2011 PTD 1052

[Lahore High Court]

Before Ijaz-ul-Ahsan and Muhammad Farrukh Irfan Khan, JJ

KHALID MUHAMMAD KHAN

Versus

INCOME TAX/WEALTH TAX APPELLATE TRIBUNAL and 2 others

Income Tax Appeal Nos.19 to 24 of 1999 and 233 to 236 of 2002, decided on 23/12/2010.

Wealth Tax Act (XV of 1963)---

----Ss.2 (5), 3, 4 & 27---Assets---Reference to High Court---Purchase of agricultural land---Exemption in tax---Transfer against agreement to sell---Grievance of assessee was that he purchased agricultural land against agreement to sell which was for sale on profit and whole consideration amount was paid by him to sellers--Validity---According to agreement to sell in question, assessee had paid entire sale consideration and sellers had delivered possession of the property to assessee---Sellers had also executed general power of attorney in favour of assessee which was duly registered with concerned Sub-Registrar--On the basis of such documents, assessee transferred his agricultural land in question in favour of his minor son, which fact was neither denied nor disputed---Income Tax Appellate Tribunal was not justified in rejecting claim of ownership of agricultural land by assessee and treating the amount paid as advance payment for purchase of that land---In case it was found that property in question was in possession of the assessee, who had paid entire sale consideration and was in possession of a validly executed agreement of sale backed by a general power of attorney, the same would constitute a part of assessee's assets---Contention of authorities was that property in question was acquired for further sale on payment of management fee, which contention was neither substantiated nor supported by record---Position taken by assessee was not only supported by documentary evidence but also by relevant provisions of law and judgments of various Courts---Reference was decided in negative in circumstances.

M. Ghulam Muhammad v. Custodian of Evacuee Property, Lahore and others PLD 1966 (W.P.) Lah. 953; Holomal v. Ghulam Ali PLD 1997 Kar. 509; Mst. Rasheeda Begum and others v. Muhammad Yousaf and others 2002 SCMR 1089; Dost Muhammad and others v. Ghaus Muhammad through Legal Heirs and others 2004 SCMR 515; Muhammad Bashir v. Abdul Haruki 1991 CLC Note 53; Ch.Hakim Ali v. Sultan Khan and 3 others 2001 MLD 563; Commissioner of Wealth Tax v. S.M.T. Satyabihama Ganeriwala ITR 196 at page 401 and Madgul Udyog v. Commissioner of Income Tax ITR 1984 Page 484 ref.

Muhammad Iqbal Hashmi for Appellant.

Khadim Hussain Zahid for Respondent.

Date of hearing: 12th October, 2010.

JUDGMENT

IJAZ-UL-AHSAN J.---Through this Judgment we propose to decide I.T.As. Nos.20/99, 21/99, 22/99, 23/99, 24/99, 233/2002, 234/2002, 235/2002 and 236/2002 along with I.T.A. No.19/99, as common questions of law arise in all the appeals.

2. The appellant is a wealth tax assessee. He filed wealth tax return for assessment year 1994-1995 declaring net wealth at Rs.1,53,67,623. In the wealth tax return, advance for purchase of agricultural land was declared at Rs.1,55,98,625. Respondent No.1 issued a letter dated 21-2-1997 showing his intention for working out proper valuation of these lands although the same were not registered in the name of the appellant. The appellant revised his wealth tax return for the assessment year 1994-95 claiming exemption of agricultural land from wealth tax return. He submitted photocopy of Iqrarnama Bai including receipt showing that total payment had been made for purchase of agricultural land. Copies of general power of attorney executed by the sellers in favour of the appellant were also placed on record. The appellant took the position that after payment of the entire price of land the appellant had no right or claim on the amount paid as price of land, and that he was the owner of the agricultural land in question, for all intents and purposes.

3. Respondent No.3 did not consider the revised wealth tax return and completed the assessment treating the price paid for purchase of land as advance and did not allow exemption on account of purchase of agricultural land. The relevant portion of the order passed by respondent No.3 is reproduced below:-

"(7) Advance for the purchase of land.

The assessee has shown advances for the purchase of land as under:-

1994-95

Rs.1,61,98,625

1995-96

Rs.1,55,98,625

1996-97

Rs.1,55,98,625

In support of the advances of the land the assessee has furnished copies of. Iqrar Namas' which are available on record. These advances were also shown in the assessment year 1993-94 and was assessed as declared. A specific notice was issued to the assessee vide this office letter No.495 dated 21-2-1997 showing intention of this office for making proper valuation of these lands although the same were not registered in the name of the assessee. In reply to the said notice the assess has revised his wealth tax returns for the assessment year 1994-95 to 1996-97 on the plea that these advances were in fact declared on account of purchase of agriculture land and as such excluded the value of the advances from the revised return. It may be mentioned here that the copies of 'Iqrar Namas' as well as copies of Fard Jama Bandi of the lands furnished to this office show that these lands have not been transferred in the name of the assessee so far. As such the filing of revised wealth tax return have become immaterial and are ignored for wealth tax assessment purposes. It may further be pointed out that in the letter for revising the returns of income the assessee has again declared that these are advances paid for agricultural land. Since these are advances, therefore, the declared value of advances are adopted as such as declared in the original wealth tax returns."

4. The appellant filed an appeal before respondent No.2 who confirmed the order of respondent No.3 vide order dated 30-8-1997. The relevant part of the order passed by respondent No.2 is reproduced below:--

"Advance for the purchase of land

The appellant declared following advances for purchase of land:--

1994-95

Rs.16,198,625

1995-96

Rs.15,598,625

1996-97

Rs.15,598,625

These advances were also declared and assessed for the year 1993-94 and have been assessed accordingly for the years under appeal. The attending A.R. pleaded that the amounts declared are related to agricultural land which has been claimed as exempt in the revised returns of wealth after being confronted through specific notice of the Assessing Officer vide No.495 date 21-2-1997 showing the intention of proper valuation of this land. The A.R. argued that the valuation of this agricultural land should have been made on the basis of PIUS. The concerned Assessing Officer Mr.Faqir Hussain was also called in this office and matter was discussed with him in detail. The assessing officer referred to notice under section 16(3) vide No.495 dated 21-5-1997 and informed that this notice was meant for acquiring the status quo of the said land but subsequently as the lands were still not transferred in the name of the appellant therefore, these advances were assessed in the head of tax. The Assessing Officer informed that there was no rationale in tiling revised return of wealth in the prevailing circumstances. Perusal of assessment order indicates that the assessing officer has discussed these facts iii detail in the body of assessment order. The contention of the learned A.R. on this point is not valid and cannot be accepted on the ground that agricultural land has not been transferred in the name of the appellant. The advances paid and declared in the original wealth tax return have rightly been assessed by the Assessing Officer. No interference is required on this point."

5. A second appeal was preferred before respondent No.1 who affirmed the assessment order on legal as well as factual grounds and dismissed the appeal vide order dated 12-11-1998. In deciding the appeal, respondent No.1 observed as follows:

"We have gone through the case law and find the same distinguishable from the facts of the case before us. In the case before us, the assessee did not acquire the land for the purposes of ownership but paid the money for management and sale of profits etc. In return for the advance paid to the owners of land."

6. The appellant has filed the present appeal and raised the following questions:--

(a) Whether on the facts and in the circumstances of the case, Income Tax/Wealth Tax Appellate Tribunal was justified to refuse the exemption of agricultural land after coining to the conclusion that the agricultural land was acquired by the appellant for sale on profit?

(b) Whether on the facts and in circumstances of the case Income-tax/Wealth-tax Appellate Tribunal was justified in not considering the effect of receipt wherein full payment of the said land has been acknowledged by both the parties i.e. seller and the purchaser?

(c) Whether on the facts and in the circumstances of the case Income-tax/Wealth-tax Appellate Tribunal was justified in assessing an amount in the hands of the appellant whereas appellant under the facts and circumstances of the case would never be able to get thisamount back in his hands from the party to whom it was paid. The appellant being no more owner of the amount, whether the Income-tax Appellate Tribunal was justified to treat the amount belonging to appellant and holding as assessable for purposes of wealth tax?"

7. The learned counsel for the appellant has referred to section 3 of the Wealth Tax Act to submit that the said section is a charging provision and authorizes the department to charge wealth tax on "net wealth". Referring to section 4, the submits that net wealth includes certain assets, which have been defined in the said section. Referring to section 4(5), the learned counsel submits that the value of any assets transferred otherwise than under an irrevocable transfer is liable to be included in computing the net wealth of the transferor. The learned counsel argues that a transfer that is irrevocable by the transferor is an asset of the transferee. In this regard, he has also referred to the explanation to section 4 to argue that the expression "transfer" includes any disposition, trust, covenant, agreement or arrangement. He further submits that subsequent events are material and can be looked into to justify the nature of the transaction. The learned counsel has placed on record the assessment order issued by the Assistant Commission, Income Tax/Wealth Tax Circle 29, Faisalabad on .11-6-2001. In para. 6 of the said order advance for purchase of die land has been elaborately discussed, which clearly refers to advance tax paid for agricultural land amounting to Rs.8.5 million and the land so acquired having been transferred to the minor son of the assessee. It appears that the land was purchased between 1994 and the date of the assessment order through a power of attorney which was backed by an agreement to sell. The entire sale consideration had been received by the transferor, which brought the transaction within the- ambit of section 4(5) of the Wealth Tax Act. The land in question was subsequently transferred to the minor son of the assessee.

8. It is pointed out that the money paid by way of consideration for the land purchased was paid to the transferor and the right of the assessee on the said money came to an end. Since the money no longer belonged to the assessee, it could not have been included in his assets. In this regard reference is made to the definition of assets as given in section 2(5) of the Wealth Tax Act. He points out that an asset means an asset belonging to the assessee. In view of the fact that the money had already been paid, it did not fall within the definition of an asset' of assessee and therefore, could not constitute a part of his wealth for the purpose of calculation of wealth tax. The learned counsel also refers to the order passed by the Income Tax Appellate Tribunal Lahore Bench Lahore on 12-11-1998 to submit that the fact of acquisition of the agricultural land stood admitted insofar as it was observed by the learned tribunal as follows:--

"We have gone through the case law and find the same distinguishable from the facts of the case before us. In the case before us the assessee did not acquire the land for the purpose of ownership but paid the money for management and sale on profits etc, in return for the advance paid to the owners of the land."

9. The learned counsel submits that while admitting that the asset was not transferred in favour of the assessee, the learned Tribunal opined that the property had been acquired for the purpose of further sale. Be that as it may, learned counsel submits that the acquisition and payment of money stood admitted and in case the property in question was in possession of the assessee and had not been sold, it would constitute part of his assets.

10. The learned counsel for the respondents further submits that the assessee filed his wealth tax return for the year 1993-94. In the said return he claimed to have paid certain sum of money by way of advance for purchase of an immoveable property in the year 1994-95. The assessing authority issued a notice under section 16(3) of the Wealth Tax Act, 1963 calling upon the appellant to disclose the status of the aforesaid arrangement. On the basis of the response tiled by the assessee and the documents examined by the assessing authority it came to the conclusion that the land in question has not been transferred in favour of the appellant. Consequently, the appellant revised the wealth tax return claiming ownership of the innnoveable property on the basis of an agreement to sell and general power of attorney.

11. It is pointed out by the learned counsel for the respondent that the Assessing Officer did not agree with the interpretation adopted by the assessee. Consequently, he rejected the revised return and assessed the sum paid as advance as part of the wealth of the appellant on the basis of the fact that name of the appellant did not find mention in the Fard Malkiat and Jamabandi of the relevant property. The assessee filed an appeal before the Commissioner Income Tax (Appeals) which was dismissed. The said order of dismissal was assailed before the learned Income Tax Appellate Tribunal Lahore Bench Lahore which has also been dismissed through the impugned order.

12. The learned counsel for the respondent submits that in coming to their conclusion that the agreement to sell did not' confer any right of ownership, the learned subordinate functionaries relied on the case of M.Ghulam Muhammad v. Custodian of Evacuee Property, Lahore and others (PLD 1966 (W.P.) Lahore 953) in which it has been held that agreement to sell does not confer any right of ownership. The learned counsel has also relied on Holornal v. Ghulam Ali (PLD 1997 Karachi 509), Mst. Rasheeda Begum and others v. Muhammad Yousaf and others (2002 SCMR 1089), Dost Muhammad and others v. Ghaus Muhammad through Legal Heirs and others (2004 SCMR 515) and Muhammad Bashir v. Abdul Hamid (1991 CLC Note 53). The learned counsel for the respondents has argued that orders passed by the learned subordinate functionaries do not suffer from any illegality.

13. Arguments heard, record perused.

14. Section 3 of the Wealth Tax Act is a charging provision and authorizes the department to charge the wealth tax on "net wealth". Section 4 provides that net wealth includes certain assets. These have been defined in the said section. Section 4(5), stipulates that the value of any assets transferred otherwise than under an irrevocable transfer is liable to be included in computing the net wealth of the transferor. A transfer that is irrevocable by the transferor can be termed asset of the transferee. In this regard the explanation to section 4 provides that the expression "transfer" includes any disposition, trust, covenant, agreement or arrangement. We have gone through the assessment order issued by the Assistant Commissioner, Income Tax/Wealth Tax Circle 29, Faisalabad on 11-6-2001. In pars 6 of the said order advance for purchase of the land has been elaborately discussed, which clearly refers to advance tax paid for agricultural land amounting to Rs.8.5 million and the land so acquired having been transferred to the minor son of the assessee. It appears that the land was purchased between 1994 and the date of the assessment order through a power of attorney which was backed by an agreement to sell. The entire sale consideration had been received by the transferor, which brought the entire transaction within the ambit of section 4(5) of the Wealth Tax Act.

15. The money paid by way of consideration for the land purchased was paid to the transferor and the right of the assessee on the said money came to an end. Since the money no longer belonged to the assessee, it could not have been included in his assets. In this regard reference is made to the definition of assets as given in section 2(5) of the Wealth Tax Act. An asset means an asset belonging to the assessee. In view of the fact that the money had already been paid, it did not fall within the definition of an asset of assessee and therefore, could not constitute a part of his wealth for the purpose of calculation of wealth tax. The learned counsel also refers to the order passed by the Income Tax Appellate Tribunal Lahore Bench Lahore on 12-11-1998 wherein the fact of acquisition of the agricultural land stood admitted insofar as it was observed by the learned tribunal as follows:

"We have gone through the case-law and find the same distinguishable from the facts of the case before us. In the case before us the assessee did not acquire the land for the purpose of ownership but paid the money for management and sale on profits etc, in return for the advance paid to the owners of the land"

16. While admitting that the assessee had acquired the land, the learned Tribunal opined that the same had been acquired for the purpose of further sale. Notwithstanding the purpose for which it was acquired and despite complete absence of material on the record to support the conclusion of the Tribunal, acquisition of the land and payment of money stood admitted and in case the property in question was in possession of the assessee and had not been sold, it would constitute part of his assets.

17. In view of the fact that the entire sale consideration had been paid to the transferee who had executed an agreement to sell backed by a general power of attorney, the right of the assessee on the said money came to an end. Since the money no longer belonged to the assessee, it could not logically be-concluded that it constituted a part of his assets. An asset means an asset belonging to the assessee. Admittedly the money had already been paid by way of sale consideration for purchase of agricultural land and could not be termed as an asset of the appellant for the purpose of calculation of wealth tax.

18. Adverting to the judgments relied upon by the Income Tax Appellate Tribunal, we find that the said judgments relate to a different set of facts and circumstances and are neither relevant nor applicable to the facts and circumstances of this case. The fact that formed the basis of findings of the Income Tax Appellate Tribunal was the absence of a registered document of title in favour of the appellant. This led them to hold that the agricultural and in question was not an asset of the appellant.

In Dost Muhammad and others v. Ghaus Muhammad and others (2004 SCMR 515), the honourable Supreme Court of Pakistan held as follows:-

(5) Learned counsel for the petitioners submitted that Hafiz Muhammad Hussain by way of family settlement could not orally transfer the land to his heirs from the two wives except. through a document which should have been registered under the Registration Act. When questioned, he admitted that the land in dispute is agricultural and is not situated within the limits of Municipal Committee or Town Committee and the provisions of Transfer of Property Act requiring sale of immovable property of the value of Rs.100 to be made through written sale-deed duly registered had not been made applicable to such areas in Punjab which are not within the municipal limits regarding disposal of agricultural land, therefore, disposal of the same by way of family settlement by Hafiz Muhammad Hussain was not open to any legal objection.".

In Ch.Hakim Ali v. Sultan Khan and three others (2001 MLD 563), this Court dealing with questions of sale of agricultural property situated in rural areas came to the following conclusion:--

(4) I have considered the submissions made by the learned counsel for the parties. The contention of the learned counsel for the appellant that it was only an agreement to sell and no right was created in favour of respondent No. 1 has no merit. The relevant covenant in Exh.D.1 is reproduced here under:--

(5) A perusal of the aforesaid covenant unequivocally establishes that the transaction was a perfected sale and merely because the promised mutation was not entered and attested, it did not dilute its effect as a sale. Reference may be made to Abdul Aziz and others v. Deputy Commissioner/Collector Rahimyar Khan and others (PLD 1981 Lahore 457). In the said case part payment had been made and possession delivered in consequence of an agreement, it was held that it amounted to sale. In this case, the entire sale consideration had been paid by respondent No.1 who was already in possession of the land in dispute. Nothing else was required to perfect the sale."

In the case of Commissioner of Wealth Tax v. S.M.T. Satyabihama Ganeriwala (ITR 196 at page 401) the Calcutta High Court held that the assessee was the owner of a flat, having paid full consideration and obtained possession although no deed of conveyance was drawn up. The same High Court in the case reported as Madgul Udyog v. Commissioner of Income Tax (ITR 1984 page 484) held as follows:--

"The term ownership is not merely a word of technical legal meaning, but should be interpreted in its broadest possible meaning it consists of a bundle of rights. What rights would constitute ownership in a given case, would depend bn the context in which it is used. Broadly, ownership rests in one who has dominion over the property which is the subject of ownership."

It is evident from a perusal of the agreements to sell that the' appellant has paid the entire sale consideration. The sellers have delivered possession of the property to the appellant. They have also executed general powers of attorney in his favour which have been duly registered with the concerned Sub-Registrars. It appears that on the basis of the said documents the appellant has transferred his agricultural land in question in favour of his minor son, which fact is neither denied nor disputed.

In view of the legal position discussed above and the facts and circumstances of the case, we are of the opinion that the Income Tax Appellate Tribunal was not justified in rejecting the claim of ownership of agricultural land by the appellant and treating the amount paid as advance payment for purchase of the said land. As a necessary corollary, in case it was found that the property in question was in possession of the assessee, who had paid the entire sale consideration and was iii possession of a validly executed agreement to sale backed by a general power of attorney, the same would constitute a part of the appellant's assets.

19. Even otherwise and in addition to what has been stated above, section 4(5) of the Wealth Tax Act, 1963, provides as follows:--

"The value of any assets transferred otherwise than under an irrevocable transfer shall be liable to be included in computing the net wealth of the transferor."

The aforesaid provision is clear insofar as its meaning is concerned. However, interestingly enough, the said provision is followed by an explanation in the following items:--

"For the purposes of this section the expression "transfer" includes any disposition, trust, covenant, agreement or arrangement."

The aforesaid explanation makes it abundantly clear that the transfer as visualized in section 4 includes agreement or arrangement relating to transfer of property.

20. Confronted with this situation, the learned counsel for the respondents has not been able to convince us that the aforesaid explanation has any meaning other than what it expressly provides, i.e., transfer includes an agreement or arrangement. It is not the case of the department that there was no agreement or that no consideration was paid. Their stance was that the property in question had been acquired for further sale on payment of management fee. This stance is neither substantiated nor supported by the record. As opposed to that the position taken by the assessee is not only supported by documentary evidence but also by relevant provisions of law and judgments of various courts discussed above. For foregoing reasons, we answer the questions referred to us in negative.

21. The reference are decided accordingly.

M.H./K-6/LOrder accordingly.