1986 PLP (Trib (PTD)

(11) To issue any share or security and to indemnify any pennon for whom the Directors may agree or are bound to indemnify or not or in satisfaction of any liability. (12) To create depreciation fund, equalization of interest fund, or any other fund, provident fund, or any other fund, or funds that the Company may think proper to create. (13) To amalgamate with any other Company having objects, altogether or in parts similar to those of the company or to acquire any such concern. (14) Subject to IDBP's prior written approval during its loan, to distribute any of the Company's property among the share holders in special or in kind. (15) To do all or any of the above things in any part of the world and either as principals, agents, trustees, importers or otherwise, either alone or in conjunction with or through others as will be deemed fit. (16) To do all such other things which are incidental to or which the Company may think proper for the attainment of above objects or any of them in any way. Again according to para. 5 of the Articles of Association, business of the company shall include all or any of the objects enumertated in the Memorandum of Association and can be commenced immediately after the incorporation of the company at such places in Pakistan or elsewhere as the Directors may deem proper or advisable from time to time. From the relevant part of the Memorandum of Association and para.5 of the Articles of Association, it is evidently clear that object of the company is not to indulge in the business of letting out of property. On account of this reason, rent of a part of the building which was let out to the Bank of America was assessed at 10 times of, the gross annual letting fixed at Rs.26,87,400 for the charge years 1979‑80 to 1981‑82 and Rs.30,47,400 for the charge year 1982‑

83. The assessments so made were contested in appeal which by virtue of Order Nos. 933 to 936, dated 3‑7‑1983, were set aside with the following words:‑ "The appellant has been heard and the facts of the case have been considered. Appellant's pleas have much merit No record or report was submitted by the Wealth Tax Officer. It would, therefore, be fair if the assessments are set aside for regular reconsideration under the law and operative facts and factors of the case including the case law applicable i.e. that cited by the appellant, i.e. Constitutional petition No. D‑965 of 1985 in the Sind High Court, at Karachi."

4. In consequence of setting aside of assessments relevant to the charge years 1979‑80 to 1982‑83 re‑assessments were again made by virtue of order, dated 10‑2‑1985. This time again by relying on rule 8(3) of the Wealth Tax Rules ibid the assessee was charged to Wealth Tax in respect of the charge years 1979‑80 to 1982‑

83. In so far as assessment years 1983‑84 and 1984‑85 are concerned, these were also made under rule 8(3) read with section 16(3) of the Wealth Tax Rules ibid and the Wealth Tax Act ibid respectively. In this connection, relevant part of the finding recorded by the Wealth Tax Officer is set out below:‑ "The assessee, a private limited company, owns property No. 15 I & T Centre, Khayaban‑e‑Soherwardy, Islamabad, front portion of which is let out to Bank of America since 1‑12‑1978. The value of the building has been declared at one lac for each assessment year for which no basis have been furnished. Assessee's contention is that the part of the building owned by the company, which has been let out, is not assessable and rule 8(3) of the Wealth Tax, Act. This aspect has been fully discussed in detail in the combined assessment order of the date passed under section 16(3) for the assessment years 1979‑80, 1980‑81, 1981‑82 and 1982‑83 in the light of reported case law 1981 P T D 217 viz B. P. Factory Limited."

5. Re‑assessments in respect of the charge years 1979‑80 to 1984‑‑85, were (‑ again contested on appeal before the first appellate authority i.e. CA.T. (Appeals). He by virtue of Appeals Nos. 3053 to 3058 dated 14‑4‑1985, accepted the plea of the assessee that a part of the building let our to Bank of America was liable to be evaluated under subsection t2) of section 7 and Rule 8(9) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively. The department having objected to this finding of the learned C.I.T. (Appeals) filed second appeals before the Tribunal. In this connection, the only grievance of the department is that there was no justification with learned C. I. T. (Appeals) to have directed evaluation of a part of the property let out on rent to Bank of America in accordance with the provisions of subsection (2) of section 7 and rule 3(9) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively. In support of this contention, reliance was placed on a case cited as (1982) 45 Tax 17(HC Karachi).

6. Learned DR has argued at length to establish that learned C. I. T. (appeals) committed‑ an error in directing evaluation of a part of the property let out to Bank of America under subsection (2) of section 7 and Rule 8(9) of Wealth Tax Act and Wealth Tax Rules ibid respectively. He has stated that as the assessee was not involved in the business of acquiring immovable property and letting it out on monthly rent for the purpose of earning profit it can be said without any hesitation that rent from such part of the property let out to Bank of America was liable to be assessed under the head property and not business. He has further pointed out that if, the Income‑tax Officer had through an oversight assessed rent of a part of the building let out to Bank of America under the head business then it did not debar the Wealth Tax Officer to proceed in accordance with law under the Wealth Tax Act and Rules made thereunder. He has stated that mistake of the Income‑tax Officer in assessing rent of a part of the property let out to Bank of America does not constitute estoppel in so far as proceedings under the Wealth Act ibid are concerned. He has submitted that if this argument is accepted by the Tribunal then a part of the property let out on hire could only be assessed under rule 8(3) of the Wealth Tax Rules ibid.

7. Arguing further learned D.R. has said that section 3 defines charge of wealth tax. It says that for every financial year commencing on and from 1st July, 1963, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual undivided Hindu family, firm, association of persons or body of individuals whether incorporated or not and company shall be charged at the rate or rates specified in the schedule. He has stated that net wealth according to section 2(m) 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 slate under that Act, is in excess of the aggregate value of all the debts owned 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.

8. Learned D.R. has stated that according to the definition of net wealth in section 2(m) read with clause (e)(ii) of the said section where a company holds immovable property for letting it out then such property is liable to be assessed under the Wealth Tax Act ibid.

9. Learned counsel of the assessee has, however, taken strong exception to the pleas raised by learned D.R. on behalf of the department. He has again stressed the point that income from printing business also included receipts from rent on account of a part of the building let out to Bank of America. He has stated that such receipts having been assessed under section 62 of the Ordinance ibid, the relevant part of the building let out on hire was liable to be assessed for purposes of wealth tax under section 7(2)(a) read with rule 8(9) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively. Finally he has pointed out that as the assessee did not hold any immovable property for the purposes of the business of construction, sale or letting it out and as such it is not hit by the mischief of clause (e)(ii) of section (2) of the Wealth Tax Act ibid.

10. It is an admitted fact that receipts from a part of the building let out to Bank of America on monthly rent were assessed under the head "Business" alongwith profit of the assessee from printing business. As already stated above, if the Income‑tax Officer had committed an error in assessing receipt from rent under the head "Business" then it did not debar the Wealth Tax Officer to proceed in accordance with law under the Wealth Tax Act for the purpose of charging wealth tax on a part of the property let out to Bank of America. We say so as on perusing relevant part of the Memorandum of Association and para. 5 of the Articles of Association, we find that one of the activities of the assessee is not to involve in business of acquiring properties and letting them out on rent. Therefore, in our considered opinion the assessee had not been trading in real property and consequently rent from such property could not be assessed under the head "Business". As a corollary to this conclusion, we have no hesitation in stating that the value of a part of the property let out to Bank of America could only be assessed in accordance with section 7 (1) read with rule 8 (3) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively. Therefore, we hold that 1982 P T D 381 (Supreme Court of Bangladesh) is not attracted on the facts of the case before us. In 1982 P T D 381 (Supreme Court of Bangladesh) Free School Properties Limited was engaged in the business of acquiring houses and letting them out on monthly rent for the purposes of earning profits. As it was a private limited company, it declared dividends on profits earned by it and distributed them amongst its share‑holders. On appeal by the Commissioner of Income Tax, Chittagong Zone, Chittagong, it was held by the Bangladesh Supreme Court that where the assessee is engaged in the business of acquiring' houses and letting them out on monthly rent for the purposes of earning profits then such rental income received by it constitutes income from business. Therefore, for purposes of wealth tax such properties of the assessees are liable to bulk valuation under rule 8 (9) of the Wealth Tax Rules ibid. However, as has been said here to before Messrs Khurshid Printers Limited, is not engaged in the business of acquiring immovable property and letting it out on monthly rent with the object of earning profits and consequently a part of the property let out by it on monthly‑ rent to Bank of America is liable to be assessed under section 7 (l) read with rule 8 (3) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively. For this conclusion we like to emphasise even at the cost of repetition also find support from the Memorandum of Association and para 5 of Articles of Association of Khurshid Printers Limited. On account of this position, a part of the property let out by Khurshid Printers limited, can only be assessed under section 7 (1) read with Rule 8 (3) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively.

11. Learned counsel of the assessee in support of the fact that a part of the building let out on rent to Bank of America should have been assessed under section 7 (2) (a) read with Rule 8 (9) of the Wealth Tax Act ibid and Wealth Tax Rules ibid respectively, has relied on another case cited as (1975) 32 Tax 180 (HC Mysore). On going through it, we find that it is not relevant on the facts of the case before us. In that case, it was held by the Mysore High Court that when global valuation is made under section 7 (2) (a) and valuation given in a balance‑sheet is not conclusive of the matter the Tribunal is competent to travel beyond the balance‑sheet car finding out true value of the assets. In respect of the case before us, such a situation does not exist.

12. Next objection of the assessee relates to the fact that as it did not hold immovable property for the purposes of business of construction, sale or letting out, it is not hit by the mischief & of clause (e) (ii) of section 2 of the Wealth Tax Act ibid. Here too we do not agree with the contention raised before us. To resolve the controversy, at issue we first reproduce below clause (e) (ii) of section 2 of the Wealth Tax Act ibid: ‑ "In the case of firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of business of construction and sale, or letting out, of property."

13. The question for consideration here is whether the word "or" as it occurs between the words immovable property held for the purpose' of business of construction and sale or letting out of property should be read conjunctively or disjunctively. On a plain reading of clause (e)(ii) we cannot and any other interpretation except the one that the word "or" is to be read disjunctively. In support of this conclusion, we have relied on 1981 P T D 217 (HC Karachi). Therefore, letting out of property is an asset and consequently liable to charge under the Wealth Tax Act ibid. Hence a part of the building that was let out to Bank of America by the assessee is liable to assessment under Rule 8 (3) of the Wealth Tax Rules ibid.

14. In consequence of the above order, all the departmental appeals succeed. M.B.A. Appeals allowed.