1989 PLP (Trib (PTD)

S. 2(m) & 3-Wealth tax liability cannot be deducted as a debt owed in the same assessment year regarding which it has arisen--If such an amount is deducted from the amount of aggregate value of all the assets of the following year, there will be no difficulty at all as the amount of wealth tax liability would amount to debt owed by all 'means and could safely be added to other amounts of debts owed for the purposes of working out net wealth. C.W.T., Lahore v. Fauzia Mughes 1988 P .T D 629 fol. W.T.A. Nos 40 and 41/KB of 1984/85 and H.H. Setu v. C.W.T (1968) 69 I T R 664 distinguished. W.T.As. Nos. 1232 to 1237/KB of 1986-87 and C.W_T. v. Noor Bai 1988 P T D 677 ref. I.N. Pasha for Appellant. Yousuf Sharih, D.R. for Respondent. Date of hearing: 24th September, 1988. These three appeals are directed against the order of learned C.I.T.(A) recorded by him on 20th June, 1984, relating to assessment years 1979-80, 1980-81 and 1981-82 though the order is relating to assessment year 1982-83 as well. 2. Mr. I.N. Pasha, the learned counsel for the appellant, firstly contended that both the officers below fell in error in estimating the market value of the property in dispute on the basis of 10 times of G.A.R.V. According to him the first Proviso to sub-rule (3) of Rule 8 of the Wealth Tax Rules did not empower the W.T.O. to estimate the market value by multiplying 10 times the gross annual letting value of the property and he should have estimated the value on the basis of market price as laid down in sub-rule (3) of Rule 8 of the Wealth-tax Rules., Mr. Yousuf Sharih, the learned D.R., however, on the other hand, supported both the officers below. We have heard both of them. In our judgment sub-rule (3) of Rule 8 of the Wealth Tax Rules has accorded recognition to various modes of determining the market value of an immovable property, which include the rental method as well and it is this method which has been mentioned in 1st Proviso. In a recent decision of this Tribunal recorded in W.T.As. Nos. 1232 to 1237/KB of 1986-87 on 27th August, 1988, a Division Bench of this Tribunal after mentioning such modes has discussed this issue at some length. Here it would suffice to say that whatever be the mode of determining the market value of a property if the value arrived at by the W.T.O. exceeds the amount which is arrived at by multiplying ten times the gross annual rental value of that property, he must seek prior approval of C.B.R. We are of the view that sub-rule (3) of Rule 6 does not lay down any mode of determining the market value by itself `as it falls within the domain of civil law. In fact sub-rule (3) has merely enjoined upon the W.T.O. to estimate the market value, whatever be the mode of valuation, with due regard to the nature and size of the property, the amenities available and the price prevailing of similar property m the same locality or in the neighborhood. The Ist. Proviso has further enjoined upon him to seek the approval of Central Board of Revenue if the market value determined by him exceeds 10 times of the gross annual rental value irrespective of the mode adopted by him. Thus, we agree with Mr. I.N. Pasha that Ist Proviso to sub-rule (3) of Rule 8 of Wealth Tax Rules does not by itself empower the W.T.O. specifically to estimate the market value by multiplying 10 times the GA.R.V. there of yet we hold that he is competent to do so. Nevertheless we also think that the law has made it obligatory on him firstly to give due regard to the nature, size, amenities and market value of similar] property in the same locality while estimating the market value of the property and secondly if it is more than 10 times he must seek the approval of the C.B.R.1 irrespective of the mode adopted by him. 3. Mr. I.N. Pasha then argued that since the property was let out and since the rent restriction laws were in force, the W.T.O. should have kept into consideration this fact while estimating the market value. According to learned counsel since the W.T.O. neither disclosed his mind to the appellant as to what mode he was going to adopt for estimating the value nor called upon it to offer any evidence in support of its declared value, the order of both the officers below was not sustainable in law. We find force in this submission. We think that the. W.T.O. should have called upon the appellant to produce any evidence in support of its declared market value of the property. Similarly 'he should have also disclosed his mind to the appellant that he was going to estimate the market value by multiplying 10 times the G.A.R.V. so that the appellant could file any; objection if it so desired. Since it has not been done, we think that injustice has been caused to the appellant. It is common knowledge that the rent restrictions laws play very vital role in determining the market value of a property. Similarly, its condition and location are also important factors, to be considered. Had the appellant been given an opportunity, it might have perhaps adduced some evidence to show to the W.T.O. that the market value propose to be arrived at by him by multiplying 10 times the G.A.R.V. was very much excessive. We therefore, set aside the impugned order and send the matter back to the W.T.O.I to frame fresh assessment orders in each assessment year concerned in the light of discussion made above. 4. The next point Mr. I.N. Pasha argued is regarding deduction of the wealth-tax liability in current assessment year. He vehemently argued that in View of a decision of Surd High Court at Karachi reported as 1988 P T D 677, C.W.T. v. Messrs Noor Bai, both the officers below erred in not allowing it in each assessment year in which it allegedly arose. In this connection he also cited a case from Indian Supreme Court, which is reported as (1968) 69 I T R 664, H.H. Setu v. C.W.T. Mr. Yousuf Sharih, the learned D.R., however, argued that the wealth tax was not a debt as it was a statutory obligation. Alternatively he argued that in the light of Lahore High Court case reported as 1988 P T D 629 C.W.T., Lahore v. Fauzia Mughes, the wealth tax liability was not admissible during the current. Assessment year. We have heard both of them. As far as the main submission of Mr. Yousuf Sharih, the learned DR, is concerned, we find it to be wholly unfounded. In. the case of Fauzia Mughes (supra) which has been relied upon by him though for different purpose, this issue has been specifically dealt with in the following words:- "The learned counsel for the petitioner reverting back to the word 'debt' submitted that a debt is always a contractual obligation Whereas the duty to pay the income tax is a statutory liability. For a debt there must according to him, exist the relationship of a debtor and a creditor, which he pleaded, is not the position of the assessee and the State under the Income-tax Act. The contention has no merit. The connotation of the term 'debt' should not be restricted to such liabilities only which are being suggested by the learned counsel". Relying upon a Privy Council case reported as (1945) 13 ITR 285, Doorga Parsad v. Secretary of State, their Lordships further observed that it was not necessary that a debt should necessarily arise out of 'an agreement. According to their Lordships if there is an obligation on a person to refund certain money it would be called 'debt' irrespective of the fact how such obligation has been created. We, therefore, reject the main submission of Mr. Yousuf Sharih, the learned D.R. 5. However, as far as alternative submission of Mr. Yousaf Sharih is concerned, we find force in it. From perusal of the impugned order it appears that the learned C.I.T.(A) rejected the contention of the appellant by putting reliance on the case of Fauzia Mughes (Supra) which is a direct authority on the point in dispute and is still reigning the field. Their Lordships of Lahore High Court have disposed of the issue m the following words:- "No doubt, in the year under charge its deduction will not be permissible but when once that liability has accrued and debt for that year has become a 'debt owed' by the assessee then while computing the net assets of subsequent years, the deduction of this 'debt' will have to be made by them on the principle of debt owed or on the principle that by that debt the opening balance of the assets of the subsequent year automatically gets reduced." With due respect, this observation is based on, if we may say so, on correct and true interpretation of the concept of valuation date. However, Mr. Pasha has argued that the net wealth was to be determined on valuation date. According to him since section 3 was charging wealth tax on net wealth as it stands on its valuation date, therefore, the amount of wealth tax becomes 'debt owed' on the valuation date as net wealth could not be arrived 'at without deducting it. However, in a recent decision a Division Bench of this Tribunal explaining the concept of valuation date made the following observation:- "In order to illustrate our point we can say that if we determine the net wealth and thus tax liability of an assessee at 11-55 p.m. by deducing the aggregate value of the 'debt owed' from the aggregate value of all the assets, we will be leaving room for the argument that the assessee could have disposed of some of his assets in these five minutes in order to bring down the net wealth. The correct interpretation, therefore, would be that the valuation date would expire at the last fraction of second on the mid-night of 30th June and 1st July. Philosophically speaking it must be correct that the last fraction of second could not be conceived for the simple reason that the time is like a flowing stream of water. However, the end of one date or day and beginning of another is a logical necessity. However, a gap is also imaginary for the same reason between the end and a beginning. The date or day would, therefore, commence at the beginning of another date or day. Thus, the assessee would have the benefit of last fraction of second. The wealth tax liability, therefore, would be determined on the expiry of the last fraction of second of the night of the 30th June and beginning of 1st fraction of second of the night of 1st July. Consequently the argument that the wealth tax liability could be determined on the valuation, date does not appear to be logically correct." Thus, in the light of the passage reproduced above it appears that the expression 'on the valuation date' means on the valuation date till it expires. Reiterating our earlier decision we once again hold that we have to give last fraction of second to an assessee for working out his net wealth. Thus, it is obvious that if we place time till the last fraction of the second at the disposal of an assessee so that he could reduce the aggregate value of his assets, or increase his liabilities we will have to procrastinate the determination of net wealth which means the deduction n of all the debts owed including the wealth-tax liability from the aggregate value of all the assets. In our judgment if an assessee is given an opportunity till the last fraction of second to reduce his assets or increase his liabilities it would be more beneficial to him rather than to allow the wealth tax liability to be deducted on the last fraction of second in order to arrive at the net wealth. However, this does not seem to be the end of this controversy. 6. We can look at this issue from yet another angle. One may ask as to why the determination of net wealth at a particular point of time be not left to the option of an assessee so that the hair splitting arguments could be avoided. The question is quite pertinent and let us examines its implications also. 7. Now suppose an assessee decides to work out his net wealth at 12-30 p.m. of a valuation date. Further, suppose that the aggregate value of all his assets come to ten laces and all debts owed amount to five laces. Now if we deduct all the debts owed from the aggregate value of assets, we arrive at the figure of five laces, which would be the amount of net wealth. Now, when we have found out the amount of net wealth we can turn to the Schedule of the Wealth-tax Act so that we can find out the tax payable on it. Suppose it comes to five thousand. Thus, this amount of five thousand would become yet another debt owed and according to Mr. Pasha, the learned counsel for the appellant, it should be allowed as a deduction in the same assessment year. However, before proceeding further let us point out that before a wealth-tax liability is called debt owed, it should be crystallized and it can be crystallized only when net wealth is determined and the net wealth, in its turn, could be determined when the amount of all the debts owed are deducted from the amount of aggregate value of all the assets. Now reverting to the submission of Mr. Pasha one may ask as to, from which amount this `debt owed' of five thousand should be deducted. If it is said that it should be deducted from Rs.10 laces, it appears to be an impossibility for the simple reason that the amount of five thousand has been worked out on the basis of net wealth which was in its turn obtained by deducting the amount of all debts owed from the aggregate value of all the assets. In other words the net wealth can be obtained by deducting the amount of all the existing debt owed from the amount of aggregate value of all the existing assets. Since the wealth tax liability of five thousand was obtained on net wealth, it, therefore, cannot be said that it was an existing debt owed at the time of working out of the net wealth. Thus, the wealth tax liability which has been worked out on net wealth on the basis of deduction of all the debts owed cannot be treated as further amount of a debt owed and consequently cannot be deducted from Rs.10 laces which is the amount of aggregate value of all the assets. Now, it cannot be deducted from Rs.5 laces either, which is the value of net wealth. Section 2 (m) of the Wealth Tax Act allows deduction of all debts owed from the amount of aggregate value of all the assets. It does not permit deduction of a debt owed worked out on the basis of net wealth to be deducted from the net wealth itself. Similarly it cannot be added to Rs.5 laces which is the amount of all debts owed in our illustration so that the total of both could be deducted from the total amount of aggregate value of all the assets for the same reason, namely, that only those debts could be deducted which were existing at the time of working out of net wealth. From all this discussion it is, therefore, clear that whatever be the argument, the wealth tax liability cannot be deducted as "a debt owed to the same assessment year regarding which it has arisen. However, if we deduct this amount from the amount of aggregate value of all the assets of the following year, we' will face no difficulty at all as the amount of wealth tax liability would amount to a debt owed by all means and could safely, be added to other amounts of debts owed for the purposes of working out net wealth. We are, therefore, firmly of the view that the case of Fauzia Mughes (supra) has stated the law correctly and it has been rightly followed by this k Tribunal right from 1975. 9. Now as far as the case of Setu (supra) is concerned, surely it commands highest respect and has great persuasive value but for the reasons given above we, with due respect, follow the case of Fauzia Mughes (supra) which is more or less binding on us. 10. Now as far as the case of Noor Bai (supra) is concerned; we do not think that it supports Mr. Pasha at all. We have dealt with this argument of Mr. Pasha at some, length in a decision recorded by us in W.T.A. No. 40 and 41/KB of 1984 85 recorded on 18th September, 1988, which was also conducted by Mr. Pasha himself and for the sake of brevity, we confine ourselves to the observation that Noor Bai's case (supra) is an authority for the proposition that wealth tax liability like income tax liability amounts to a debt owed and should be deducted from the aggregate value of all the assets to order to work out net wealth. This submission of Mr. Pasha, therefore, also stands rejected. 11. In view of discussion made above all the three appeals stand disposed of to the extent and in the manner as indicated above. No other point has been pressed before us. M.B.A/555/T Order accordingly