COMMISSIONER OF WEALTH TAX VS Dr. Syed IMTIAZ ALI, 2013 PTD-LAHORE-HIGH-COURT-LAHORE 2121 (2012)

(a) Wealth Tax Act ( XV of 1963)---

----Ss. 2(5)(16), 3 & 7---Wealth Tax Rules, 1963, R. 8(3)---CBR Circular No.7 of 1994, dated 10-7-1994---CBR Circular No.11 of 1994 dated 17-7-1994---Property in form of building---Determination of value of such property not as a composite unit, but in two parts i.e. its "constructed part" and " land part" separately on basis of CBR's Circular No. 7 of 1994, dated 10-7-1994 and Circular No. 11 of 1994, dated 17-7-1994---Validity---Word "assets" as defined in S. 2(5) of Wealth Tax Act, 1963 would include such property, which would be taken as a composite unit for valuation purposes---Prevalent market value of such property could not be determined on basis of its land and constructed building separately---Value of a building would be determined on basis of its annual rental value, and that of an open plot on basis of its value specified by Collector of District---Circular issued by Central Board of Revenue could not control meanings of an Act or Rules made thereunder---Both such Circulars could not be relied upon for being contrary to provisions of Wealth Tax Act, 1963 and R. 8(3) of Wealth Tax Rules, 1963---High Court set aside impugned order of Assessing Officer in circumstances.

Saleem Haji Rehmatullah Dada, Karachi v. Commissioner of Income Tax, Companies-V, Karachi 2003 PTD 593 rel.

(b) Words and phrases---

----"Property"---Definition stated.

Commissioner of Income Tax/Wealth Tax Sialkot v. Muhammad Siddique 2003 PTD 984 ref.

(c) Interpretation of statutes---

----Circulars issued by Federal Board of Revenue - Effect---Such circulars could not control meanings of Act and Rules made thereunder.

Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others 1993 SCMR 1232 rel.

Qazi Ghulam Dastgir for Appellant.

Hafiz Muhammad Idrees for Respondent.

Date of hearing: 13th November, 2012.

JUDGMENT

MUHAMMAD FARRUKH IRFAN KHAN, J.---This judgment will decide Tax Appeals Nos. 245 to 250, 278 to 281, 132, 192, 193 and 196 to 198 of 2000 as they raise the following common question oflaw:--

"Whether on the facts and circumstances of the case, the ITAT was justified to hold that separate valuation of land and building is in violation of Rule 8(3) of the Wealth Tax Rules, 1963?"

2.It has been argued on behalf of the appellant/Commissioner of Wealth Tax, Rawalpindi that the provisions of Rule 8(3) of the Wealth Tax Rules, 1963 (hereinafter referred to as "Rules") do not require valuation of lands and buildings together and that CBR's Circular No.7 dated 10-7-1994 and Circular No.11 dated 17-7-1994 provide the method as to how valuation is to be made. Therefore, keeping in view the guiding principles of the said Circulars, valuation was correctly made by the Assistant Commissioner of Income Tax and Wealth Tax, Circle-3, Rawalpindi, while the Commissioner of the Income Tax and Wealth Tax (Appeals), Rawalpindi and the Income Tax Appellate Tribunal, Islamabad Bench, Islamabad, (ITAT) were not justified in setting aside the orders of the authority below directing the Assessing Officer to strictly follow the provisions of sub-rule (3) of Rule 8 of the Rules.

3.On behalf of the respondent/assessee it has been pleaded that the Assessing Officer was not at all justified in rejecting the declared value of the property and computing the same at a highly excessive rate treating the land and the superstructure thereon separately which is contrary to Rule 8(3) of the Rules; that the Assessing Officer valued the property pursuant to CBR's Circulars Nos.7 and 11 of 1994 on the basis of rate fixed by the Deputy Commissioner for charging stamp duty; that separate valuation of land and the superstructure/building thereon by applying the prevailing rate of construction, is contrary to law and the mode provided in Rule 8(3) of the Rules. Reliance was placed on cases reported as Commissioner of Income Tax/Wealth Tax, Sialkot v. Muhammad Siddique2003 PTD 984 and Saleem Haji Rehmatullah Dada, Karachi v. Commissioner of Income Tax, Companies-V, Karachi 2003 PTD 593.

4.We have heard the learned counsel for the parties and have perused the record.

5.In order to assess the scope of Rule 8(3) of the Rules, it is important to first review the scheme of the Wealth Tax Act, 1963 ("Act"). Section 3 of the Act provides that there shall be charged for every financial year wealth tax in respect of the net wealth or assetson the corresponding valuation date. Section 2(16) defines "net wealth" to mean the aggregate value of all the "assets" of the assessee. Section 2(5) defines "assets" to include "property" of every description including movable or immovable subject to certain exceptions. Section 7 of the Act provides that value of any asset shall be estimated in accordance with the Rules made under section 46 of the Act. Section 7A of the Act requires the Deputy Commissioner to require the valuer to determine the value of any "property". Rule 8(1) of the Rules provides that the value of any asset be estimated to be the price, which, in the opinion of the Deputy Commissioner, it would fetch if sold in the open market on the valuation date. Rule 8(3) provides for valuation in cases of "lands" and "buildings" and states that in valuing the lands and buildings, due regard has to be given to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighbourhood of the said locality.

6.The term "property" employed by the Act to explain the meaning of "assets" means assets as a composite unit for the purposes of valuation. Therefore, an asset comprising land with constructed building is considered as one composite unit for the purposes of valuation and referred to as "property". The mode and manner of valuation rests on the price of the "property" prevalent in the open market which clearly means that the "property" is being taken as a composite unit, as prevalent market price for a constructed building cannot be on the basis of land and constructed building separately, hence diminishing the independent status of land and building and treating them as a composite unit for the purposes of valuation. Rule 8(3) infact provides the perfect answer, where valuation of a building is on the basis of annual rental value and in case of empty plot of land on the value specified by the Collector of the District. Even Form A laying down the format of the Return under section 14 of the Act in respect of net wealth comprising non-agricultural assets describes immovable property as "open plots, houses, apartments, commercialbuildings,underconstructionproperties, etc.".Theabove supports the composite/nature of the asset for the purposes of valuation.

7.Additionally, the denomination "property" has been used to qualify "lands" and "buildings". "Property" has a number of meanings assigned to it, however, according to Chamber's 21st Century Dictionary 1999 Edition it, inter alia, means "possessions collectively", "a land or real estate", therefore, keeping in mind these meanings the use of term "buildings" in sub-rule (3) above is not implied to signify that the constructed part or the superstructure would be taken separately from the land upon which it stands. Therefore, while determining the value of a "property" which is in the form of a building it would be fallacious to severe it in two parts i.e., "a constructed part" and "a land part" and make separate valuations of each part.

8.The CBR's Circular No.7 of 1994 dated 10-7-1994 and Circular No.11 of 1994 dated 17-7-1994 provide for separate valuation of land and building. It is settled law that Circulars issued by the FBR cannot control the meaning of the Act or the Rules thereunder. Reliance is placed on Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232). The language of the Act and the Rules is unambiguous and obvious. The Circulars mentioned above do not conform to with the Act or the Rules, hence cannot be relied upon.

9.For the above reasons, we are not in agreement with the impugned order of the Assessing Officer and fully support the view taken by the learned Income Tax Appellate Tribunal, as well as, the Commissioner of Income Tax and Wealth Tax (Appeals), Rawalpindi. In view of the above, the question of law raised in this reference is answered in the affirmative.

10.The office shall dispatch a copy of this judgment, under the seal of the Court and the signature of the Registrar, to the learned Income Tax Appellate Tribunal in terms of section 27(5) of the Act.

SAK/C-15/LAnswer in negative.