VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 814 (2007)

Wealth Tax Act (XV of 1963)---

----Ss. 5(1)(xv)(i) & 16(3)---C.B.R. Circular No.3(2)/PT-III/90 (Pt.), dated 9-11-1990---Exemption in respect of certain assets---Shares in lieu of machinery---Exemption was denied on the ground that amount invested in purchase of machinery enjoyed exemption and since the assessee was holding shares and not the machinery, the exemption was not admissible to the assessee---Conversion of investment in machinery into the shares disentitled the assessee from allowability frown exemption---Assessee clarified that exemption was available in respect of assets brought by non-resident assessee from abroad and once that asset had been disposed of sale proceeds of the assets will no longer be covered by the exemption---Assets had never been disposed of as the assessee being Director had held the shares of the company in lieu of the asset brought by him from abroad and as neither, there was any change in the shape of assets nor the assets had been used for any other purpose, except for the purpose it was brought, only on the basis of presumption, the claim could not be disallowed---Validity---Until and unless it was established that the assessee had changed the status of the assets, the exemption could not be disallowed---Assessing Officer had failed to established that the assessee in any way changed the status of the assets, as he was shareholder of the company in lieu of assets brought from abroad and was entitled to exemption---Orders of Assessing Officer were vacated by the Appellate Tribunal and the Assessing Officer was directed to allow the exemption claimed by the assessee.

W.T.A. No.180 of 2001 rel.

Zulfiqar Ali Sheikh, I.T.P. and Asim Zulfiqar, C.A. for Appellant.

Mehboob Alam, D.R. for Respondent.

ORDER

Through these seven appeals, the consolidated impugned order of the learned CIT(A), dated 16-2-2006 for the assessment years 1994-95 to 2000-2001 has been objected on the following common grounds:--

(3) The learned CIT(Appeals) was not justified to reject the appeal filed by the appellant without plausible and concrete reason.

(4) Without prejudice to the above, the authorities below did not appreciate that the appellant is a non-resident individual, who claimed exemption from levy of wealth tax in respect of the shares held in a resident company on the grounds that these were issued/allotted in lieu of machinery, that the appellant brought under NRI Scheme and as such the amount of investment was not liable to wealth tax for six years in terms of the provisions of section (xv) (i) of the Wealth Tax Act, 1963, read with C.B.R.'s Circular No.3(2)/PT-III/40 (PT), dated 13-11-1979.

(5) Without prejudice to the above, the authorities below have erred not to allow claim of exemption amounting to Rs.5,300,000 under section 5(xv)(i) of the Wealth Tax Act, 1963, by brushing aside the supporting documents furnished on the subject matter through A.R. vide their Letter No.ZA-04/314, dated 8-10-2004.

Mr. Asim Zulifqar, C.A. along with Mr. Zulifqar Ali Sheikh, ITP has appeared on behalf of the appellant and has contended that the appellant in this case is a non-resident individual. Original wealth tax assessments were completed for all the seven years under review under section 16(3) of the revoked Wealth Tax Act, 1963. First appeals filed by the assessee for the assessment years 1994-95 to 1998-99 were rejected through two separate orders by the learned CIT(A), dated 20-10-2001, for the assessment years 1994-95 and order dated 24-10-2002 for the assessment years 1994-95, 1996-97 and 1998-99. The assessee preferred second appeals before this Tribunal and this Tribunal vide order, dated 24-1-2003 and 2-4-2003 set aside the assessments for these four years for fresh adjudication. The set aside assessments were completed vide order, dated 25-2-2004 along with the assessments for the charge years 1999-2000 and 2000-2001. The assessee again filed appeals for the seven years under review and the learned CIT(A) vide order, dated 19-5-2004 again set aside the assessments for all the seven years under review for de novo consideration. The learned counsel has contended that the Assessing Officer has repeated the same assessments as were already made, which have now been upheld by the learned CIT(A) during the third round. The learned counsel has contended that the matter involved in the present appeals is to determine, as to whether the appellant is entitled to exemption under section 5(1)(xv)(i) of the revoked Wealth Tax Act, 1963. He has contended that admittedly, the appellant is a non-resident individual, who claimed exemption from levy of wealth tax in respect of shares held in a resident company on the grounds that these were issued/allotted in lieu of machinery, which the appellant brought under NRI Scheme and as such, the amount of investment was not liable to wealth tax. He has, in this respect, referred clarification of the provision in section 5(1)(xv)(i) of the revoked Wealth Tax Act, 1963 made by the Central Board of Revenue vide Circular No.3(2)/TP-III/90 (Pt.), dated 13-11-1990, wherein it has been clarified that exemption under section 5(1)(xv)(i) of the revoked Wealth Tax Act, 1963 is available to a non-resident assessee in respect of assets brought by him from abroad. Once, it has been disposed of, sale proceeds of the assets will no longer be covered by the said exemption. Shares and stocks are exempt, if these are acquired by such non-resident out of the remittances from abroad from normal banking channel. The learned counsel, in this respect, has also placed reliance on the decision of Hon'ble Lahore High Court, dated 22-2-2005 in WTA No.180/2001, wherein the. Hon'ble High Court has decided various appeals along with the above referred appeal on the following question of law:--

Whether on the facts and circumstances of the case the learned II.TAT was justified in holding that the assets purchased out of encashment of FEBC's enjoy exemption from wealth tax under section 5(xv) of Wealth Tax Act, 1963?

The Hon'ble High Court has decided the above question of law in the following manner:-

"(5) It is contended on behalf of the Revenue that Clause 9 of Part-I of the Second schedule of Wealth Tax Act, 1963 is applicable and in terms thereof the exemption is limited to FEBC's alone and such exemption does not extend to assets created from the proceeds thereof. There can be no cavil with the proposition that the exemption under clause 9 ibid is limited to be specific species of assets i.e. FEBC's. And if the assets loose the said character the exemption would not apply. However, in the instant case, exemption has been claimed under clauses 7(i) and 7(ii) of the Second Schedule of the Wealth Tax Act, 1963, which reads as follows:--

"Assets ..

(i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;

(ii) created by an assessee out of remittance received in, or brought into Pakistan,' through normal banking channels, during the period of referred to in sub-clause Or.

(6) The aforesaid exemption extends to all assets brought or remitted to Pakistan by the assessee for the period specified and such exemption is not limited to or dependent upon the nature of assets which fact is irrelevant for the purpose of the applicability of clause 7(i). However, with regard to foreign remittance received through normal banking channels, Clause 7(ii) provides that any assets created from the proceeds of such remittance would also be exempted from the incidence of Wealth Tax for the period specified under clause 7(i) ibid. An analysis of the aforesaid provision of law would make it clear and obvious that the primary basis for the applicability of the exemption under clauses 7(i) and 7(ii) is not the nature of assets. The decisive factors are, the origin of the assets or funds, the mode of transmission (of funds only) and the period of exemption i.e. the period specified in the said clause. There is nothing in the said provisions, which can explicitly or impliedly lead to the conclusion that the assessee can only claim exemption with regard to assets acquired through once conversion only. The exemption extends to converted or reconverted assets during the currency and tenure of the exemption as long as the source of the original funds remains the foreign remittance received through normal banking channels. In this view of the matter, the ITTA was wholly justified in holding that the shares in question were exempt from the incidence of Wealth Tax. Hence, the question of law as framed is answered in affirmative".

The learned counsel has contended that clauses 7(i) and 7(ii) of the Second Schedule to the revoked Wealth Tax Act, 1963 are of the same wordings as of the above referred section 5(1)(xv) of the revoked Wealth Tax Act, 1963 and therefore, the above referred decision of Hon'ble High Court is at all fours applicable in the present case. He has, therefore, contended that the assessee is liable to the claim of exemption, which has to be allowed.

On the other hand, learned DR is supporting the impugned orders of the Officers below. He has contended that claim of exemption was invalid, because it was tile amount invested in the purchase of machinery which enjoyed exemption and since the appellant was holding shares and not the machinery, hence the exemption was not admissible to the appellant. The learned DR has contended that conversion of investment in machinery into the shares disentitled the appellant from allowability from exemption.

We have heard the learned representatives from both the sides and have also perused the consolidated impugned order of the learned CIT(A) and the consolidated assessment order passed by the Taxation Officer under sections 16(3)/23 of the revoked Wealth Tax Act, 1963.

We have found that the Assessing Officer has rejected the claim of exemption to the extent of Rs.53,00,000 in each year placing reliance on the explanation of the Central Board of Revenue vide Board's letter C. No.3(2) PT-III/90 (Pt.), dated 13-11-1990, which has already been reproduced in the above said paras. It has been contended on behalf of the assessee that in that explanation, it has been specifically clarified that exemption is available in respect of assets brought by non-resident assessee from abroad and once that asset has been disposed of, sale proceeds of the assets will no longer be covered by the said exemption. But in the present case, the asset has never been disposed of, as the assessee in this case being Director has held the shares of the said Company in lieu of the asset brought by him from abroad and as neither, there is any change in the shape of asset, nor the asset has been used for any other purpose, except for the purpose it was brought, only on the basis of presumption, the claim cannot be disallowed. Even-otherwise, the above referred decision of the Hon'ble High Court, dated 22-2-2005 in WTA No. 180/LB/2001 also supports the contention of the assessee, as the wording of clause 7(i) is exactly the same as of above referred section 5 (1)(xv) (i) of the revoked Wealth Tax Act, 1963. The Hon'ble High Court has held that there is nothing in the said provision, which can explicitly or impliedly lead to the conclusion that the assessee can only claim exemption with regard to asset required through once conversion only. The exemption extends to converted or reconverted assets during the currency and tenure of the exemption as long as the source of the original funds remains the foreign remittance received through normal banking channels. In the present case, until and unless it is established that the assessee in any case has changed the status of the assets, the exemption cannot be disallowed. Officers below have failed to establish that the assessee in any way changed the status of the assets, as he is the shareholder of the Company in lieu of the assets brought from abroad and is, therefore, entitled for exemption.

Keeping in view the above factual as well as legal position, the impugned orders of the Officers below in this respect are vacated and the Assessing Officer is directed to allow the above discussed exemption claimed by the assessee for all the seven years under review.

All the seven appeals filed by the assessee are allowed.

C.M.A./24/Tax (Trib.)Appeals allowed.