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Petitioner: HABIB INDUSTRIES (PVT.) LTD., KARACHI VS Respondent: I.A.C. RANGE-III, COMPANY-IV, KARACHI
2017 P T D (Trib.) 2316 [Inland Revenue Appellate Tribunal] Before Muhammad Jawed Zakaria, Mrs. Ambreen Aslam, Judicial Members and Faheem-ul-Haq Khan, Accountant Member Messrs HABIB INDUSTRIES (PVT.) LTD., KARACHI Versus I.A.C. RANGE-III, COMPANY-IV, KARACHI W.T.As. Nos. 407/KB to 412/KB of 2001, decided on 30th November, 2016. (a) Wealth Tax Act (XV of 1963) [Since repealed]--- ----Ss. 2(e)(ii), 16(3), 23 & 17-B---Imposition of wealth tax---Assessee, a private limited company, engaged in the business of manufacturing and fabrication of machinery parts, due to temporary cessation of business activities, leased out portion of its plot of land on a monthly rent; and declared the income of rent as "business income"---Assessee contended that leased out property, was not hold for the purposes of letting out---Deputy Commissioner of Wealth Tax, imposed wealth tax under S.16(3) of the Wealth Tax Act, 1963, estimating the value of property on the basis of actual rent received on the sole pretext of its being letting out on rent---Assessee, in appeal contended that subject property leased out on rent, could not be taxed under provision of S.2(e)(iii) of the Wealth Tax Act, 1963, as property owned by it was not hold for letting out as the principal business of the assessee was manufacturing and fabrication of machinery parts---Appellate authority set aside assessment order passed by Deputy Commissioner of Wealth (Adjudicating Authority), and remanded case to the adjudicating authority for re-examination of the matter afresh with reference to the law contained in S.2(e)(iii) of the Wealth Tax Act, 1963---Assessing/adjudicating authority as per directives of the appellate authority, found that the assessee was not liable to wealth tax---Subsequently, Inspecting Additional Commissioner (I.A.C.), under S.17-B of the Wealth Tax Act, 1963, cancelled all the assessment orders on the ground that the immoveable property on the valuation date was on rent, was sufficient to bring the assessee into the ambit of chargeability under the Wealth Tax Act, 1963---Validity---Inspecting Additional Commissioner was all along associated with assessment proceedings and order was approved by him, revision of such order by said official was not permissible---Powers conferred on Inspecting Additional Commissioner were restricted with in-built limitation, supervisory in nature and if an assessment order was passed by adjudicating authority, consciously after application of mind to the material facts, after considering provisions of Wealth Tax Act, 1963, such assessment could not be branded as erroneous---Inspecting Additional Commission was debarred to take action under S.17-B of the Wealth Tax Act, 1963---Powers of the Inspecting Additional Commissioner (I.A.C.) to revise, adjudicating authority's orders could be exercised if conditions contained in S.17-B of the Wealth Tax Act, 1963, were satisfied---Inspecting Additional Commissioner was unjustified to invoke the provisions of S.17-B of the Wealth Tax Act, 1963 as the order passed under Ss.16(3)/23 of Wealth Tax Act, 1963, was neither erroneous nor prejudicial to the interest of revenue, and was passed after giving conscious considerations to the submissions of the assessee that intention of the legislature for insertion of S.2(e)(iii) of the Wealth Tax Act, 1963 was to tax those immovable properties that were held for the purpose of business of construction and sale or letting of property---Assessee, was not indulged and not carrying out the business of letting out the property---Wealth Tax assessment for the relevant year could not be re-opened/revised by Inspecting Additional Commissioner under S.17-B of the Wealth Tax Act, 1963 which was liable to be annulled and order passed by adjudicating authority under Ss.16(3)/23 of the Wealth Tax Act, 1963, was restored---Order accordingly. Case law referred. (b) Wealth Tax Act (XV of 1963)--- ----S. 17-B---Revisional jurisdiction of Inspecting Additional Commissioner (I.A.C.)---Scope and extent---Inspecting Additional Commissioner (I.A.C.), was not given free hand to invoke the provisions of S.17-B of the Wealth Tax Act, 1963, in each and every assessment/order made by adjudicating authority---Very purpose and tenor of said section was to safeguard the interest of revenue and for that purpose the I.A.C., was vested with the power to revise the order of the subordinate officer where he had acted with flagrant violation of law and fact---Limited and restricted powers of modifying or enhancing or revising had been vested in I.A.C. by said section---Powers under S.17-B of the Wealth Tax Act, 1963, could be exercised only, if the order of the Taxation Officer, was erroneous and prejudicial to the interest of the revenue---Revisional power under S.17-B of the Wealth Tax Act, 1963, was a quasi judicial power hedged in with limitation and had to be exercised subject to the same and within its scope and ambit---Exercise of revisional power by the 'I.A.C.', should not become fiat, but should be within the bounds of law and satisfy the need of fairness in administrative action and fair play and full compliance with the requirements of the principles of natural justice as in quasi judicial proceedings---Scope of interference under S.17-B of the Wealth Tax Act, 1963 was not to set aside merely unfavourable orders and bringing to tax some more money to the Treasury, nor was the said section meant to get at sheer escapement of revenue, which was taken care of by other provisions in the Wealth Tax Act, 1963---Powers of suo motu revision, could be exercised by I.A.C., if examination of the records of any proceedings under said Act, he considered that any order passed therein by Taxation Officer, was erroneous, in so for it was prejudicial to the interests of revenue---Such was not an arbitrary or unchartered power, but could be exercised only on fulfilment of the requirements laid down in S.17-B of the Wealth Tax Act, 1963---Consideration of the I.A.C., as to whether an order was erroneous in so far as it was prejudicial to the interest of the revenue, must be based on material on the record of the proceedings called for by him---If there were no material on record on the basis of which, it could be said that I.A.C., acting in a reasonable manner, could have come to such conclusion, the very initiation of proceedings by him would be illegal and without jurisdiction---Order accordingly. Case law referred. (c) Interpretation of statutes--- ----Taxing statute---Provisions of taxing statute, were strictly interpreted and the charges were imposed on the taxpayer with a clear and unambiguous language---Court/Tribunal should apply correct law, whether, litigants pointed out or not---If there were two reasonable views/interpretations, possible, views which favour the subject/citizens to be adopted---If there were two consistent rational/interpretations, the court should not adopt such construction which would lead to an absurdity---Fiscal provisions of a statute, were to be construed liberally in favour of taxpayer, and in case of any substantial doubt, the same was to be resolved in favour of the taxpayer---If the language used in a statute, was capable of two constructions, one which was consistent with good sense and fairness and the other which would make its operation unduly oppressive, unjust or unreasonable, or which would lead to strange, inconsistent results or otherwise introduce an element of bewildering uncertainly and practical inconvenience in the working of the statute the court was to choose the former---When the statute was inclined to give some benefit to a taxpayer in terms of provisions of the policy, should be interpreted in a liberal manner and with an intention to see that the purpose for which the policy was framed, was fulfilled and the beneficiary was helped---Interpretation, must not be such which would frustrate the object of the policy---Interpretation that had been consistently followed by superior appellate fora or by department and which had become a longstanding practice, had almost acquired force of law and such practice, could not be lightly departed---Where department had followed a particular course in implementation of rules, whether right or wrong, it would be extremely unfair to make a departure from it. Case-law referred. Miss Lubna Pervez for Appellant. Naeem Hassan, D.R. for Respondent. Date of hearing: 3rd October, 2016. ORDER MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER:---This full Bench was constituted by the Hon'ble Chairman to hear the above titled wealth tax appeals. 2. Brief facts of the case are that the assessee (hereinafter referred to as the "appellant") above named is a private limited company engaged in the business of manufacturing and fabrication of machinery parts. It was alleged by the appellant before the authorities below that due to temporary cessation of business activities, the appellant leased out portion of its plot of land No. B-61, SITE, Karachi, to M/s Indus Motors Co. Ltd. on a monthly rent and had declared the said income as business income. The appellant took the stand that property leased to M/s Indus Motors Co. Ltd. was not held for the purposes of letting out. The appellant did not file return of wealth for the assessment years 1990-91 to 1995-96. The Learned Deputy Commissioner of Wealth Tax, Circle 10, Cos.-V, Karachi, imposed wealth tax vide orders passed under section 16(3) of the Wealth Tax Act, 1963 dated 27-04-1996, estimating the value of property on the basis of actual rent received on the sole pretext of its being letting out on rent. Before the Learned Commissioner Income Tax, Appeals-IV, Karachi, it was contended that the subject property leased out on rent could not be taxed under the provision of section 2(e)(ii) of the Wealth Tax Act, 1963, as the property owned by the Appellant was not held for letting out as the principle business activity of the Appellant was manufacturing and fabricating of machinery parts. The scope of the provision of section 2(e)(ii) of the Wealth Tax Act, 1963 are confined to those immoveable properties which are held for the purposes of the business of construction and sale, or letting out of property; therefore, the scope of said provision cannot be expended to include all immoveable properties, purpose of which are otherwise than described in section 2(e)(ii). The learned CIT(A-IV), after hearing the argument set-aside the assessment orders and remanded them back to the Assessing Officer for re-examination of the matter afresh with reference to the law contained in section 2(e)(ii) of the Act, 1963 vide order dated 30-07-1996. The Assessing Officer as per directions of the Learned CIT(A-IV) held vide orders passed under sections 16(3)/23 of the Wealth Tax Act, 1963 dated 19-05-1997, that the appellant is not liable to wealth tax and dropped the proceeding initiated earlier by the Assessing Officer. However, subsequently the Learned IAC vide order passed under section 17-B of the Wealth Tax Act, 1963 dated 18-05-2001 cancelled all the assessment orders dated 19-05-1997 on the ground that the immoveable property on the valuation date is on rent is sufficient to bring the Appellant into the ambit of chargeability under the Wealth Tax Act, 1963. Being aggrieved the appellant filed appeals before the Tribunal and the Income Tax Appellate Tribunal (the ITAT now ATIR) on appeals filed by the Appellant merely, accepted the contentions of the appellant on theory of merger disposed of all the appeals. Consequently, the Respondent (CIT) filed appeals, before the Hon'ble High Court of Sindh at Karachi bearing W.T.As. Nos. 133 to 170/2002 the cases were remanded back to the Learned ITAT with the direction to re-hear the parties on merits and decide the appeals by fresh decision allowing both the parties to raise any question of fact and law, as deemed fit by them. The ITAT vide consolidated order dated 28-12-2006 after giving due consideration to all the facts proposed for constitution of Full Bench. It is pertinent to mention here that the matter was pending for such a long time and was waiting for hearing, the Hon'ble Chairman soon after he assumed the charge / post of Chairman, ATIR and taken cognizance of the fact that a considerable time has already elapsed ad no order was passed by the ex-chairmen for its hearing, hence ordered for early and speedy disposal of the case. Therefore, the full bench has been constituted and heard both the parties. 3. The following common grounds have been taken by the Appellant for all the years under appeal:-- 1. That the order passed by the learned Inspecting Additional Commissioner of Income Tax Range-III, Companies-IV, Karachi is bad in law and on facts. 2. That the order passed by the learned Inspecting Additional Commissioner of Income Tax Range-III. Companies IV, Karachi is without jurisdiction. 3. That the learned Inspecting Additional Commissioner of Income Tax Range-III, Companies-IV, Karachi has erred in invoking section 17-B of the Wealth Tax Act, 1963. 4. That the learned Inspecting Additional Commissioner of Income Tax Range-III Companies-IV, Karachi has erred in cancelled the order passed by the learned Assessing Officer under sections 16(3)/23 of the Wealth Tax Act, 1963 as erroneous as well as it is prejudicial to the interest of revenue. 5. That the appellant craves permission to add, amend, alter or substitute the grounds of appeal at the time of hearing. 4. Miss Lubna Perwaiz appeared on behalf of the appellant while Mr. Naeem Hassan represented the department. 5. The learned counsel for the Appellant vehemently challenged the jurisdiction of the successor IAC to invoke the provision of section 17-B of the Wealth Tax Act, 1963. She contended that in compliance of the directions of the learned CIR(A) the appeals were remanded back and in re-assessment proceedings the DCIR had dropped the proceedings initiated after thorough scrutiny, proceedings and after taking into consideration all the fact, circumstances and law i.e. section 2(e)(ii) read with CBR Circular No. 18 of 1991 dated 2nd July 1991 and orders passed under sections 16(3)/23 of the Wealth Tax Act, 1963 dated 19-05-1997, that the assessee is not liable to wealth tax and dropped the proceeding initiated by the Assessing Officer. She went on to urge that the IAC had approved the action of the DCIR in dropping the proceedings, hence, the orders of the Assessing Officer had merged with the orders of the learned IAC. She, in support of her contentions, placed reliance on the whole catena of judgments. She vehemently stressed that the IAC had already approved and supervised proceedings of Wealth Tax Officer/Assessing Officer, thus, successor IAC / counterpart was debarred from taking action under Section 17-B of the Wealth Tax Act, 1963. 6. The learned counsel further strengthen her contentions by relying on the case law 1996 PTD 750 wherein the Learned ITAT has discussed the issue of approval of the IAC if the IAC had granted the approval, the successor IAC has been precluded from taking any action. 7. On factual plane, it was contended that the subject property leased out on rent could not be taxed under the provision of section 2(e)(ii) of the Wealth Tax Act, 1963, as the property owned by the Appellant was not held for letting out as the principle business activity of the Appellant was manufacturing and fabricating of machinery parts. The scope of the provision of section 2(e)(ii) of the Wealth Tax Act, 1963 are confined to those immoveable properties which are held for the purposes of the business of construction and sale, or letting out of property; therefore the scope of said provision cannot be expended to include all immoveable properties purpose of which are otherwise then described in section 2(e)(ii) of the Wealth Tax Act, 1963. 8. The learned counsel vehemently asserted that the orders passed by the DCIR were neither erroneous nor prejudicial to the interest of revenue, therefore, invocation of section 17-B by the successor IAC beyond the jurisdiction as the assessing officer has passed the re-assessment orders under sections 23/16(3) of the Wealth Tax Act after taking into consideration the relevant provisions of section 2(e)(ii) and the CBR Circular and the same were duly approved by the IAC. She is of the view that the jurisdiction in this case has not been validly exercised and is ab-initio void and illegal as there is no basis for treating the assessment order to be erroneous in so far as prejudicial to the interest of revenue. All the issues has been thoroughly considered by the WTO/Assessing Officer in accordance with law after conscious application of mind and after giving due consideration to section 2(e)(ii) of the Wealth Tax Act, 1963 and the same having been approved by the then IAC / Superior taxing authority. Therefore, according to her the assessments cannot be subjected to provision/section 17-B ibid on the basis of mere disagreement, as the assessments cannot be termed as erroneous under the presumption, surmises and conjectures. She has submitted that the assessments for all the years under review have been passed after detailed scrutiny as such the same cannot be said to be erroneous being prejudicial to the interest of revenue and recourse cannot be had to section 17-B of the Wealth Tax Act, 1963, thus, learned IAC is debarred and precluded from indulgence in such like position as held by the Hon'ble Superiors' Courts. The learned counsel, therefore, vociferously, further went on to stress that in view of the submissions made hereinabove and case laws decided by the Learned ITAT on the subject and principles of interpretation settled by Hon'ble Apex Court, the orders under section 17B of the Wealth Tax Act, 1963 dated 18-05-2001 passed by the Learned IAC are not sustainable in law and may be annulled. 9. The learned D.R. on the other hand supported the order passed under section 17-B of the Wealth Tax Act, 1963 by the learned IAC. He contended that the taxpayer was liable to pay wealth tax liability which he failed to pay. He contended that the learned IAC has rightly imposed wealth tax vide orders passed under section 17-B of the Wealth Tax Act, 1963 estimating the value of property on the basis of actual rent received as the appellant let out property on rent. 10. We have given our earnest consideration to the rival arguments addressed by the contending parties and have also been perused all the relevant facts of the case, and have also perused the relevant records, impugned orders/document case papers, statutory law and case laws submitted by the learned representatives of both the parties. 11. As the core issue involved in this appeal pertains to exercise of jurisdiction under section 17-B of the Wealth Tax Act, 1963, under which the proceedings have been initiated, we deem it proper to reproduce the same for better perception:-- Section 17B. Powers of Inspecting Assistant Commissioner to revise Wealth-tax Officer 's order (1) The Inspecting Assistant Commissioner may call for and examine the record of any proceedings under this Act, and if he considers that any order passed therein by the Wealth-Tax Officer is erroneous in so far as it is prejudicial to the interests of revenue, he may, after giving the assessee an opportunity of being heard and after making, or causing to be made, such enquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing modifying the assessment, or cancelling the assessment and directing a fresh assessment to be made. (2) The provisions of subsection (i) shall, in like manner, apply-- a) where an appeal has been filed under sections 23, 24 and 29, or a reference has been made under section 27 against an order passed by the wealth tax officer, and (b) Where an appeal or reference referred to in clause (a) has been decided, in respect of any point or issue which was not the subject matter of such appeal or reference. (3) No order under subsection (I) shall be made after the expiry of four years from the date of the order sought to be revised. Explanation:---For the purposes of this section an order prejudicial to the interests of revenue shall include an order passed without lawful jurisdiction" (underline for emphasis) 12. The main thrust of the arguments of the learned counsel is that the orders under section 17-B ibid are without jurisdiction as the re-assessment proceedings were initiated in pursuance of the order of the learned CIR (A) and orders were passed under sections 23/16(3), under the supervision / consultation of the learned IAC and the same were got approved by him. From perusal of the orders passed under sections 23/16(3) we have found that the DCIR while passing the orders was constantly in touch with the learned IAC as it appears from the Note in the body of the order which is reproduced as under:-- "Office Note: The assessment proceedings have been dropped after time to time consultation/discussion with IAC R-III/Cos-IV and his approval letter No. IAC/H-III/COS-IV/96-97/1063 dated 27-5-1997." 13. From perusal of the above NOTE, it is evident that the re-assessment proceedings were dropped by the Taxation Officer / DCWT with the consultation/ supervision/guidance of the learned IAC and the subsequent/successor IAC cannot re-open/revise the case being equal in authority /counter part. The Taxation Officer / DCWT had not blindly or tacitly dropped the re-assessment proceedings but after consulting the statutory law and CBR Circular and with the consultation, supervision, involvement and guidance of the then learned IAC. In the case reported as 1996 PTD 750 wherein the Learned ITAT has discussed regarding seeking approval of the Learned IAC, the relevant observations of the Tribunal are reproduced as under:-- 13. "Held, Reverting to the question mentioned at para. 6 of this judgment, our answer is negative. It is also because though the approval granted by the IAC was not the statutory requirement of the Act yet par excellence he had not only supervised but also fully involved while finalizing the assessment in respect of the assessment years 1988-89 to 1990-91 are concerned. Therefore there was a very heavy onus probandi on the successor IAC to establish that the assessments in question were erroneous in so far these were prejudicial to the interest of revenue." That the Learned ITAT in para 15 of the above decision has also held that:-- "15. Thus, our answer to the questions mentioned at para 9 is also in negative because the IAC was duly involved in the finalization of these assessments and the conditions enumerated in section 17-B for invoking the provisions of the said section do not exist in the present case." 14. In another case the reported as 1997 PTD (Trib) 902 which deals with section 66-A of the repealed Income Tax Ordinance, 1979 which is par-materia to section 17-B of the Wealth Tax Act, 1963, it has been held while concluding the decision as under:-- "We further agree with the contention of the learned counsel for the appellant that under section 66A of the Income Tax Ordinance, 1979, an IAC has no authority to substitute his own discretion and his own way of appreciating the facts for arriving at preconceived desired result." The above case has also been relied upon by the Hon'ble Federal Tax Ombudsman in the case reported as 2008 PTD 694 while observing as under:-- "9. To sum up, the impugned show-cause notice dated 27-9-2003 for invoking section 122(5 A) lacks bona fide because it: a. b. c. overlooks the facts that mere disagreement, or the possibility that the IAC/CIT can frame a better, or a more revenue yielding assessment, is not a valid ground for revising already completed assessment." 15. In another case the Hon' ble High Court in the case reported as [1996 PTD (Trib.) 750] and [2001 PTD (Trib.) 3810] where it was held that "an order which has been approved/supervised guided/consulted/ involved by an IAC cannot be revised by successor IAC." 16. Reliance is further placed by us on the unreported decision of this Tribunal dated 26.10.1998 in I.T.A. No. 1913/KB of 1996-97, I.T.A. No. 1507/KB of 1997-98 wherein this Tribunal has examined the issue of jurisdiction under section 66A of the Ord., 1979 which is pari-materia to section 17-B of the W.T. Act, 1963 in detail. In that case the assessments were approved by the predecessor IAC and this Tribunal found the order, passed under section 66A to be invalid and without jurisdiction. In observing this we are fortified by the order of this Tribunal bearing I.T.As. Nos. 1913 to 1915, 334 to 335 and 1507/KB of 1996-97 dated 26.10.1998 wherein the learned Division bench of this Tribunal has observed as under: "35. Having given our careful consideration to the foregoing facts and circumstances as well as the submissions made from the two sides supra, we find that…
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