2001 PLP (Trib (PTD)

agreement. Rs. 3 , 50, 000 Rent rate per square feet. 3,50,000 71.72 4880 Ground floor 3930 sq. ft: @ Rs. 71.72 Rs. 2,81,781 Second floor 4880 sq. ft. @ Rs. 71.72 Rs. 3,50,000 Third floor 4880 sq. ft. @ Rs. 71.72 Rs. 3,50,000 Fourth floor 4880 sq. ft. @ Rs. 71.72 Rs. 3,50,000 Thus the rent per month of the building 3,50,000, 2,81,781 . 3,50,000, 3,50,000 Rs. 16,81,781 The annual letting value 16, 81, x 2,1,81, 372 The GALV Rs. 201,813,720 The appellant in response to notice, dated 6-5-2000 received on 13-5-2000 filed following reply: "Facts of the case have been discussed in our reply No. M. 326, dated 1-3-2000 addressed to your predecessor (the learned IAC of Income Tax, Range-III, Zone-6, Karachi), in response to similar notice issued by him. After discussion with him, he had agreed to drop the proposed proceedings under section 17-B as the incomplete structure owned by the members in specified shares does not fall within the ambit of "Explanation" to section 2(5)(ii) of Wealth Tax Act, 1963 hence it was not liable to wealth tax in the status of AOP created by fiction of law as per section 2(5)(ii). (iii) In this respect we may once again clarify that the building structure consist of ground and 4(four) floors only and there is no mezzanine floor which can be verified from approved plan. The entire structure is totally incomplete with the exception of rented area consisting of 5700 sq. ft. only. (Thus the structure is totally incomplete in all respect and) it cannot be occupied for residential nor commercial purpose as no amenity or facility of any kind has been provided, with the exception -of a portion on ground floor consisting of 900 sq. ft. (out of total area of 3975 sq. ft. on ground floor) and 1st floor having an area of 4800 sq. ft. (which have been let out to Schon Bank Ltd., Karachi on monthly rent of Rs.3,50,000 per month). The rest of the area of structure consisting of 3075 sq. ft. (3975(-) 900) on ground floor, 3930 sq. ft. each on 2nd, 3rd and 4th floor are totally incomplete structure only, hence cannot be let out. Thus, the assumed pasis as proposed by you for estimating the value on assumed rent is not only incorrect but purely hypothetical and not in accordance to law."

7. It has been further submitted that Explanation to clause (ii) of subsection (5) of section 2 envisages that immovable properties held by AOP for the purposes of (i) letting out or business of letting out; (ii) construction and letting out, and (iii) construction and sale are chargeable assets. However, except the portion actually let out to the Bank, none of the other portions of the immovable property have been offered by the AOP either for sale or for letting out. It, therefore, has been submitted that in order to hold that immovable property held by the AOP is an asset chargeable under the Wealth Tax Act, the law warrants a finding that it is held for the purposes supra. Thus it is submitted that the onus to prove that it is so is to be discharged by the learned IAC.

8. It is further submitted, without prejudice to the submissions supra, that the proposed basis of valuation supra is patently inapplicable because the immovable property is not reasonably expected to let at the sum for which the finished portion has been let out. Further, in accordance with last proviso to Rule 8(3) the GARY cannot be estimated at .a sum higher than the rent paid or payable by the tenant.

9. The learned IAC, however, has found the explanation unsatisfactory firstly on the ground that the let out portion at the time of lease agreement was also in the same condition but the bank agreed to acquire it and secondly that the photographs of property produced on behalf of the assessee prove that "the building is complete with electricity connections, electric meters are in place with proper distribution lines, the whole building is completely plastered": Thirdly the learned IAC has observed: " It is abundantly clear from the explanation that the emphasis of legislation is on the "purpose" for which an immovable property is held, provisions to this explanation and the preponderance of judicial decisions including the decision of Supreme Court of Pakistan 1996 SCMR 1470 favoured the view that only the immovable property engaged in letting or sale as a business was covered by the term assessment. Further in this context in a case reported as 1996 PTD (Trib.) 114 it has been held that if an immovable property held by an AOP has not been actually let out but the purpose of holding the property is to let out the same in future it shall be deemed to be an "Asset" and shall be included in the net wealth of the AOP. " In the light of the above decisions it becomes crystal clear that the property held by the AOP is for the purpose of letting out and it, therefore, (is the asset of the AOP, which should have been valued on the basis of GARY. It is incorrect to say that the property is not for letting out, because the property in question is commercial in status, and this fact also points towards its obvious, utility.

10. He therefore has held: " ....The ready basis for rent receivable could have been the rent being received by the AOP from the Bank. The assessment made by the assessing officer is therefore definitely erroneous and prejudicial to revenue. The same is as such cancelled under section 17-B of the Wealth Tax Act, 1963 and the Assessing Officer is directed to initiate de novo proceedings in this case."

11. Mr. Salman Pasha, the learned counsel of the appellant had submitted before us that the learned IAC has placed no evidence on record that the unfurnished immovable property, claimed by the appellant AOP not to be an asset, as defined under section 2(5)(ii), is in fact held for the purposes of letting out as alleged by him. The learned counsel has submitted that the members of AOP have neither expressed, in any manner, any intention either to let out or sell the vacant and unfinished portion of ground floor as well as upper floors of the immovable property nor they were actually holding the property for aforesaid purposes. According to him they were contemplating to use the entire unleased property for the business to be set up by them which is evident from the fact that the learned IAC has no evidence that AOP has placed arty advertisement, either directly or indirectly for letting out or sale of the aforesaid property. He has further submitted that AOP, in spite of the fact that they had enough funds to complete the finishing of the remaining portion, and floors, has not done so because they neither wanted to let out any further space in the property nor to sell any of its floors or portion of any floor.

12. Regarding the view of the learned IAC that the property was capable of being let out in the unfurnished condition as well because the Bank too acquired it in the same condition and then furnished it at appellant's cost, out of the amount of the advance rent to be paid by the Bank, the learned counsel has submitted that had the rest of the property been held for the purposes of letting out and had there been any possibility the property would not have been kept unfurnished and vacant after completing the structure. It is further submitted that the two members of the AOP have already declared the value of their respective shares in rest of the property in their individual returns of wealth.

13. Thus the learned counsel has submitted that while it is evident that the vacant immovable property held by the two ladies on the corresponding date of valuation is unfinished, it has been submitted, on behalf of the appellant that the two individuals did not intend either to let it out or to sell, hence share in the property held by each lady individually is not an asset of AOP.

14. Regarding the decision of Tribunal reported in 1996 PTD (Trib.) 1,14 Mr. Salman Pasha has submitted that the precise issue before the Tribunal was that the assessee an AOP inherited three properties most of the portions of these properties were occupied by a-private company of which all the co-owners of the properties were directors. Assessing Officer and the CIT (A) held that the occupier of the portions of the properties was a separate legal person hence the property cannot be treated as occupied by the assessee. Admittedly, the property was occupied by the company without payment of any rent. The Tribunal, therefore, found that shares in the immovable property were held by the heirs individual because the owners did not hold it for the purpose of letting out. The learned counsel, therefore, submits that the facts in the case decided supra were different in so far as the property was not vacant. Thus, according to him, the remark of the Tribunal. "Thus, if ail immovable property held by an AOP has not been actually let out but the purpose of holding the property is to let out the same in future, it shall be deemed to be an asset and shall be included in the net wealth of the AOP", firstly, is not the decision of the Tribunal but a mere observation having no binding effect. Secondly, even the foregoing observation of the Tribunal warrants that the assessing officer has to establish that the purpose of holding the property is to let it out in future before it may be held to be a chargeable asset.

15. The learned counsel submits that neither the overt acts nor the attending circumstances recorded by the learned IAC in his impugned order suggest any, intention on the part of the co-owners of the vacant property to hold it for the purposes of letting out in future. The let out portion has been leased out in August, 1996 while rent of the property is found vacant by the learned AC till 30-6-1998.

16. On the facts and in the circumstances supra we find that the learned IAC has not found any evidence on record to support his view that the unfinished vacant property supra is held for the purposes of letting out in future. Further, we are persuaded to agree with the learned counsel that the remark of the Tribunal in the decision supra relied upon by the learned IAC is firstly a merely observation and secondly such a findings cannot be based A on merely presumption. The impugned conclusion of the learned IAC that in view of the fact that since part of the property has been let out to the Bank in an unfinished condition the rest of the property too is held in the same condition to be let out in future, in the absence of any other overt act and attending circumstances is found too presumptive to us to consider the orders passed by the DCWT to be erroneous in so far as these are prejudicial to the interest of revenue.

17. However in the course of hearing it has been admitted that no portion of balance advance rent on the corresponding valuation dates has been invested on the let out property. It, therefore, follows that it is neither a debt secured on nor incurred in relation to the taxable asset, hence its adjustment against the value of taxable asset is inadmissible.

18. We, therefore, have given notice to the learned counsel of the appellant to enhance the net value of tax the asset by disallowing the amounts allowed by the DCWT as debts owed against the gross value of taxable asset. Mr. Salman Pasha, learned counsel of the appellant has conceded the proposed disallowance.

19. Accordingly the impugned orders of the learned IAC are modified by vacating his decisions to cancel the assessment orders passed by the DCWT and directing the DCWT to disallow the adjustment of amounts of Rs. 9,677,501 and Rs. 5,477,501 claimed under section 2(16) on account of debts owed. C.M.A./M.A.K./66/Tax(Trib.) Order accordingly.