1984 PLP (Trib (PTD)

This further appeal, relating to assessment year 1977‑78 filed by an assessee is directed against the order of the learned A. A.C. of Income- tax, RD, F.

1. The relevant facts of the case are that after death of their pre decessor‑in‑interest, ownership of a plot of a land measuring 16 Kanals devolved on late Mil. Khadija Begum (hereinafter referred to as the `assessed'), alongwith her two sons, namely; Umar Draz Khan and Khalid Mahmood in accordance with the shares stipulated by Muhammadan Law. The assessed who held 1/8th share in the aforesaid plot died on 1‑5‑1977. In response to notice issued under section 56 of the Income‑tax Ordinance, Umar Draz Khan filed return on behalf of the assessee declaring property income at Rs. 6,410 alongwith 1/3rd share income from a registered firm upto 1‑5‑1977 i.e. date of death of the assessed. The whole plot was stated to have been leased out to various parties who had raised therein construction at their own cost and the lease was being extended after every 10 years. This fact was brought to the notice of the I. T. O. by a son of the deceased. The I. T. O. held that assessment of lease money of whole plot was to be made at the hands of the A. O. P. and therefrom the assessee's share was adopted at Rs. 10,000 for rate purposes. Adding thereto share income of Rs. 14,935 the assessee's total income was determined at Rs. 24,

935. Income from plot was taxed as Income from other sources. This assessment was confirmed in appeal and the learned A. A. C. repelled the assessee's plea of accrual of income from property holding, specifically that income from leasing out of plot was rightly held not to be taxable as property income.

2. The appellant's A. R. inter alia contended that :‑ (i) The assessed having died on 1‑5-1977 both the officers below , erroneously processed assessment a dead person. (ii) The officers below erred in holding that income from property was taxable at the hands of the A. O. P. because shares in the in herited plot stood divided as 1/8th of the assessee and 7/l6tb of each of her two sons. Income thus had to be taxed at the indi vidual hands. (iii) The plot being not vacant and construction having been made by the lessees for the last so many years, income therefrom has been erroneously under section 12 of the Repealed Income‑tax Act where‑ . as it was assessable under section 9(l) as property income. The Departmental Representative repelled the assessee's. grievance of processing of assessment on a dead person as to be factually incorrect. It was stated that for the year under review return was filed by Uamar Draz son of the assessee and as such assessment shall be deemed to have been made on legal representative of the assessed can the basis of return. Regarding the issue of assessment of. income at the hands of the A. O. P. and treating the assessed as to be one of its member, the Departmental Representative stated that no such plea having been taken on behalf of the assessed before the officers below, new plea at this stage should not be entertained. The third grievance of the assessed was butted by the Departmental Representative by contending that lease of the plot having beets given for specific time and the superstructure constructed thereon be ing of the lessess, income from renting out of the plot was rightly taxed under section 12 of the Repealed Income‑tax pct and provisions of section 9(l) were not applicable.

4. After hearing the parties, grievance of the appellant's Authorized Representative regarding taxing of income at the hands of the A. O. P. seems to be well‑founded. Issue involved is purely legal involving no ele ment of facts. Legal issue can be entertained at any stage irrespective of the fact that it was not urged at lower forum. The assessee alongwith her two sons having inherited ownership of the plot according to shares stipulated by Muhammadan Law, the officers below fell in error in assess ing income therefrom at the hands of the A. O. P. Shares of the assessee and her two sons being specific, income therefrom had to be assessed at the individual hands. Both the officers below failed to appreciate the pro visions of subsection (3) of section 9 of the Repealed Income‑tax Act which provides :‑‑ "Where property is owned by two or more persons_and their respec tive shares are definite and ascertainable, such persons shall not in respect of such property be assessed as an association of persons but the share of each such person in the income front the property as computed in accordance with this section shall be included in his total) income." In this view of the matter collective assessment of income from inherited property was illegally made at the A. O. P.'s hands. Income had to be as sessed as per share of the assessed. On this basis the assessment is vacated for de novo decision by the

1. T. O. Taking up the appellant's grievance regarding assessment of income under section 9 (1) instead of section 12 of the Repealed Income‑tax Act as property income, orders of the officers below on this issue are found to be vague and erroneous. The property comprised of 16 Kanals of plot which was leased out for a period of ten years and lease was renewable after expiry. The lessens are stated to have made their own construction on different portions of the plot. Character of income cannot be doubted or changed merely due to the fact that the construction was made by lessees at their own cost instead of the owner. In innumerable cases, houses and commercial units are constructed by lessees on land obtained for 99 years lease. In the Cantonment area concept of ownership of plots rarely exists and the land is usually on lease. Both the officers below failed to appropriate this distinction for the purposes of determination of 'mode of in come. The relevant criterion was actual existence of building on the spot and terms and conditions of accrual of income therefrom. If on the spot there are separate buildings which have been constructed by the lessees at their own cost, irrespective of that fact, income therefrom had to be treated and taxed as rental income. The learned A. A. C. made erro neous interpretation of the word "land" as mentioned in subsection (1) of section

9. In simple words provision is that income from any building or land appurtenant thereto shall be taxable as property income off: that basis of bona fide annual letting value. The plot inherited by the assessee alongwith her sons contains various built up units and the officers below did not bother to ascertain whether the entire plot was allocated one number and combined annual letting value by the Excise and Taxation Authorities or sub‑units constructed by the lessees are separately numbered and annual, letting value was different in each unit. Terms and conditions of leasing of plot also need probe. In these circumstances, I vacate the impugned order as well as the assessment and remit the case to the I: T.O. For de novo decision in the light of observations as made above. The appeal succeeds accordingly. M. B. A. Order accordingly.