SULTAN AHMAD SIDDIQUI VS PROVINCE OF SINDH through, Chief Secretary, Government of Sindh, 2011 PTD-KARACHI-HIGH-COURT-SINDH 2871 (2011)

(a) Transfer of Property Act (IV of 1882)---

----Preamble---Transfer of property---Nature of transaction---Principle---Where statute requires that particular kind of transfer should be effected by particular kind of instrument, such provision must be enforced with stringency---Court must give effect to the Act and must judge the particular transaction according to its provisions.

(b) Transfer of Property Act (IV of 1882)---

----S. 105-"Lease"-Essential elements.

Following are the essential elements constituting a lease:

(a)right must be one as to immovable property;

(b)right must be that of enjoyment of immovable property;

(c)there must be a transfer of such right;

(d)right of transfer is an interest in property;

(e)transfer must be made for a certain time express or implied, or in perpetuity;

(f)transfer must be one for consideration; and

(g)consideration must be of particular kind namely, premium or rent, as defined by section either or both of them.

Essential feature of lease is transfer of interest to enjoy property with exclusive possession given to transferee of the property and conveyed in consideration of price paid or promised etc.

(c) Finance Act (V of 1989)---

----S. 7(2)(CA)(a)(ii)---Transfer of Property Act (IV of 1882), S. 105---Constitution of Pakistan, Art.199---Constitutional petition--Lease deed--Capital Value Tax, levy of---Petitioners assailed levy of Capital Value Tax on their plot at the rate of Rs.50/- per square yard of the landed area, on sub-lease deed executed in their favour---Validity---For all intents and purposes, consideration for granting lease was a price paid which was subsequently defined and called premium, therefore, for effecting transaction of lease of immovable property, only three indispensable components were required to be fulfilled, i.e. the "lessor", "lessee" and consideration was the "price paid" which was called premium---In order to decipher document of lease, it was essential to perceive what consideration had been made known in the document of lease itself including its tenure---Sub-lease in question granted in favour of petitioners was for a period of 99 years, which was in fact a lease in perpetuity and lessor had clearly incorporated consideration which was occupancy value and/or price paid by sub-lessee to lessor before execution of sub-lease in their favour---Document of lease in question endowed with and imparted record on which petitioners had already paid Capital Value Tax at the rate of 2%, therefore, petitioners were not accountable to pay Capital Value Tax on their plot at the rate of Rs.50 per square yard of the landed area---Demand raised by authorities for payment of additional amount on account of Capital Value Tax was declared to have been raised and issued without any lawful authority and it had no legal effect---Petition was allowed in circumstances.

2010 PTD (Trib.) 1046 rel.

Khaleeq Ahmed for Petitioners.

Kafil Ahmed Abbasi for Respondents.

Umar Hayat Sandhu, Dy. Attorney-General.

Saifullah, Asstt. A.-G., Sindh.

Dates of hearing: 17th January, and 19th September, 2011.

ORDER

MUHAMMAD ALI MAZHAR, J.---This Constitutional Petition has been filed by the petitioners with the following prayers:--

(a)To declare that the letters/notices issued by the respondent No.2 communicating demand of further CVT to the tune of Rs.24,600 to be paid by each of the petitioners (Para 6(a) above) are illegal, ultra vires, unwarranted by law and of no legal effect ;

(b)To direct the respondent No.2 to register/clear the sub-lease deeds of the petitioners pending with him and to deliver/cause to be delivered, such registered sub-lease deeds to the petitioners (on the basis of the CVT as already paid by the petitioners) without charging any further Capital Value Tax within 30 days of the passing of the order, by this honourable court;

(c)To award cost of the petition ;

(d)To grant any other relief as this honourable court may deem fit, under the circumstances.

2. The facts forming the background of this case are that the petitioners are members of Judicial Officers Cooperative Housing Society Limited, Hyderabad and each of the petitioner was allotted a plot admeasuring 500 sq.yds by the Society before 30-6-2009 within the territorial/registration jurisdiction of the respondent No.2 and indenture of sub-leases were executed in their favour. The petitioners presented their respective sub-lease deeds for registration in the office of the respondent No.2 before 30-6-2009. Each of the petitioners had paid to the Society Rs.20,000 being premium amount/full occupancy value and had also paid Capital Value Tax (CVT) thereon to the tune of Rs.400 per sub-lease deed, being 2% of such premium amount recorded in the sub-lease deeds and such CVT paid challans were also presented along with the sub-lease deeds in the office of the respondent No.2. The respondent No.2 had been verbally insisting upon the petitioners to pay CVT at the rate of Rs.50 per sq.yds. as in his opinion, the value of the plot on ownership basis, was not recorded in the sub-lease deeds, hence the petitioners are liable to pay CVT in the, 2nd category of section 7(2)(CA)(a)(ii) of the Finance Act, 1989 at the rate ofRs.50 per sq.yd. as on 30-6-2009.

3. The respondent No.2 served letters of various dates on the petitioners communicating the demand of further CVT. to be paid in the sum of Rs.24,600 by each of the petitioners calculated on Rs.50 per sq.yd which in fact was to be applied to the deeds in which no value/amount at all is recorded. The basis of this calculation was F.B.R's. letter dated November 6, 2008 in which a reference was made to the FTO's order dated September 30, 2008 passed in the Complaint No.1568-K of 2008. In the case before FTO, the complainant Zakir Hussain though had paid CVT in the sum of Rs.10,000 being 2% of the recorded value of Rs.500,000 mentioned in the lease deed but the concerned Sub-Registrar did not register the lease deed and treated the case of unrecorded value for the purpose of CVT, hence, the FTO vide its order dated September 30, 2008 directed the F.B.R. to clarify the position:

4. Thereafter, F.B.R. vide its letter dated November 6, 2008 clarified impliedly that if value of the land is not mentioned on ownership basis, even if it is a lease deed, the CVT becomes chargeable at Rs.50 per sq.yd and the FBR impliedly advised to ignore the amount of premium paid and recorded in the lease deed.

5. The petitioners through their counsel replied the respondent No.2, explaining the correct legal position but the respondents Nos.2 and 4 failed to respond the reply.

6. The core issue in the instant petition is that whether the amount of sub-lease or the premium paid thereon, if recorded in the indenture of sub-lease deed, is to be charged at 2% of such amount or at the rate of Rs.50 per sq.yd of the landed area up to 30-6-2009.

7. We have heard the learned counsel for the parties. The learned counsel for the petitioners Mr. Khaleeq Ahmed, Advocate, argued that the respondents Nos.2 and 4 have failed to appreciate that the value of land on ownership basis and value of land on lease/sub-lease basis are two different categories of transfer of assets, therefore, both have been separately made liable to CVT on different basis under section 7(1) of the Finance Act, 1989.

8. The learned counsel further argued that the respondents Nos.2 to 5 have failed to appreciate that the CVT can only be charged on the basis of Rs.50 per sq.yd, if no value is recorded in the indenture of sub-lease. He further averred that the respondents are misconstruing the law and are tying to put both categories of the deeds i.e. sale-deeds and sub-lease deeds in one and the same category. Since the occupancy value/premium has already been recorded in the indenture of sub-lease, therefore, CVT will only be levied on the premium/occupancy value recorded in the document of lease.

9. Mr. Kafil Ahmed Abbasi, the learned counsel for the respondent No.3 argued that since CVT on the indenture of sub-lease in question was found short paid by Rs.24,600, therefore, as per clarification issued by F.B.R., the respondent No.2 rightly called upon the petitioners to pay the deficit amount of CVT. The learned counsel further referred to paragraph (CA) of subsection (2) of section 7 of Capital Value Tax levied under the Finance Act, 1989 and argued that 2% of CVT is leviable where the value of immovable property is recorded and where the value of immovable property is not recorded in the indenture of sub-lease, then the lessee has to pay capital value tax at the rate of Rs.50 per sq.yds of the landed area. The learned counsel further argued that since it is clear from the indenture of sub lease attached with the petition that no value has been recorded therefore, the CVT is liable to be paid at the rate of Rs. 50 per sq.yd. The learned counsel further invited our attention to a letter dated 6-11-2008, attached with the petition as annexure C at page 41 which was issued by Secretary (I.T. Policy), Federal Board of Revenue, Government of Pakistan, to the Director General Regional Tax Office, Hyderabad with reference to the Complaint No. 1568-K of 2008 submitted by Mr. Zakir Hussain to the Federal Tax Ombudsman in which it was clarified that where an asset or a right to use thereof is acquired by a person for more than 20 years and the value of immovable property is not recorded thereon (lease deed) in such a case, the beneficiary (leaseholder) under clause 2 of subparagraph (a) of paragraph (CA) of subsection (2) of section 7 of the Finance Act, 1989 would be required to pay CVT at the rate of Rs.50 per sq.yds of the landed area.

10. Mr. Umer Hayat Sandhu learned D.A.-G. and Mr. Saifullah learned A.A.-G., both have supported the arguments of Mr. Kafil Ahmed Abbasi and according to them since no value is recorded in the indenture of lease, therefore, instead of paying 2% Capital Value Tax, the petitioners are required to pay CVT at the rate of Rs.50 per sq.yds of the landed area. They further argued that in view of the order passed by the learned Federal Tax Ombudsman on 30-9-2008 in the Complaint No.1568-K of 2008, the Federal Board of Revenue has already issued clarification on November 6, 2008, whereby it was clarified that where an asset or a right to use thereof is acquired by a person for more than 20 years and the value of the immovable property is not recorded in such a case, the beneficiary is required to pay CVT at the rate of Rs.50 per sq.yds of the landed area.

11. After hearing the arguments of all the learned counsel appearing for the parties, we have reached to the conclusion that the entire controversy is revolving around an issue whether in the indenture of lease attached with the petition the value has been recorded or not and for the purposes of the payment of CVT on the sub lease what value or amount is to be taken into consideration. The case of the petitioner is that the value is already recorded in the indenture of lease therefore, 2% on the assessed value was paid on account of CVT while the plea of the respondents is that the value recorded in the indenture of sub-lease will not be considered as recorded value for the purposes of the payment of CVT therefore, instead of payment of 2% on the amount, the petitioners are liable to pay Capital Value Tax at the rate of Rs.50 per sq.yds on the landed area.

12. We have minutely examined the indenture of sub-lease dated 30th May, 2009, issued by Judicial Officers Cooperative Housing Society Limited through its Chairman in the favour of one of the petitioners for the piece of land No.143 admeasuring 500 sq.yds. and observed that in one of the clauses of the terms and conditions of sub-lease, the lessor has mentioned the occupancy value as well as the payment of one year advance rent for granting lease of the said plot for a term of 99 years. The relevant clause of the indenture of lease is reproduced as under:--

"WHEREAS THE SUB-LESSEE has paid the sum of Rs.20,000 (Rupees Twenty Thousand only) being the full occupancy value of the plot at the rate of Rs.40 (Rupees Forty only) per Square Yard and Rs.250 (Rupees Two hundred and Fifty only) being one year rent in advance for the said plat of land at the rate of Rs.0.50 (Rupees Fifty . Paisa only) per square yards and is entitled to a lease of the said plot for a term of 99 years."

13. Capital Value Tax was levied by virtue of section 7 of the Finance Act, 1989, which is reproduced as under:---

(7) Levy of tax on Capital Value of certain assets.---(1) A tax on the capital value of asset, to be called the capital value tax, shall be payable by every individual [association of persons, firm or a company which] acquires by purchase [gift, exchange, [power of attorney [other than revocable and time bound (not exceeding sixty days) executed between spouses, father and son of daughter, grand parents and grand children, brother and sister], surrender or relinquishment of rights by the owner (whether effected orally or by deed or obtained through court decree) except by inheritance, or gift from spouse, parents, grand parents, a 'brother and a sister] an asset or a right to the use thereof for more than twenty years, [or renewal of the lease or any premium paid thereon] [or purchase of modaraba certificate or a registered instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), or shares of a public company, listed on a registered stock exchange in Pakistan by a resident person defined in section 81 of- the Income Tax Ordinance, 2001 (XLIX of 2001) such as is specified in subsection (2), at the rate specified in that subsection.

14. The transaction in relation to the transfer of immovable property, sale of immovable property, leases of immovable property and exchanges are defined and regulated under the Transfer of Property Act. The purpose of transfer of property Act is to define and amend the laws relating to the transfer of property by the act of the parties. All the provisions of the act therefore, will be deemed to be in connection with the transfer of property. Where the statue requires that the particular kind of transfer shall be effected by the particular kind of instrument such a provision must be enforced with stringency, the court must give effect to the act and must judge the particular transaction according to its provisions. The lease of immovable property has been defined under section 105 of the Transfer of Property Act which reads as under:---

Section 105 of the Transfer of Property Act, 1882

"Lease defined. A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.

Lessor, lessee, premium and rent defined. The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent".

15. The essential elements constituting a lease, are as follows:---

(a)the right must be one, as to immovable property;

(b)the right must be that of enjoyment of immovable property;

(c)there must be a transfer of such right;

(d)the right of transfer is an interest in property;

(e)the transfer must be made for a certain time express or implied, or in perpetuity;

(f)the transfer must be one for consideration;

(g)the consideration must be of the particular kind namely, premium or rent, as defined by the section, either or both of them.

16. In other words, the essential features of lease is transfer of interest to enjoy property with exclusive possession given to the transferee of the property and conveyed in consideration of the price paid or promised etc. Under section 7 of the Finance Act, 1989, the Capital Value Tax is payable by every individual, association of persons, firm or a company which acquires by purchase, gift, exchange, power of attorney other than revocable and time bound not exceeding sixty days executed between spouses, father and son or daughter, grand parents and grand children, brother and sister, surrender or relinquishment of rights by the owner whether effected orally or by deed or obtained through court decree except by inheritance, or gift from spouses, parents, grand parents, brother and a sister, an asset or a right to the use thereof for more than twenty years. It is pertinent to mention here that by virtue of Finance Act, 2009, an amendment was made whereby first time, the word "renewal of the lease or any premium paid thereon was added", however, earlier to this amendment the renewal of the lease or any premium paid thereon was not liable to be paid Capital Value Tax.

17. It is clear beyond any doubt that in the original section 7 of the Finance Act, 1989, the transaction of lease was not mentioned but for the first time in the year 2009, the word renewal of the lease or any premium paid thereon was inserted under section 7 of the Finance Act, 1989 and the indenture of lease was only amenable within the purview of capital value tax liability on the perception of purchase of an asset or a right to use thereof for more than twenty years. The grant or execution of indenture of lease was made subject to the payment of Capital Value Tax at the rate of 2%, where the value of immovable property is recorded and at the rate of Rs.50 per sq.yds of the landed area, where the value of immoveable property is not recorded.

18. The bone of contention between the parties is that the learned Advocate appearing for the petitioner focused his argument that in the indenture of lease, the value of the property in question has been recorded appropriately, therefore, the petitioners have rightly paid Capital Value Tax at 'the rate of 2% on the value recorded in the document itself, while the learned counsel appearing for the respondents conversely averred that there is no value recorded in the indenture of lease, therefore, the petitioners are legally responsible to pay at the rate of Rs.50 per sq.yds of the landed area and the demand raised by the Sub-Registrar Latifabad in the sum of Rs.24,600 vide its letter dated 14-7-2009 was appropriate without any cause of confusion and perplexity.

19. In order to resolve this controversy, we have to revert back to section 105 of the Transfer of Property Act which is in fact a parent law to regulate and determine the relationship of lessor and lessee and unambiguously stipulates that lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity iii consideration of price paid or promised. It is further defined in the same section that the transferor is called lessor, the transferee is called the lessee, the price is called the premium and the money, share, service or other thing to be so rendered is called the rent.

20. So for all intent and purposes, the consideration for granting lease is a price paid which is subsequently defined and called the premium, therefore, for effecting a transaction of lease of immovable property, only three indispensable components are required to be fulfilled, i.e. the "lessor", "lessee", and the consideration is the "price paid" which is called premium.

21. In order to effectively decipher the document of lease, it is essential to perceive what consideration has been made known in the document of lease itself including its tenure. The sub-lease in question granted in the favour of petitioners is for a period 99 years which is in fact a lease in perpetuity and the lessor has clearly incorporated the consideration which is the occupancy value and or price paid by the sub-lessee to the lessor before execution of sub-lease in their favour.

22. It is clearly provided in the document that sub-lessee has paid a sum of Rs.20,000 being full occupancy value of the plot at the rate of Rs.40 per sq.yd and Rs.250 being one year rent in advance for the said plot of land which leads to a rational conclusion that the lessor has charged and sub-lessee has paid the consideration against the grant and execution of lease in accordance with section 105 of the Transfer of Property Act.

23. To further strengthen and reinforce the arguments, the learned counsel for the petitioner has also filed a photocopy of another indenture of lease issued by Karachi Development Authority in favour of one Syed Irfan Ali for the Commercial Plot No. SB/13, ad measuring 1325 sq.yds, situated at Gulistan-e-Johar, Karachi in which, the total occupancy value was calculated at Rs.26,69,500. This document was registered in the office of Sub-Registrar, Gulishan-a-Iqbal in the year 2008 and copy of Capital Value Tax challan shows a payment of Rs.53,500 which is equivalent to 2% of Rs.26,69,500 which was declared as occupancy value in the said indenture of lease.

24. The purpose of laying much emphasis on the indenture of lease issued by KDA for the aforesaid commercial plot was to show that in the similar circumstances, the occupancy value declared in the indenture of lease was accepted and acknowledged as it is for the purposes of the payment of Capital Value Tax without any objection from KDA or the Registration Authority.

25. None of the learned counsel cited any case-law on the point in question, we have also made extensive research but could not find out earlier precedent especially on the point in issue whether the occupancy value/premium recorded in the sub-lease will be treated as recorded value for purpose of levying CVT. However, we have found out only one order of Income Tax Appellate Tribunal reported in 2010 PTD (Trib.) 1046 in which the learned Tribunal discussed the matter and observed that assessee acquired right (to use for more than twenty years) in the leasehold plot acquired by the original lessee for the term of 99 years. Value of property was not recorded on original deed of assignment. While executing lease assignment in favour of assessee, value was recorded on sub-lease deed and Capital Value Tax @ 2% was paid. Assessing Officer charged Capital Value Tax. @ Rs.50 per sq. yd. on the ground that value of immovable property was not recorded. First Appellate Authority annulled the order with the observation that since value of plot had duly been recorded on which CVT was charged 2% of the recorded value, action of Taxation Officer to charge CVT 50 per Sq.yd. was contrary to express provisions of law. Property had duly been registered with Registrar Office and the value has also been recorded therein. Capital Value Tax had rightly been charged @ 2% on the recorded value of the property. Order of First Appellate Authority was upheld by the Appellate Tribunal and department appeal was dismissed by the Appellate Tribunal.

26. It is also a fact that in the document of sub-lease, only occupancy value/premium is required to be mentioned and not the sale consideration as in case of conveyance deed. The Stamp Act, 1899 also provides different criteria under Article 23 and Article 35 for levying the stamp duty on conveyance deed and indenture of lease. The bottom line of this discussion is that the document of lease in question undoubtedly endow with and imparted the recorded value on which the petitioners have already paid the Capital Value Tax at the rate of 2%, therefore, we have no hesitation to hold that the petitioners are not accountable to pay Capital Value Tax on their plot at the rate of Rs.50 per sq.yd of the landed area.

27. For the foregoing reasons, the petition is allowed to the extent that the demand raised by the respondent No. 2 vide his letter dated J4-7-2009 for the payment of additional amount of Rs.24,600 on account of deficit in Capital Value Tax is declared to have been raised and issued without any lawful authority and it has no legal effect. However, it is held that value for the purposes of levy of CVT will be the premium plus the ground rent to be paid for the entire tenure of lease period. The petitioners have only paid CVT on the premium/occupancy value and one year ground rent. As a result thereof, the respondent No.2 is directed to complete all requisite formalities of registration of sub-leases of the petitioners on further payment of 2% CVT on the amount of ground rent for the entire tenure of lease calculated on the basis of yearly rent mentioned in the indenture of sub-lease and after making payment, deliver the document of lease to the petitioners forthwith.

M.H./S-107/KPetition allowed.