1990 PLP (Trib (PTD)

In these appeals a common point of law has arisen which is of some importance. We, therefore, dispose them all by a single order. The other points involved pertain to decide issues, hence they are also dealt with by this consolidated order.

2. Mr. Adnan Zaman, the learned authorised representative of the appellants, submits that in all these appeals, the appellants after encashing Foreign Exchange Bearer Certificates, hereinafter referred to as the Certificates, in Pak Rupees claimed the amount in their respective wealth tax returns as exempt from wealth tax under section 5(xv) of the Wealth Tax Act, hereinafter referred to as the Act. According to learned A.R. the I.T.O., however, turned down the claim of the appellants regarding exemption and on appeals his orders have been confirmed by separate orders of same learned C.I.T.(A) recorded on 24th February, 1990, 27th February, 1990, 19th February, 1990, 27th February, 1990 and 11th February, 1990 relating to assessment year 1988‑89 in the case of each appellant. Mr. Adnan Zaman inviting our attention to the Foreign Exchange Bearer Certificate Rules, 1985, submits that since the appellants were holders of such Certificates, it was to be presumed that they purchased it out of Foreign Exchange, hence section 5(xv) of the Act was applicable with full force in the case of each appellant. 1n order to fortify his submission further, the learned A.R. inviting our attention to S.R.O. 649(1) of 1985 dated July 1st, 1985 and C.B.R. Circular No. I.T.J. 1(42) of 1985 dated 22nd August, 1985, also submits that both the officers below fell in serious error in not granting exemption to the appellants.

3. Turning to the other two points involved in first four appeals, the learned A.R. contends that both the officers below fell in serious error in adding 10% of interest worked out on the amount of deposits/security to Gross Annual Rental Value in order to determine the market value of the immovable property belonging to the first four appellants. He further argues that both the officers below were not justified in not allowing security deposits as liabilities. In support of his both contentions, Mr. Adnan Zaman has invited our attention to a decision of this Tribunal reported as 1988 P T D 585.

4. Mr. A.R. Memon, the learned D.R., however, has supported both the officers below.

5. We have heard both learned counsel for the appellants as well as learned D.R. Starting our discussion with the Foreign Exchange Bearer Certificate Rules, 1985 hereinafter referred to as the Rules, we find that Rule No. (1) deals with nomenclature of the Rules whereas Rule No.2 lays down the denominations in which such Certificates would be issued. Rule No.3 mentions the banks and organizations which would be authorised to issue such Certificates. According to Rule No.4, such Certificates can be purchased by foreigners or Pakistanis without any limit against payment in Foreign Exchange from any office of issue and no question shall be asked regarding source of funds. Rule No.5 is relevant for further discussion. We, therefore, reproduce it in full and it reads:‑‑ "Rule 5.‑‑The Certificates may be purchased on payment in foreign exchange equivalent to the face value on the date of purchase. The foreign exchange must be paid in a convertible currency. 'No. application for purchase of these certificates will be needed nor will they be registered. They will be transferable by delivery." Rule No. (6) lays down that purchases may be made in Pakistan from foreign currency account held in Pakistan or through cheques or remittance of the equivalent foreign exchange from abroad in favour of the office of issue. Under Rule (7) if the Certificates are purchased abroad, payment may be made in convertible foreign exchange to office of issue located abroad. Rule No. (8) deals with the place of encashment and the mode of payment. Rule No. (9) mentions the denominations of the Certificates and the profit which they earned for specified period mentioned therein. Rule No. (10) makes provision for encashment of the Certificates by a bearer abroad or in Pakistan and the mode of payment thereof. The Certificates have been exempted from income tax or compulsory deduction of Zakat under Rule

11. But Rule 12 is relevant for our purposes and it reads:‑‑ "There are no restriction on possession, imports or export of these Certificates." Rule 13 lays down that if Certificates are encashed in Pakistan Rupees, a Certificate would be issued to the effect that Pakistan Rupees have been paid on conversion of these Certificates and the Income Tax authorities have been prohibited from making any enquiry about the source of such funds.

6. Now turning to S.R.O. 649(1)/85 dated lst July, 1985 it appears that the Certificates have been exempted from Wealth Tax. However, this S.R.O. is merely a piece of subordinate legislation. The basic exemption, therefore, stems from clause (xv) of section 5 of the Act which reads:‑‑ "S.

5. Exemption in respect of certain assets.‑‑ Wealth Tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee. (xv) Assets. 1. brought or remitted by an assessee into Pakistan or received by an assessee from outside Pakistan in the year in which they arc brought, remitted or received in the following five years; II. created by an assessee out of remittances received in or brought into, Pakistan through normal banking channels during the period referred to in sub‑clause (1)

"

7. Mr. Adrian Zaman has also referred to the C.B.R. Circular letter dated 22nd August, 1985 bearing NO. IT. J.I.‑1(42)/85 which has been addressed to the Regional Commissioners, one of whom is sitting on this Bench. From its perusal, it appears that a question was asked from the C.B.R to the following effect:‑‑ "Whether the amount received on encashment of F.E.B. Certificates or Bearer National Fund Bond would be liable to Wealth tax." It further appears that Mr. Naseer Ahmad, Secretary, Income Tax of C.B.R. answered the question as follows:‑‑ "Amount received on encashment of these bonds would be liable to wealth tax under the normal Wealth Tax Act Provisions. However, the bond/Certificates would not be liable to wealth tax."

8. Now reverting to the merits of the case, it appears that the arguments of Mr. Adrian Zaman is based on the assumption that if an holder of these Certificates encashes them, he would be presumed to be the owner thereof. The learned A.R. appears to be of the view that on the basis of aforesaid presumption we should further presume that they were purchased out of the foreign exchange as is provided by the Rules. However, with due respect to the learned counsel, we are not prepared to raise all sorts of presumptions for the simple reason that the Certificates are transferable by delivery as provided by Rule 5 without any requirement of registration anywhere. Moreover, under Rule 12 there is no restriction on possession, import or export of these Certificates and any bearer thereof, cannot only transfer them to any person against any type of consideration including payment in Pakistani currency and such transfer may further transfer them to any other persons. In short these Certificates are transferable by delivers of possession only. Thus, it is clear that from mere possession, a presumption may be raised that the bearer is rightful owner of the Certificates but it cannot be presumed that they have been purchased out of foreign exchange. However, it is equally obvious that if they are encashed in Pakistan Rupees, question can surely be asked by Taxation Authorities regarding sources of funds. In a case reported as 1989 PTD 367 the powers of Taxation Authorities in a similar type of case have been discussed at length. Moreover, the same line of reasoning has also been adopted by C.B.R in their Circular No. 4 of 1985 dated 1st July, 1985. , However, since no question has been asked by Taxation Authorities from the appellants, we, therefore, need not dilate on this subject any more. But even at the cost of repetition we would like to observe that the Rules do not help Mr. Adnan Zaman in his arguments.

9. Now as far as S.R.O.469(1)/85 dated 1st July, 1985 is concerned, it also does not appear to be coming to the rescue of the appellants for the simple reason that it exempts the Certificates from wealth tax and not the amount received after their encashment. This conclusion has also been arrived at by the C.B.R. in reply to a question reproduced above from C.B.R. Circular No. IT.J.I. 1(42)/85 dated 22nd August, 1985. Since they have referred to the provisions of the Act regarding exemption we would therefore, now turn to clause (xv) of section 5 of the Act.

10. Now if we peruse clause (xv) of section 5 of the Act, it appears that before an exemption is claimed, an assessee has to establish that the asset claimed to be exempt was either:‑‑ (i) brought by him into Pakistan, or , (ii) remitted by him to Pakistan, or (iii) received by him from outside Pakistan, or (iv) created by him out of remittances received in or brought into Pakistan, through normal banking channels.

11. It has further been provided that where an asset is not made entirely out of remittances received in or brought into Pakistan through normal banking channels, the exemption was to be applied in ratio of the foreign exchange remittances and local currency used in Pakistan.

12. Now it is trite law that the burden of proof regarding claim of an exemption is always on assessee. In this connection (1937) 5 ITR 307, Amritsar Produce Exchange Ltd. v. CIT, Lahore (1959) 29 ITR 529, CIT v. R. Venkatswamy Naidu (S.C.), (1959) 35 1TR 312, CIT v. Rama Khrishna Veo (S.C.), (1988) PTD 157, C.S.T. v. Lut6 & Company (Pakistan). (1975) PTD (Trib.) may be referred. As such, let us now examine what burden the appellants were required to discharge.

13. From perusal of clause (xv) as reproduced above, it is clear that it was the duty of the appellant to establish that they had either brought or received the Certificates into Pakistan from outside. They could have also established, if the circumstances so required, that they had remitted Certificates from outside Pakistan into Pakistan. However, this does not appear to be their case as is clear from the arguments advanced by the learned A.R. of the appellant as well as from their grounds of appeal. Their case, on the other hand, appears to be that they acquired the Certificates out of remittances received in Pakistan. However, in such cases, the exemption can be granted only if it is also established that such remittances were brought into Pakistan through normal banking channels. From perusal of the record, it appears that they have produced the Certificate of encashment of such Certificates but no proof has been adduced regarding receipt of foreign exchange in Pakistan through normal banking channels. Thus, the case of all the appellants is not covered either by paragraph (I) or (II) of clause (xv) of section 5 of the Act.

14. Now, as far as the appeals regarding charging of interest on account of security deposits/advances and its addition to A.L.V. for the purposes of determining the market value is concerned, we agree with Mr. Adrian that it is covered by our Full Bench decision reported as 1988 P T D

585. It is, therefore, ordered to be deleted. 15 Similarly, the issue regarding disallowance of security deposits/advances concerned, it also appears to have been squarely dealt with by our aforesaid decision. However, the impugned orders on this point are hereby set aside and the W.T.O is directed to decide this issue in the light of aforesaid decision.

16. The appeals, therefore, stand disposed of in the manner as indicated above. M.BA./915/T Order accordingly.