2003 PLP 2734 (PTD)

9. Contents of the ITI's report for evaluating higher price of the property have also been attacked by the learned counsel for the assessee on the ground that those were not at all relevant for the years under appeals because the facts reported therein related to much later, period of time, viz. the years under appeal. Also pleaded that number of shops and the flats were adopted by the Assistant Commissioner of Income without ascertaining factual position on the ground. Even rent of the property was estimated by the Assistant Commissioner of Income‑tax on conjectures, surmises and whims which is highly uncalled for. It was further argued that valuation of the property on the basis of fair market value in the presence of rent deeds and proof on payments of rent as well as availability of property tax assessment (PT‑I Form) is highly objectionable unless otherwise controverted with substantial material evidence. Concluding the arguments the learned counsel for the assessee contended that the Assessing Officer has fallen in grave error in disbelieving and discarding all the documents mentioned above, while evaluating the property in question without advancing any cogent reasons and this act of his is certainly violative of rule 8(3) of the Wealth Tax Act. In the end he prayed that the assessee's appeals be ordered to be accepted in view of foregoing facts.

10. On the other hand the learned D.R. strongly opposed the aforesaid contentions by contending that as the ownership of the land to the record of the LDA still stands m the name of 14 persons, map of the building was also got approved in their names and joint investment was made for construction of the market, the assessee has no locus standi to contend that more than one AOP was constituted in this case. He also asserted that property tax assessment (PT‑I Form) in no way can substitute to be the record of the ownership, thus no support from such piece of evidence can be derived in favour of the assessee. The learned DR further contended that non‑production of rent agreements does entitle the Assessing Officer to capitalize value of the property in view of the facts recorded by the ITI. He also mentioned that though the ITI's report, dated 6‑6‑1998 does not relate to any of the assessment year under appeal yet the fact remains that the Assessing Officer has given due consideration to this aspect of the case while finalizing the assessments in respect of those assessment years. According to the learned D.R. all the facts lead to the conclusion that only a single A.O.P., comprising 14 persons, was in existence at the relevant period of time and the plea taken regarding constituting six A.O.P (s) was just to avoid proper incidence of taxation. As regard obtaining of approval he stated that, in the given circumstances the same is not at all required to be obtained from the Commissioner of Income‑tax or the Inspecting Additional Commissioner in order to enhance the declared rental value of the property. He thus prayed that the impugned order may be endorsed in its entirely.

11. We have carefully deliberated to the rival contentions, also perused the impugned orders as well as the documents and the case‑law furnished by the learned counsel for the assessee before us. The term "association of persons" has nowhere been defined in the Wealth Tax Act or the Income Tax Ordinance. Thus, these words must be construed in their plain ordinary meaning or as is interpreted by the Appellant Courts. According to the Oxford Dictionary the word "association" means to join in common purpose or to join in an action, therefore, an "association of persons" must be the one in which two or more persons join in a common purpose or common action. So, when there is a combination of persons formed for the promotion of a joint enterprise otherwise stated, when co‑adventurers are handed together for a common action, they are treated as an AOP when they do not constitute in law a partnership. In order to constitute an AOP the person must join in a common purpose or common action and the object of the association must be to produce income and it is not enough that the persons received the income jointly. In fact the concept of AOP depends upon the particular facts and circumstances of each case as to whether such conclusion can be drawn from such facts and circumstances or not. In a nutshell there must be a common design to produce income. If there is no common design, there is no association. Common interest is not enough. Production of income is not enough. The interpretation of the expression association of persons flows from the meaning of the word association. Co‑owners, co‑heirs or co‑legatees do not constitute such association in respect of ir1come of the joint or common asset by reason only of their aural relationship. But if they unite themselves with the objective of earning income, they constitute as association of persons for wealth tax and income‑tax assessment on that basis. The essential criterion that attracts the label of AOP in the hierarchy of income‑tax and wealth tax is the unity of income making purpose rather than the unity of title in the income‑yielding asset. Hence, volition on the part of the members of association is an essential ingredient. In view, of foregoing discussion we hold that where the income does not result from any joint venture or joint acts, assessment in the status of an A.O.P. would not be justified.

12. Reverting to the facts of this case the property in question was constructed by each A.O.P. by pooling their, resources and soon thereafter a family settlement was executed between the parties whereby shops and flats were demarcated and divided amongst each A.O.P. Since each AOP and rented out its part of property, therefore, separate lease agreements were executed with its tenants by each of them. In addition to, property tax was also paid separately by each A.O.P. of its share in the property. On, the contrary there is no evidence whatsoever with the department with regard to common management or use of the property in question except the sale deed of the land and the site plan. But it does not flow from such documents that all the 14 co‑owners had united themselves with the object of earning income, profit or gain from the said property.

13. We have also come across an unreported decision of the Tribunal bearing W.T.A. No. 1228/IB of 1999 assessment year 1998‑99, dated 29‑3‑2000. In that case two AOP(s) were owner of a single unit of property which had been rented out and for this purpose lease agreements were entered into by the tenants with the two AOP(s) independently. However, the Assessing Officer clubbed and assessed the wealth declared by each A.O.P. together on the ground that property was a single unit and was owned by members of both the AOP(s). On first appeal it was observed by the CIT(A) that the Assessing Officer was not justified to amalgamate the two AOP(s) and he, therefore, directed to process the wealth tax return of the AOP(s) separately. When this decision came up for discussion before the Tribunal on behalf of the Department, the order of the Appeal Commissioner was maintained by it. While doing so, it was held by the Tribunal that division/demarcation of the market has been made on the basis of the demarcation plan and the agreement executed by all the co‑owners and there is no adverse evidence against this fact that the two AOP(s) are receiving their rent separately and issuing their receipt.

14. It is also interesting to note that the Department has resorted to a futile exercise by assigning status of a single A.O.P: instead of six to the present assessee. In fact 0this issue has already been set at naught by the Department and reference in this regard is being made to the order passed by the AAC on the second round of litigation, dated 12‑11‑1998 in respect of assessment years 1994‑95 and 1995‑

96. In this order the plea taken by the assessee regarding constituting six independent A. O. P. (s) has been accepted by him. It was in so many words as under: In the presence of family settlement & PT‑I(s) issued by the Government agencies are sufficient and solid evidences that there are se0ven owners of the total building and the portion of 48/3 which consist AOP on Haji Nawab Khan and Manzoor Khan and the assessment should be made of that portion which belongs to them. In the presence of evidence of filing returns for the years under question to attract the section 16(5) looks doubtful. Considering all the facts given above the two assessments for the years 1994‑95 and 1995‑96 are remanded back and the Wealth Tax Officer is directed to make the fresh assessment of portion 48/3 which belongs to Haji Nawab Khan and Manzoor Khan consist of 6 shops and 2 flats. The portion is on rent so the basis of wealth tax valuation of this property No.48/3 should be GALV.

15. The above quoted para in unequivocally words spells out that the AAC by accepting the assessee's contention directed the Assessing Officer to make fresh assessment of portion of the total building bearing N.48/3 belonging to Haji Nawab Khan and Mansoor Khan the one AOP out of the six) having six shops and two flats owned by them. It was also directed that valuation of this portion should be made in accordance with the GALV. These directions of AAC have not been challenged by the Department in appeal before the Tribunal. So, now, the Department is debarred to hold that single AOP was in existence and not the six in the preceding or the succeeding assessment years because it has been observed so in the intervening assessment year. Be that as it may, since for the assessment years the Revenue has not assailed this decision of the AAC in further appeal, the Assessing Officer has become functus officio to make re‑assessment for these two assessment years on account of being closed and past transaction which act of his is without lawful jurisdiction. Rather the Assessing Officer should have extended the appeal effect to the AAC's order in respect of this assessment year. Moreover, valuation of this portion of the building cannot be clubbed while revaluing the total building in respect of the subsequent assessment year 1996‑97.

16. In view of foregoing discussion and the case‑law referred to by the learned counsel for the assessee, we are persuaded: to hold that the circumstances do not by themselves go to show that all the 14 persons acted as an association of persons and the wealth tax assessments made in the hands of a single AOP was in order. Thus, the CIT(A) has acted in flagrant violation of law in upholding the action of the Assessing Officer regarding formation of single AOP whereas six independent, separate and distinct AOP(s) were in existence at the relevant period or time and were lawful owners of the respective share in the property. We therefore, hold that more than one A.O.P. can be constituted. Here the property involved is a single unit and does not stand divided through any registered deed but that is divided and demarcated between the co‑shares on the basis of some valued and genuine piece of documents. Accordingly the consolidated order of the Appeal Commissioner is vacated and that of the Assessing Officer is set aside with the direction to process the return of each A.O.P. independently. Further directed that he shall work out GALV of the portion of property held by each A.O.P. in accordance with rule 8(3) of the Wealth Tax Act being that is on rent. Since we have disposed of the appeals on legal grounds, hence the other points raised are not being dilated upon us hereunder.

17. All the eight appeals filed at the instance of the assessee are disposed of to the extent and in the manner indicated above. Per Abdul Ghafoor Junejo. Accountant Member Contra. I had the privilege to go through the order of the learned Judicial Member. As the facts are that there is no provision in the Income Tax Ordinance for the recognition of a number of association of persons AOP only on the basis of some verbal internal or family arrangement, instead of a proper legal procedure in the nature of registration of different portions of already existing single unit property in respect of which the newly created AOP's are alleged to have gained proprietorship right. It is well established legal maxim that there is no 'alternative to the established procedure. Reference in this regard can forcefully be made to the case reported as 1989 PTD 670 whereby it was laid down the mere contract to sale does not create any right in the property. The right created on registration the sale deed if the value of the property is 8.100 or more.

19. For this reason therefore, I find myself unable to agree with above mentioned proposed treatment given by the learned Judicial Member who had accepted the solitary document in the form of Khangee Taqseemnama as a proper basis for assigning ownership rights to the newly created AOP's, and in‑consequence I find inclined to uphold the treatment given by the officers below in subject to wealth tax the entire property as one single unit in the hand of one single AOP tax. As a I difference of opinion has arisen between the members of this Bench it is' proposed that the following issue may be referred to the Honurable Chairman .for assigning the matter to a third Member: "Whether in the facts and circumstances of the case the various unit of the property can be separately assessed to wealth tax in the hands of more than one in the association formed on the basis of Khangee Taqseemnama although the property involved is a single unit and it does not stand registered under the Registration Act. " [Per Khalid Waheed Ahmad. Judicial Member Concld.]‑The above case has been referred by the learned Chairman for Third Member's opinion on the issue as specified by the learned Members of the Division Bench.

21. The notices were issued to the parties and the hearing proceedings were concluded on 19‑10‑2002. Arguments of learned representatives of both the parties have been heard as well as findings of the learned Members have also been perused.

22. Learned A.R. of the assessee repeated the same argument as earlier put forth before the Bench as already reproduced in the above order. Learned A.R. contended that the case‑law relied upon by the learned Accountant Member as 1989 PTD 670 was distinguishable. According to the learned A.R. in the referred case, the issue involved was the transfer of single property on the basis of agreement to sell and stated that in the instant case, the issue involved was the division of the property. Learned A.R. further contended that the Assessing Officer was not justified in assessing all the units of the property in the hand of a one AOP. According to him, the Assessing Officer has failed to establish that all the 14 persons have joined to form an AOP. Learned A.R. contended that the intention of the 14 co‑owners to hold the property for the purpose of construction and letting out during the years under consideration could not be established by the Assessing Officer and is neither proved from the facts and circumstances of the case. Learned A.R. of the assessee contended that the partition under the family settlement which has been acted upon by all the co‑owners was valid in the eyes of the law. To support his viewpoint, learned A.R. cited the decision of the Lahore High Court reported as 1999 YLR 340 (Lah. H.C.) and also quoted the decision of the Hon'ble Supreme Court reported as 1999 SCMR 2182 to substantiate his viewpoint and stated that the property partition was valid in law. Learned A.R. further stated that this property partition has been acted upon by all, the co‑owners. The shares/portions of the co‑owners in the property have been demarcated and are under the possession of respective owners. Learned A.R. further stated that separate property allotted to each unit and mutation has also been effected in the property tax record of Excise and Taxation Department. Learned A.R. also filed he copies of the ITAT's Order, dated Nil (Date of Hearing: 28‑2‑1987) in W.T.As. Nos.365/LB of 1984‑85 & 75/LB of 1985‑86 pertaining to the assessment years 1981‑82 and 1982‑83 respectively and contended that under the similar circumstances, the Tribunal directed to assessee the various units of property divided among the co‑owners by virtue of family settlement in the hands of six different AOPs. Learned A.R. of the assessee referring to the case‑law as already reproduced above contended that the essential ingredients for the constitution of an AOP were not present in the case of the assessee. According to the learned A.R., there was no principal officer or any common manager appointed to conduct and look after the affairs of the AOP. Learned A.R. further submitted that there was no common intention because each unit of the property under consideration has been rented out independently by its co‑owners. According to the learned A.R., the issue under consideration stands decided with the decision of the learned AAC, dated 12‑11‑1998 in the first round of appeal for the assessment years 1994‑95 which was not contested by the Department. However, learned A.R. of the assessee admitted that this issue was not related to the terms of reference for Third Member's opinion. Learned A.R. of the assessee further contended that registration in the case of family settlement was not necessarily required. To support his contention that the distribution and division of property through mutual agreement was valid in law, he also cited the decision of the Tribunal, dated 27‑4‑2002 in W.T.As. Nos. 1103 to 1107/LB of 2001.

23. Learned D.R. alongwith learned L.A. Mr. Shahid Jameel Khan, Advocate supported the viewpoint as expressed by, the learned Accountant Member. According to the learned D.R. the assessment was rightly framed in the status of AOP consisting of 14 members who were the joint owners of the property. According to the learned D.R. the common intention of holding the property for construction and letting out was obvious from the facts and circumstances of the case. Learned D.R. stated that the property was jointly purchased by the 14 members and was constructed for letting out tote same. Learned D.R. further submitted that the division was not entered in the record of the LDA. According to the learned A.R. since the family agreement was Clot registered, it has no legal value. According to the learned Legal Advisor, from these facts, this proves that the ownership of each unit has not transferred to the AOP as claimed by the assessee and they are still the joint owners of the whole property, it was also contended by the learned D.R. that even in the case of claimed six AOPs , there is no common manager or principal officer. Thus, according to him, the argument of learned A.R. that the ingredients of the AOP were not existing is not a valid argument. Learned Legal Advisor also contended that the interest. of more than one individual in a common property was sufficient to establish that the property is being held by the AOP and earning of Income jointly is not necessary. Learned Legal Advisor distinguished the decision of the Tribunal in W.T.A. No. 365/LB of 1984‑85 relied upon by the learned A.R. by submitting that in the referred case, the family settlement was registered whereas in the present case, it was neither registered before the Sub Registrar or with the LDA. Learned Legal Advisor further submitted that the mutation in the record in the record of Excise and Taxation Office was for the purpose of levy and collection of tax of urban immovable properties and it was not a record maintained for the purpose of ownership. According to the learned A.R. the division in the PT‑1 Form was allowed only for separate payment of tax and does not mean that the ownership has been ,transferred. Learned Legal. Advisor further submitted that the contention of the assessee was accepted in the case of AOP Messrs Haji. Nawab Khan and Manzoor Khan by the AAC in the first round of appeal as contended by the Learned A.R. and the issue was set aside. Learned A.R. further contended that even otherwise there was no estoppel against the law: Learned Legal Advisor further submitted that the decision of the Tribunal, dated 27‑4‑2002 as referred by the Learned A.R. was also not relevant in the instant case because the facts of the two cases are different. According to the Learned Legal Advisor in the quoted case, the distribution was by arbitrator and through a decree of the Court whereas it was not so in the case of the assessee. Learned L.A. further stated that the decision of the Tribunal reported as 1998 PTD (Trib.) 2054 was also distinguishable because the issue involved was the assess ability to tax of three difference beneficiaries in the case of Trust as an AOP.

24. Arguments of learned representatives of both the parties have been heard as well as the orders and facts available before us and the case law relied upon by the Authorities below have also been perused. In my considered opinion, the Assessing Officer has‑failed to establish the existence of an AOP of 14 members who were holding the assets chargeable to wealth tax. In terms of the provisions of section 2(5)(ii) of Wealth Tax Act, 1963. The assets held by an AOP were not originally charged to tax under the Wealth Tax Act, 1963. The immovable properties held for certain specified purposes were first time charged to wealth tax when the definition of assets was enlarged to include the immovable properties held for the purpose of the construction and sale or letting out by a Firm, an Association of persons, or a Body of individuals whether incorporated or not through the Wealth Tax (Amendment) Ordinance, 1980. The term Association of persons' is not defined in Wealth Tax Act. The concept of AOP appears to have been brought to wealth tax from the income tax where the association of persons were liable to charge of income‑tax. It is obvious from the relevant provisions of law that chargeability to wealth tax of the assets as defined in section 2(5)(ii) supra is related to the concept of income from business of construction and sale or letting out of property though actually earned or not. Before proceeding further, we would like to refer to the relevant provisions whereby the immovable property held by the AOP have been brought through the definition of assets chargeable to wealth tax: "Section 2(5)(ii) (ii) In the case of a firm an association of persons for a body of individuals, whether' incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property:" Explanation: For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub clause, includes (i) Immovable property held for the purpose of letting out, or business of letting out, of property; (ii) Immovable property held for the purpose of construction and letting out of property; and (iii) Immovable property held for the purpose of construction and sale of property."

25. In my considered opinion, the mere ownership by more than one individual in a property is not sufficient to establish the existence of an association of persons. For the purpose of determining the existence of AOP, the most important, factor is the intention of more than one individual who have joined hands for a common purpose or common action to produce income profits or gains. Mere fact that they are the joint owners is in itself not sufficient to establish that an AOP is in existence, Indian High Court of Gujarat explained the issue as under: CIT v Harivadan Tribhovandas (1977) 106 ITR 494, 500 (Guj.) For forming an association of persons the member of the association must join together for the purpose of producing an income. An association of persons can be formed only when two or more individuals voluntarily combine together for a certain purpose. Hence volition on the part of the members of the association is an essential ingredient. It is true that even a minor can join an association of persons if his lawful guardian gives his consent. In the case of receiving dividends from shares where there is no question of any management, it is difficult to draw an inference that two or more shareholders function as an association of person from the mere fact that they jointly own one or more shares and jointly receive the dividends declared. Those circumstances do not by themselves go to show that they acted as an association of persons." In the case before us, the property was jointly purchased and constructed but before letting it out it has been divided among the six AOPs and one individual who independently held the same and rented it out. It is not proved from the facts available before us that the 14 persons have the common intention of letting out the property on the relevant valuation dates. For the charge of wealth tax on assets in terms of the provisions of section 2(5)(ii) supra it is the intention or purpose on the valuation date for which the property is held by the AOP. A property purchased for the purpose of construction and sale or letting out during certain periods may not be held sub sequent for the said purpose. Similarly a property not acquired for the purpose of construction and sale or letting out may be retained for the AOP for these purposes during, the subsequent years. The only objection raised on behalf of the Department is that the division of property through family settlement is not a valid division. However this objection of the Revenue, in our opinion, is not well based considering the facts of the case and the case law cited by the learned A.R. of the assessee particularly by the decision of the Hon'ble Supreme Court of Pakistan reported as 1999 SCMR 2182 whereby it was held that partition through the family settlement is valid in law. It is pointed out here that the division in, the case before us has been accepted and also acted upon by all the parties. Each portion has been demarcated as a separate unit. This division has also been given effect by the Excise and Taxation Department which has allotted separate sub numbers to each unit. Although, the record maintained by the Excise and Taxation. Department is not for the purpose of ownership rights but in any case, it is relevant being record maintained for tax on the immovable property. The word property is not defined in. the Wealth Tax Act or Income Tax. Ordinance. "Immovable property" held for certain specified purposes by the AOP has been brought within the ambit of assets chargeable to wealth tax. Thus, the immovable defined as `asset' in section 2(5)(ii) may by a big or small unit or complete building or portion of it.

26. In the case before us though the 14 persons purchased the plot jointly for construction of building on it but this fact in itself is not sufficient to establish that all of them intended to let out the property jointly. Considering the facts of the instant case, in our opinion the co- owner of each unit was holding the "immovable property" for the purpose of letting out as on the valuation dates of the respective years under consideration which attracted the provisions of section 2(5)(ii) of the Wealth Tax Act, 1963 in each case separately:

27. As a result of discussion made, above and in view of the case‑law cited by the learned Judicial Member, I agree with his findings whereby the decision under the family agreement was accepted. As a result, the consolidated order of the Commissioner of Appeals stands vacated and that of the Assessing Officer is set aside with the directions to process the Return separately in case of each AOP. The appeals of the assessee, succeed for all the years. C.M.A./864/Tax (Trib.) Assessee's appeals succeeded.