1989 PLP (Trib (PTD)

FARHAT ALI KHAN (CHAIRMAN).-- The aforesaid miscellaneous application was moved with the prayer that the appeals mentioned above which are directed against 3 separate orders recorded by same learned C.I.T. (A) on 24-12-1986, 28-12-1986 and 18-10-1987 relating to assessment years 1979-80, 1980-81, 1981-82 and 1982-83, should be granted an out of turn hearing. It was accepted and out of turn hearing was given on 16th and 17th August, 1988 and now we are disposing them of by this consolidated order as common issues of law and facts are involved in them.

2. The brief facts giving rise to these appeals are that 25 persons jointly purchased vide a sale-deed, dated 14th September, 1970 a commercial building, called Farid Chambers situated at Abdullah Haroon Road, Karachi, for a consideration of Rs.20,00,000 in specified and identifiable shares as given herein below:- (1) Ebrahim Saley Mayet 1 % (2) Aboobakar Saley Mayet 1 % (3) Rukeyar Aboobakar Mayet 5 % (4) Abdul Rehman Ibrahim Mayet 10% (5) Khadija Yousuf Laher 11% (6) Hajee Aboobakar Mayet 11% (7) Fatima Ibrahim Mayet 11% (8) Muhammad Ibrahim Vadi 7-1/2% (9) Ayesha Muhammad Vadi 5 % (10) Rashid Ahmed M. Vadi 7-1/2% (11) Zulekha Rashid Ahmed Vadi 5 % (12) Adam Muhammad Seedat 2% (13) Ayeshabee Haji Adam Seedat l-3/4% (14) Muhammad Adam Seedat l-3/4% (15) Essop Adam Seedat l-3/4% (16) Abdul Qadir Adam Seedat l-3/4% (17) Esmail Adam Seedat l-3/4% (18) Shabbir Ahmed Adam Seedat l-3/4% (19) Ahmed Moosa Mayet. l-3/4% (20) Muhammad Moosa Mayet l-3/4% (21) Ibrahim Moosa Mayet l-3/4% (22) Essop Mayet l-3/4% (23) Hava Ahmed Mayet 1-1/2% (24) Muhammad Fahim Laher 2-1/2% (25) Essop Fahim Laher 2-1/2% The entire building was let out on rent and these 25 persons started realizing rent after becoming the owners thereof. According to Mr. Nasim, the learned counsel for the appellants, they appointed one called Ghulam Rasool as their Munshi who not only realized the rent on issuance of receipts to the tenants under his signatures but also incurred necessary expenses for upkeep and maintenance of the building. He also paid electricity and gas bills and K.M.C. Taxes. According to Mr. Nasim the W.T.O served notices on aforesaid Ghulam Rasool calling upon him to file return of wealth tax for assessment years 1979-80, 1980-81, 1981-82 and 1982-83 which were addressed to the co-owners of Farid Chambers, Abdullah Haroon Road. Aforesaid Ghulam Rasool, however, by his various letters informed the. W.T.O. that he was not competent to receive the notices and the W.T.O. should serve them on the individual co-owners. Nevertheless, the W.T.O. insisted and consequently he filed nill returns for all the relevant assessment years. The co-owners, however, remained well-represented before the W.T.O. and various issues were raised before him but he rejected all of them and after valuing the property at 10 times of its annual letting value levied wealth tax on all the.25 co-owners treating them as an Association of Persons (A.O.P.) under the name and style of Messrs Ibrahim Saley Mayet and others. Moreover, he also imposed penalty under section 32 of the Wealth .Tax Action assessment years 1979-80, 1980-81 and 1981-82. Having been aggrieved and dissatisfied the assessees went up in appeal but the learned C.I.T.(A) by his 3 impugned orders mentioned above rejected all of them. They still feel aggrieved and have come up in second appeal before us.

3. Mr. Muhammad Nasim, the learned counsel for the appellant, has reiterated all his submissions canvassed before the learned C.I.T.(A) and Mr. A.G. Channa, the learned D.R. assisted by the Assessing Officer has supported the impugned orders. We have heard both of them at some length and dispose of these appeals as follows:- Association of Persons (A.O.P.).

4. The first contention of Mr. Nasim which he very vehemently argued is that both the officers below fell in serious error in treating the appellants as A.O.P. as each of them had 'separate identifiable, alienable, transferable and saleable shares in the building. In this connection the craned counsel invited our attention to the following cases:- (1960) 39 I T R 546 (SC): C.I.T. v. Indrabal Krishna (1966,) 59 I T R 728 (SC); C.I.T. (Agricultural Tax) v. Rajan Ratan Copal (19731 88 1 T R 432 (SC); G. Murigesan and others v. C.1.T. (1967) 63 I T R 569; C.I.T. v. Deradasan and others (1977) 1091 T R 416; C.I.T. v. Deghamwala Estates (1980) 121 I T R 684; C.I.T. v. Deghamwala Estates (1909) 72 1 T R 579; R. Waisala Amma v. C.G.T. and (1971) 82 I T R 828 (SC) C.G.T. v. R. Waisala Amma. Mr. Muhammad Nasim further argued that an Association of Persons could be formed under the Wealth Tax Act if there was common interest of the individuals in the property like Co-operative Societies or Companies but it could not be constituted in the case of co-owners who have definite and transferable shares in it.

5. We have carefully gone through all the case-laws cited by Mr. Muhammad Nasim at Bar and have also read the relevant law. It appears to us that in the domain of tax law the Legislature has introduced certain entities which could be subjected to tax. Ordinarily a business can be run or a property can be held by a natural person or a juristic person. However, for tax purposes certain concepts have been introduced Which, though neither natural person nor juristic; person would still be taxed1or their income or for their wealth. The entities like a Hindu undivided family, a registered partnership and unregistered partnership, an; Association of Persons and a body of persons could be cited in this connection. Though aforesaid concepts do not convey the idea of juristic personality yet they are given status of entities which could be subjected to tax. The argument of Mr. Muhammad Nasim that the properties held by Co-operative Societies or Companies could be taxed as properties belonging to Association of Persons (hereinafter referred to as A.O.P.) does not, therefore, appear to be correct. Both the Co-operative Society and a Company have been conferred upon the juristic personality and arc capable of running some business or holding some wealth. On the other hand, an A.O.P. is nothing but an entity in the realm of Tax Laws.

6. It further appears to us from perusal of the relevant law that in order to create an A.O.P. there should not only be a volition on the part of the individuals but it should also be for the purposes of some common adventure with the intention of earning profit. If certain number of persons are going on a street they are nothing but a crowd. Now suppose they stop at a place where immovable property is being put on auction. They still remain a crowd. If they individually start offering bids they would still be treated as part of the crowd but if more than one of them some together and decide to purchase the property in equal shares so that they .can share the rent yielded by it in equal shares and indeed they succeed in purchasing it they will constitute what we call in Tax Law as an A.O.P. For an Assessing Officer if above noted facts are established then he would tax them as A.O.P. irrespective of the fact that they arc related to each other and inherited the money from their ancestors as these facts shall be wholly irrelevant for tax purposes.

7. Now, reverting to the facts of these appeals it appears to us that all the 25 persons purchased a property knowing fully well that it was let out to tenants. Then they not only appointed a common manager called Ghulam Rasool but also gave him authority to realize rent from tenants and after spending money on upkeep and maintenance of the building pay the balance to them. Thus, it is clear that they joined deliberately in a common adventure undertaken with the intention of earning profits. Hence they constituted an A.O.P. In our judgment both the officers below, therefore, came to the correct conclusion. However, this is not the end of the matter.

8. If we go through the Wealth Tax Act it appears that it deals with two types of A.O.P. which we would like to call Real A.O.P. and Notional A.O.P. The Real A.O.P. is that which is created by exercise of volition of the persons' concerned and Notional A.O.P. that which is to be presumed by virtue of operation of law. The concept of real A.O.P. existed in section 3 of the Wealth Tax Act which created wealth tax charge on net wealth of an A.O.P. However, an immovable property held by an A.O.P. was not made chargeable to tax till Wealth C Tax (Amendment) Ordinance of 1980 substituted the definition of assets as given' in clause (e) of subsection (1) of section

2. Thus, from 28th June, 1979, wherefrom the said Ordinance became effective, the immovable property held by an A.O.P. for the purposes of business of construction and sale or business of letting out was brought to the charge of wealth tax. However, the same Ordinance also introduced Explanation (iii) to clause (m) of aforesaid subsection (1) of section 2 of the Wealth Tax Act wherein is contained concept of Notional A.O.P. and it reads as under:- "(iii) Where the right, title or interest to or in any immovable property and other agricultural land vests in mort than one person, such person 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." However, this explanation became effective from 1st July, 1980.

9. Thus, section 3 and paragraph (ii) of clause (3) of subsection (1) of section 2 of the Wealth Tax Act deal with the Real A.O.P. whereas Explanation (iii) has made the provision for an A.O.P. which is to be presumed. Mr. Muhammad Nasim, however, argued that the appellants fall within the fold of neither of the provisions mentioned above. According to learned counsel the property belonged to the individual co-owners and not to the A.O.P. whereas it was necessary under the provisions mentioned above that it should belong to the A.O.P. With due respect to the learned counsel we feel ourselves unable to subscribe to his point of view. The Legislature has introduced the concept off A.O.P. without conferring juristic personality on it as has been done in the case of a company, co-operative society, trade unions and many others. At the same time they also treated the immovable property held by an A.O.P. for certain purposes to be an asset. Moreover, they also directed the Assessing Officer to assess the immovable property as an immovable property of an A.O.P if the right, title or interest to it vested in more than one person. We have already discussed that for tax purposes an A.O.P. is deemed to he an owner of a business or a property though it is neither a juristic person nor a person in blood and flesh. If the Legislature in its wisdom has presumed that whenever two or more persons join together to carry out some joint adventure with the purposes of profit, they not only create an A.O.P. but such business or property also vests in such A.O.P. for certain purposes. We have no alternative but to follow it. It is true that under provisions of Civil Law neither such entity enjoy a juristic personality nor can competently hold any immovable property but we should keep in mind that we are dealing with wealth lax liability within the domain of wealth tax law. We, therefore, reject this submission of Mr. Muhammad Nasim.

10. Alternatively the learned counsel for the appellant also argued that in any case the appellants could not be deem6d to be an A.O.P. in assessment year 1979-80. We are afraid, we do not see any substance in his this submission as well. We have already discussed above the concepts of notional and real A.O.P. In assessment year 1979-80 the appellants were a real A.O.P. and were lawfully charged wealth tax. A's far as other assessment years are concerned, they also became notional A.O.P. as they fell within the fold of Explanation (iii) of clause (m) of subsection (1) of section 2 of the Wealth Tax Act. A Full Bench of this Tribunal has discussed this issue at length in their order recorded in W.T.A. Nos.2, 3 and 4/KB of 1982-83 on 11th June, 1988 and for the sake of brevity we rely on the reasons given there in. This submission of Mr. Nasim. therefore also stands rejected.

11. Mr. Muhammad Nasim also argued that since the co-owners were assessed individually for income-tax purposes they could, therefore, not be assessed as A.O.P. for wealth tax purposes. We are unable to see any force in his submission. Income-tax is charged on the income of an assessee whereas the wealth tax is charge able, in the case of an A.O.P., if a property is held by them either for the purposes of business of construction and sale or for the purposes of business of letting out in assessment year 1979-80 and for remaining assessment scars if right, title or interest to any immovable property is vested in more than one person. Moreover, if an I.T.O. has not charged the owners of the property in dispute before us as in A.O.P., it does not preclude, the W.T.O. from doing so. We, therefore, reject this submission of Mr. Muhammad Nasim as well. Service of Notice.

12. Mr. Muhammad Nasim vociferously argued before us that notice of service of Mr. Ghulam Rasool could not be deemed as service of notice on A.O.P. particularly in view of his protest made in writing before the Assessing Officer. In this connection he invited our attention to certain letters written b4 aforesaid Ghulam Rasool which he sent to the Assessing Officer in reply to various notices. The W.T.O., who has been present in the Court, however, invited our attention to the returns filed by the aforesaid Ghulam Rasool wherein he gave his address as 19-A, K.D.A. Scheme No.], Karachi. The W.T.O. further invited our attention to a Vakalatnama and a covering letter addressed by Mr. Muhammad Nasim to the Assessing Officer on 27th November 1981. On the strength of these documents he argued that aforesaid Ghulam Rasool was for all practical purposes a principal officer of the A.O.P. and the service of notice was rightly effect on him. We have given our careful consideration to the submissions made by both the learned counsel for the appellants as well as the Assessing Officer. In our judgment the submission of W.T.O. is very much fortified by law. Under section 41 of the Wealth Tax Act, a service of notice could be made on the principal officer of an A.O.P. A principal officer has been defined with reference to a company by clause (o) of subsection (1) of section 2 of the Wealth Tax Act. However, subsection (34) of section 2 of, the Income Tax'; Ordinance also defines a principal officer with reference to an Association of Persons. Here any person connected with the management or administration of an A.O.P. is to be deemed a principal officer thereof. Since the definition of principal officer as given by .the Wealth Tax Act is not applicable, we can therefore, apply the definition of Income Tax Ordinance as laid down by clause (s) of subsection (1) of section 2 of the Wealth Tax Act. Now if we revert to the facts discussed above it appears that aforesaid Ghulam Rasool has not only been' issuing receipts under his signatures but he has also been disbursing various expenses. The Vakalatnama of Mr. Muhammad Nasim has been signed by him which shows that he had the authority of even appointing an Advocate. Moreover he has also been appearing before Excise and Taxation and K.M.C. authorities for and on behalf of the appellants. As such it has been fully established that he has been connected with the management or administration" It is true that he has denied his this character. However, he signed Vakalatnama as far back as 27th November 1981. Moreover he has been accepting the rent and disbursing various amounts right from the very beginning. As such his denial appears to be nothing but an afterthought. It is also pertinent to note that all the returns filed by Mr. Muhammad Nasim have been signed by him. We have closely examined them. Even the return for assessment year 1985-86, dated 30th September, 1985 has been signed by him as manager of the appellants. It is thus clear that he has been the manager right from the very beginning and his denial has been made with a view to help the appellants as a faithful employee.

13. Let us also mention here that the address given by him in the return is one of the co-owners who has been admittedly living in Pakistan. Since all of them appeared to be related to each other, therefore, the knowledge of all these proceedings could safely be imputed to them. Mr. Muhammad Nasim also cited at Bar (1959) 35 I T R 388 (SC)(1983) 144 I T R 745 and 15 Tax 183 regarding requirement of service of notice. However both these rulings revolve round their own facts and are distinguishable. In view of discussion made above we reject this contention of Mr Muhammad Nasim as well. Wrong description.

15. Mr. Muhammad Nasim has also argued that the Assessing Officer committed blunder in issuing notices in the name of-Messrs Farid Chamber whereas he framed the assessment in the name of Ibrahim Saley Mayet an others. The W.T.O. has dealt with this issue and we think that quite sufficiently, it his order Let us, however, also mention that under scctipn.45-A of the Wealth Tax Act, such type of mistakes would not vitiate the assessment orders unless Mr Nasirn could establish that the mistake caused substantial prejudice to the appellants which he has not. As such, this contention of Mr. /Muhammad Nasim also stands rejected. Valuation. 16: The next contention of Mr. Nasim is regarding the valuation. He vehemently argued that Rule 8(3) did not authorized the Assessing Officer multiply to annual letting value by 10 in order to arrive at the market value According to him Rule 8(3)- of the Wealth Tax R6,6s simply laid down restriction on the powers of an Assessing Officer namely whenever he has assess the market value which is more than It times of the annual letting value he hits to seek the prior or approval. In this connection 1-iq' referred to a decision c this Tribunal recorded in W.T.A. No.1703/KB of 1986-87 and others dated 1: March 1988. Etc also invited our attention to the offers; made by certain parties response to an advertisement of sale which appeared newspapers. According to him the V.T.O. had no jurisdiction to assess the market value at 10 times A.L.V. in face of the material produced before him. The W.T.O. present in the Court, however, contended that he rightly valued the property in dispute.

17. As far as the first submission of Mr. Nasim regarding Rule 8(3) concerned, let us point out that there arc various methods recognized by law for determining the market value of any building. Some of the methods are as follows:- (i) Valuation of land and building method. (ii) Actual sale price method. (iii) Rate of receipt method. (iv) Item-wise valuation method. (v) Building methods (Contractors method). (vi) Rental method. (Please see for further study Chapter 2 of part II of Verma's The Wealth Tax (1982 Edition)]. Thus, from perusal of Rule 8(3) it appears that it has left open the market-value to be determined by adopting either of the methods mentioned above. T e Wealth Tax Officer, however, is supposed to estimate the market value due regard to the nature and size of the property, the amenities available and the price prevailing for similar property in the same locality or in the neighborhood. However, its First proviso has accorded recognition to the Rental method of determining the market value which means that GARV could be multiplied 10 times in order to find out the market value. But it has also put a restriction on the power of the W.T.O. and now he has to seek approval of Central Board of Revenue if the market value exceeds 10 times of GARV. The restriction was perhaps felt necessary because market value could be worked out by adopting different methods and could in fact exceed 10 times of GARY. This position was, considered by 2 Full Bench decisions of this Tribunal reported as (1987) P T D,52.(Trib.) 'and (1988) P T D 582 (Trib.) and we need not dilate on this subject any more. Now, as far as the argument of Mr. Nasim regarding various offers is concerned, we would simply like to refer to Division Bench decisions of Bombay High Court and: Madras High Court which are reported as Government of Bombay v. Mervanji 'Mancherji Came 10 Born. L R 907 and A I R 1923 Mad. 31 T. Kathissabi and others v. Revenue Division Officer, Kalakot wherein the effect of offers made prospective purchasers and the Government was considered. Nevertheless we feel that it was the duty of the W.T.O. to give his due consideration to the offers made by apparently verifiable prospective purchasers. He should have at le St ascertained as to whether they were real or imaginary figures. On the contrary he has not referred to them at all in his, assessment order. From perusal o his orders it appears that he perhaps considered that the Rental Method was the only method available to him. But this is not correct. The contention of Mr. Nasim that since the property is subjected to rent restriction laws, its market value to be determined in the light of this fact carries much weight. The Assessing officer has not considered this aspect of the matter as all. Mr. Nasim further argued that the liabilities of the appellants regarding this building were more than actual rent received. However, since this plea was never raised before at any for we refuse to entertain it but at the same time we feel that justice has not been done with the appellants while determining the market value of the building. We, therefore, feel very much constrained to set aside the impugned orders and so a do. The W.T.O., is directed to consider all the arguments advanced by the appellants while determining the market value of the property in dispute. Let us a so mention that he may also take recourse to section 7(a) of the Wealth Tax Act y making reference to a value if he thought it fit.

19. Mr. Muhammad Nasim also argued that some of the members of the appellant were non-resident hence were entitled to rebates. This issue also has not been agitated before any forum. Since the issue pertains to facts and since the appellants did not like to agitate to it earlier, we do not think we would do justice in giving yet another opportunity to the appellant to raise-this issue which would surely require an investigation n on facts. This contention of Mr. Muhammad Nasim, therefore, also stands rejected. Penalty.

20. As far as impugned orders regarding penalty are concerned, they are also hereby set aside as a consequential relief. The W.T.O. is directed to record fresh findings on this issue at the time of framing assessment orders De Novo.

21. In view of discussion made above the miscellaneous application and all the appeals stand disposed of to the extent and in the manner as indicated above. M.B.A/556/T Order accordingly