2003 PLP 1639 (PTD)

Rs.1,200,

000. She is a wealth tax assessee. 2000-2001 Shop Nos. 1 & 2 on Ground Floor of Property No. 12/C, Commercial Zone, Liberty, Gulberg-III, Lahore. M. Waqas Khalid (16) & M. Tayyub Khalid (10). Minor Sons of Mr. Khalid Mahmud. Property was gifted by the maternal uncle of Donees. The IAC (acting as an Assessing Officer) required the Complainant vide letter, dated 12-6-2002 to produce particulars of the Donor, the maternal uncle of his sons, his resources and the documents relating to acquisition of the property by the alleged Donor. In response, a written reply was submitted on 18-6-2002 explaining that registered deed had already been submitted which contained particulars of the property and of the Donor. This reply was not considered satisfactory and formal Additional Assessment proceeding for 2601-2002 commenced by issuing notice on 26-6-2002 under section 65 of the repealed Ordinance.

3. As regards Properties Nos. 175 and 176, Karim Block, AIT, Lahore purchased by the Complainant's wife, the explanation that Rs.1,200,000 were gifted to. her by her father, Mr. Zulfiqar Ali Mumtaz, was not accepted because the cheque of Rs.800,000 and Rs.400,000 issued by Mr: Mumtaz to his daughter, Mst. Farhana were bearer cheques, dated 10-11-1996 hence it was doubtful that money had "actually changed hands". The Gift Deed executed by Mr. Mumtaz in this respect was not considered to be reliable document as this was not registered. It was intimated to the Complainant on 12-6-2002 .that the house in question was purchased by the Complainant himself out of his own sources not disclosed to the Department". However, an opportunity was provided to explain his position. The Complainant submitted explanation on 18-6-2002 to the effect that it could be verified from Askari Commercial Bank, Circular Road, Lahore as to who had cashed the cheques .issued by Mr: Mumtaz. It was canvassed that according to Muhammadan Law it is not necessary to get a cash gift registered. The requirement simply was the offer to gift by the Donor and acceptance of the same by the Donee and both of these stood fulfilled. This explanation by the Complainant did not find favour with the IAC/Assessing Officer, hence he reopened the assessments for the year 1997-98 by issuing notice under section 65 on 26-6-2002.

4. Respondent's in its reply inter alia deny ulterior motive or mala fide intention and assert that "reopening is legal and lawful' and Department's action based on sound footing and that there is transgression of jurisdiction.

5. In his arguments, the Counsel for the Complainant raised the following points:-- (i) the reopening of the case is illegal and unlawful as no approval of CIT Zone-B, Lahore was obtained before issuing show-cause notice on 12-6-2002; (ii) that the reopening of the assessments is of no legal validity as there is no definite information in the possession of the respondent: (iii) the impugned notices are based on vague presumption, (iv) the respondent has utilized power beyond his jurisdiction, (v) the impugned notices are violative of the principle of natural justice and the assessment proceedings ate mala fide with the collateral object.

6. The representative of the Revenue on his turn submitted that assessment, already stood finalized under section 59(1) under SAS, hence these could be lawfully reopened moreso when explanation tendered by the Complainant, even before issuance of notice under section 65; was not convincing or satisfactory. The AR of the Complainant vehemently argued that treating the written explanation, submitted by the Complainant in response to show-cause notices, unsatisfactory was in itself an arbitrary act of the Assessing Officer (IAC) particularly when no `definite information' of concealment of correct income had come in his possession.

7. The rival arguments were considered. There is no law debarring a person to gift the property owned by him to his kith and kin out of love and .affection. The purchase deed of the shops-in-question, submitted by the AR was examined. It transpired that Mr. Iftikhar Javed Rana, the maternal uncle of the two sons of the Complainant, had purchased two shops via registered Purchase Deed, dated 24-5-1999. These, Mr. Rana, gifted these to his nephews., This being a transaction of gift between donor and donees, did not involve the Complainant. There is no provision in the Income Tax Ordinance burdening a taxpayer with the responsibility to offer explanation for the conduct of his sons or their maternal uncle. What the Income Tax Authorities could legally do was to question the Donor, Mr. Rana, to explain the sources from which he initially purchased the shops on 24-5-1999 (Assessment year 1999-2000). In case he failed to explain the sources of investment, the unexplained investment could be treated as `deemed income' in his hands. The reopening of the Complainant's assessment for 2000-2001 was thus absolutely irrelevant and illegal.

8. As regards the purchase of House Nos. 175 and 176, Karim Block, AIT, Lahore by the Complainant's wife, investment could be investigated, under the law, in the assessment of the purchase i.e. Complainant's wife, and not in the Complainant's assessment for 1997-98 particularly when it is acknowledged that Mst. Farhana Khalid B is herself a Wealth Tax assessee. Out of the total investment of Rs.2,000,000 in this property, it was a amount of Rs.1,200,000 only which, according to the Assessing Officer, was not satisfactorily explained. If she had claimed that her father Mr. Rana gifted the amount, effort should have been made to verify the passing of money from the father to the daughter. Mr. Rana passed the money to his daughter through a Gift Deed. The proper course, therefore, was to enquire into the sources of Mr. Rana, who gifted Rs.800,000 and Rs.400,000 to his daughter and if that explanation was not found satisfactory, the amounts could be taxed in his hands as `income from unexplained sources'. The taxability of these amounts as deemed income in the .hands of the Complainant was in any case uncalled for, unwarranted and without any justification. The reopening of the assessment for the year 1997-98 of the Complainant was, therefore, obviously not on valid grounds.

9. The respondent has raised objection to the jurisdiction which are frivolous and not tenable similar objections raised in many other cases have been considered and rejected. As maladministration has been established the Federal Tax Ombudsman has jurisdiction to investigate.

10. From the aforementioned discussion, it is clear that the reopening of the Complainant's assessments for the years 1997-98 and 2001-2002 were both illegal resulting in "maladministration". It is. therefore, recommended that:-- (i) the notices under section 65 of the repealed. Ordinance for the years 1997-98 and 2001-2002 be withdrawn. (ii) Compliance report be submitted within 30 days. C.M.A./688/FTO Order accordingly.