Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: MESSRS ABID & SONS LTD. AND OTHERS VS Respondent: EXCISE & TAXATION OFFICER ANT) 3 JUDGMENT
Court Name: Sindh High Court Judge(s): Saleem Akhter, Abdul Hayee Qureshi Title:MESSRS ABID & SONS LTD. AND OTHERS vs EXCISE & TAXATION OFFICER ANT) 3
JUDGMENT
Reported As: PLD 1985 Karachi 546 Result: Petition allowed Judgment JUDGMENT ' ABDUL HAYEE KURESHI, C. J.--The following seven Constitutional Petitions are being disposed of by this common judgment, as the points of law and fact bear similarity in each one of these cases. The cases are :- (i) C. P. No, D-796/1983. Messrs Abid & Sons Ltd. v. Excise and Taxation Officer and others. (ii)C. P. No, 614/1984. Anwar Ali v. Government of Sind and others. (lii) C. P. No, 617/1984. Messrs Hashwani Sales & Service Ltd. v. Government of Sind and others. (iv) C. P. No, 694/1984. Sayed Alay Niaz Rizvi v. The Director-General Excise & Taxation, Karachi and others. (v) C. P. No, 695/1984. Sayed Muhammad Ahmad Salar v. The Director-General, Excise & Taxation and others. (vi) C. P. No, 696/1984. Muhammad Anwar v. The Director-General, Exise & Taxation and others. (vii) C. P. No, 5/1985. Mrs. Khatija A. M. Kassim and another v. Government of Sind and others. ' In each one of these seven cases, the three respondents, namely, Excise and Taxation Officer, Karachi, Director/Collector, Excise and Taxation Karachi, and Director-General, Excise and Taxation, Government of Sind, Karachi, are common respondents. For the sake of convenience and brevity the Exise and Taxation Officer in each one of these cases shall be hereinafter referred to as the "E. T. 0", the Director/Collector, Excise and Taxation shall be referred to as the "Director", and the Director- General, Excise and Taxation shall, be referred to as the "Director-General". Basides these respondents, the Province of Sind has been impleaded as respondent No, 4 in C. P. No, 796/1983, the
---
## Page 2
Government of the Province of Sind has been arrayed as respondent No, 1 in C. P. No, 614/1984 the Government of Sind, the Sub-Registrar of Jacob Lines Complex and Sub-Registrar of Defence Housing Society have been arrayed as respondents 1, 3 and 6 respectively in C. P. No, 617/1984. However, the main respondents are the aforesaid three, namely, the E. T. 0., the Director and the Director-General. ' We have heard Mr. Sharaf Faridi, Mr. Mohsin Tayabally, Mr. Abdul Muneem Khan, Mr. Imamally G. Kazi, Mr. G. M. Qureshi, Mr. Niaz Ahmad Khan and Mr. Kamal Azfar in the various cases on behalf of the several petitioners. We have also heard Mr. Muhammad Ibrahim Memon, Additional, Advocate- General, and Mr. A. R. Akhtar for the respondents. Mr. M. K. Ansari, E. T. 0. Was present with him on the several dates of hearing. We had also asked some questions from Mr. M. K. Ansari, who had made some replies, which had been recorded, and the same shall be reproduced in the relevant context in this judgment. ' The brief facts in C. P. No, 796/1983 are that the petitioner purchased 54936 sq. Yds. Of land, bearing Survey Nos. 133, 628 and 629 in Deh Gujro, Blocks 1 and 2 in Gulshan-e-lqbal, Karachi, for a sum of Rs, 82,40,400. It is stated that, for the purchase, the petitioner borrowed a sum of Rs, 60 lakhs from Habib Bank Ltd., Kutchery Road Branch, Karachi. The petitioner further states that he spent a sum of Rs, 4,94,424 on stamp duty, Rs, 41,223 as registration fee and a sum of Rs, 3,30,000 on account of brokerage and legal fee. A photostat copy of the purchase document, which is registered, has been placed on the record. It is stated that the land was equitably mortgaged with the Habib Bank, and a photostat copy of the document, purporting to be a memorandum, has also been placed on record. It is the case of the petitioners that, before they purchased the land, the seller had obtained a "no objection certificate" from the Karachi Development Authority for use of the land for residential purposes, and, for obtaining such "no objection certificate ". a sum of Rs, 50. Per sq. Yd. Was payable by the sellers to the Karachi Development Authofity, but it was not paid, so that the amount was ultimately paid by the petitioners. It is also stated that the petitioners paid some other amounts also to the Excise, and Taxation Department, and receipts had been obtained. In addition, the petitioners state that they made some improvements and additions by constructing a boundary wall and site office at a cost of Rs, 2,43,000 and Rs, 7,10,000 respectively The petitioners redeemed the mortgage of the land in favour of Habib Bank, and they have produced a certificate from chartered accountants, showing that the interest paid to the Habib Bank in connection with the loan obtained by the petitioners was Rs, 36,54,825. On 11-7-1983, the petitioners agreed to sell the entire plot of land for a total sum of Rs, 1,75,00,000. In order to complete the sale and register the sale-deed, the petitioners applied to the E. T. O. For grant of a clearance certificate, and filled up a form known as "CGT-I" on 27-7-1983 (Annexure `P'), wherein they disclosed their total outlay, showing the cost as well as the price at which the plot had been agreed to be sold. After computation, the petitioners declared that their total capital gain amounted to Rs, 3,06,130. This return was filed on 27-7-1983, and the petitioner was asked to come after one week, and, after the expiry of that one week, he was informed that the case required decision of a "panel", and therefore it was to be decided in consultation with the Director and the Director-General. However, on 28-8-1983, the E. T. 0. Passed an order, stating that, although the property in question was initially agricultural property, but, since it had been converted for residential purpose, and since such huge plots are generally utilised for "commercial, housing and similar purposes", the plot was, at least, residential-cum- commercial in nature, and he fixed the valuation at Rs, 2,59,57,260 by calculating the price at Rs, 472 per sq. Yd. On the expenditure side, the E. T. O. Allowed a sum of Rs, 1,16,61,947. This was as follows :- {{TABLE}} "(1) Actual cost of plot Rs, 82,00,000
---
## Page 3
(2) Cost of construction of boun- dary wall 16200 running foot. Rs, 2,43, 000 (3) Cost of construction of side Office (2230 sq. Ft.) Rs, 2,89,900 (4) Registration and stamp. Rs, 5,35,647 (5) Brokerage and legal 4 (both sides). Rs, 10,20,000 (6) (7) #TBS (8) Rs, 13,73,400 Rs, 1,16,61,947." (9) #TBE (10) Development charges paid to K. D. A. Total costs. {{TABLE}} ' By such process, the E. T. 0. Held that the capital gain was Rs, 1,42,95,313. And he assessed the capital gains tax at Rs, 28,42,063. An appeal was filed by the petitioner before the Director, who agreed with the E. T. 0. On the point that the plot was not purely residential. The appeal was also dismissed. The petitioner then filed a Revision Application before the Director-General, who also came to the conclusion that the project, that will be erected on the plot, will not be "without any commercial aspect". It was held that, since the Karachi Development Authority, in its "no objection certificate", had not said that the plot would be used for residential purpose only, it was reasonable to term it as residential-cum-commercial. The E. T. a and the Director had disallowed a sum of Rs, 13,73,400 paid by the petitioner to the Karachi Development Authority as development charge, and this amount was added to the cost of land. As regards the sale price, the Director-General varied it by reducing it from Rs, 472 per sq. Yd. To Rs, 425 per sq. Yd. The petitioner felt. Aggrieved by the three orders, and he filed the present Constitutional Petition. By a Miscellaneous Application, the petitioner sought an interim order, seeking permission to register the sale deed, and a consent order was passed on 18-10-1983, providing that, if the petitioner deposited a sum of Rs, 10 lakhs in Court, and additionally furnished Bank Guarantee in another sum of Rs, 10 lakhs, the sale deed may be registered. The sale-deed has, indeed, been registered. ' A counter-affidavit has been filed by the E. T. 0., wherein it was stated that the respondents were not aware if the petitioner had borrowed any amount from Habib Bank Ltd. For purchasing the plot, and, in any case, that was not relevant. In regard to payment of the "no objection certificate" fees, it was stated that the E. T. 0. Had no knowledge, and that fact was not relevant. It was stated that the prevalent price of land in the locality was higher than Rs, 450 per sq. Yd. For residential-cum-Commercial flats, and the price of Rs, 318.55 per sq. Yd. As disclosed by the petitioner was incorrect. It was admitted that no notice under CGT-III had been issued, because the petitioner had himself filed form No, CGT-I, and he had also been heard. It was alleged that the petitioner had deliberately undervalued the property in order to avoid Government dues. It was further stated that a project in the name of "Abid Town" was to be constructed and such a project could not be contemplated without having commercial character. The allegation of the petitioner that the assessment was arbitary and unjust was denied. ' In C. P. No, 614/1984, the facts are that the petitioner, Anwar Ali, transferred plot No, PR-I/32, in Preedy Quarters on M. A. Jinnah Road, measuring 8128 sq. Yds. For a consideration of Rs, 1,39,75,000. And submitted a return. This price was not accepted by the E. T 0. Who held as follows :- "The declared sale value does not represent the fair market value. Taking into account the situation, location and the position of the plot in question, following assessment is made :- ' Sale value of plot 8128 sq. Yds. @ Rs, 4,000 per sq. Yds. Rs, 3,25,1200."
---
## Page 4
' The E. T. 0. Came to the conclusion that the net capital gain was Rs, 2,06, 72,910. He valued the plot at Rs, 4,000 per sq. Yd. An appeal was filed before the Director, who reduced the assessment to Rs, 3,000 per sq. Yd. In the order, he stated that the property, bearing unit No, PR-2/I7, had been sold in 1978 at the rate of Rs, 3,860 per sq. Yd. A Revision Application was filed before the Director-General, but the same was also dismissed on precisely the same process of reasoning, as was adopted by the Director. A counter-affidavit has been filed by the E. T. 0. In this Court, wherein it was averred that the disclosure made by the petitioner in regard to the price was low, and the assessm ent had been done according to best judgment of the authorities. ' In C. P. No, 617/1984, the petitioners' case is that they had acquired lease-hold rights in a plot, measuring 2252 sq. Yds. Described as Bungalow No, 156, Clifton, Karachi, in 1979. It was purchased from the Government of Pakistan for a sum of Rs, 12 lakhs, and was a restricted lease hold for ninety years. It is stated in the petition that this plot neither opened up nor faced the main Clifton Road, and therefore it was not accessible from the main road. Such averment was made, because, it is the case of the petitioner that the plot could not be used for commercial, or, business purposes. It was also stated that the bungalow on the plot was absolutely, dilapidated, and had been demolished. It is stated that, in March, 1984, the petitioners contracted to sell the property to Messers Shezan Services Ltd., for a sum of Rs, 15,00,000. For the purposes of registration, the petitioners filed a return in form CGT-I, and thereafter an application was made before the E. T. 0. To permit the petitioner to adduce evidence and summon witnesses, but, on 8-4-1984, the petitioner was informed that an order had already been passed. By the order, the fair market value was fixed at Rs, 45,04,000 at the rate of Rs, 2,000 per sq. Yd. An appeal was filed before the Director, who dismissed the same without awarding any relief, except by allowing an amount equal to 21-/' of the purchase price towards legal fee and brokerage. The net gains, according to the Director, were Rs, 31, 95,900. A Revision Application was then filed before the Director-General, who held the property to be commercial plot, and stated that the assessment at the rate of Rs, 2,000 per sq. Yd. For the purpose of capital gains tax was fair and reasonable. The E. T. 0. Had filed a counter-affidavit, wherein it is stated that the rates of property in the same area were fixed at Rs, 2,000 per sq. Yd., which is reasonable. In paragraph 7 of the counter-affidavit, he stated that the petitioners had been afforded an opportunity of hearing, and they were allowed to produce one witness. A copy of the statement of such witness has not been placed before us, and we are informed that his statement had not been recorded. It is also stated in the counter-affidavit that the plot was inspected by the E. T. 0., and he assessed the value to his best judgment. C. Ps. Nos. 694, 695 and 696/1984 are filed by three separate persons, who were the joint owners of plot No, ST-2, measuring 3000 sq. Yds. On Drigh Road, Karachi. This plot, according to petitioners, was initially allotted by Karachi Development Authority to one Nawab Ahmad Hussain Lahori, from whom They have purchased the same by paying a sum of Rs, 4 lakhs to the initial allottee, Rs, 6 lakhs to Karachi Development Authority, and in addition a sum of Rs, 1,77,000 had been spent for stamp, registration fee, legal fees, etc. The case of the three petitioners is that they had agreed to sell the plot for a total consideration of Rs, 40 lakhs. Out of this purchase price, they claim Rs, 1,20,000 on account of brokerage and legal charges. After deducting the expenses on purchase of the plot, they disclosed a gain of Rs, 9,34,703, and submitted a return in form CGT-I. The E. T. 0., by an order, dated 18-7-1984, stated that, on taking into account the premium, location, situation and size of the plot, the value should be Rs, 1,20,00,000 and he declared that the net gain was Rs, 1,13,60,922. An appeal was filed before the Director, who did not accept the disclosure made by the petitioner, because the plot was situated on the main road and was a commercial plot of land. He however, determined the sale value at Rs, 80,00,000 instead of Rs, 1,20,00,000. A Revision
---
## Page 5
Application was then filed before the Director General, who upheld the valuation declared by the Director, but reduced it by a further sum of Rs, 5 lakhs on account of the price actually paid. ' In the last case, viz, C. P. No, 5/1985, the facts are that the two petitioners, Mrs. Khatija A. M. Kassim and Mrs. Shahnaz Meer, own property No, 36-H in Block VI, P. E. C. H. Society, Karachi, in the shares, of 3/5th and 2/5th, respectively. They state that they had agreed to sell the plot for a sum of Rs, 11 lakhs. A return in form CGT-I was filed. The E. T. 0. In his order dated 30-10-1982, stated that, on taking into account, "the location situation and condition of the property", he fixed the sale value at Rs, 20 lakhs, out of which he allowed a sum of Rs, 2,55,570 as the total cost of the petitioner, and worked out the total gain at Rs, 17.44,430. It may be stated that the property was a double storeyed building on a plot measuring 1942 sq. Yd. Which had a covered area of 4123 sq. Fit. Which would roughly be about 350 sq. Yds. An appeal was filed before the Director, who came to the conclusion that the value of plot of land iu Block VI, P. E. C. H. Society ranged between Rs, 2,000 and Rs, 2,500 per sq. Yd., and therefore, the assessment was reasonable, and the appeal was dismissed, A Revision Application was then filed before the Director-General, who came to the conclusion that the sale value determined by the E. T. 0. Was, in fact, on the lower side, and he upheld the value. ' It may be stated that, in some of these cases, counter-affidavits have not been filed by the respondents, but we have considered the counter-affidavits filed in the other cases in order to determine what the averments of the respondents are. ' The case has been mainly argued by Mr. Sharaf Faridi, who is appearing for the petitioners in C. P. No, 796/1983. The other learned advocates have adopted the arguments, and have given some additional reasons in support of their contentions. Mr. Muhammad Ibrahim Memon, who has appeared for the respondents, has, with his usual fairness, taken the stand that the reasons given for arriving at the conclusions in respect of the price at which the property has been sold are not convincing, or, in any case, impugned orders do not disclose the reasons for the conclusion. In such circumstances, the learned Additional Advocate-General has stated that the impugned orders may be held to be of no lawful authority, and may be quashed. He has further prayed that this Court may lay down the guide lines for decision in cases of this nature, and the E. T. 0. May be directed to re-assess the sale price. Before proceeding further in the matter, we would like to examine the provisions relating to the capital gains tax, as enacted by section 16 of the West Pakistan Finance Act of 1963, in conjunction with the West Pakistan Capital Gains Tax Rules, 1964. Initially tax on capital gains was a central subject, which may now be termed to be a federal subject. The words "capital asset" were defined in clause 4-A in the Income-tax Act of 1922. The definition was that "capital asset" means property of any kind held by an assessee whether or not connected with his business, profession or vocation. Three exceptions were, however, made, and the third exception was in respect of "any land from which the income derived by the assessee is agricultural income". Then, by section 5 of Central Act No, XVI of 1963, the words "and any other immovable property" were also supplemented after the words "agricultural income". However, by Central Act No, XI of 1968, the third exception, appearing in clause 4-A of section 2 of the Income-tax Act, was substituted by two clauses, which read as follows :- "(iii) Any land from which the income derived by the assessss is agricultural income, and (iv) For the purpose of capital gains any immovable property." ' It would thus appear that, when the Income-tax Act was initially enacted in 1922, the exception related only to agricultural income, and, when the Income-tax Act was amended by Act No, XI of 1966, the exception was extended to all immovable property, and, when Act No, XI of 1968 was enacted, the exception was extended to all such income that accrued as capital gains on account of transactions in immovable property. Subsequently, taxes on capital gains were shown as a
---
## Page 6
provincial subject, and even in the Constitution of 1973, Item 50 in the 4th Schedule reads as follows :- "50. Tax on the capital value of the assets, not including taxes on capital gains on immovable property." ' The position then is that, after the enactment of Act XI of 1968, clause 4-A of section 2 of the Income-tax Act stood so amended that capital gains from immovable property ceased to be the concern of the federal authorities for the purpose of income tax, or, capital gains. In view of capital gains becoming a provincial subject after ceasing to be a central subject, section 16 of the West Pakistan Finance Act made provisions for the levy. Subsection (1) of said section is the declaring and enabling provision, which provided that capital gains tax shall be levied on all profits or gains arising from the gale, exchange or transfer of immovable property within urban area to be specified by the Government under the West Pakistan Urban Immovable Property Tax Act of 1958. Subsection (2) of said section 16 of the West Pakistan Finance Act of 1963, reads as follows :- "(2) TI e amount of the capital gains shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange or transfer of property is made - (a) expenditure incurred solely in connection with such transaction, and (b) actual cost to the assessee of the property including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto." ' For the purposes of these cases, the first proviso contained in the said subsection would be relevant, and the same is reproduced below :- "Provided that- (i) where a person who acquires a property from the assessee, whether by sale, exchange or transfer, is a person with whom the assessee is directly or indirectly connected or where the authority making the assessm ent has reason to believe that the sale, exchange or transfer was effected with the object of avoidance or reduction of the liability of the assessee the full value of the consideration for which the sale, exchange or transfer is made shall be taken to be the fair market value of the property on the date on which the sale, exchange or transfer took place;" ' A bare reading of t is proviso would show that expenditure and actual cost, which is mentioned in clauses (a) and (0 in subsection (2) of section 16 of the West Pakistan Finance Act of 1963, may be determined by the functionaries of Excise and Taxation Department by a separate enquiry regardless of the price disclosed ; in two cases, namely when the persm, who purchases the property from a seller, is a person, who is directly or indirectly connected with the seller, or where the Excise and Taxation Authority has reason to believe that the sale, exchange, or, transfer was affected with the object of avoidance, or, reduction of the liability of the assessee. In other words, the functionaries under the Act were to refuse to accept the price disclosed if they are of the view that the seller and purchasers there directly or indirectly connected, or where they have reason to believe that, for the purpose of avoiding or reducing the liability on account of capital gains tax, a wrong disclosure had been made. The Legislature has thereafter amended this section by adding subsections (2-a), (2 b), ( -e), (2-d) and (2-e). Subsection (2-a) provides that the seller shall within seven days of the sale submit a statement to the prescribed authority, showing the following particulars in regard to the transaction : "(i) The name, father's name, profession and full address of the person by whom the property has been sold, exchanged or transferred and of the person to whom the property has been sold or transferred or with whom it has been exchanged ; (ii) the particulars and location of the property ; (iii) the price or other value or consideration received for the property ; and (iv) such other information or particulars as may be prescribed."
---
## Page 7
' While subsection (2-b) is not relevant in the context of these cases, subsection (2-c) provides that, if the seller fails to submit a statement' showing the particulars, which are required under subsection (2-a), or, has furnished the statement, which the prescribed authority has reason to believe to be false, or, not correct, the seller was liable to pay, in addition to the tax due, a penalty equal to the amount of tax. This subsection reads as follows :- "(2-c) If the person required under subsection (2-a) to submit a statement fails to submit such statement to the prescribed authority within the period specified in the said subsection, or submits a statement which such person knows or has reason to believe to be false or not correct, he shall be liable to pay, in addition to the tax due, a penalty not exceeding the amount of the tax due." ' Subsections (2-d) and (2-e) provide for an appeal and revision to the Director and Director General. Having stated the salient features of the basic law relating to capital gains tax arising out of sale of immovable property, we proceed to examine the rules that were framed by the Government of the Province of West Pakistan in 1964. These rules were framed in pursuance of section 20 of the West Pakistan Finance Act of 1963, and were published in Gazette of West Pakistan, Extraordinary, on 29th, June, 1961. Rule 3 provides that any person, who is liable to pay capital gains tax under the Act, shall, within fifteen days of the sale, submit to Excise and Taxation Officer a return in form CGT-I. This form is prescribed, and contains the following columns, requiring disclosures : - "(1) Name and address of the assessee. (2) Description (number, type, identification) of immovable property sold, exchanged, or transferred. (3) Nature of transfer. (4) Name and address of the transferee. (5) Particulars and place of execution or registration of transfer deed. (6) Form and value of consideration received. (7) Details of expenditure of transaction. (8) Assessee's actual cost of immovable property concerned. (9) Capital cost of subsequent alteration or addition by the assessee in the immovable property concerned. (10) Nature of proof in support of entries in columns 8 and 9. (11) Net capital gains. (12) Remarks." ' Rule 4 states that the Excise and Taxation Officer shall serve a notice on the person Haute to pay tax,…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.