1996 PLP (Trib (PTD)

" Such persons shall, in respect of such property, be assessed as an association of persons and the value of such right, title or interest shall not be included in the net wealth of an individual. (Provided wealth tax is charged on such right, title or interest). Above clause- was added by the Finance Ordinance 1980 and was subsequently amended by F.O. 1981. The legislature through this amendment has created a charge on properties held, by more than one persons jointly. The only exception while defining `Net Wealth' in the case of an AOP is that Agricultural land has been excluded. The other important fact is that where a property is charged to tax as an AOP, its share shall not be included' in the assessment of individual member of A.O.P. Immovable property referred is the case of A.O.P. as defined is reproduced as follows: "2 a (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." The plain reading of the above provision of law clearly indicates that the immovable properties as referred in clause 2(e)(ii) necessarily applies on that immovable property which has jointly been held by more than one persons for the purpose of business of construction, sale and letting out. The interpretation of above section was contested at various forums and finally the learned S.C. in the judgment, dated 19th January, 1989 on Civil Appeal No. K.140 of 1981 brought the discussion at rest. The Honourable Supreme Court of Pakistan has held that the provision, as it stands, is not happily worded and does not convey the intention of legislature. The Court further held that only such immovable properties as are held for the purpose of business of construction and sale or business of construction and letting out fall within the definition of the said clause (ii). In order to clear the ambiguity and doubt the legislature added an "Explanation" to the sub-clause (ii) through the Finance Act, 1991 as under:

"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; (iii) immovable property held for the purpose of construction and sale of property." The explanation is retrospective and shall be deemed always to have been so added This explanation was further clarified by C.B.R. vide its Circular No. 18 of 1991, dated July 2,1991; Relevant para is as follows:

IV. Keeping in view the said judgment of the Honourable Supreme Court of Pakistan and the said Explanation to sub-clause (ii), it is hereby clarified that the immovable property held by a firm, an association or persons or a body of individuals, whether incorporated or not, and a company for the following purposes shall be liable to wealth tax: (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 sale of property; (iii) immovable property held for the purpose of construction and sale of property; (iv) immovable property held for the purpose of business of construction and sale; or (v) immovable property held for the purpose of business of construction and letting out. (v) The `Explanation' added to the said sub-clause (ii) shall be effective from the 28th day of June, 1979 when the said sub-clause (ii) was inserted in the Wealth Tax Act, 1963." Needless to mention that the circular is binding on all subordinate officers of C.B.R. under section 5 of the Income Tax Ordinance 1979 and as held in judgment reported as 1984 PTD (Trib.)

79. The law is, therefore, clear. None of the aforementioned provision creates charge on a property held for residential purposes by an A.O.P. Such properties can only be taxed in the hands of individual members of the respective A.O.P. to the extent of their shares. Our observation also finds support from the reported judgment of the learned I.T.A.T. decided by a larger bench cited us. In the above noted judgment relying upon various other cases including: (1963) 48 ITR

577. The learned Tribunal came to following conclusion:

"In (1963) 48 ITR 577, CIT v. National Storage Private Limited, a company with the object of carrying on business of reserving films and cinema accessories, constructed a building of special vault for the purpose. Although these vaults remained in exclusive possession of the company but were given for use to film distributors the question arose as to whether the income of the company should be assessed under sections 9, 10 or 12 of the Indian Income Tax Act. It was held that since the company was in occupation of the- premises for the purpose of its business which consisted of safe storage of films by providing use of the vaults and affording facilities for the safe storage of the films, the company, therefore, derived its income from business and not from letting out of the property. In our view this ruling lend support to our conclusion. Thus, neither the self-occupied godown: can be held to be assets as defined by clause (ii) of section 2 (e) of the Wealth Tax Act nor Rs.24,339 and Rs.22,608 can be held to be income from business of letting out." Coming back to the impugned order the case of this assessee is also not covered under aforementioned clause of the Wealth Tax Law as is evident from the body of the order of the W.T.O. and that of the learned CIT (A). The property was held as a residential house for the personal use and assessee a no stage has declared the same to be a property held for the business of sale or for business of letting out. It is, therefore, evident that W.T.O. was justified in adding the value of the house in the wealth of the assessee. We, therefore, have no hesitation in adjudicating the matter in favour of the department that residential house has rightly been added in the total wealth of the assessee and there is no illegality in it. We however do not touch the observation of learned C.I.T. (A) to the extent of valuation of the share. The same seems to be excessive. The I.T.O. is directed to reconsider the same and estimate should be based on some material after giving the assessee a reasonable opportunity of being heard. The appeal is disposed of accordingly. The order of learned W.T.O. is maintained and Departmental appeal succeeds to the extent and manner as mentioned. M.BA./140/T Order accordingly.