1990 PLP (Trib (PTD)

These nine wealth tax appeals by the department have been filed to question the validity of the consolidated order, dated 9‑1‑1985 of learned C.I.T (A) Gone‑III, Lahore recorded in I.T.A. Nos. 277 to 285/A‑III deleting the value of the following properties from the net wealth in the assessment years 1973‑74 to 1981 82: (1) 46‑Empress Road, Lahore. (2) 22‑Race Course Road, Lahore. (3) Plot at Danepur Road, Lahore. The facts leading to the institution of these appeals are as follows. Begum Rehana Sarwar, assessee (hereinafter referred as the respondent) filed separate wealth tax returns for the assessment years 1973‑74 to 1975‑76, 1976‑77 to 1978‑79 and 1979‑80 to 1981‑

82. All these returns were filed in response to notice under sections 17 and 14(2) of the Wealth Tax Act, 1985 (hereinafter referred as the Act). The WTO issued notices under sections 16(2) and 16(4) to the respondent in response to which she and her AR Mr. Ziaullah Kayani Advocate appeared before the WTO and discussed the case with him. The WTO completed the assessment under section 16(3) of the Act, observing that separate action for late filing of the returns was being initiated. The declared version was not accepted and value of the immovable assets for the years 1973‑74 to 1975‑76, 1976‑77 to 1978‑79 and 1979‑80 to 1981‑82 was determined" as under: 1973‑74: Property Declared Value Assessed Value 1. 15/94‑A Sarwar Road Cantt, Lahore. Rs. 66,165 Rs. 90,000

2. B‑portion of the above Property Rs. 9,041 Rs. 15,000

3. Plot at Defence Society, Karachi. Rs. 9,010 Rs. 20,000

4. Assessee's 25/848 shares in property No. 48 Road, Lahore. Rs. 5,896 Rs. 6,485

5. Agricultural land. Rs. ‑‑‑ Exempt 6. 1/24 share in plot at Denepur Road, Lahore. Rs. 4,162 Rs.15, 000 7.22‑Race Course Road, Lahore Rs. 4,162 Rs. 7,075

8. Movable assets. Rs. 67,388 Rs. 67,388 Total wealth of the properties was determined at Rs. 2,20,945 and after allowing liabilities as claimed balance wealth was assessed at Rs. 1,83,148. 1974‑75: 1. 15/94‑A Sarwar Road, Lahore. Rs. 66,165 Rs. 90,000

2. B‑portion of the above property. Rs. 9,041 Rs. 20,000

3. Plot at Defence Society, Karachi. Rs. 4,162 Rs. 25,000 4. 25/48 share in 46‑Empress Road, Lahore. Rs. 5,896 Rs. 7,370

5. Agricultural land. ‑‑‑ Exempt. 6. 1/24 share in plot at Danepur Road, Lahore. Rs. 11,010 Rs. 20,000 7. 22‑Race Course Road, Lahore. Rs. 5,896 Rs. 8,844

8. Movable assets. Rs. 48,760 Rs. 48,760 Total wealth was assessed at Rs. 2,19,674 and after allowing liabilities as claimed balance wealth was determined at Rs. 1,79.108. 1975‑76: 1. 15/94‑A Sarwar Road, Lahore. Rs. 66.165 Rs. 90,000

2. B‑portion of the above property. Rs. 9,041 Rs. 25,000

3. Plot at Defence Society, Karachi. Rs. 12,225 Rs. 25,000

4. Assessee's 25/848 share in 46‑Empress Road, Lahore. Rs. 8,844 Rs. 9,433

5. Agricultural land. ‑‑‑‑ Exempt. 6. 1/24 share in plot at Danepur Road, Lahore. Rs. 6,243 Rs. 25,000 7. 22‑Race Course Road, Lahore. Rs. 8,844 Rs. 10,613

8. Movable assets. Rs. 56,

767. Rs. 56,767 Total wealth was assessed at Rs. 2,48,113 and after allowing liabilities as claimed balance wealth was assessed at Rs. 2,05,270. 1976‑77: 1. 15/94 Sarwar Road, Lahore. Rs. 66,165

2. B‑portion of the above Property. Rs.1, 46,310 Self‑occupied, Exempt.

3. Share in 46‑Empress Road, Lahore. Rs. 8,844 Rs. 10,430

4. Share in property 22‑Race Course Road, Lahore. Rs. 8,844 Rs. 12,382 5. 1/24 share in plot at Danepur Road, Lahore. Rs. 6,243 Rs. 30,000

6. Plot at Defence Society, Karachi. Rs. 12,225 Rs. 35,000

7. Agricultural land. ‑‑‑ Exempt.

8. Movable assets. Rs. 1.9,359 Rs. 19,359 Total wealth was assessed at Rs. 1,97,171 and after allowing the liabilities as claimed balance wealth was determined at Rs. 1,49,170. 1977‑78: 1. 15/94 Sarwar Road, Lahore. Rs. 66,165 Rs.1,32,000

2. B‑portion of the above property. Self‑occupied. Exempt 3. 46‑Empress Road, Lahore. Rs. 11,792 Rs. 13,267 4. 22‑Race Course Road, Lahore. Rs. 11,792 Rs. 14,151 5. 1/24 share in plot at Danepur Road, Lahore. Rs. 6,243 Rs. 30,000

6. Plot at Defence Society, Karachi. Rs. 12,625 Rs. 40,000

7. Agricultural land. ‑‑‑ Exempt.

8. Movable assets. Rs. 15,013 Rs. 15,013 Total wealth assessed was Rs. 2,49,

731. Allowing the liability as claimed, balance wealth was determined at Rs. 2,0,603. 1978‑79: 1. 15/94‑A Sarwar Road, Lahore. Rs. 66,165 Rs.1,32,000

2. B‑portion of the above property. Self‑occupied. Exempt 3. 46‑Empress Road, Lahore. Rs. 11,792 Rs. 16,215 4. 22‑Race Course Road, Lahore. Rs. 11,792 Rs. 15,920 5. 1/24 share in plot at Danepur Road, Lahore. Rs. 6,243 Rs. 40,000

6. Plot at Defence Society, Karachi. Rs. 12,625 Rs. 45,000

7. Agricultural land. ‑‑‑ Exempt.

8. Movable assets. Rs. 21,869 Rs. 21,869 Total wealth assessed was Rs. 2,71,

004. Allowing the liability as claimed, balance wealth was determined at Rs. 2,50,401. 1979‑80:

1. Agricultural land. Limit Below taxable Exempt. 2. 15/94‑A Sarwar Road, Lahore. Rs. 66,165 Rs.1,32,000

3. B‑portion of the above property. Rs.1,08,030 Rs.1,80,000

4. Plot at Defence Society, Karachi. Rs. 12,625 Rs. 15,000 5. 46‑Empress Road Lahore and 22‑Race Course Road, Lahore. Separate indivi‑ dual return To be taxed in the hands of AOP.

6. Share in plot at Danepur Road, Lahore. Rs. 8,333 Rs. 15,000 7. 175/2544 share of two minor daughters in 46‑ Empress Road, Lahore and 22‑Race Course Road Lahore. Separate dual return filed. To be Taxed in hands of AOP 8. 14/72 share and 7/72 share of two minor daughters in the plot at Danepur Road Lahore. Rs. 38,800 Rs. 70,000 Total immovable wealth was assessed at Rs. 4,12,000 and after allowing statutory exemption, balance taxable wealth was shown as nil. The declared value of movable assets was accepted. 1981‑82:

1. Agricultural land: ‑‑‑ Exempt 2. 15/94‑A Sarwar Road, Lahore. Rs. 74,165 Rs.2,40,000

3. B‑portion of the above property. Rs.2,96,030 Rs.3,25,000

4. Jointly owned share by the assessee and two minor daughters in plot at Danepur Road, Lahore. Rs. 50,000 Rs. 50,000 Total wealth was determined at Rs. 6,15,000 and after allowing statutory exemption, balance taxable wealth was determined at Rs. 1,15,

000. The movable assets as declared was accepted. The respondent felt aggrieved from the assessments for all the years and filed appeals before learned CIT (A). The grievance pertained to the inclusion in the net wealth of the properties situated at 46‑Empress Road, Lahore, plot at Danepur Road, and 22‑Race Course Road, Lahore. The contention was that properties under litigation being joint with the co‑owners (in‑laws) she was not in actual physical possession and that the assets were declared before the Assets Scrutiny Committee constituted by the Martial Law Authorities to probe into the affairs of the Ex‑members of the legislature. The learned CIT(A) vide impugned order relying on the decision of Calcutta High Court and of the majority decision of the ITAT reported as 1977 PTD (Trib.) 24, deleted the values from the net wealth and in doing so observed as follows: "After appraisal of arguments and on the ratio decided of the quoted judgments, I hold that the de facto ownership of the properties did not vest in the appellant, even her inherent legal right is in serious dispute alongwith those of her daughters and the fate of the litigation cannot be safely predicted. Therefore, in the overriding interest of justice, I delete the impugned values from the net wealth in all the years under adjudication. The value of the Karachi plot is also directed, to be taken at the face value as the final mutation was never made in her name and she was paying instalments only during the material period. She disposed it of as soon as she received the permission to dispose it of on 27‑4‑1980 from the Martial Law Authorities." The department has taken exception to the treatment meted out by the CIT(A) and have come in second appeals before the Tribunal. Since common questions of law and facts are involved in all these appeals therefore these are being disposed of by this single order. Mr. Mujahid Akbar, D.R, and Mr. A.H. Najfi, Legal Adviser appeared for the department while Mr. Ziaullah Kiyani, Advocate represented the respondent. Mr. A.H. Najf, Advocate while questioning the impugned order contended that learned CIT (A) erred in deleting the value from the net wealth because under section 3 of the Act, tax is charged in respect of net wealth of all the assets wherever located belonging to the assessee on the valuation date. His contention was that the respondent Begum Rehana Sarwar became the owner of her share in the immovable properties in accordance with the Muslim Law of inheritance, which belonged to her and could be charged to wealth tax. Reference was made to Mahomedan Law by Amir Ali page

36. Regarding the share of minor daughters, he argued that in the light of explanation inserted by the Finance Ordinance (XXX of 1979) in clause (m) of section 2, any property other than agricultural land owned by any minor child of the assessee shall be deemed to belong to the assessee. Mr. Ziaullah Kiyani, Advocate in reply argued that the legislature while defining the "net wealth" in clause (m) of Section2, laid emphasis on the term "of all the assets" wherever located belonging to the assessee on the valuation date, as on the ratio of decision of Calcutta High Court in the case of CIT v. U.C. Mahtab relied by the learned CIT(A), the words "property of every description" are qualified by the words movable or immovable and the property which does not ordinarily answer the test of movability or immovability such as intangible rights or incorporeal rights will not be assets within the meaning of Wealth Tax Act. Reliance was also placed on 1977 PTD (Trib) 24 wherein the compensation in the form of bonds payable by Government to share‑holders not determined on the valuation date was held as inchoate and intangible right not covered by section 2(e). Learned counsel was of the view that though the respondent inherited the properties but the right is inchoate and intangible because she is not in actual physical possession. Following case‑law of Indian jurisdiction was produced: 1976‑ITR‑536 (S.C) (1972)‑ITR‑783 (Mysore H.C.). We have considered the respective contentions of the learned counsel for the parties and have gone through the relevant provisions of law. The question for determination in these appeals is as to whether the properties inherited by the respondent are the assets belonging to her on the valuation date for inclusion in the net wealth for purposes of wealth tax. This question can be resolved by referring to the relevant provisions of the Act. Section 3 of the Act is a charging section and reads as under: "Section

3. Charge of Wealth Tax. Subject to the other provisions contained in this Act, there shall be charged for every financial year commencing on and from the first day of July, 1963, a tax hereinafter referred to as wealth tax in respect of the net wealth on the corresponding valuation date of every individual, Hindu undivided family, firm, association of persons or body of individuals whether incorporated or not, and company at the rate or rates specified in the Schedule: Provided that no wealth tax shall be payable if the net wealth as reduced by the value of the agricultural land owned by the individual or the Hindu undivided family would not be liable to such tax." Net wealth is defined in clause (m) of section 2 as under:, (m) "net wealth" means the amount by which the aggregate value computed in accordance with the provisions of this Act, of all the assets, wherever located, belonging to the assessee on the valuation date, including assets required to be included in his net wealth as on that date under this Act, is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than‑ (i) debts which under section 6 are not to be taken into account; and (ii) debts which are secured on, or which have been incurred in relation to, any asset in respect of which wealth tax is not payable under this Act; Explanation‑ For the purposes of this clause; (i) any property, other than agricultural land, owned by any minor child of the assessee shall be deemed to belong to the assessee and'; and Provided that any immovable property so deemed to belong to the assessee shall not be included in the net wealth of the spouse or minor child of the assessee; (ii) "assessee" shall be the "parent" determined by the Wealth Tax Officer; and (iii) where the right, title or interest to or in any immovable property other than agricultural land vests in more than one person, 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;" The definition of assets given in section 2(e) is that: (e) "Assets" includes‑ (i) in the case of an individual and a Hindu undivided family, property of every description movable or immovable, except ‑ and (a) growing crops, grass or standing trees on agricultural land; and (b) any building owned or occupied by a cultivator or receiver of rent or revenue out of agricultural land: Provided that the building is on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent or revenue by reason of his connection with the land requires as a dwelling house or a store house or an outhouse; (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; (iii) Omitted. (iv) Animals; and (v) a right, to any annuity in any case where the terms and conditions relating thereto preclude the commutation of any portion hereof into a lump sum grant;" The provisions of the Act referred to above were the subject of discussion before .us. The learned counsel for the department was of the view that respondent's share in the properties are the assets belonging to the assessee though not, in her physical possession and are covered by the definition of net wealth liable to charge of tax. On the contrary learned counsel for the assessee respondent contended that respondent's right in the properties is intangible and inchoate firstly that she is not in actual physical possession of the properties and secondly that litigation is going on between the respondent and her in‑laws and as such the assets did not belong to the respondent on' the valuation date, which could not be included in the net wealth. We have considered the respective contentions of the learned counsel for the parties and have also perused the relevant provision of the Act. We are of the view that the immovable properties in the present case are the assets belonging to the assessee‑respondent on the valuation date. A careful reading of section 3 would show that wealth tax is charged in respect of net wealth on the corresponding valuation date of every individual, Hindu undivided family, firm, association of persons or body of individuals whether incorporated or not, and company at the rate or rates specified in the Schedule. The net wealth is the amount by which the aggregate value computed in accordance with the provisions of the Act of all the assets wherever located belonging to the assessee on the valuation date including assets required to be i A included in his net wealth as on that date under the Act is in excess of the aggregate value of all the debts owed by the assessee on the valuation date other than those described in sub‑clauses (i) and (ii) of clause (m) of section

2. Assets' include in the case of individual, properties of every description movable or immovable except that mentioned in (a), (b) of clause (e) of section

2. The respondent inherited the share in the properties as widow of Major Sarwar Shahced. Under the Muslim Law the estate of deceased Muslim devolves on his heirs at the moment of his death. Para 41 of the principle of Mahomedan Law by D.F. Mulla 15th Edition page 32 may be referred which reads as under: "

41. Devolution of inheritance

‑‑Subject to the provisions of sections 39 and 40, the whole estate of a deceased Mahomedan if he has died intestate, or so much of it as has not been disposed of by will, if he has left a will (S. 118) devolves on his heirs at the moment of his death, and the devolution is not suspended by reason merely of debts being due' from the deceased (L). The heirs succeed to the estate as tenants‑in common in specific shares (m)." The estate of the deceased, Major Sairwar Shaheed devolved on the heirs at the moment of his death. The respondent inherited the share in the properties as one of the heirs, under Muslim Law of inheritance. She claimed exemption from tax on the ground that she was not in physical possession of the properties and that her right is intangible and inchoate. We have held above that the properties inherited by the respondent are the assets belonging to her on the valuation date. Her right in the properties is not inchoate because as an heir under Muslim Law of inheritance she had become the full owner of her share as widow of the deceased and the co‑owners have not denied her right in the properties. In the case of Commissioner of Wealth Tax v. U.C. Mehtab supra the issue before the Hon'ble Calcutta High Court was with respect to the compensation of the acquired land. The Court was asked to give decision as to whether compensation of the acquired land were the assets to be included in net wealth for purposes of tax. The Hon'ble High Court answered the question as below: "Held, that although the assessee's rights vested in the State immediately on the notification under section 4 of the West Bengal Estates Acquisition Act, there was no legal right yet in the assessee to compensation, which right would arise only on the final publication of the compensation assessment roll, as rightly held by the Appellate Tribunal. In the definition of "assets" in the Wealth Tax Act, the words "property of every description" are qualified by the words "movable or immovable" and, consequently, properties, which do not ordinarily answer the test of movability or immovability, such as intangible rights or in corporal rights, will not be assets within the meaning of the Wealth Tax Act. Where agricultural land has been taken away and has vested in the State under the Act, but where the final compensation assessment roll has not been prepared and published and the compensation officer has not calculated the amount, if any, at all payable to the assessee, then this inchoate right is not yet a legal right which can be regarded as an "asset" within the meaning of section 2(e) of the Wealth Tax Act. Not being an asset, the mechanism of valuation provided in section 7 of the Wealth Tax Act will not apply. As no time limit has been fixed for the payment of the compensation and it may happen that after making the deductions referred to in the Act, no compensation at all may be found to be payable to the assessee, if wealth tax is imposed on the so‑called right to compensation, then the assessee will keep on paying the tax year after year and may ultimately find that he cannot have any compensation at all when the computation and valuations are made under sections 16 and 17 of the West Bengal states Acquisition Act. These considerations are repugnant to the basic, concept of a taxing law." It will be seen that in the above case undetermined compensation of the acquired land were excluded from the definition of assets on two grounds (1) Properties of every description are qualified by the words moveable or immovable. (2) Properties, which do not ordinarily answer the test of moveable or immovability such as intangible right or in corporal right. Here in the case before us the share of the respondent in the movable in the properties is determined by the law of inheritance. There is no uncertainly‑share inherited by her. She also declared the shares in her returns. The right in the immovable property is therefore not intangible or inchoate right. In so far as the litigation is concerned it is certain that respondent's right and title' in the properties is not denied. We had requested the .learned counsel to prove the photo copies of the pleadings so as to know the nature of the suit but the same were not supplied. However, the observation of learned CIT (A) in the impugned order helped us to conclude that the litigation is with respect to the creation of trust and not of title to the properties. We are therefore of the view that litigation about the creation of trust is not an impediment in the ray of imposition of wealth tax inasmuch as the share in immovable prop, Vies is specified and forms part of the assets belonging to the respondent. The majority decision of ITAT in WTA No. 136(KB) of reported as 1977 PTD (Trib) 24 is also of no help to the respondent. In the case assessee was holding share in Habib Bank Limited, which vested in the federal Government from the date of nationalisation of the banks. The completion m the form of bonds payable by Government to share‑holders were not determined on the date of valuation. The Tribunal by the majority decision held that of compensation was inchoate and intangible not covered by section 2(e) sod that undetermined compensation on the valuation date were not liable to wealth tax. In the instant case the ownership of the respondent in the properties is the: denied nor it is undetermined. She has prescribed share in the properties as widow which was declared in the return and belonged to the assessee on the valuation date and could be included in the assets for purposes of determining the net wealth. The learned counsel for the respondent in support of the content that the respondent not in actual possession, her right is intangible not meeting the test of immovability of properties relied on the following case‑law of Indian jurisdiction. (1) (1976)‑ITR‑103‑page‑38, Commissioner of Wealth Tax, Bengal Bishwanath Chatterjee and others (Supreme Court of India). (2) (1972)‑ITR‑783, Commissioner of Wealth Tax, Maysore v. H. H. SMT. Rajkuverba (deceased)(Mysore High Court) ... . We have perused these decisions and found these as not helpful to the respondent. In the case before the Supreme Court of India the facts were that a Hindu male governed by the Dayabhaga School died on 5‑1‑1957 leaving his widow, sons and daughters. A suit for partition had been filed and preliminary decree had been obtained on July 4, 1959. The issue was whether property devolving on his heirs was assessable jointly in the status of Hindu undivided family and belonged to the assessee. After considering the definition of net wealth analogous to the definition in section 2(m) of the Act, the Court observed as follows: "The expression "belong" has been defined as follows in the Oxford English Dictionary:‑ "To be the property or rightful possession of." So it is the property of a person, or that which is in his possession as of right, which is liable to wealth tax. In other words, the liability to wealth tax arises out of ownership of the assets, and not otherwise: Mere possession, or joint possession, unaccompanied by the right to, or ownership of property would therefore not bring the property within the definition of "net wealth" for it would not then be an asset "belonging" to the assessee." The observation of the Supreme Court of India reproduced above supports the Appellant and not the respondent. The Supreme Court has held that property of a person or that which is in his possession as of right, which is liable to wealth tax. It is further explained that liability to wealth tax arises out of ownership of the assets and not otherwise. Mere possession or joint possession unaccompanied by the right to or ownership of property would not bring the property within the definition of net wealth because it would not then be an asset belonging to the assessee. The possession of property as of right is therefore the criteria for determining the liability of payment of wealth tax. The possession may be actual or constructive but the right should be real. Under Muslim Law of inheritance the heirs become the co‑owners of the property on the death of the deceased. They are deemed to be in constructive possession and property belongs to them. In the case Mst. Sahib Jan Bibi and others v. Walidad and others reported in PLD 1961 Pesh 9, it was held: "If female heirs of a deceased Muhammadan, namely, the widows and the daughters had been receiving produce from the land in lieu of their share of the income of the deceased's property, such female heirs will be deemed to have succeeded to the property as co‑heirs with the deceased's sons and they will be deemed to be in joint possession with the latter through receipt of their share of the produce. The omission of their names from the Revenue Record alone would not divest them of the right which had vested in them by succession. The sons' possession, on that evidence, would not be adverse to them. They would be held to have entered into possession as co‑heirs with them. In the payment of grain to the female heirs would lie the admission of their right in the estate:' The Mysore High Court in the case of Commissioner of Wealth Tax, Mysore v. H.H. SMT Rajkuverba 1972‑ITR‑783 (supra) held: "The word "assets" has been defined in section 2(e) as inclusive of property of every description, movable or movable. The word "property" is a term of wide import and is sufficiently comprehensive to include every species of an estate, real and personal, and everything which one person can own and transfer to another. The term property includes not merely tangible property but also intangible rights,' The property would therefore include every species of an estate, real and personal, and everything which one person can own and transfer to another, and also includes tangible or intangible rights. Thus to bring the property within the assets it is to be shown that the person owns it and can transfer it to another person by way of sale, mortgage, gift etc. It is in this sense that the term "assets" as defined in section (2)(e) of the Act is understood. It will be of interest if we reproduce the observation of Allahabad High Court in AIR 1939 page‑415 cited by the learned counsel for the appellant to know the meaning of the word "property". The Hon'ble High Court observed: "The word `property' may be used in the objective sense of a concrete thing which is the subject of ownership or other rights; or it may be used in the sense of the rights and interests of the owner or other person in that property. It is in the latter sense that the term is used in the Transfer of Property Act. The respondent a Muslim law heir has the right and interest as an owner in the properties which she can transfer by way of sale, mortgage, gift etc. We are E therefore of the view that the properties are the assets belonging to the respondent rightly included in the net wealth by W.T.O. Learned CIT(A) erred in deleting the value from the net wealth. Consequently we would vacate the impugned order and restore that of the Wealth Tax Officer. The departmental appeals succeed and are disposed of as indicated. M.B.A,/860/T Appeals accepted.