1985 PLP (Trib (PTD)

FAHRAT ALI KHAN (MEMBER).‑In these six departmental appeals quite interesting points have arisen. The brief facts giving rise to these appeals are that one Col. Z .. A .. , who was allottee of Plot No. 64, 13th Street, Phase V of D .H . S K .. received on 21‑1‑1971 Rs. 11,731 from the respondent, who was his son‑in‑law, and executed an irrevocable power‑of‑attorney in his favour Whereby he authorised him not only to raise construction of aforesaid plot of land but also allowed him to operate Bank Account No. 355 standing in his (Col: Z ..A .) name, alongwith another loan account. The respondent utilising the loan of Rs. 1,00,000 granted to aforesaid Col . Z ..A .. by the H . B . Ltd., raised the construction on aforesaid plot of land and in this process he also pumped in Rs. 61,000 from his own pocket as well. The construction was completed on 27th January, 1973 and the plot of land with the construction was let‑out by the respondent to one called M .. M .. By virtue of a lease‑deed, dated 21st January, 1973, on a monthly rent of Rs. 1,

350. The lease as per stipulation was to expire on 31st January, 1975. Admittedly aforesaid M. M .. I .remained a tenant till his lease expired. Subsequently, on 31st March, 1975 the same bungalow was again given on rent to one called B A ..M on a, monthly rent of Rs. 1,750 which was subsequently raised to Rs. 2,000 and Rs. 2,

500. It also appears to be an admitted fact that all the rent received was deposited in Account No. 355, standing in the name of aforesaid Col .Z .A and from there it was transferred to loan account, again standing in the name of aforesaid Col. Z .. A ..everything went on well till 18th June, 1978, when aforesaid Col .Z .. A ..got an advertisement inserted in daily D whereby he purported to have cancelled the power‑of‑attorney executed by him in favour of the respondent. The respondent was alive to face the situation and by a rejoinder published in daily D of 26th June, 1 78 claimed to be the owner of the plot of land alongwith the construction standing thereon and warned all persons concerned not to enter into any sort of transaction with aforesaid Col . Z A This newspaper battle between aforesaid Col Z A and the respondent appears to have been ignited because the respondent had divorced his wife, who was the daughter of aforesaid Col .Z A as mentioned above. However, it provided an opportunity to the Tax authorities to set the ball rolling. Consequently, on 8th July, 1978, the first notice was issued by the Income‑tax authorities calling upon there to furnish all details of the investment made in aforesaid bungalow particularly with reference to his notice published in D .... on 26th June, 1978, reply dated 1st August, 1978 denied the ownership and asserted that it stood in the name of aforesaid Col ... ..Z...:..A ..... Apparently the Tax authorities were not satisfied by the explanation. Therefore, a notice under section 65 of the Income‑tax Ordinance, 1979 hereinafter referred to as the Ordinance was issued on 19th March, 1980. The respondent filed his returns for assessment years 1973‑74 onwards for all the relevant assessment years on 25th March, 1980. Prior to it the wealth‑statements were filed which were also subsequently revised. Let us mention here that earlier on 16th February, 1980 the respondent also was also examined by assessing officer under section 37 of the repealed Income tax Act, 1922, hereinafter referred to as "the Act". Needless to say that several letters were exchanged between the assessing officer as well as the respondent on various dates. After considering all material available on record the assessing' officer framed assessment. For assessment year L973‑74. the assessing officer added Rs. 27,500 and Rs. 61,000 as un explained cash credit and Rs. 14,000 as Dower (Mehr) payable to the wife of the respondent to Rs. 53,828 which was declared income from salary. In assessment year 1974‑75 the Income‑tax Officer added Rs. 9,608 as the rent allegedly received by the respondent at the rate of Rs. 1,350 from 1st July, 1973 to 30th June, 1974 alongwith Rs. 5,250 as an amount unexplained. Both the aforesaid amounts were added to Rs. 61,175 which was the declared income from salary. Similarly, in assessment year 1975‑76 the Income‑tax Officer added Rs. 12,119 on account of undeclared rent and Rs. 29,500 on account of unexplained income to declared salary income of Rs. 65,

952. Again in assessment year 1976‑77 the Income‑tax Officer added Rs. 18,750 on account of rent to the declared salary income of Rs. 43,

200. For assessment year 1977‑78 Rs. 20,790 on account of rent and Rs. 10,000 on account of unexplained cash were added to Rs. 52,995, the declared income from salary. Likewise, in assessment year 1978‑79 to the declared salary income of Rs. 52,680; the Income‑tax Officer added Rs. 27,689 on account of rent and Rs. 20,000 as unexplained cash. Let us mention here that in adding the income from rent the Income‑tax Officer took into consideration the variation in the rent as well as the amount of interest paid on loan obtained for construction of building, during all the relevant assessment years. The, Income tax Officer was of the view that the respondent was the real owner of the aforesaid bungalow and hence entitled to receive rent. He further came to the conclusion that bank account standing in the name of aforesaid amount at trading receipt of the appellant and added it to its profit. He also allowed some expenses regarding telephone, legal, entertainment depreciation and interest alleged paid by the appellant. The appellant felt aggrieved and went up in appeal. The Commissioner of Income-tax (Appeals) by his impugned order accepted the contention of the appellant that the declared receipts of Rs 11,48,309 were not the trading receipts hence the declared its deletion. He also recorded his order regarding expenses. This time both the Department as well as the appellant felt aggrieved and have come up in appeal. The Department in its appeal has challenged the finding of the Commissioner of Income-tax (Appeals) in so far it relates to entertainment duty admittedly collected by the appellant and he appellant has attacked the findings of learned Commissioner of Income-tax (Appeals) regarding add-backs. Mr. I. N. Pasha, the learned counsel appeared for the appellant, we will dispose of both appeals by this consolidate order. Benami Bank account belonging in fact to respondent. He held that Rs. 61,000 allegedly invested by the respondent in construction of the building on aforesaid plot of land, and Rs. 27,500, Rs. 5,250,Rs. 29,500, Rs. 10,000 and Rs. 20,000 remained unexplained. Similarly, be also held that the respondent had failed to explain an amount of Rs. 14,000 shown in the wealth‑statement as the amount of dower payable to his wife. He, therefore, added not only the amount of the respondent in the relevant assessment years which was declared as salary income. The respondent naturally felt aggrieved and went up in appeal. The learned Appellate Assistant Commissioner by his consolidated order recorded on 22nd March, 1981 in Income‑tax Appeals Nos. 1534, 1535, 1536, 1537, 1538 and 1539, firstly directed deletion of Rs. 14,000 on the ground that it was shown as mere liability in the wealth‑statement, hence was wrongly added in the total income for assessment year 1973‑

74. Similarly, he also ordered deletion of Rs. 61,000 added to the total income of assessment year 1973‑74 as he came to the conclusion that the respondent had sufficient means to invest aforesaid amount. Regarding addition of Rs. 27,

500. Rs. 5,250, Rs. 29,500, Rs. 10,000 and Rs. 20,000 to the total income in assessment years 1973‑74, 1974‑75, 1975‑76, 1977‑78 and 1978‑79 respectively, the learned Appellate Assistant Commissioner held that the bulk of the aforesaid amounts were paid. to the loan account from Account No. 355 and the remaining amount was paid by the respondent from iris o vn pocket. He again held that the respondent. had means to pay aforesaid amounts regarding addition made on account of rent the learned Appellate Assistant Commissioner made the following observation "While I do not accept the contention of the appellant that the property income is not to be assessed to his hands because for all purposes and every sense of the word he has been enjoying the property income and should have been responsible for the payment of taxes. I do not find force in the contention of the appellant that the Assistant Income‑tax Officer was not justified to change his duty intimated approach to the appellant vide his notice dated 21st May, 1980 indicating therein the property income and com putation in accordance with section 9 of the Income-tax Act, ordinance giving the appellant an opportunity to explain his position in view of the changed approach towards the rental receipts arising from property.

2. The learned A. C. C. therefore set aside tire order of Assistant Income‑tax Officer regarding addition on account of rent and sent the point involved back to the assessing officer for fresh decision in accordance with law and after giving appellant full opportunity to explain hiss position. This time the Department felt aggrieved and filed these six appeals challenging all the findings of the learned Appellate Assistant Commissioner.

3. Mr. A .A .learned D. R. appeared for the Department and Mr. A A the learned counsel for the respondent appeared for the respondent. We have heard both of them at length and have also perused both the assessment as well as the impugned orders.

4. Starting with his arguments regarding, deletion of Rs. 14,000 Mr. A .. A... .. the learned D. R. adopted the reasons advanced by she assessing officers in support of addition. Mr. A A the learned counsel for the respondent, however. vehemently opposed the submission of the learned D. R. The learned counsel submitted that no addition could be made on account of liability. Mr. A A argued that Rs. 14,000 was shown as the amount of dower payable to the wife of the respondent as a liability which was to be discharged. According to him, it could not have been added as unexplained or investment without causing violence to the language of the law. With due respect we agree with Mr. A A and have no hesitation in uphelding of finding of learned A. A. C. on this issue.

5. Now turning to the addition of Rs. 61,000 and Rs. 27,500 in assessment year 1973‑74 and Rs. 5,250, Rs..29,500, Rs. 10.000 and Rs. 20,000 in assessment years 1974‑75, 1 ,)75‑76, 1977‑78 and 1978‑79 respectively we again find no reason for interference with the finding of learned A. A. C. The Assistant Income‑tax Officer added this amount on the ground that the respondent had no mean to save that much money for investment. To this conclusion he came for the simple reason that the respondent had failed to produce assessment orders of assessing officer of C and K for assessment years 1961‑62 to 1976‑

77. Let us mention here that the respondent, who served as an employee of Messrs J F & Co from 1961 to 1966, had stayed at Chittagong, Since' he was a salaried person, therefore, he contended that he "was not in possession of the assessment orders for the relevant ‑ assessment years. Nevertheless, he produced notice from Assistant Income‑tax Officer, dated 27‑1‑1967, whereby deletion of tax was ordered. He also brought l on record a letter from his employers Messrs J F & Co. dated 2nd June, 1967 and a statement of salary issued by his employers. Froth this circumstantial evidence, we think it was fully established that he was an assessee at Chittagong in East Pakistan and paid tax thereon. We, therefore, feel that the assessing officer was not justified in ignoring the explanation offered by the respondent in the absence of production of assessment orders. There was sufficient evidence available on record to show that had been the income of the respondent while he was an employer of Messrs J ....F.... & Co., and Messrs C.... Industries Ltd‑, for all the relevant years. It has also been fully established that upto assessment year 1972‑73 the total income of the respondent amounted to Rs. 3,41,94'3, out of which he claimed to have saved Rs 1,31,

452. We agree with the contention of learned counsel for the respondents that while staying at Chittagong the respondent was in a position to save that much money ‑cause of low cost of living ‑and despite of his hobby of shooting. We Link that the assessing officer went rather to the extreme in highlighting this hobby of respondent in order to prove that he was left with no money or investment purposes particularly in view of the cash flow statement towing his total savings which was produced alongwith other satisfactory cumstantial evidence. Let us also mention here that the respondent ad produced all the assessment orders, right from 1970‑71 to 1976‑77 before learned Appellate Assistant Commissioner. Mr. A -e‑A the learned Departmental Representative urged before us that the learned appellate Assistant Commissioner was not competent to accept this additional piece of evidence. With due respect to the learned Departmental representative, we are afraid, we find no substance in his submission. The respondent had provided Income‑tax Officer with all the G. I. R. Nos., including those of K where his income from salary was assessed. The assessing officer had given no good reason as to why he could not find out files of the relevant assessment years. Since assessment orders are the documents of the Department, we do not think that the learned Appellate assistant Commissioner erred in accepting them in appeal. Let us also point out that the learned Appellate Assistant Commissioner has also ,ken into consideration the surrender of insurance policy, sale of Defence Savings Certificate and sale of car by the respondent while coming the conclusion that he had enough means to explain not only the investment of Rs. 61,000 in construction of bungalow but also the amounts sought to be added by the assessing officer in all the relevant investment years as unexplained income. We, therefore, uphold the finding of learned Appellate Assistant Commissioner on this point as well.

6. Now before reverting to the most interesting aspect of the case e would like first to reproduce here the questions and answers recorded r the assessing officer under section 37 of the Act. Questions Nos. 1 to 3 td their answers are as follows "Question No. 1.‑Who owns the bungalow No. 61, 13th Street Phase‑V, Defence Housing Society? Answer No. 1.‑The plot was purchased by me from Lt.‑Col Z A for a total consideration of Rs. 11,731 under a General Power‑ of‑Attorney (photo copy of proof of Rs. 11,731 will be filed on the next hearing). Question No. 2.‑Who has made investment in the property and what are the sources? Answer No. 2.‑The construction of the property was made by me as attorney of 282 sq. yds. (ground floor and first floor) against the Approved Plan in the name of Lt.‑Col A The investment in the construction of property was made by obtaining loan Rs. 1,00,000 from H. L. B. Office vide Letter No. D. H. S. No. Loan/596/3939, dated 30‑9‑1971 addressed to the Lt.‑Col Z A and out of the cash available with me at Rs. 61,000 (approx.) the total area of the plot is 1,033 sq. yds. and the covered area is 282 sq. yds. for both the ground and first floor. The house was completed on 27‑1‑1973 as per letter dated 22‑9‑1973. Photostat copy will be furnished on next hearing. Question No. 3.‑When the above‑mentioned property was let out and who is tenant and who is receiving the rent" Answer No. 3.‑The property was let out to Messrs M. M. 1...... as in January, 1973 vide lease agreement dated 21‑1‑1973 on a rental of Rs. 1,350 per month. The lease expired on 31‑1‑1975 and it was let out to Mr. Q M son of B A M on a rental of Rs. 1,750 per month w.e.f. 31‑3‑1975. The rent was raised to Rs. 2,000 and that to Rs. 2,

500. The actual amount received will be furnished on the next hearing. The rent was directly paid by cross cheque in the name of Lt.‑Col ...Z .. A...... account maintained at his Bank account K I. This number will be given to you on the next hearing. Mr. A ..e A referring to the answers vehemently argued that as they contained the admission of the respondent, therefore, they should be relied upon and given effect to. In this connection he cited before us (1980) 122 I T R 926 Mr. A . .e . A .further argued that as per admission of the respondent he had purchased the plot of land from aforesaid Col. Z A through a general power‑of‑attorney for a consideration of Rs. 11,

731. It was further admitted by the respondent pointed out Mr. A .e A that the utilized Rs. 1,00,000 from the loan account standing in the name of Col . Z .. A and Rs. 61,000 from his own pocket in raising the construction on aforesaid plot. He further' admitted that the property was let put firstly to Messrs M. M. I .and subsequently to Mr O .. M and the rent was deposited in Account No. 3: 5, which was standing in the name of aforesaid Col ... Z... . A In view of these admissions Mr. A .e ... A strenuously contended that not only the property in question belonged to him but he also earned income from it which he failed to disclose. Hence the Income‑tax Officer was right, went on the learned Departmental Representative, in adding income from rent in all the relevant assessment years.

7. Mr. A ..A the learned counsel for the respondent however, relying upon Bachu Bai Dinshaw v. C.I.T. (Appeals) (1967 P T D 170), argued that unless the property was transferred legally, all the income therefrom went to the owner and that it could not be treated as income in the hands of a beneficial owner. Mr. A... ..A... argued that as the plot of land was never transferred, the real owner thereof remained aforesaid Col ..Z .. A and, as such, the respondent earned no income from the rent. Consequently, according to learned counsel the respondent and no income from property to declare. With due respect to the learned counsel, we are unable to persuade ourselves to subscribe to his point of view. Firstly, let us point out that Bachu Bai Dinshaw's case (supra) does not come to the rescue of the respondent for the simple reason that in that case the property was sold to a person who was not only given possession thereof but who ‑ had also started realising rent from the tanants. The Income‑tax Officer sought to tax the vendors but it was argued that they were not liable to pay the tax on income from property as the beneficial ownership was transferred to the purchasers who were even realising rent from the tenant. The learned Division Bench of High Court of Karachi on reference however, rejected the contention of the vendors and held that until the property was transferred under section 54 of the Transfer of Property Act and 49 of the Registration Act, the vendor remained the owner of property and, therefore, were liable to pay the tax. It was further held by their Lordships that the doctrine of part performance was not applicable. To the same effect were the views of Calcutta and Bombay High Courts. In C.I.T. v. Ganga Properties Ltd. (1977 I T R 637) and C.I.T. v. Union Land Building Societies (1983 I T R 794), the Calcutta and Bombay High Courts respectively held that till the deed of conveyance was executed the vendor remained the owner for the purposes of income from property under section 9 of the Act. However, it appears that the Indian Supreme Court in the case of Jodhantal Kuthiala v. C.I.T. (1982 I T R 570 (S C) took the contrary view. In that case the ownership of the property remained vested in the assessee but the tenancy rights vested in the Custodian of Evacuee Property Trust who, therefore, realised all the rents. The Income-tax Department, however, relying upon the definition of the owner of the property taxed the assessee for income from the property which he never received. Their Lordships after reviewing up‑to‑date case‑law came to the conclusion that the law should not be construed in such a way that it became an instrument of oppression. Their Lordships observed "It is true that equitable considerations are irrelevant in interpreting Tax Laws. But, these laws, like all other laws, have to be interpreted reasonably and in consonance with justice." Their Lordships; therefore, under the facts and circumstances of the case, held that the word owner should mean and imply a person who not exercised his rights of ownership but also was entitled to receive rent. Thus, in view of the Indian Supreme Court's this decision the authorities from Calcutta and Bombay High Courts, as cited above, are no more good law. However, as far as Bachu Buts case (supra) is concerned, we feel that it is binding on us as it contains the ratio recorded in Income Tax Reference case. Nevertheless, with due respect to the learned counsel for the respondent, we are of the view that it does not apply and is distinguishable under the facts and circumstances of the case. Admittedly, the respondent was put in possession of the plot of land and raised construction thereon. Admittedly he spent Rs. 1,61,000 in raising the construction. As such, he is the owner of the construction for all purposes including those of the chargeability of the property income under section 9 of the Act. A considerably old authority which appears to us nearest to the facts of this case, is reported as C.I.T. Madras v. Madras Cricket Club (1934) 2 I T R 203), in which though the owners of the land and building were different yet it was held that the owner of a building must be assessed under section 9, notwithstanding the fact that be was not the owner but only lessee of the land on which the building stood. To the same effect is Sakarchand Choganlal v. Controller of Estate Duty (1973 I T R 555).

8. Moreover, this case can be looked from yet another angle. Even if it is conceded that the owner of the plot was aforesaid Col. Z A yet the respondent, under the facts and circumstances of the case, becomes a licensee whose licence was irrevocable as .he acting upon the licence, had executed the work of permanent character and incurred expenses in its execution. In this connection we would like to refer to section 60 of the Easement Act (Act No. V of 1982). "

60. A licence may be revoked by the grantor, unless :‑‑ (a) it is coupled with the transfer of property and such transfer is in force. The licensee acting upon the licence has executed a work of a permanent character and incurred expenses in the execution." It is fully established that aforesaid Col. Z ..A ..transferred aforesaid plot to the respondent who raised the construction thereon which is by all means of permanent character and, indeed, incurred expenses therein. Let us also mention here that a licence may be granted either expressly or impliedly. Section 54 of the same Easement Act reads "

54. The grant of a licence may be expressed or implied from the conduct of the grantor and an agreement which purports to create. There is indisputable evidence on record that till 18th June, 1978 aforesaid Col. Z A raised no objection about the construction of the building on plot of land. Thus, the respondent was not only the owner of the building standing on the plot of land but also a licensee of the plot of land with an irrevocable licence. Hence, all the income accruing from it was his rental income. Let us also point out here that the building standing on the plot of land was an immovable property within the meaning of clause 25 of the General Clauses Act (Act X of 1898). The clause reads : "

25. Immovable property shall include land, benefits to arise out of land, and things attached to the earth, or permanently fasten to any thing attached to the earth." It would not be out of place to mention at this juncture that the law on this point is different is Pakistan from that of England. Here, in Pakistan, if a person raises a construction on the land of another. he has the right to dismantle and remove that building at the end of his lease or licence. On the contrary, the rule in Eng and is that the ownership of the building passes to the owner of the land at the end of the lease or licence.

9. Now we come to the last question involved in the matter, namely, whether the account standing in the name of aforesaid Col. Z ..A was a Benami account owned by the respondent. The Income‑tax Officer has recorded a clear finding on it. However, the learned Appellate Assistant Commissioner has overlooked this matter altogether. Never theless, from the perusal of the order of learned Appellate Assistant Commissioner it appears that he took into consideration the payments made to the loan account, firstly from Account No . . . . ., standing in the name of aforesaid Col. Z A and, secondly, from the pocket of the respondent himself. We agree with the findings of learned Appellate Assistant Commissioner that he respondent had means to pay the amounts in various years to the loan account But, at the same time, this fact also establishes that the loan of Rs. 1,00,000 standing in the name of aforesaid Col .. Z A was actually established that aforesaid loan was adjusted from payments made from Account No and from the pocket of the respondent. Thus, we are left in no doubt that the finding of Income‑tax Officer is very much supported by the evidence on record as well as the admission of the respondent himself contained in his answer to question No. of the assessing officer as reproduced earlier. The Income -tax Officer has discussed this matter at length and we need not dilate upon it any more.

10. Now to sum up, we are of the view that the respondent had means to invest Rs. 61,000 and to make re‑payment from his own pocket at different times and in different assessment years to the loan account. We are further of the view that both the loan accounts as well as Account No were Benami accounts the name of aforesaid Col .Z ..A and the real holder thereof was the respondent. We are also of the view that the respondent was the owner of the construction and licensee of plot of land with an irrevocable licence. We, therefore, conclude that the respondent was the owner of the property and was liable to pay tax on income form rent in the relevant assessment years. Since he failed to declare it, we uphold the order of the assessing officer whereby he had added it to the total income of the respondent in the relevant assessment year. Under the facts and circumstances of the case. We are very much constrained to observe that the respondent should have declared his income from property. Nevertheless we should emphasis that our findings discus sed are without prejudice to any proceedings pending or to be initiated.

11. In view of these observations, we set aside the direction of learned Appellate Assistant Commissioner regarding the rye nova assessment. We do not agree with him that any prejudice has been caused to the respondent in view, of the notice dated 21st May, 1980, issued by the assessing officer under section 23(3) and the finally framed assessment order. The respondent has been knowing all the time what case he had to meet. Thus, in view of the discussion made above, we allow these departmental anneals to the extent as indicated above. M. B. A. Appeals allowed.