1996 PLP (Trib (PTD)

(1) The three properties were inherited by them on the death of Mr. Sher Afzal and that the properties were not held for the purpose of business or letting out. (2) Most of the portions of these properties were not leased out on rent but were occupied by M/s. Afzal Store Limited, a private limited company of which all the co-owners of the properties were directors and, therefore, properties do not fall within the ambit of wealth tax.

3. The assessing officer observed that the first objection that the properties were inherited by the Members of A.O.P. and therefore the wealth tax was not payable was dropped buy the appellant. The only objection which was pressed was that the properties were not let out and hence were not liable to the levy of wealth tax. The assessing officer held that the occupier of the portions of two properties at Karachi was M/s. Afzal Store Limited and since it was a separate legal person hence the property occupied by other legal person cannot be treated as occupied by the assessee A.O.P. It was further held that although commercial-cum-industrial complexes were held by the appellant A.O.P: but they have never carried out any other business in the past or subsequent year and therefore the business of letting out was proved beyond any shadow of doubt. With these observations the assessing officer determined the value of three properties and subjected them to the levy of wealth-tax. While determining the value of the properties the assessing officer further narrated the facts to the effect that the property known as Afzal Plaza situated on Shahrah-e-Faisal, opposite star gate, was partly let out to M/s. Allied Bank Limited and partly it was occupied by M/s. Afzal Store Limited. The assessing officer subjected the value of entire property to the levy of wealth tax. The building bearing No. 338-B, Garden West, Lesbella Chowk, Nishtar Road, Karachi was fully occupied by M/s. Afzal Store Limited without payment of any rent and this property was also subjected to the levy of wealth tax. The third property situated at Kotri was initially constructed for the purpose of setting up textile industries in the name of ' M/s. Toor Industries but subsequently it was rented out to M/s. Premier Tobacco Industries, Kotri. This property was also subjected to the levy of wealth tax. The appellant preferred first appeal contending that the immovable properties held by the appellant have not been constructed either for the purpose of safes or held for the purpose of construction and letting out and, therefore, cannot be subjected to the levy of wealth tax in the hands of A.O.P. It was further pleaded that the portion of property in property in Afzal Plaza occupied by Afzal Store Limited was never let out and no rent was received and like-wise the property at Lesbella was a residential property which was admittedly occupied by Afzal Store Limited without payment of any rent and, therefore, they could not be subjected to the levy of wealth tax in the hands of A.O.P. In respect of the property situated at Kotri it was submitted that the property was not constructed for letting out, but it was illegally occupied by some persons and, therefore, the original plan could not be carried out and hence it was let out but the purpose of construction was not for letting out, therefore, it cannot be subjected to the levy of wealth tax. The contentions were repelled by the learned Commissioner of Income Tax (A) who held that finder the provisions contained in section 2(e)(ii) of the Wealth Tax Act the companies or A.O.Ps who were enjoying rental income or the properties held by them could be rented out were subjected to the levy of wealth tax and it was immaterial if the properties were not constructed for letting out. The learned Commissioner of Income-tax (A) further held that the property known as Afzal Plaza is owned by an A.O.P. and the property is partly occupied by a Priv4kte Limited Company known as Afzal Store Limited in which the co-owners are Directors and the property has been partly let out to the other tenants. The Company is a separate entity in the eye of law which is carrying out business in the premise owned by A.O.P. and, therefore, the property so occupied is to be assessed on Notional Rental Value even if no rent was paid by company. Likewise the property at Lesbella was owned by the A.O.P. which was being used free of rent by M/s. Afzal Store Limited whose Directors are same as member of appellant A.O.P. and, therefore, according to the learned Commissioner of Income-tax (A) the property was rightly subjected to the levy of wealth tax. Being still dissatisfied the appellant has preferred this 2nd appeal before us.

4. We have heard M/s Athar Saeed and Qazi Anwar Kamal Pasha, Advocates for the appellant and Mr. Yousuf Butt, learned representative for the department. Mr. Athar Saeed has stated at the very outset that the objection to the levy of tax on the property situated at Kotri which has been let out and the objection to the portion of Afzal Plaza which has been let out are not pressed as these properties have been rightly subjected to the levy of wealth tax. His sole objection is that the portion of Afzal Plaza in possession of Afzal Stores Ltd. and the property situated at Lasbela fully occupied by Afzal Stores Ltd. has never been let out and, therefore, such portion of Afzal Plaza and the entire property at Lasbela do not fall within the purview of asset as defined in section 2(e)(ii) of the Wealth Tax Act and hence they cannot be subjected to the levy of wealth tax. He has further contended that the members of A.O.P. are directors of Afzal Stores Ltd. and the directors cannot let out the property to company and hence in the absence of any lease agreement no lease ever came into existence. There is no relationship of landlord and tenant between the appellant A.O.P. and the Afzal Stores Ltd. which is in occupation of the properties and hence it cannot be said that the properties have been let out to Afzal Stores Ltd. He has further submitted that the learned C.IA.(A) by observing that the private limited company is carrying out business in the premises owned by A.O.P. which is liable to be assessed on notional rental value has wrongly incorporated the concept of income-tax while making assessment for the purpose of wealth tax. On the other hand, the learned D.R. has supported the impugned findings of the learned two officers below.

5. We have carefully considered the contentions raised by the learned representatives for the parties with reference to the admitted facts as narrated above. As stated in the opening part of this order the controversy between the parties boils down to the point if the property held by the appellant, an A.O.P. and occupied by Afzal Stores Ltd. a private limited company in which the members of A.O.P. are directors, without payment of any rent of consideration or a price paid or promised or of money or service or any other thing of value falls within the purview of asset as envisaged under section 2(e)(ii) of the Wealth Tax Act, 1963. In order to resolve the issue it would be proper to examine the definition of assets contained in section 2(e)(ii) alongwith the explanation inserted by Finance Act, 1991 with retrospective effect, which reads as follows: "2(e) `assets' include

(i) . (ii) in the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out of property. Explanation --For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes

(i) immovable property held for the purpose of letting out, or business of letting out, of property; (ii) Immovable property held for the purpose of construction and letting out, of property; and (iii) immovable property held for the purpose of construction and sale of property."

6. A perusal of the above definition shows that in the context of admitted facts, para. 1 of Explanation is the only relevant provision. A perusal of para. 1 of the Explanation above shows that an immovable property held by an association of persons for the purpose of letting out or business of letting out of property is included in the definition of assets the value whereof is to be commuted for the purpose of working out the net wealth in accordance with the provisions contained in section 2(m) of the Wealth Tax Act which is chargeable to the wealth tax under section 3 of the Wealth Tax Act. According to para. 1 of the Explanation to section 2(e)(ii) the property which is held for the purpose of letting out or a property held for the-business of letting out shall be deemed to be asset. The first proposition applies to the property which has not been actually let out till the corresponding valuation date while the second proposition is in respect of a property which as held for the business of letting out meaning thereby that it has been actually let out to the tenants. The first proposition indicates the purpose for which property is held meaning thereby that it refers to the intention of the owner. Thus, if an immovable property held by an A.O.P. has not been actually let 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 A.O.P. The purpose indicates the intention and an intention is a state of mind. It is a mental phenomena which is to be gathered from the overt acts and attending circumstances. We would not like to dilate further on the first proposition because in the facts and circumstances of the present case it is not relevant for the reason that the property held by the appellant is already occupied and, therefore, the state of affairs are not to be considered or gathered in the context of purpose or intention for which the property is held. The properties under consideration are already occupied, and therefore, the facts are to be considered as they have already taken place and are existing about which there is no controversy between the parties. The property held by the appellant at Kotri is fully occupied by the tenants for which the appellant is receiving rent and likewise a portion of the property at Sharah-e-Faisal is partly occupied by Allied Bank Limited for which the appellant is receiving rent and the learned counsel for the appellant has conceded that because of lease existing in between the appellant and the tenants the properties are deemed to be held for the business of letting out of property and consequently are included in the definition of assets. The property situated at Lasbela Chowk is fully occupied by Afzal Stores Ltd. and the property situated at Sharah-e-Faisal is partly occupied by M/s. Afzal Stores Ltd. without payment of any rent and, therefore, the contention of appellant is that in the face of admitted facts and circumstances this situation cannot be treated as holding of property for the business of letting out. For this purpose Mr. Athar Saeed, learned counsel for the appellant has submitted that in order to clinch the issue it is necessary to examine if any lease is existing between the appellant, A.O.P. and Afzal Stores Ltd., a private limited company in which the members of A.O.P. are directors. Mr. Athar Saeed has submitted that no lease agreement has been executed between the appellant and Afzal Stores Ltd. and admittedly no rent, price, money or premium is being paid in consideration of occupancy of the property, therefore, no relationship of landlord and tenant has been created between the appellant and Afzal Stores Ltd. The term "lease" has not been defined in the Wealth Tax Act and the Income Tax Ordinance, 1979, therefore, we have to find out the definition of term "lease" in the general law of the land. The relevant law in this behalf is Transfer of Property Act, 1982. Section 105 whereof defines the term "lease" as follows: "

105. Lease defined.

A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferors by the transferee, who accepts the transfer on such terms. Lessor, lessee, premium and rent defined. The transferror is called the lessor, the Kansferree is called the lessee, the price is called the premium and the money, share service, or other thing to be rendered is called the rent."

7. A perusal of the above section shows that the lease of immovable property implies transfer of right to enjoy such property for. a certain time or in perpetuity in consideration of a price paid or promised or of money, service or any other thing of value to be rendered periodically on specified occasions to the transferor by the transferee. Thus, mere occupation of a property by a person, owned by another does not create relationship of landlord and tenant between the parties. A mere user of an immovable property cannot be held to be a tenant until and unless there is an agreement express or implied between the parties creating a relationship of landlord and tenant. The decisive consideration is the intention of parties and if any agreement has been executed in this behalf it has to be ascertained on a consideration of all the relevant provisions in the agreement and in the absence of a formal document the intention of the parties must be inferred from the circumstances and the conduct of the parties. All. the surrounding circumstances and the conduct of the parties have to be borne in mind for ascertaining the real relationship between the parties. In the present case no agreement has been executed between the appellant, the owner of the properties and Afzal Stores Ltd: the occupant of the properties under consideration and, therefore, the question if any relationship of landlord and tenant exists between the parties and whether the occupation of properties by Afzal Stores Ltd. which is held by the appellant amounts to letting out or business of letting out of the property has to be decided on the attending circumstances. For this purpose we revert to the definition of lease as contained in section 105 of the Transfer of Property Act according to which the lease of immovable property is transfer of a right to enjoy such property in consideration of a price paid or promised or of money, service or any other thing of value. Thus, if there is mere transfer of a right to enjoy an immovable property but there is no price, premium, money, service or other thing to be so rendered as called the rent the transaction shall not be treated as lease. The point came for consideration before the Oudh Judicial Commissioner's Court in the case of Sita Ram v. Sarju Prasad, AIR 1922 Oudh 201 and it was held as follows: "It seems to me to be quite clear that the agreement in question does not amount to a lease as defined in section 105 of that Act. One of the essentials of lease is that there should be a consideration to be rendered periodically or on speed occasions to the lessor, and the essential is entirely absent in this agreement."

8. I have not been able to lay hand on any judgment in this behalf by any superior Court in Pakistan but the proposition of law is so clear and unambiguous, on a bare perusal of section 105 of Transfer of Property Act that it should not detain me anymore in holding that no relationship of landlord and tenant can come into existence without the payment of rent as defined in second part of section 105 itself. In the present case the admitted position is that the property held by the appellant at Lasbela and a part of property situated at Sharah-e-Faisal is occupied by Afzal Stores Ltd, without payment of any rent and, therefore, the transaction does amount to letting out of the property and thus such properties do not fall within the purview of asset as defined in section 2(e)(ii) of the Wealth Tax Act, 1963. We are not persuaded to agree with the observations of the learned C.I.T. (A) that the properties could be rented out and, therefore, they could be subjected to the levy of wealth tax. If this proposition is accepted then every property held by an A.O.P. shall be included in the definition of asset because every property could be rented out sometime in future and thus it will make the entire definition and the explanation added thereto in section 2(m)(ii) of the Wealth Tax Act as superfluous and nugatory. The facts are to be considered as they are and not as they could be in future. We further do not approve the view held by the learned C.I.T. (A) that since the property is owned by A.O.P. and is occupied by a company, which is a separate entity, therefore, by virtue of such occupation the property can be assessed on notional rental value even if no rent was paid by the company. This clearly amounts to travelling beyond the express provision of law and such interpretation makes the clear and expressed provision of law nugatory and redundant. Thus, the view held by the learned C.I.T. (A) is against the established principles of the interpretation of the statutes and cannot be sustained. The learned D.R. has though supported the learned two officers below but he is not able to advance any argument in support of the contention that without payment of any rent by the occupant to the owner of the property the property can be deemed to be held for the purpose of letting out and thereby attracting the provisions of law contained in section 2(e)(ii) of the Wealth Tax Act, 1963.

9. For the foregoing reasons it is held that the properties occupied by the Afzal Stores which are owned by the appellant, without payment of any rent do not fall within the purview of asset as defined in section 2(e)(ii) and, therefore, these two properties cannot be included in the net wealth of the appellant. The findings of the to the contrary are hereby vacated exclude the held by the appellant at Lasbela Chowk and part of the propert at Shahrah-e-Faisal occupied by the Afzal Stories from the net wealth of the appellant.

10. The appeal are allowed as above. M. B. A./138/T Appeals allowed.