COMMISSIONER OF INCOME TAX/WEALTH TAX VS Mst. ASMA JILANI, 2015 PTD-LAHORE-HIGH-COURT-LAHORE 2236 (2015)

Wealth Tax Act (XV of 1963)---

----S. 2(1)(5)(ii)---Registration Act (XVI of 1908), S. 17---Association of persons (AOP)---Transfer of property---Arbitration award/ agreement---Authorities did not accept arbitration award/agreement on the plea that the same had not conferred any ownership right on individuals/shareholders, unless the deed was registered under S. 17 of Registration Act, 1908---Plea raised by assessees was that the award was made rule of the Court, conferring them ownership right, therefore, registration was not required--- Validity---Authorities by their conduct of assessing as an AOP in previous years had accepted belonging of property to co-owners---When agreement for partition, based on an arbitration award/decree was implemented and respective portions of property were identifiably returned before authorities, it had no right under the provisions of Wealth Tax Act, 1963, to reject the same based on provisions of Registration Act, 1908---Question of law in appeal was vague and not representing any legal proposition, therefore, question was decided in affirmative and against authorities--- Appeal was dismissed in circumstances.

1998 PTD 2054; A.G. Simens's case 1991 SCC 773 and The Lungla (Syihet) Tea Co. Ltd., Sylhet v. Commissioner of Income Tax, Dacca Circle, Dacca 1970 SCMR 872 ref.

Muhammad Asad, Muhammad Ilyas Khan and Dr. Ishtiaq Ahmad Khan, Additional Commissioner Inland Revenue, LTU for Appellants.

Dr. Ilyas Zafar for Respondents.

Date of hearing: 2nd April, 2015.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall also decide W.T.As. Nos. 155, 156, 157 and 158 of 2002 for being directed against common order dated 27-4-2002 by erstwhile Income Tax Appellate Tribunal ("Appellate Tribunal").

2. Following common question of law is proposed in all the appeals:--

"Whether ITAT is justified to maintain that the right, title or interest to or in any immovable property is determinable in the eyes of law on the basis which is otherwise, of the one obtaining in revenue record in the form of registration?"

However, in W.T.A. No. 156 of 2002, two additional questions are proposed, which are reproduced hereunder:-

"(i) Whether on the facts and circumstances of the case the learned ITAT, Lahore is justified in holding that no wealth tax assessment in the status of an AOP can be made for the charge year 1997-98 under the Wealth Tax Act, 1963?

(ii) Whether omission and re-enactment of provision regarding an association of persons or a body of individuals as provided under section 2(1)(5)(ii) of the Wealth Tax Act, 1963 is prevalent during the relevant year?"

3. Appeals before the Appellate Tribunal were filed on a common grievance that assigning of status of AOP in relevant assessment years was not justified. Background of this case is that property in question measuring 8 kanals 7 marlas was transferred to Mrs. Sabiha Jillani through sale deed in 1980. A building was constructed in front portion of the said property jointly by said lady and her four children including the respondent assessee. Later, the co-owners decided to distribute the property, for which an arbitrator was appointed. The arbitrator gave his award on 1-1-1983, which was filed in Civil Court and a compromise decree was passed on 22-3-1983. By virtue of the decree respondent assessee became owner of 1/6th share of the property. On 10-6-1993 an agreement was arrived at between the co-owners for implementation of award/decree. Separate portions were earmarked and distributed accordingly. However, rented out portion, under rent agreement, remained in the domain of shareholders jointly till June, 2005.

Till assessment year 1993-94 the assessments were made in the status of an AOP. However, later the returns were filed by each co-owners separately for the relevant years. Assessing Officer assigned status of AOP to the extent of property in question, however, rest of the assets were assessed individually. In earlier round of litigation the case was remanded by Appellate Tribunal, however, the property was again assessed under the status of an AOP. This order was upheld by Commissioner (Appeals), against which appeals in question were filed.

4. After hearing both the parties at length, learned Appellate Tribunal observed that both the parties remained entangled in unnecessary arguments on interpretation of the provisions of "Registration Act, 1908" with reference to Section 17. The department interpreted Section 17 in its favour contending that arbitration award/ agreement did not confer any ownership right on the individuals/ shareholders while it was argued by assessee side that award had been made Rule of the Court, conferring them ownership right, therefore, registration was not required. The Appellate Tribunal noted that departmental stance was not harmonious with its action; assessment of the property under status of an AOP, was contrary to its stance that the land was not registered in name of the shareholders including the respondent/assessee; if departmental interpretation was accepted, the immovable property could be assessed only in name of Mrs. Sabiha Jillani. It was held that by accepting returns in status of an AOP, department had conceded ownership of the property in the names of shareholders/assessees. Relying on an earlier judgment by the Tribunal reported as (1998 PTD 2054), the Appellate Tribunal held that in order to create an AOP, volition on the part of constituent members was a necessary element; the moment a person becomes independent owner of an identifiable portion of the property, he cease to be co-owner. A judgment by August Supreme Court of Pakistan in A.G. Simens (1991 SCC 773) was also relied upon, wherein it is held that an agreement made between the two parties should not be doubted by a third party and that even Income Tax department cannot be allowed to dishonour or disregard a valid contract between two muslims; that tax planning is right of every assessee and tax avoidance is equally permissible.

The Appellate Tribunal further observed that department had not doubted the genuineness of documentation regarding partition of joint property. The arbitration award and consent decree was also not disputed. It was held that department was estopped to question the partition of admittedly owned property for only reason that partition agreement was not registered. However, in Appellate Tribunal's opinion, the co-owners of property including respondent assessee retained the status of an AOP to the extent of such properties which are rented out jointly. With these observations/findings the appeals were remanded to Assessing Officer in following words:--

"Having gone through the relevant provisions of law judgments and the arguments, we consider it more appropriate to set aside the case with the directions that after the agreement and registration with excise department wherever the petitioners have made separate individual agreements, the status of AOP shall not be assigned. The assessment shall be finalized in their individual hands under rule 8(3) of the Wealth Tax Rules. Those properties, which have still been rented out jointly even after agreement shall be assessed as an AOP till the respective owner agrees in an agreement mentioning his specific portion with the tenant. These findings are for all the year subject to separate specific order given hereafter for the year maintained therein."

5. Appellate Tribunal also observed that concept of AOP was not available in the Wealth Tax Act, 1963 ("Act of 1963") for the year 1997-98 as in charging section the words "Association of Persons or body of Individuals" were missing i.e., from 1-7-1996 to 30-6-1997. This concept was introduced by Finance Ordinance, 1980 but was withdrawn by Finance Act, 1996. For this reason also assessment framed for the year 1997-98, in the status of AOP, was cancelled.

6. Learned counsel for the appellant has supported the findings by Assessing Officer and Commissioner (Appeals) to contend that without registration of the partition deed, it could not have been relied upon for making assessments in the hands of individuals.

Learned counsel for the respondents has supported the decision by Appellate Tribunal and submits that case has been remanded to the Assessing Officer for making decision in accordance with law. Further submits that questions of law proposed in all the appeals are vague and are not arising out of the order of Appellate Tribunal.

7. Heard learned counsel for the parties, record perused.

8. We have examined the provisions of Wealth Tax Act, 1963 in light of the judgment by Appellate Tribunal, relevant part of section 2(16), being significant, is reproduced hereunder:--

"2. Definitions.--

(16) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than-

(i) ..

(ii) ..

(iii) where the right, title or interest to, or in any immovable property other than agricultural land, vests in more than one person, such persons shall, in respect of such property, be assessed as an association of persons and the value of such right, title or interest shall not be included in the net wealth of an individual provided that wealth tax is charged on such right, title or interest;"(emphasis supplied)

Examination of the above quoted provisions shows that it envisaged only those assets which belonged to assessee on the valuation date. The word "ownership" is consciously not used in this section for the word "belonging". Therefore, in our opinion the observations of the forums below on Section 17 of the Registration Act, 1908 are irrelevant. Clause (iii) to Section 2(16) was inserted through Finance Act, 1998 which postulated that in case right, title or interest, of more than one person, vested in an immovable property, such property was to be assessed under -the status of an "Association of Persons". The use of words "the right, title or interest to or in any immovable property" show that legislature has referred to an undivided immovable property. No inference can be drawn from the quoted provision that this clause empowers the department to brush aside an agreement for partition between the co-owners particularly after its implementation. Legislature's intention, for introducing concept of an AOP in wealth tax law, was to avoid hassle of identifying share of an individual in an undivided immovable property, for the purpose of charging wealth tax. It was not meant to charge higher rate of tax. If a jointly owned property is partitioned and share of each individual is undisputedly identifiable, it should have been included in net wealth of the individual and tax should have been charged accordingly.

Needless to say that department by his conduct of assessing as an AOP in previous years had accepted the belonging of property to the co-owners. When the agreement for partition, based on an arbitration award/decree was implemented and respective portions of the property were identifiably .returned before the department, it had no right under the provisions of the Act of 1963 to reject the same based on the provisions of Registration Act, 1908.

9. We agree with submission of learned counsel for the respondents that question of law in all the appeals is vague and not representing any legal proposition.

So far questions in W.T.A. No. 156 of 2002 are concerned, in our opinion answer to these questions is not necessary. Even if department's contention is accepted that a joint property could be assessed under the status of an AOP, it will not change the fate of decision by Appellate Tribunal. The Hon'ble Apex Court in The Lungla (Sylhet) Tea Co. Ltd., Sylhet v. Commissioner of Income Tax, Dacca Circle, Dacca (1970 SCMR 872) has held, "only substantial question of law going to the root of the case is required to be considered for opinion by the High Court". The question cannot be considered in advisory jurisdiction for the sake of academic decision.

We intend to couch the proposition of law, discussed ibid, by resettling the question of law in following words:-

"Whether Appellate Tribunal was justified to direct assessment of an identifiable portion of assets in individual's hand rather than assessing it under the status of an AOP?"

10. Our answer to the resettled question is in Affirmative i.e. against the applicant department. Answer to rest of the questions is declined.

Appeals are decided against the appellant department.

11. Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal Inland Revenue as per Section 27(5) of the Wealth Tax Act, 1963.

MH/C- 16/LOrder accordingly.