2005 PLP (Trib (PTD)

Property No.SW‑92‑R‑20 Mela Ram Road, Lahore has been valued in the light of value adopted and confirmed by CIT (Appeals) and ITAT at Rs.70,00,

000. The value of plot at Shadi Pura, Lahore has also been rightly adopted at Rs.3,11,

111. Property at Al‑Minar Market O/s Lohari Gate Lahore has not been declared in the wealth tax return. Its value adopted at Rs.3,50,00,000 on the basis of valuation made by the ABL of Pakistan at Rs.4,00,00,000 which has been reduced by the CIT(Appeals) to Rs.3,50,00,000 and subsequently confirmed by the ITAT vide above cited wealth tax appellate order at 8.3,50,00,000 is confirmed. Capital has simply been adopted at Rs.10,00,

000. Other assets have been taken as declared at Rs.30,00,000, Suzuki Motor Car has been accepted at Rs.3,96,

800. Hypothecated stock has rightly been adopted at Rs.4,40,36,000 in the absence of any information submitted by the appellant in the form of statement of affairs/balance sheet as on 30‑6‑1998. Liabilities were claimed at Rs.3,05,996 payable to City Bank Ltd. and at Rs.299,18,000 to ABL of Pakistan. The total value of liabilities has been allowed at Rs.3,02,23,

966. The Assessing Officer though accepted the plea of the appellant that such liabilities are against the mortgage of properties and should be allowed in terms of Rule 8(4) of Wealth Tax Rules but he has not properly appreciated that under Rule 8(4), the value of properties simple mortgage is to be determined as under:‑‑ "Mortgaged property. (a) Simple mortgage. The value of property subject to a simple mortgage shall, for purposes of making an assessment on the mortgage or to Wealth, be taken as its market value (as if it were free of all encumbrances) as reduced by the amount of such encumbrances". The Assessing Officer is directed to adopt the value of property as per its market value as if were free of all encumbrances and then reduce by the amount of such encumbrance. The value of properties, however, be adopted as confirmed by the learned ITAT as per above cited WTA No. pertains to assessment year, 1999‑2000. The plea of the appellant that exemption to the shop at Al‑Minar Market in terms of clause 12(2) of Para. 1 to Second Schedule of the Wealth Tax Act, 1963 be allowed is misconceived and without any basis. The appellant has neither declared the said property in the wealth tax return nor has claimed any exemption. It is also pertinent to point out that the said property was constructed on 15 Marla plot comprising of three storeys. The value of which has already been confirmed by the learned ITAT vide above cited wealth tax appellate order at Rs.3,50,00,

000. The valuation of the said property is, therefore, confirmed". Mr. Shahbaz Butt, Advocate has appeared on behalf of the appellant and has argued the case at length. He has contended that the original assessment was completed by the Assessing Officer on the basis of original, as well as revised returns of wealth filed by the assessee and was also rectified under section 35 by the Assessing Officer accepting the plea of the assessee regarding value of hypothecated stock. He has contended' that the ACWT in this case issued notice on 23‑4‑2001 under section 17 that during the proceedings for the assessment year, 1999‑2000 information was received with respect to the stock in the possession of the present assessee as on 15‑6‑1998 valuing Rs.4,44,38,

000. He has contended, that it was specifically responded to the notice that the stocks and other movable assets are valued in terms of Rule 8(1) of the Wealth Tax Rules, 1963, the immovable properties mortgaged by the banks are to be valued in terms of Rule 8(4) and the valuation is to be made in the wealth tax matter on the relevant valuation date. But according to him neither the Assessing Officer nor the CWT(A) has accepted his above said submissions. He has submitted that fair market value for the purposes of movable properties as defined under the law is 'the price, which such asset may reasonably fetch if sold in the open market but all this is on a relevant valuation date. He has argued that it is correct that stocks on 15‑6‑1998 have been declared before the bank at Rs.44.438‑million but according to him, the question of immense importance is that what were the stocks available on the relevant valuation date? According to him, it gives further rise to the question that whether an Assessing Officer under the Wealth Act has the jurisdiction or power to enter into the premises that if stock on prior date Was so made, the stock on the valuation date would be so made. He has contended that in wealth tax proceedings, the Assessing Officer is not vested with any said power as to presume on the basis of self devoiced methods that because of holding stocks on a prior date, the assessee must be holding stocks valuing reached figures on the basis of devoiced method. According to him, only power vested is to valuate the declared stocks in terms of fair market value as the prior or subsequent dates in a wealth tax assessment are not relevant for the purposes of valuation. He has contended that the officers below have not considered that the stock on a particular date does not represent the capital only but it includes so many other things like creditors and other liabilities which have been ignored. He has pleaded that the treatment meted out by the officers below is based on conjectures and surmises, as there was not any definite information available. Learned counsel has also drawn our attention to the definition of the "capital asset" as provided in subsection (12) of section 2 of the Repealed Income Tax Ordinance, 1979. He has argued that in view of that definition, the value of stock cannot be made basis of the assessment for wealth tax. He has submitted that the statement showing the value of stock as on 15‑6‑1998 as filed before the Bank was in order to obtain higher loan, which has been linked with the balance sheet for the period ending 31‑12‑1999 filed with the bank. According to him, the dragging exercise applied for arriving at the stock position on a particular date i.e. 30‑6‑1998 is a noval device which is not provided in the statute and is also inconsistent with the accounting principles. He has submitted that these two statements were filed on the sweet will of the banking company and were got prepared through the bank official just to fulfil their requirement. Regarding properties situated at Mela Ram Road and Al‑Minar Market outside, Lohari Gate, Lahore the learned counsel has submitted that these properties are mortgaged with the bank and value thereof is to be determined in terms of Rule 8(4) which specifically hold that value of mortgaged properties has to be determined being the fair market value as fixed through encumbrances thereon. He has contended that a value determined by banks for the purposes of collateral is irrelevant, as the basic determined factor is capitalized GALV as defined under proviso to Rule 8(3) which is annual rental value which a property may reasonably fetch if let out. He has in this respect placed reliance on the decisions of this Tribunal reported as under:‑‑ 1992 PTD 739, 1990 PTD (Trib.) 1069 and (2000) 82 Tax

282. On the other hand, Mrs. Dr. Samra Ashraf appeared on behalf of the department and has contended that the action under section 17 has rightly been confirmed by the learned CWT(A) as there was a definite information in possession of the Assessing Officer regarding hypothecated stock as on 15‑6‑1998 and the ACWT has reason to believe that same stock has been concealed on the valuation date on which total business capital as per original returns was declared at Rs.1‑crore and bank liability was declared at Rs.3,05,966 only. According to him even in the revised return, the total capital was declared at Rs. 1.00‑million while the bank liability was claimed at Rs.2,99,18,

000. She is, therefore, supporting the action under section 17 being justified. Regarding the directions of the learned CWT(A) for determination of encumbrances on the property in context of Rule 8 (4), the learned DR is of the view that in fact it was not needed, as all liabilities towards ABL amounting to Rs.2,99,18,000 have already been allowed to the assessee in order under section 16(3)/17 wherein gross wealth was determined at Rs.9,07,43,911 and after allowing liabilities amounting to Rs.3,05,966 in respect of City Bank and Rs.2,99,18,000 in respect of ABL and in this way, net wealth was determined at Rs.6,05,19,

945. She has contended that the assessee cannot claim to allow these encumbrances twice, firstly against the value of the property and then against the gross wealth assessed. According to learned D.R., the encumbrances on bank loan is not merely against the property but also against hypothecated stock and foreign currency account of the assessee, therefore, the Assessing Officer has correctly, allowed all financial liabilities/encumbrances against the gross wealth. She has argued that the properties have been correctly assessed at market value as determined by the bank and confirmed by this Tribunal in assessment year, 1999‑2000. She is of the view that no prejudice has been caused to the assessee as the value of the property has been correctly determined. Regarding shop at Al‑Minor Market, Lahore, Mrs. Dr. Samra Ashraf has submitted that the shop was undeclared in the original return and even in the revised return. She has contended that its claim of self- occupancy was never before the Assessing Officer nor was it ever investigated. According to her, therefore, such claim cannot be lodged at appellate stage and can only be claimed at the original assessment stage that too if the property was declared suo moto and was not concealed due to established law that he who seeks justice must come with clean hands. Regarding valuation of property known as SW‑92‑R‑20, Mela Ram Road, Lahore, the learned DR has contended that the value has been determined as per market value in accordance with the value determined by the bank and has bean confirmed by this Tribunal for the assessment year, 1999‑2000. Regarding value of hypothecated stock, the learned DR has submitted that the learned CWT(A) has rightly confirmed the value as the assessee himself vide his letter, dated 20‑5‑2002 to the Assessing Officer has admitted that the stocks of Rs.44.438‑million were declared before the bank. According to her, although through another letter, dated 31‑7‑2002, the assessee contended that total of stocks comes to Rs.29.030‑million and there was a totalling error and the Assessing Officer has already rectified the totalling error. She has contended that in fact by submitting rectification application, the concealed hypothecated stock of Rs.29.030‑million was admitted by the assessee and in this way, net wealth was accordingly rectified and now the assessee cannot take plea that the stock report was, dated 15‑6‑1998 while he himself made this stock report the basis of his request to reassess his net wealth as on 30‑6‑1998. She has, therefore, contended that the assessee cannot blow hot and cold in the same breath and no body should be allowed to take a benefit of his misdeeds. According to the learned DR, the stock of Rs.29.030‑million (wrongly totaled 44‑million) as on 15‑6‑1998 could not be sold till 30‑6‑1996 within a span of 15‑days, especially considering the fact that total turnover declared for the period by the assessee for the entire year for his commercial imports is amounting to Rs.3,55,29.060. She has in this respect produced the copy of statement under section 143B filed by the assessee for the assessment year, 1998‑99 for the year ending 30th June, 1998. She has contended that even by any stretch of imagination if supposed that sales of Rs.29.030 million were made in 15 days of the income year, the wealth would only change form and in that event, the cash or bank balance of the assessee should increase by even a greater amount as on 30‑6‑1998 considering the profit margin. She is, therefore, of the view that the net wealth would remain the same or would even increase and simply cannot disappear or evaporate in air in 15‑days unless there is a theft, fire or any other calamity. The learned DR has submitted that the treatment meted out by the learned CWT (A) is very reasonable considering all the facts and circumstances of the case which may please be upheld. We have heard the learned representatives of both the parties and have also perused the impugned order of the learned CWT(A), the order passed by the Assessing Officer under section 16(3)/17 of the revoked Wealth Tax Act, 1963, the documents and case laws placed before us by both the sides and have considered all other relevant facts of the case. We have found that original assessment in this case was finalized on 20-3‑1999 under section 16(3) of the Wealth Tax Act, 1963 at net wealth of Rs.82,81,141 which was later on rectified on the application of the assessee on 10‑12‑2002 and the valuation of immovable assets were taken as per original order at Rs.4,23,11,

111. Other assets were also taken as before with the exception of hypothecated stock which was reduced to Rs.2,72,23,996 as against originally assessed at Rs.4,40;36,

000. Liabilities were allowed as per original order at Rs.3,02,23,

996. The net wealth was reduced to Rs.4,37,07,881 against originally assessed at Rs.6,05,19,

945. The Assessing Officer has reopened the assessment for the reason that during the course of assessment proceedings for the assessment year 1999‑2000, an 'information has been obtained from ABL Pakistan Limited, Circular Road Branch, Lahore which revealed that the assessee has taken loan of Rs.2,99,18,000 from the ABL Pakistan Limited against the hypothecated stock and the said hypothecated stock has been concealed and did not declare in the Wealth tax return. We have examined the Wealth tax return for this assessment year under review (1998‑99) and the revised wealth tax return filed by the assessee and have found that although the assessee has not declared the stocks hypothecated with the bank in the return but admittedly vide the revised wealth tax return, an amount payable to ABL amounting to Rs.2,99,18,000 has been declared. We find force in the contention made by the learned counsel for the assessee that the valuation of assets has to be made on the date of valuation which in the case of the appellant is 30‑6‑1998, but the Assessing Officer has taken the valuation of stock in trade as on 15‑6‑1998. We have noted that there was no definite information available with department that the stocks were hypothecated by the assessee on the valuation date i.e. 30‑6‑1998 and were suppressed or concealed. The main thrust of both the parties during their arguments has been on reopening under section. 17 of the Wealth Tax Act which stipulates basis, circumstances, period and scope of powers for invoking this provision in respect of complete assessment. The said section is reproduced hereunder:‑‑ "Wealth Escaping Assessment: (1) If the Deputy Commissioner: (a) has reason to believe that the reason of the omission or failure on the part of the assessee to make a return of his net wealth under section 14 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year, the net wealth chargeable to tax has escaped assessment for that year whether by reason of under‑assessment or assessment at too low a rate or otherwise or; (b) has, in consequence of any information in his possession, reason to believe notwithstanding that there has been no such omission or failure as is referred to in clause (a) that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under‑assessment or assessment at too low a rate or otherwise; or (c) x x x x x he may, in cases falling under clause (a) or clause (c) at any time within five years and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under subsection (2) of section 14 and may proceed to assessee or reassess such net wealth and the provisions of this Act shall so far as may apply as if the notice had issued under that subsection: Provided that no proceedings under this subsection shall be initiated unless definite information has come into the possession of the Deputy Commissioner or he has obtained the previous approval of the Inspecting Additional Commissioner of Wealth Tax in writing to do so. (2) Nothing contained in this section limiting the time within which any proceedings for assessment or reassessment may be commenced shall apply to an assessment or reassessment to make on such person in consequence of or to give effect to any finding or direction contained in an order under sections 23, 24, 25, 26, 27 or 29: Provided that the provisions of this subsection shall not apply in any case where any such assessment or reassessment relates to an assessment year in respect of which an assessment or reassessment could not have been made at the time the order which was subject matter of the appeal, reference or revision as the case may be was made by reason of any provision limiting the time within which any action for assessment or reassessment may be taken". After considering the above provisions of law, we are of the view that the Assessing Officer for forming reason to believe that assessee has escaped assessment or has declared too low rate must have definite information. If the assessee has not filed return or in the return filed by the assessee, certain assets have been omitted or inaccurate particulars of net wealth have been submitted even then, the Assessing Officer can proceed but, in such like cases also, there must be definite information in possession of the Assessing Officer and he should also obtain approval from the IAC before any assessment is reopened under section

17. The learned counsel for the assessee has placed before us the following reported decisions for our consideration:‑‑ (1) (1961) 41 ITR 191 wherein, it has been held that:‑‑‑ "Belief and existence of reasons for that belief. The belief must be held in good faith; it cannot be merely a pretence. The expression does not mean a purely subjective satisfaction of the Income Tax Officer, the forum of decision as to existence of reasons and the belief is not in the mind of Income Tax Officer. If it be asserted that the ITO has reason to believe that income has been under‑assessed by reason of failure to disclose fully and truly the facts, material for assessment, the existence of the belief and reasons for the belief, but not the sufficiency of the reason, will be justiciable. The expression contemplates existence of reasons on which the belief is found and not merely a belief in‑the existence of reasons including the belief". (2) 1993 PTD 804 wherein, it has been held that:‑‑ "The phrase "definite information" cannot be construed in a universal sense and its meaning. Must depend on and vary with the circumstances of each case. There is no doubt however, that the information must be definite. That in more than mere guess, gossip or rumour. There must be casual connection between the information and discovery but "discovery" in the context of the section does not mean a conclusion of certainty at the stage of notice. What is necessary at that stage is that the Income Tax Officer should have formed an honest belief upon material, which reasonably support such belief". (3) 1990 PTD

389. In this case, it has been held that different conclusions from a given set off facts will not amount to definite information. (4) 1994 PTD 1108 = 1993 SCMR 1108 wherein, it has been held by the Hon'ble Supreme Court that:‑‑ "Thus expression "definite information" and similar other expressions used in the above noticed provision or other related provisions certainly meant much more than material so as to cause or reasonable belief of even such evidence which might lead to a definite belief. Unless there is definite direct information and there is no further need to put the said definite information to trial by putting in further supporting material". (5) 1997 PTD 1693 wherein, it has been held that:‑‑ "Definite information will include factual information as well as information about the existence of binding judgment of the competent Court". (6) 1999 PTD

389. In this case, the use of word "or" by the Legislature giving the meaning as "and" has been explained and has been held that:‑‑ "The word "or" can be read and interpreted as "and" provided it is in consonance with the letter and spirit of the statute and does not in any manner violate the provisions of enactment. The word "or" can be read, as "and" provided such interpretation meets the end of justice. The object of the legislation and is in consonance with the provisions of law". "Scrutiny of the legislative history of this provision of law will show that when Income Tax Act, 1922 was applicable, section 34 which was equivalent to section 65 provided that action under section 34 for re‑opening the assessment could be taken when definite information had been received and approval of the Income Tax Appellate Commissioner had been obtained. When the Income Tax Ordinance was enacted in section 65 instead of word "and" word "or" was used but soon thereafter within few years, the difficulties faced by the assessee were realized and ultimately the word "or" was substituted by the word "and". Therefore, except for period 1979 to 1986 throughout from 1922 for reopening and assessment two preconditions viz. (1) "definite information" should be available and (2) "approval of IAC" were required. This shows that the intention of the Legislature was to put double check on such exercise of powers which was serious in nature and had for reaching consequences. If the word "or" is not read as "and" the assessment duly completed which has attained finality under law could be allowed to be reopened by mere approval of the Inspecting Additional Commissioner. This would mean that the decision of the entire hierarchy provided under the Income Tax Ordinance, can be disturbed and reopened by an officer arbitrarily who can exercise such powers unchecked and unfettered. The Legislature never wanted that the order which have attained finality may be reopened merely on the approval of Inspecting Assistant Commissioner of Income Tax which is not restricted or governed or based on any ground or principle. Such a power would mean that if the matter has been considered, discussed, and adjudicated even at the highest level, it can be reopened by the Inspecting Assistant Commissioner of Income Tax without any reason. This could never be the intention of the Legislature and for that reason that amendment was made. For the period before the amendment was made, the word "or" read as "and". Ordinarily "or" is used in disjunctive sense: The governing rule, however, is to carry out the intention of the Legislature. It may be found necessary to read the conjunctures "or" arid "and" one for the other depending on the consequence intended by the Legislature". (7) PLD 1990 SC

399. The Hon'ble Supreme Court in this case has held that:‑‑ "If the notice is found unlawful, without jurisdiction, the whole of the edifice fall down from the point of issuance of notice up to whatever' finalized has been determined". After considering the decisions supra, we have found that for forr4ing "reason to believe" regarding escaped assessment or in consequence of any information in possession, there must be some material and not mere fancy, imagination, speculation or suspicion. There must be nexus between that material and the belief of escapement of income or wealth from assessment. There should be application of mind by the Assessing Officer to such material and an inference should be based on reason drawn tentatively for escapement of assessment. We are of the view that reason to believe must be honest and not based on gossip, rumour or conjectures and should be on reason to believe and not on reason to suspect. We have noted that the Assessing Officer in. this case has not considered the fact that the valuation date is important in the wealth tax matter which has the direct nexus with the valuation of property and which in this case was 30‑6‑1998, but he has reopened the assessment on the basis of valuation of stock as on 15‑6‑1998 and has stretched: his jurisdiction to fetch the valuation date which cannot be justified. The DCWT has to determine the "net wealth" as provided in section 2(i)(16) of the revoked Wealth Tax Act, 1963 which says:‑‑ "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 net wealth as on that date under this Act, is in excess of the aggregate. value of all the debts owned by the assessee on the valuation date other than‑ (i) debits which under section 6 are not to be taken into account; and (ii) debits which ate secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act; (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. For the purpose of this clause; (i) any property owned by any minor child of the assessee shall be deemed to belong to the assessee' and (ii) "assessee" shall be the parent determined by the Deputy Commissioner: The valuation date has been defined in section 2(1)(24) as under:‑‑‑ "valuation date in relation to any year for which an assessment is to be made under this Act, means the last day of the year previous to the year for which the tax is chargeable under this Act. " The above provision of law clearly shows that the DCWT has to determine the net wealth on the valuation date and cannot stretch the date to fetch the valuation date on the basis of assumption and presumption. We are of the view that reopening in this case was unlawful as ' there was no definite information available with the DCWT to reopen the case, as he has not come out of the stock as was on 15th June which was not relevant for the present assessment year. We are of the considered view that the valuation date has direct nexus with the valuation of property in the wealth tax matter and the Assessing Officer has to take the net wealth on valuation date. Regarding the properties, we find force in the contention made by the learned representative of the assessee that the properties are under simple mortgage and Rule 8(4) of the Wealth Tax Rules, 1963 was applicable, which deals with the valuation of assets which are mortgaged and the Assessing Officer in the original order has accepted the contention of the assessee regarding substractions of encumbrances in respect of mortgage property in terms of Rule 8(4). After considering all the above facts and the case law, we are of the view that there was no justification for the DCWT to reopen the case. The order passed by the Assessing Officer under section 16(3)/17 of the revoked Wealth Tax Act, 1963 is, therefore, cancelled. The impugned order of the learned CWT(A) is vacated and the original assessment is restored. The appeal of the assessee succeeds. H.B.T./319/Tax (Trib.) Appeal accepted.