Rent free tenancy

2012 PTD 1559 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.221Income Tax Ordinance (XXXI of 1979), Ss.65, 66A, 62, 19(2)(b) & 19(3)Rectification of mistakeDefinite informationChange of opinionRent free tenancyInformation of

Assessee submitted that tenant was their sister company having same directors and had been rent free tenant of the assessee company since the very beginning, in lieu of the loan extended to assessee to construct the entire building

Assessee was confronted with a show cause notice under S.65 of the Income Tax Ordinance, 1979 with the approval of Inspecting Additional Commissioner

Assessing Officer did not agree with the assessee's explanation that it was change of opinion and that it was not definite information for the purpose of S.65 of the Income Tax Ordinance, 1979

Assessing Officer computed rental income of the ground floor occupied by the tenant under S.19(2)(b) of the Income Tax Ordinance, 1979 and finalized the assessment under Ss.62/65 of the Income Tax Ordinance, 1979

Appeals were dismissed by the First Appellate Authority as well as by the Appellate Tribunal

Taxpayer contended that information regarding "ground floor of the building" was already in possession the Department right from the beginning particularly at the time of original assessment and that this argument was never agitated by the assessee; and that right from the beginning it was established that the rent was not being declared for the ground floor and this information was definite information for the purpose of assessment

Validity

Neither assessee declared the rent for the ground floor nor the sister concern at any time in his return stated that rent had been paid to the assessee by the sister concern

In case rent was not declared the Assessing Officer was under legal obligation to confirm from the sister concern as to whether rent had been paid

In case rent was not paid for whatsoever reason, the Taxation Officer could not add the proposed rent as income of the assessee

Only two options were left with the Assessing Officer (i) to prove that rent had been paid and received and (ii) to make out a case that the rent was being paid but collusion with the sister concern it had not been declared

For both the reasons the Taxation Officer had taken no pains at all to make out a case that it was collusive arrangement to avoid the fact that rent had been paid

Assessing Officer was further required to prove that rent had been paid as existence of the ground floor of the building could not be denied, the ground floor related rent appeared to have been ignored, instead there was complete knowledge and information in this regard

During assessment proceedings of assessment year 1995-1996 a letter was submitted to the fact that the sister concern did not occupy any rent free area, so at that particular time the Assessing Officer was legally bound to ask for complete information that business premises was occupied by assessee itself or by some other person

Having complete knowledge of the ground floor premises, mere presumption that the business premises was self occupied was of no consequence, besides it referred to a fact that the dispute regarding the ground floor area was completely within the knowledge of the Assessing Officer during the assessment year 1995-1996 and thereafter, no new information had come into the possession of the Assessing Officer whereas S.65(2) of the Income Tax Ordinance, 1979 provided that an assessment could be re-opened only when definite information comes to possession of the Assessing Officer

Information, in the present case, was not a definite information said to have come into possession of the income tax officer

Definite information on the basis of which assessments had been re-opened did not come into the possession of the Department during the assessment proceedings for 2000-2001 as it was available at that moment when original assessments were framed under S.62 of the Income Tax Ordinance, 1979

When for the first time during the assessment proceedings under S.62 of the Income Tax Ordinance, 1979 the Department collected information about the said portion of the building, the assessee at that particular time replied to a query that the sister concern of the assessee did not occupy any rent free area, that was a proper time for legal action for a false statement if any, and to collect evidence so as to arrive at a proper conclusion regarding occupancy of the ground floor area as the Department had information about the actual occupants of the ground floor at that very moment

If representatives of the assessee bluffed the Department, even then that was proper time for action

After expiry of six years when Taxation Officer initially had complete knowledge of the situation but failed to take an appropriate action invoking S.65 of the Income Tax Ordinance, 1979 should be beyond the spirit of S.65 of the Income Tax Ordinance, 1979 as the Department on the basis of Inspectors Report during the assessment year 2000-2001 could not invoke S.65 of the Income Tax Ordinance, 1979

Even if it was a false statement, no case was made out to invoke S.65 of the Income Tax Ordinance, 1979

Such was nothing less than the second opinion different from the finding and conclusion recorded at the time of initial assessment

Miscellaneous applications were allowed and no case appeared to have been made out to invoke S.65 of the Income Tax Ordinance, 1979

Order under S.65 stood annulled by the Appellate Tribunal in circumstances.

2012 PTD 1559 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.221Income Tax Ordinance (XXXI of 1979), Ss.65, 66A, 62, 19(2)(b) & 19(3)Rectification of mistakeDefinite informationChange of opinionRent free tenancyInformation of

During the assessment proceedings under the assessment year 1996-1997 it was established that rent was never declared for the ground floor and taxpayer's contention was that this information was not a definite information for the purpose of assessing and reopening of the case under S.65 of the Income Tax Ordinance, 1979

Department might have presumed that the ground floor was occupied by the taxpayer

Rent of the ground floor was not declared in the Annual Letting Value and taxpayer's contention that it was possible to correct the mistake of law under S.66-A of the Income Tax Ordinance, 1979 but no action under S.65 of the Income Tax Ordinance, 1979 could be taken, was correct

During assessment proceedings of assessment year 1995-1996 a letter was submitted to the effect that the sister concern did not occupy any rent-free area but during that time no information in this regard was sought by the Taxation Officer from the taxpayer

Having complete knowledge of the ground floor premises, mere presumption that the business premises was self-occupied, was of no consequence, besides it referred to a fact that the dispute regarding the ground floor area was complete within the knowledge of the Assessing Officer during the assessment year 1995-1996 and thereafter which established the fact that there was no new information in possession of the Assessing Officer to reopen the case under S.65 of the Income Tax Ordinance, 1979

Miscellaneous applications were allowed and orders of both the officers below were annulled by the Appellate Tribunal.