1983 PLP 1153 (CLC)

3. Learned counsel for the petitioners submits that since the peti tioners had only sold the leasehold rights in the immovable property in question, the rights transferred by the petitioners were not immovable property, but only those pertaining to enjoyment of immovable property, as defined in section 105 of the Transfer of Property Act, 1882, and that the transfer of such rights could not be treated as "transfer of immovable property" within the meaning of section 16 of the Punjab Finance Act, 1963 so as to attract capital gains tax. Learned counsel for the petitioners further submits that the Provincial Legislature has power to legislate in respect of taxes to be imposed on capital gains on immovable property, by virtue of Item 50 of Part I of the Federal Legislative list contained in the Fourth Schedule to the Constitution of Pakistan, 1973, and as the term "property" has been defined in Article 260 of the said Constitution to also include "any right, title or interest in property, movable or immovable, and any means and instruments of production", the said definition should be applied to the instant case and not that as provided by section 2 (31) of the Punjab General Clauses Act, 1956. In this connec tion, learned counsel has cited Federation of Pakistan v. United Sugar Mills Ltd. (P L D 1977 S C 397). Finally, learned counsel submits that as a lease is only a transfer of a right to enjoy immovable property, there is no transfer of the actual immovable property or its ownership or any interest therein and therefore the transaction does not come under the expression "transfer of property", which basically means transfer of freehold,

4. Learned Assistant Advocate‑General, Punjab who appears for the respondents, submits that the petitioners had lessee rights in the land from Government, as the land belonged to the Federal Government and was situate in the Jhelum Cantonment. Learned counsel further submits that the petitioners were not only lessees of the land, but were also owners of the superstructures thereon, and that what the petitioners transferred through the five sale deeds were not only their ownership rights in the superstructures on the leased land, which comprised the Raja Building, but also the lessee rights in the land which was the site thereof. Learned Assistant Advocate‑General further submits that lessee rights constitute interest in property and that by virtue of the definition of "property" contained in Article 260 of the Constitution of Pakistan, 1973, which definition the petitioners themselves want to avail, lessee rights constitute immovable property. In this connection, the learned Assistant Advocate‑General has referred to the case of the Azad Government of the State of Jammu and Kashmir v. Kashmir Timber Corporation (P L D 1979 S C (A J & &) 139) to show that lessee rights constitute immovable property. Learned counsel further submits that the definition of immovable property as given in section 3 of the Transfer of Property Act, 1882 and in section 2(31) of the Punjab General Clauses Act, 1956, is applicable to the case and since the general concept of "property" includes the right and interest which a man has in land and chattels and this word not only means the subject of the right, but also the rights over it, immovable property" also means the rights and interest in the said property as well.

6. Since the case has been argued at length, on the request of the learned counsel for the parties; the present writ petition is being admitted and will be disposed of by this judgment as a notice case.

7. I have given my anxious consideration to the arguments addressed by the learned counsel for the petitioners and the respondents and have also perused the record. The learned counsel for the petitioners admits that the petitioners had rights to the leasehold which constituted the site of the Raja Building. Learned counsel for the petitioners also admits that the superstructures which stood on the land were fully owned by the petitioners. In short, what the petitioners sold through the five disputed sale deeds was their respective rights and interest in the leasehold and their respective full ownership rights in the superstructures standing on the said land. Since the superstructures stood firmly attached to the land and were permanently fastened to it, the same were undoubtedly immovable property. The effective life of a superstructure in the hands of a lessee is commensurate with the balance period of the lease and its final fate is dependent on the terms of the lease, which has to specify, whether after its determination, the superstructure has to be removed by the lessee or retained by the lessor, with or without compensa tion. But whatever be the effective life of the superstructure in the hands of a lessee, if the same is built by the lessee, it is fully owned by him. In these circumstances, that part of the property therefore transferred by the petitioners, to the extent that it covered the superstructures, was an outright transfer of ownership. The balance part of the property demised, to the extent that it covered the site, was transfer or assignment of the leasehold. As regards the former, there can be no dispute that a part of each sale deed, to the extent to which it transferred the superstructure, was a straight transfer of immovable property liable to capital gains tax under section 16 of the Punjab Finance Act, 1963. As regards the latter, the matter calls for a proper determination, which I proceed to discuss separately below.

8. Under section 16 (1) of the Punjab Finance, Act 1963, capital gains tax is livable :‑‑ "on any profits or gains arising from the sale, exchange or transfer of immovable property effected after the 30th day of June, 1963". within urban areas specified by the Provincial Government under section 3 of the Punjab Urban Immovable Property Tax Act, 1958, and such other urban areas as may be specified by the Government under subsection (1‑A). The only question that arises is whether the transfer or assignment of a leasehold constitutes transfer of immovable property within the meaning of section 16 of the Finance Act. The word "property" or the words "immovable property" have not been defined in the Punjab Finance Act, 1963. The word "property" ordinarily means the right and interest which a person has in lands and chattels. The term "property" is a generic term covering not only the right which a person has in relation to something, such as dominion or right of user or disposition which he exercises over particular things or objects, but also denotes the subject of the property, or thing itself which is owned or in relation to which the right of property exists. In the former sense, it includes all valuable rights or interests, in real or personal property, or in easements, franchises etc., and in the latter sense, covers everything which is the subject of ownership or to which the right or interest in or to property may legally attach i. e. every type of property a man can own or have an interest in. In short the word "property" not only means the physical property, but also rights and interest to and in that property. The term "immovable property", however, is used more in the strict sense as implying property which is permanently fixed or attached to the earth and which is not capable of being moved from one place to another. It is rarely used in a generic sense to denote the rights or interest attaching thereto. But since transfers, assignments, surrenders, relinquishments, etc., of leases, mortgages, etc., involve transfers of rights and interest in immovable property, the Legislature has stepped in to give a generic meaning to the term "immovable property" by legislation. The definition of the expression "transfer of property" in section 5 of the Transfer of Property Act, which is placed in Part (A) headed "Transfer of Property, whether movable or immovable" in Chapter II, with other sections in the same Chapter, is one such example. The definition of the term "immovable property" in section 2 (31) of the Punjab General Clauses Act, 1963, and Article 260 of the Constitution of Pakistan, 1973, may be cited as two other examples. There may be more. The term "property", by its inherent nature, and the term ‑immovable property", where its meaning has been enlarged by statutory enactment, now, therefore, not only designate the immovable property in the physical sense, but also rights, title and interest therein.

9. The main question that arises is what does the expression transfer of immovable property", as used in section 16 of the Punjab Finance Act, 1963, means. Sale is a transfer of ownership in exchange for a price paid or promised or part paid and part promised. An exchange is a mutual transfer of ownership of one thing in return for ownership of something else of another, neither thing or both things being money only. What is common between the two is the transfer of ownership, i.e. all the rights that go to make up ownership, such as (i) jus utendi the right to the use of the thing, (ii) jus posidendi‑ the right to possess the thing, (iii) jus utendi‑the right to consume or destroy the thing, (iv) jus dispondendi or transferendi‑the right to dispose of the thing or to transfer it, (v) jus ibi hapendi the right to hold the thing for oneself and (vi) jus alteri non hapendi‑the right to exclude others from its use. Ownership and possession are two separate concepts, Ownership is a de jure character a person may enjoy and be vested with some exercisable rights and have some which are not being enjoyed or are vested in or exercised by him, but which he may enforce ; or he may have, enjoy and be vested with and be able to exercise all rights, which he otherwise could have enforced. Possession is a de facto position or situation‑the state of actually physically possessing and using or enjoying property. A person may possess a right without owning it, or own a right without possessing it. Ownership and possession may be united, in which case the de facto and de jure relations fuse into one. Ownership can be complete even without possession. Any form of transfer of ownership is therefore, a mixed collection of vested exerciseable rights and enforceable rights, with or without transfer of possession. Thus, the word "sale" or "exchange" cannot he used to denote any set or predetermined form of transfer of vested exerciseable rights or enforceable rights or transfer of possession. "Sale" and "exchange" are two distinct types of transactions. The expression "transfer of immovable property" does not designate any particular or distinct type of transaction. Rather, it indicates varying types of transactions. "Sale" and "exchange" have one thing in common‑transfer of ownership. The expression "transfer of immovable property" does not necessarily involve that element. It can include transfers of immovable property in which there is transfer of ownership, such as gifts, transfers of ownership rights through decree or arbitration. It can also include transfers in which the transfer of ownership is not involved. To understand these words, a reference to section 12‑B of the Income‑tax Act, 1922, is necessary. Tax on capital gains was first introduced by the Income‑tax and Excise Profits Tax (Amendment) Act, 1947, which introduced section 12‑B in the Income‑Tax Act, 1922. The said section 12‑B made au assessee liable to income‑tax in respect of :_ "profits or gains arising from the sale, exchange or transfer of a capital asset." In Traders and Miners Ltd. v. Commr. of Income‑tax (A 1 R 1955 Pat. 113) a mining lease, which was an assessee's capital asset, was transferred for a profit. The Income‑Tax Department assessed the profit to tax under the head Capital Gains. The assessee contended that the expression "transfer" included a permanent transfer and not a temporary transfer of title to the property, like a lease The High Court held that the expression "transfer" in the section included not only a permanent transfer of title to the property in question, but also a temporary transfer of title to the property in question and a lease of mines for any period fell within the ambit of section 12‑B of the Income‑tax Act, 1922. The Court further held that a lease of land was a transfer of an interest in the land and created a right "in rem" and that there was a transfer of title in favour of the lessee, though the lessor had right of reversion after the period of lease terminated. The transfer of leasehold was therefore treated as a transfer of title in favour of the transferee and the temporary transfer was treated as a "transfer" covered by section 12‑B of the Income‑Tax Act. "Immovable Property" has been defined in section 3 of the Transfer of Property Act and section 2 (31) of the Punjab General Clauses Act. The definition in section 3 of the Transfer of Property Act does not openly and clearly state what immovable property is. It leaves the definition open, except exclude standing timber, growing crops or grass. The definition in the General Clauses Act is no less enigmatic, though perhaps little clearer. It includes land, benefits to arise out of land and things attached to the earth or permanently fastened to anything attached to the earth. A lease of immovable property is a transfer of a right to enjoy such property. This right is inevitably an interest in immovable property. Transfer of a lease is transfer of this interest. This is a valid and effective transfer on the basis of the principle contained in section 5 of the Transfer of Property Act. Looking at it another way, it cannot be denied that a right to enjoy the property is a benefit that arises out of the land leased. As held in Ramchandra Annappa v. Subraya Timmaya (A I R 1954 Bom. 127) a benefit arising out of land is an interest in land and, therefore, is immovable property. In the said ruling it was held that merely because in the definition of a "lease" contained in section 105 of the Transfer of Property Act, it was not specifically stated that a lease of immovable property was a transfer of an interest in such property, but it was defined as a transfer of a right to enjoy such property, it did not follow that the transfer of the benefit to arise out of land, namely, the right to enjoy the immovable property, was not a transfer of an interest in immovable property. It was further held that in interest in immovable property could be acquired by a person, not only of he had the totality of the rights in and over such property, but also if he had transferred to himself certain rights in or over the property which could come within the definition of a benefit to arise out of land. It was further held that sections 108 (j) and 111 (d) of the Transfer of Property Act clearly showed that a lessee had interest in the property which was the subject‑matter of the lease. It was, therefore, held that merely because a lease was defined as a transfer of a right to enjoy such property, it did not follow that it was not a transfer of immovable property within the meaning of section 53‑A of the Transfer of Property Act. In these circumstances, there can be no doubt that the right which the petitioners had to enjoy the property, in the leasehold which they possessed, was a benefit that arose out of the leased land. As such, the leasehold rights which the petitioners had was "immovable property". The transfer of such rights constituted "transfer of immovable property" within the meaning of section 16 (1) of the Punjab Finance Act, 1963 and the peti tioners were liable to capital gains tax on the said transfer.

10. The case of Azad Government of the State of Jammu & Kashmir v. Kashmir Timber Corporation deals with the nationalization by Government of the trade dealing with the felling of trees and the extraction of timber there from, which earlier it used to lease out to private parties. Since the case relates to deprivation of property rights protected by section 4 of the Azad Jammu & Kashmir Interim Constitu tion Act, 1974, arguments also proceeded on the definition of the word `property", as defined in section 2 of the said Constitution Act, 1974. In section 2 of the Constitution Act, 1974, the word "property" includes any right, title or interest in property movable or immovable" It was, therefore, urged that the right to enter upon land and to remove the trees amounted to immovable property. Since the present case relates to a Provincial fiscal enactment and no constitutional question is involved, the definition given in Article 260 of the Pakistan Constitution, 1973, need not be pressed in the instant case. Had section 16 of the Punjab Finance Act, 1963, contained the words "transfer of right, title or interest in immovable property", and the question was whether the said section was intra vires, the definition of "property" given in Article 260 of the Pakistan Constitution, 1973, would have become relevant. In interpreting the expression "transfer of immovable property section 2(31) of the Punjab General Clauses Act, 1956, is the appropriate provision to consider.

11. The upshot of the above discussion is that the profits arising out of the transfer of the disputed property, covered by the five registered f sale‑deeds executed by the petitioners, is liable to capital gains tax No l question of computation has been pleaded or urged before me. The petitioners, therefore, appear to have been properly assessed.

12. According to rule 15 of the Punjab Capital Gains Tax Rules, 1964, the petitioners have a right of preferring an appeal before the Director of Excise & Taxation against the decision of respondent No.

1. Under rule 16 of the same Rules, the petitioners have a further right of appeal before the Director‑General of Excise and Taxation. Since the petitioners have an alternative remedy, this petition is not maintainable on that account.

13. For the foregoing reasons there being no merit in this petition, the same is dismissed. The respondents shall be entitled to their costs. S. Q. Petition dismissed.