1980 PLP 1959 (CLC)

FAKHRUDDIN G. EBRAHIM, J.-The petitioner is an English Bank who acquired the subject property in the year 1951 for a price at Rs. 2.20,222 After its acquisition, the Bank incurred further capital cost amounting to Rs. 14,22,

008. On 31st March. 1971, the petitioner sold to Messrs Commerce Bank Ltd., the property for a sum of Rs. 27,50,

000. The petitioner filed return of a capital gains under rule 3 of the West Pakistan Capital Gains Tax Rules, 1964 showing a net capital gain of Rs. 13,19,905.50. The Excise Officer vide notice dated 21st June, 1971 called upon the petitioner to appear and produce evidence in support of the return submitted by the petitioner to enable him to be satisfied that the return was correct and complete. In response the petitioner forwarded a valuation report of the property to the Excise Officer.

2. The Excise Officer by his impugned order dated 21st January, 1971 did not accept the return filed by the petitioner and raised the price from Rs.27,50,000 to R~. 46,55,440 on the basis of his best judgment in terms of rule 6 of the said Rules. The view that prevailed with the Excise Officer was that a five storied commercial building on McLeod P,'3d fetching gross annual rent of Rs. 2,90,965 could not possibly . be sold for a low price of Rs. 27,50,000 which was hardly nine times its gross annual rent. The officer was for these reasons convinced that the registered sale price had been shown with a view to reducing the tax liabilay. The increased price of Rs. 46,55,440 was arrived at by the officer by multiplying the gross annual rent by sixteen. in terms of the formula contained in rule 8 (ii) of the said Rules.'

3. The petitioner went in appeal in which' the main grievance made was that in the absence of any evidence, there was, for the Excise Officer, no reason to disbelieve that the sale price in the sale deed was fixed with the intention of avoiding the tax, It was also alleged that the Officer .had failed to take into consideration that in the circumstances prevailing around the date of sale and the fact of high cost of borrowing, the petitioner could not expect to get higher price than Rs. 27,50,000 and that the price could not have been determined by reference to said rule 8 (ii) and that its determination did not represent the fair market value. To the appeal were annexed an appraisement/valuation report of Mr. Shahani, a qualified valuation surveyor, another valuation report of a Real Estate Agent, and a Qualified Architect's Certificate of -valuation.

4. The appeal did not find favour with the respondent No. 2, the Director, Excise & Taxation, who dismissed it by his order dated 11th October, 1978 and a further revision before the Director-General; the respondent No. 3, met the same fate.

5. In support of this petition Mr. Fazlur Rehman, the learned counsel raised following contentions (a) That in view of express provision contained in proviso (i) to subsection (2) of section 16 of the West Pakistan Finance Act, 1963, there was no jurisdiction in the respondents to apply the formula under rile q, (2) of the West Pakistan Capital Gains Tax Rules, 1964, for determining the fair market value of the petitioner's property . (b) That determination of fair market value with reference to Gross Annual Rental Value was without jurisdiction and illegal, and the formula of Gross Annual Rental value did not provide in law any reason to believe that the property, in this case, was sold with the object of avoidance of reduction of liability of the petitioner, (c) That there was no jurisdiction in the respondents, while determin ing the fair market value of the property, to disregard the evidence of comparable sales, in the relevant period of the properties approximate to the petitioners' property which provides the best criteria for determination of fair market value. The law on the subject is section 16 of the West Pakistan Finance Act, 1963 the relevant part of which reads as follows :-- `"

16. Capital gains tax.-(1) A capital gains tax shall be levied on any profit or gains arising from the sale, exchange or transfer of immovable property effected after the 30th day of June, 1963. (2) The amount of the Capital Gains shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer or property is made- (a) expenditure incurred solely in connection with such transaction and (b) actual cost to the assessee of the property including any expenditure of a capital nature incurred and borne by him in making any addition or alterations thereto Provided that- (i) where the authority making the assessment has reason to believe that the sale, exchange or transfer was effected with the object of avoidance or reduction of the liability of the assessee the full value of the consideration for which the sale, exchange or transfer is made shall be taken to be the fair market value of the property on the date on which the sale, exchange or transfer took place The rule relevant for the purpose of the present petition is rule 6 of the West Pakistan Capital Gains Tax Rules, 1964 which reads as follows ;- "

6. If in the opinion of the Excise & Taxation Officer a return submitted under rule 3 or rule 4 is not correct or complete, if no return is furnished in response to the notice referred to in rule 4, he shall serve the assessee with a notice in Form C C T-3, requiring him to appear before him after giving the assessee an opportunity of being heard and examining such evidence as he may produce, and after making such enquiries as may be deemed' necessary, assess to the best of his judgment the Capital Gains Tax payable by him."

6. Therefore in so far as law is concerned the Excise officer is ordinarily bound to accept the price shown in the sale deed unless he has reason to believe that such price has, as its objective, avoidance or reduction of liability to pay the capital gains tax. Obviously no hard and fast rule can be laid down as to the circumstances which may lead to this reasonable belief. In the present case this reasonable belief was founded on the fact that the gross annual return to the owner was substantial and the sale price shown, represented only nine years gross annual return. In determining reasonable or otherwise of a given price of a recurring income giving property, its annual income is, in the absence of contrary compelling circumstance, certainly a relevant factor

7. Therefore, if from these facts the Excise Officer inferred that the objective was to reduce the tax liability it cannot be said that he acted arbitrarily. The next step to follow would be the determination of the fair market value by the Excise Officer on the basis of his best judgment. Mr. Fazlur Rehman, the learned counsel for the petitioner is undoubtedly right that the Excise. Officer instead of making an attempt at determining the fair market value of the property proceeded to do so by applying the formula contained, in rule 8(ii) viz. multiplication of G. A. R. V. by sixteen. rule 8 (ii) in terms does not apply to determination of the fair market value of a property the sale price of which is expressed in terms of money. This rule Is attracted for determination of price where a property is sold for consideration other than money or for determination of cost of the property to the assessee. The G. A. R: V. formula may, however, in certain given circumstances, become relevant if not decisive in arriving at the fair market price independently of the Rules. Primarily, however, the Excise Officer must give the assessee an opportunity to prove the declared sale price by reference to the sale of comparable property in the vicinity at the relevant time. The obligation to examine evidence of fair market value cannot be substituted by resort to the G. A. R. V. formula. If the assessee produces evidence either by reference to comparable sales in the vicinity or by reference to the physical state of the building or some other relevantly) factor such as failure to obtain, in spite of best efforts, a higher price and if such evidence cannot be rejected without doing injustice to the principle that a quasi-judicial Tribunal must always .act justly fairly, and equitably, there resort to what would amount to automatic application of G. A. R. V. formula ' would not be justified. Here we disagree with the learned Advocate General that application of G. A. R. V. formula is an alternative mode of determining the fair market value of the property which may be restored to independently of other considerations. The learned counsel relied on a Division Bench decision of this Court reported in Constitutional Petition No. D-115/69.. This decision does not lay down that G. A. R. V. formula can be adopted as a matter of course for determining fair market value. In this case a property which had been purchased in the year 1948 for Rs. 1,15,000 was in the year 1967 sold for Rs. 85,

000. The learned Judges expressly referred to the fact that the asseeses did not produce any evidence to show that the value of property had depreciated or that the ..property was so unattractive that no one was prepared to purchase the same or that the property was dilapidated or any of the circumstances which might have been relevant to the determination of fair market value. It was in absence of this evidence that the fair market value determined by the Excise Officer under the G. A. R. V. formula was, independently of the Rules, held to be in accordance with law. We would venture to think that even if we were to assume that G. A. R. V. formula was alternative method of determining the fair market value, if tile other method or methods available for determining the fair market value are more beneficial to the assessee, then such method ought to be followed, for in determination of fiscal liability a method more beneficial to the assessee ought to be followed. Mr. Fazlur Rehman the learned counsel for the petitioner on the other hand argued that 1 have in a decision reported in Phillips Electric Co. of Pakistan Ltd. v. Director General secretary, Excise & Taxation, Government of Pakistan and others (P L ID 1978 Kar. 393) held that G. A. R.. V. formula ought to be ignored altogether. In this ease the petitioner had sold its factory at a loss but the Assessing Authority proceeded its value by applying the G. A. R. V. formula. Not only the Excise Authority proceeded on the basis that under rule 8 he was bound to do so but he had also ignored the unchallenged evidence of the assessee that in spite of his best efforts a higher price just could not obtained, and he had been from year to year incurring heavy expenditure in expectation of obtaining a buyer. It was in these circumstances that I held that resort to G A. R. V. formula was unjustified but went on to observe that we should not be understood saving that independently of the Rules, it would riot be open to the Assessing Authorities in appropriate cases to determine fair value of a property by reference to G. A. R. V. formula,

8. Coming to the facts of the present case on merits the only assertion of Mr. Fazlur Rehman was that the Excise Officer did not consi der the comparable sales in the vicinity so much so that he slid not even give an opportunity to the petitioner to be heard in the matter. The order of the Excise Officer does not show that he had applied his mind to the question of comparable sales in the vicinity. The order made by him was ex parte and the petitioner did complain in his Memo of Appeal before the Director that the matter was taken up my the Excise Officer on a day of which they had no notice, which gives credence to the petitioner's case that he had been denied an opportunity of being heard before the Excise Officer. However, that opportunity was more than adequately given boat by the Appellate as well as the Revisional Authori ties. The orders made by these Authorities are speaking orders, The petitioners case of comparable sales to the vicinity has been dealt with and not without reason rejected. We have also noticed that in his valuation report Mr. Shahani had referred to: the sales in the vicinity but had also expressed the view that the determination of valuation from comparable sales required special skill in establishing the degree of comparability between the property sold and the property being apprised. The com parable sales referred to in this report were considered but did not find favour with the Appellate Authority. It is not possible for us in our Constitutional Jurisdiction to evaluate evidence. In any event it was the function of the Authorities to consider this and other aspect of the case relating to valuation and if they have, as in the present case properly applied their mind and not accepted the evidence, sketchy as it was, of comparable sales in determining the fair market value and chose to fix the valuation on the basis of G. A. R. V. formula, it cannot, in the circum stances, be said to be unjustified.

9. The result, therefore, is that this petition is dismissed with costs. M. Y. M. Petition dismissed.