cited at the bar:--

(a) 1991 PTD 488 (SC) "inter alia" lays down the principle regarding validity of `contract', i.e. when two contracting parties agreed to do something by a mutual valid contract or intended to do so, and it was not prohibited by Islam, a third party, like the Income Tax Department or for that matter the Court had no power to modify either the contract or interfere with what they intended to do with it.

We have no cavil against the findings of the Honourable Supreme Court. But the facts, of the instant case are differentiable. The rental income of property had been declared at lesser amount than that was assessed by a Government Agency and which had not been challenged in any court of law. Therefore, the `ratio decidendi' of the said judgment is not applicable in the instant case.

(b) 1993 PTD 1108 lays down the principle regarding re-opening of an assessment under section 65 of the repealed Income Tax Ordinance,1979 which is `pari materia' to subsection (5) of section 122 of the Income Tax Ordinance, 2001. The judgment detests re-opening of a case without the existence of a "definite information" regarding department's assertion against the assessee. However, the factual position in the instant case is that `definite information' in the shape of P.T.1. Form from the Provincial Excise and Taxation Department was available with the Income Tax Department. Hence, the taxpayer cannot take shelter of the above cited judgment of the Honourable Supreme Court.

(c) 2007 PTD (Trib.) 1959 also talks of possession of a `definite information' as a prerequisite for invocation of subsections (5)/(5A) of section 122. Since, in this case, the necessary condition for amendment of assessment had been fulfilled, therefore, this judgment also does not come to the rescue of the taxpayer.

7. Keeping in view the above facts and circumstances of the case, we do not find any legal or factual infirmity in the impugned order, which is accordingly, upheld.

8. Resultantly, the action of both the Authorities below is upheld and the appeal against such order(s) is dismissed.

C. M.A/1 /Tax(Trib.)Appeal dismissed.