1988 PLP (Trib (PTD)

ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER) --These are two appeals filed by an AOP operating as a Co-operative Society and relate to the assessment year 1979-80 and 1980-81. In the assessment year 1979-80, the assessee declared a loss of Rs.2,51,039 against which the I . T.O. estimated the net income at Rs.13, 24,125: In the assessment years 1980-81, the assessee again declared loss of Rs.10, 02, 433 against which the I. T. O. estimated the net income at Rs.8,03,91,

88. The major addition in the assessment year 1980-81 was made on account of sale of land which amounted to Rs.7,97,54,370.

2. It may be stated that the assessee's income and receipts are both from Members of the Co-operative Society and from non-members. Income arising from dealing with the Members of the Society is exempt under the Income Tax Ordinance. However, since no separate and -bifurcated accounts have been maintained by the society regarding the income or receipts from the members and non-members, the assessing officer has derived a formula to make an estimated and proportionate bifurcation of income from the Members and the non-members. The assessing officer took 1/5th of the receipts declared by the assessee as from the non-members. On the basis of this formula, out of the total receipts declared for the assessment year 1979-80 at Rs.52,43,780, the I.T.O. adopted the taxable receipts at Rs.15,49,

459. Since the proportion of taxable receipts and non-taxable receipts was 30% to 70%, therefore, the expenses were also allowed in that proportion namely at 30% of the total expenses. Thus, out of the total claim of the expenses the I.T.O. worked out the allowable expenses at Rs.2,21,872 for the assessment year 1979-80. Similarly in the assessment year 1980-81 the same formula was adopted and the income was worked out. On appeal, the learned C.I.T. (Appeals) in the assessment year 1979-80 deleted the additions under two major heads namely receipts from Municipal charges at Rs.1,55,622 and receipts from property tax at Rs.7,01,

515. Since the department is not in appeal, this point is not in dispute. The principle of bifurcation of taxable and non-taxable receipts and expenses allowable proportionately to the taxable and non-taxable receipts was maintained by the C.I.T. (Appeals). Since the learned C.I.T.(A) had deleted certain additions stated above, this effected the proportion of taxable and non-taxable receipts. Consequently, the learned C.I.T.(A) restricted the allowance of expenses to 13% of the claim, as after the relief allowed by the learned C. I. T. (A) the proportion between taxable and non-taxable receipts worked out to 13% and 87% respectively. 3.In the assessment year 1979-80 three major grounds have been taken by the assessee: (1) That the income of the Society is entirely exempt from Income-tax under Item 61 of the Second Schedule of the Income-tax Ordinance, 1979 (before its amendment by Finance Ordinance, 1981). (2) That the basis of computation of income is arbitrary. (3) That the proportion of expenses on the basis of taxable and non-taxable receipts adopted by the learned C.I.T. (A) at 13% was unjustified on the ground that for the receipts collected by the Provincial Government, no expenses were incurred by the Society

4. Another additional legal ground has been taken by one of the counsel appearing on behalf of the assessee that the Model Town Society is a local authority and, therefore, its income is exempt under item No.57 of the Second Schedule, Part I of the Income Tax Ordinance, 1979. Since this was a legal question the counsel was allowed to argue.

5. We would like to deal with this legal question first. Mr. F.R. Hashmi, F.C.A. who also appeared on behalf of the Model Town Society and was' allowed to argue this issue, submitted that Model Town Society for all intents and purposes, is a local authority and, therefore, its income is exempt from income-tax. Item No.57 (before its amendment) referred to above is reproduced below for reference: "

88. Local authority. 'Any income of a local authority, not being "income form business, if any, carried on by it outside its jurisdictional area." Unfortunately the word 'Local Authority' is not defined in the Income-tax Ordinance, 1979. However, the word 'person' is defined under clause (32) of section 2 of the Income-tax Ordinance, which says that a person 'includes a local authority'. Section 9 of the Income-tax Ordinance lays down that income-tax is to be charged, levied and paid in respect of the total income of every person. In order to claim exemption under item 57 referred to above, a person A has to prove two facts, namely (1) that it is a local authority; . (2) that its income is not from business carried on by it Outside its jurisdiction.

6. Now the term local authority' has been defined by the General Clauses Act which reads as under:- "Local Authority: Local authority shall mean a Municipal Committee, District Board body of Port Commissioners or other authority legally entitled to, or entrusted by the Government with, the control or management of a Municipal or local fund." It is obvious that the Model Town Society is neither a Municipal Committee nor a District Board nor a body of Port Commissioner. The learned counsel for the assessee has not been able to prove that the Model Town Society is legally entitled to or entrusted .by the Government with, the control or management of a municipal or local fund. It may be noted that the Punjab Local Government Ordinance, 1979 defines 'Municipal Committee' but the Model Town Society is not covered by that definition. The learned counsel has placed reliance on section 3-A of the, Urban Immovable Property Tax Act, 1958 and certain correspondence between the Government of Punjab and Model Town Society under which some arrangement was made for the collection of Municipal charges of the Model Town Society by the Excise and Taxation Authority after deducting 5% of the departmental charges. Section 3-A of the Urban Immovable Property Tax Act, 1958 provides that the tax collected by the Government from within limits of a local body, after retaining 5% as collection charges, would pay 50% of the balance to such local body. Again under the explanation added to section 3-A the word 'local body' has been defined which reads as under:- "Explanation--' In this section 'local body' means a Municipal Committee constituted under the Municipal Administration Ordinance, 1960, a Town Committee constituted under the Basic Democracies Order 1959, and a People's Municipal Corporation, constituted under the People's Municipal Committee Ordinance, 1972." It would, therefore, be seen that section 3-A of the Urban Immovable Property Tax Act, 1958 is of no help to the assessee as the word 'Local body' has been defined under which the Model Town Society is not covered. Mere fact that a similar arrangement has been made between the Punjab Government and the Provincial Model Town Society .in regard to the collection of Municipal charges and ultimate remittances by the Government to the Model Town Society after deducting 5% collection charges does not make the Model Town Society as a local authority. There is, therefore, no force in this plea, which is rejected.

7. The next legal ground taken by Mr. Muhammad Amin Butt, the learned counsel appearing on behalf of the Model Town Society, was that the income of the society is exempt from the payment of Income-tax on the ground that the aims and objects of the Model Town Society are not to earn profit nor the society is entitled to engage in any trade or business. It was further pleaded that the Society is not entitled under its bye-laws to distribute any surplus gains. It was submitted that the objects of the Society being charitable in nature, its income is exempt under item (61) of the Second Schedule of the Income-tax Ordinance, 1979 (before its substitution by the Finance Ordinance, 1981) which corresponds to Item No. 93 of Revised Schedule. According to this item, the income derived from property held under trust or other legal obligation wholly, or in part only for religious or charitable purposes and is actually applied or finally set apart for application thereto, is exempt from payment of Income-tax. This provision is subjected to various exceptions and the provisos given in the item. The learned counsel has laboured very hard to show that the aims and objects of the society are charitable in nature. He cited a number of case-law in support of his contention, which, to our mind are not relevant and, therefore, are not referred to. The contention of the learned counsel has no force whatsoever. This item is applicable in regard to the income from property 'held under trust or other legal obligation'. It has, therefore, to be first proved that the income of the Model Town Society is derived from property 'held under trust or other legal obligation'. Then it has to be proved that such a Trust was for religious or charitable purpose and then lastly it has to be established that such income was actually applied and finally set apart for application thereto. Though it is debatable that the aims and objects of the Society are either religious or charitable in nature, but assuming it to be so, one of the primary conditions which are to be fulfilled in order to claim exemption under this item is that the income derived from property must be either held under Trust or some legal obligation. Obviously the income of the Model Town Society cannot be said to be held under Trust or other legal obligation. The requirement of the item does not stop here. It has further to be proved that the income of such a trust having its objects for religious or charitable purpose was actually applied or finally set apart for application thereto. This requires an inquiry. There is nothing on record to prove this fact. This plea, therefore, does not remain purely a question of law. This plea was not taken before the I.T.O. or even before the Commissioner (Appeals). We, therefore, cannot allow this plea to be taken for the first time in second appeal as this question requires investigation.

8. The next contention of the learned counsel for the assessee was that the learned C.I.T.(A) has wrongly curtailed the proportion of admissible deduction of expenses to 13% as against 30% allowed by the I.T.O. It was submitted that the only ground for curtailing the proportion of expenses adopted by the learned C.I.T.(A) was that the additions on account of municipal charges at Rs.1,55,622 and on account of property tax receipts at Rs.7.01, 515 have been deleted by the learned C.I.T.(A). It was submitted that so far as these receipts were concerned they were collected by the Provincial Government and no expenses were incurred by the assessee. Therefore, the deletion of these receipts had no bearing on the expenses already allowed by the assessing officer: This contention has force. Since no expenses had been incurred by the assessee in collecting these net. receipts, the expenses already allowed by the assessing officer could not be co-related with the deletion of these additions. Even otherwise in the past all along the department has been allowing expenses at 1/3rd of the claim. It is for the first time that the department has deviated from the history of the assessee. We, therefore, direct that 30% expenses as allowed by the assessing officer should be restored. The order of the learned C.I.T. (A) is modified to that extent.

9. In the assessment year 1980-8), the first ground of attack is the same as in the assessment year 1979-80 that the income of the Model Town Society is exempt from the Income-tax under item (61) of the Second Schedule to the Income Tax Ordinance, 1979 (before its amendment by Finance Ordinance, 1981). This objection has already been dealt with at length while disposing appeal for the assessment year 1979-80, and the same reasons hold good for this assessment year as well. This plea is therefore, rejected for the reasons recorded in the earlier assessment year.

10. The next objection which, perhaps is the main objection for this assessment year, is in 'regard to the addition of Rs.7,97,59,

370. This amount is a surplus arising from the transfer of land purchased by the assessee from the Government of Punjab in the year 1941 and which is said to have been compulsorily acquired by the Lahore Development Authority and the difference between the sale records from the L.D.A, and cost price of the kind was added as income of the assessee by the I.T.O. The contention of the learned counsel for the assessee was three-fold. Firstly, that the income derived out of the sale proceeds of land was capital gain on immovable property, which is clearly exempt under the Income Tax Ordinance. Secondly, even otherwise, under the Constitution, the capital gain on immovable property is the Provincial subject and the Federal Legislature could not make such a law, which would tax the income derived out of capital gain on immovable property. Lastly, it was submitted that in any case this was not an adventure in the nature of trade and, therefore, the income being casual in nature is exempt from Income-tax.

11. Before proceedings further it would be relevant to give few facts in order to appreciate the arguments of the learned counsel for the assessee. Brief facts of the case are that the Model Town Society was established much before the year 1940. The aims and objects of the Society were to promote the economic and social interests of its members and more particularly to lay out, establish and maintain garden town. In order to achieve its objects the society could perform the following functions:- (a) to buy or otherwise acquire land etc. for purposes of the Society: (b) to sell, mortgage or lease land, houses etc. as may be necessary for carrying out any of the objects of tire Society; (c) Nobody was permitted to own any immovable property unless he became a member of the Society. In the year 1941, the Model Town Society purchased land from the Punjab Government for the objects of the Society. In the year 1976, the Deputy Commissioner, Lahore issued a Notification, dated 20-2-1976 under section 4(I) of the Punjab Acquisition of Land (Housing) Act, 1973 that the land given in the schedule was to be acquired for the development /implementation of Model Town Extension Scheme and authorised the officers of the Lahore Development Authority to enter upon and survey any land in the locality and do all other acts required or permitted under subsection (2) of section 4 of the Punjab Acquisition of Land Act. The total area under this notification was 4,894 Kanals. The Model Town Society filed a writ petition against this notification. During the pendency of this writ petition, it appears, that a compromise was made between the assessee society and the L.B.A. which resulted into an agreement, dated 6-2-1980. According to this agreement, the sale price of the transferred land was settled. The book value of the land was Rs.2,45,630 and the sale price fixed under the agreement for transfer was Rs.8 crores. The difference of Rs.7,97,54,370 was considered by the assessing officer as business profit of the assessee treating the assessee as an estate developer. The profit was considered to be out of the sale of its stock-in-trade to a non-member. ,

12. The first contention of the learned counsel for the assessee was that under item No.50 of the Fourth Schedule of the Constitution of 1973, the Federal Legislature is not competent to impose any tax on capital gains on immovable property. Item No.50 referred to above is reproduced below:- Item No. 50-- "Taxes on the capital value of the assets, not including taxes on capital gains on immovable property." It was submitted that under section 27 of the Income-tax Ordinance, 1979 the capital gains are taxed but under that section the capital gain on immovable property is specifically excluded. It was submitted that the capital gain on immovable property has been excluded so as to bring this provision in line with the Constitution. Section 27 of the income-tax Ordinance is reproduced below:- "(1) Any profits or gains arising from the transfer of a capital asset shall be chargeable under the head 'Capital gains' and shall be deemed to be income of the income year in which the transfer took place. (2) For the purposes of subsection (1) of sections 28 and 29,-- (a) 'capital asset' does not include-- (i) any asset or class of assets in respect of which the assessee is entitled to an allowance for depreciation under the Third Schedule; and (ii) any immovable property; and (b) 'transfer' includes the sale, disposition, exchange or relinquishment of the asset, or the extinguishments of any rights therein, but does not include-- (i) any transfer by reason of the compulsory acquisition of any capital asset under any law for the -time being in force; (ii) any transfer of a capital asset under a gift bequest or will or an irrevocable trust; (iii) any distribution of the assets of a company to its shareholders on its liquidation; and (iv) any distribution of capital assets on the dissolution of a firm or other association of person or the partition of a Hindu undivided family." It was further submitted that the clause (b) of subsection (2) of section 27 has defined the word 'transfer'. Under sub-clause (i) of clause (b) any transfer by reason of the compulsory acquisition of any capital asset has been specifically excluded from, the definition of 'transfer,

13. An alternative plea taken by the learned counsel for the assessee was that in any case it was not the adventure in the nature of trade. It was contended that in order to see whether any transaction is or is not an adventure in the nature of trade, the intention of the assessee at the time of the purchase or acquisition of an asset has to be determined. The intention of the assessee at the time of the purchase of an asset is the only determining factor to find out as to whether the ultimate sale of that asset was or was not an adventure in the nature of trade. It was submitted that the assessee had purchased this land from the Government in the year 1941 in order to develop it into a garden town and for the welfare of its members. It has never been the intention of the society to trarr4er any part of the land so purchased to non-members on profits and, therefore, it cannot be considered as adventure in the nature of trade. It was, therefore, submitted that even if income is not capital gain, then it is a casual and non-recurring income and, therefore, exempt under item No. 65 of the Second Schedule Part I of the Income Tax Ordinance.

14. Mr. Ilyas Khan, the learned counsel for the department, on the other hand contended that 'his was not the sole transaction of the Society. As a matter of fact the business of Society was purchasing and selling of land and, therefore, the land in question is stock-in trade of the assessee. It was submitted that when the assessee purchased the land in question in the year 1941 it was purchased with the sole intention of selling it in the shape of plots. The learned counsel also relied upon this Tribunal's decision for the assessment years 1963-64 and 1964-65 in which a transaction which had been undertaken by the assessee in similar circumstance was held to be adventure in the nature of trade and the land in question was treated as the stock-in-trade of the assessee. The second contention of the learned counsel for the department was that it was wrong to say that the land was compulsorily acquired by the L.D.A. as the transfer took place under an agreement, which was voluntary in nature. In regard to the nature of income it was submitted that since the land is the stock-in-trade of the assessee, therefore, any profit derived by the assessee' out of the sale proceeds of the land could not be regarded as capital gain. Mr. Ilyas Khan, relied upon the Laws Continuation in Force Order 1 of 1977 and the Provisional Constitution Order 1981 to stress that tire provisions of the Constitutions were in abeyance and, therefore the assessee could not rely on the Constitution.

15. We have examined the arguments of the learned counsel of the parties. First of all we would like to point out what admittedly the objects and purpose, of the society were to develop the land for the welfare of its members. I here is also no dispute that since the acquisition of the land by tire Society in the year 1941, the sale of land to the L.D.A., is the -3ole transaction with any non-member. This is a settled principle of law that in order to see whether any transaction is an adventure in the nature of trade the criterion is the intention of the purchaser at the time of the purchase and not at the time of the sale. It may be illustrated with the example. If a person, normally dealing in things of Art, purchases a painting with the intention to sell on profit and ultimately sells it, it would be adventure in the nature of trade. In such a case he may not earn a profit and the transaction may be the sole transaction but it would constitute adventure in the nature of trade. But if a person purchases a painting not with the intention to re-sell on profit but for decoration in his house, and ultimately sells it on profits, it will not be an adventure in the nature of trade. Mere fact that the price of a thing has increased and the seller had earned profit out of its sale cannot necessarily be called an adventure in the nature of trade nor can it be taxed under the Income-tax Ordinance. There is no dearth of case-law in support of this proposition. One such case is reported in Tax Cases 1926 decided by the British Court in the case of Commissioner of Inland Revenue v. Livingston and others. In that case it was held: "If the venture was one consisting simply in an isolated purchase of some article against an expected rise in price and a subsequent sale it might be impossible to say that the venture was 'in the nature of trade; because the only trade in the nature of which it could participate would be the trade of a dealer in such articles, and a single transaction falls as far short of constituting a dealer's trade as the appearance of a single swallow does of making a summer." In the same case a test was laid down in the following words:- "Whether a venture such as we are now considering is, or is not, 'in the nature of trade' is whether the operations involved in it are of the same kind, and carried on in the same way, as those which are characteristic of ordinary trading in the line of business in which the venture was made." In another case Californian Copper Syndicate (Ltd. and Reduced) v. Harris (5 TC 159) it was held:- "It is quite a well-settled principle in dealing with questions of assessment of income-tax, that where owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at enhanced price is not profit in the sense of schedule 'D' of the Income-tax Act. 1842 assessable to income-tax. The Supreme Court of India in G. Venkataswami Naidu & Co. v. C.I.T. reported as (1959) 35 I T R page 594 made a detailed discussion as under:- In this connection it would be relevant to refer to another test, which is some times applied in determining the character of the transaction. Was the purchase made with the intention to re-sell it at a profit? It is often said that a transaction of purchase followed by re-sale can either be an investment or an adventure in the nature of trade. There is no middle course, and no half-way house. This statement may be broadly true; and so some judicial decisions apply the test of the initial intention to re-sell in distinguishing adventures in the nature of trade from transaction of investment. Even in the application of this test distinction will have to be made between initial intention to re-sell at a profit which is present but not dominant or sole; in other words cases do often arise where the purchaser may be willing and may intend to sell the property, purchased at profit but he would also intend and be willing to hold and enjoy it if a really high price is not offered. The intention to re-sell may in cases be coupled with the intention to hold the property. Cases may, however, arise where the purchase has been made solely and exclusively with the intention to re-sell at a profit and the purchaser has no intention of holding the property for himself or otherwise enjoying or using it. The presence of such intention is no doubt a relevant factor and unless it is off-set by the presence of other factors it would raise a strong presumption that the transaction is an adventure in the nature of trade. Even so, the presumption is not conclusive; and it is conceivable that, on considering all the facts and circumstances in the case the Court may, despite the said initial intention, be inclined to hold that the transaction was not an adventure in the nature of trade. We thus, come back to the same position and that is that the decision about the character of a transaction in the context cannot be based solely on the application of any abstract rule, principle or test and must in every case depend upon all the relevant facts and circumstances.

16. In a recent decision taken by the Income Tax Appellate Tribunal, Karachi Bench and reported as 1984 P T D (Trib.) 127 a similar view was taken. In that case a plot of land was purchased by the assessee with the intention to construct a Cinema House. Subsequently, the assessee was not able to obtain no objection certificate and sold the plot on profit. In the circumstances of the case, the Tribunal held that the sale transaction was not venture in the nature of trade.

17. Coming to the present case, it is evident that at the time of the purchase of the land by the Model Town Society the sole intention was to develop it and to ultimately sell it to its members. Profit earning even otherwise is not one of the objects of the Society it is pertinent to note that net profits of the Society are not distributable to its members. Under para. 59 of the bye-laws of the Society it is provided that no profit is to be distributed amongst the members or divided on shares, or paid as bonus or otherwise. Therefore, it cannot be said that essentially the object of the Society was to earn profit or the land purchased by the assessee-society and subsequently sold was its stock-in-trade. Here, we would like to take note of the earlier decision of the Tribunal relied upon by the department. In the first instance that order related to the assessment year 1963-64 while the present Society was inducted in the year 1967. Secondly, with respect, we do not subscribe to the view expressed by the Tribunal in that case. In any case in that case the sale was to members of the Society. Therefore, at best, the land owned by the Society with an object to sell it to the members, can be called stock-in -trade. Consequently, even in that case in regard to the transaction in which the Tribunal had held the land sold by the Society as stock-in-trade, ultimately the Tribunal had set aside the order and transaction was not taxed on the ground of mutuality. The transaction or sale entered with the L.D.A. had never been intended by the assessee at the time of the purchase of the land and the profit, which was incidentally derived by the Society was casual in nature as it was not in the ordinary course of business of the Society. It was merely an increase of price of land realised on the sale of plot of land. It may also be pointed out that in case of any solitary transaction like this, the burden is heavily on the department to prove that such a transaction was adventure in the nature of trade. If an, authority is needed the case of Saraj Kumar Majumdar v. C 1.T. reported as (1959) 37 1 T R 242 (SC) may be quoted. In that case the Supreme Court of India held 'it is also a well-settled proposition of' law that the onus of proof that an isolated transaction constitutes and adventure in the nature-of-trade is on the department". 18.Therefore, the transaction in which the assessee only incidentally derived profit on account of inflation in the price of land, was not an adventure in the nature of trade the income derived by the assessee was casual and non-recurring in nature.

19. Reverting to the question as to whether the income derived by the assessee is capital gain or not, not much argument is required. If the land, in question was not stock in trade of the assessee there) can be no dispute that the income derived by the assessee was the) capital gain. Section 27 of the Income-tax Ordinance clearly excludes the capital gain out of transfer of an immovable property from the definition of 'capital asset'. As stated above, the learned counsel for the assessee is right in contending that no interpretation could be possible under section 27 of the Income-tax Ordinance as would make the section ultra vires of the Constitution. Item No. 5n of the 4th Schedule of the Constitution clearly lays down that Federal Legislature is not competent to legislate and tax the capital gain on immovable property. Therefore, section- 27 of the Income-tax Ordinance cannot be so interpreted so as to bring it in conflict with item No. 50 of the Fourth Schedule of the Constitution. The contention of the learned) Legal Advisor of the' department that the provisions the Constitution were in abeyance and, therefore, no reliance could be placed on the Constitution, is completely devoid of force. No doubt in the proclamation of 5th July, 1977 when Martial Law was imposed, it was provided that the Constitution would remain in abeyance but on the same day the Chief Martial Law -Administration made the Laws (Continuance in Force) Order, 1977. Para. 2 of this Order provided that notwith standing the abeyance of the Constitution Pakistan would be governed as nearly as possible in accordance with the Constitution. We, therefore, do not find any force in this argument of the learned legal Advisor of the department. The third alternative argument of the learned counsel for the assessee was that in any case, the sale of land in dispute to the L.D.A by the society was not a 'transfer' within the meaning of section 27 of the Income-tax Ordinance, which is the only section under which this kind of income could assessed. Under sub-clause (i) of clause (b) of subsection (2) of that section, it has been clearly laid down that any transfer by reason of the compulsory acquisition is not a 'transfer' within the meaning of that section. The learned counsel for the department, however contended' that the agreement with the Model Town Society in regard to the sale of land to L.D.A. was a voluntary agreement. Therefore, it could not be regarded as compulsory acquisition of land. Keeping all the circumstances of the case in view, we are not persuaded to accept this argument. The circumstances under which this agreement took place have to be kept in mind. The Notification in regard to they acquisition of land had already been issued. The Model Town Society had challenged the notification in regard to the acquisition of land and possession of the land had also been acquired by L. D. A. Here I part of the preamble in the agreement would be relevant to reproduce:- "Whereas the first party framed a housing scheme known as the Model Town Extension Scheme under section 6 read with section 13(1) of the Lahore Development Authority Act, 1975 for an area measuring approximately 482 Acres and the possession of the said scheme land having been taken over by the first party under the law." Now acquisition proceedings had been started against the assessee. The possession had been taken over and, therefore, what was to be agreed was the price of the land. The assessee was left with no option except either to continue the protracted litigation or to agree on a reasonable price. Therefore, substance of the agreement was in regard to the price of the land and not to the transfer of land. Therefore, to our mind for all intents and purposes this was an acquisition of land within the meaning of section 27 of the Income-tax Ordinance. Even otherwise the object of sub-clause (i) of clause (b) of subsection (2) of section 27 of the Income-tax Ordinance referred to above, appears to be that the rigours of income-tax should not be applied on a person who has been forced to sell his assets against his will. In the present case notwithstanding the agreement with the L.D.A., we have to keep in mind the background of the agreement under which it took place. In these circumstances, nobody could say that this was a voluntary agreement by the Society with the L.D.A. Therefore, on this account as well the assessee could not be taxed with so-called income or capital gains derived by it as a result of the transaction of the sale with the Lahore Development Authority.

20. For the foregoing reasons, we hold that the addition of Rs.7, 97, 54, 370 made on account of sale transaction of land with the L. D. A. is a capital gain on immovable property and is not 'transfer' within the meaning of section 27 of the Income-tax Ordinance, and that this being a capital gain on immovable property was not taxable under the Income-tax Ordinance. We also hold that this transaction was not a transaction in the nature of adventure in trade. Thus, additions are, therefore, directed to be deleted. In regard to the expenses, we have already held in our order for the assessment year 1979-80 that in the past, 1/3rd expenses have been allowed all along. The I.T.O. has already allowed the expenses at 30% of the claim as admissible expenses. Therefore, no exception could be taken to the order on that account.

21. The next ground of the assessee was in regard to the addition of Rs.1,16,508 on account of 50% unpaid provident fund to the staff according to the assessing officer a loss of Rs.5,56,352 was shown by the assessee in the balance-sheet under this head. An amount of Rs. 2,33, 017 remained unpaid for the last three years. 50% of this amount was contributed by the employees and 50% represented the payment made by the assessee. 50% contribution made by the assessee was claimed as admissible deduction by the assessee. The I.T.O. made the disallowance on the ground that this fund was not approved under section 2(41) of the Income-tax Ordinance. As such no exception can be taken to this addition.

22. The last ground taken by the assessee was in regard to the income from Petrol Pump. The assessee has already been allowed reasonable expenses and only 1/5th of the income has been taken as taxable on account of dealing with the non-members. No exception can be taken to the order of the learned I.T.O. 23 As a result of the above discussion both the appeals of the assesses are partly accepted to the extent indicated above. M. B. A. /489/ T

Appeals partly accepted.