' The validity of the order of Excise and Taxation Officer dated 23-12-1981, the order of Appellate Authority dated 12-5-1982 and the order of the Revisional Authority-Director General, Excise and Taxation dated 17-4-1983 are called in question in this constitutional petition.
2. The brief background of this petition is that Muhammad Jamshed and his brother Muhamamd Irshad Khan jointly purchased property bearing unit No,M-1621 situated at Murree Road, Rawalpindi in equal shares through registered sale-deed dated 15-12-1977. The property was purchased in lieu of Rs,2,00,000. Subsequently the petitioner Muhammad Jamshed made the sale of one-half of his share in property in dispute in favour of his brother vide a registeed sale-deed dated 15-6-1981 in lieu of Rs,1,01,000.
3. The petitioner submitted the return under West Pakistan Capital Gain Tax Rules, to Excise and Taxation Officer, Rawalpindi and declared the sale price to be Rs,1,01,000. The Excise and Taxation Officer refused to accept the price and by order dated 23-12-1981 assessed the sale price of the property to be Rs,6,00,000.
4. Feeling aggrieved by the order, the petitioner filed appeal before the Director Excise and Taxation, Rawalpindi. The Appellate Authority partly accepted the appeal vide order dated 12-5- 1982 and reduced the assessed value to Rs,5,50,000. The revision filed by the petitioner also partly succeeded before the Director General who reduced the assessment from Rs,5,50,000 to Rs,4,50,000. Hence this petition.
5. The submissions made by the learned counsel for the petitioner can be conveniently summarised as follows: -
(i) Learned counsel for the petitioner invited the attention of the Court to rule 6 of West Pakistan Capital Gains Rules, 1964 (hereinafter described as Rules) which provides that if in the opinion of the Excise and Taxation Officer a return submitted under rule 3 or 4 is not correct or no return is furnished. He shall serve the assessee with a notice in Form CGT.III requiring him to appear before him and after giving assessee an opportunity of hearing and after examining such evidence as he may produce, assess to the best of his judgment the capital gains tax payable by him. It was argued that the assessing authority has the power to reject the valuation but he can do so only if he has reason to believe that the sale had been effected with the object of avoidance or reduction of liability to pay the tax. It was contended that the Excise and Taxation Officer did not give any reason for rejecting the valuation of land given under the said sale-deed. Reliance was placed on Phillips Electrical Industries of Pakistan Ltd. v. Director-General/Secretary, Excise and Taxation Department, Government of Sind, Karachi (PLD 1978 Kar.393).
(ii) It was next contended that the order of the Excise and Taxation Officer dated 23-12-1981 suffers from obvious illegality on the ground that it was violative of rule 8. The Excise and Taxation Officer did not taken into consideration the principle of sales in vicinity and even did not take into consideration the valuation in respect of property bearing No,M-46 and 0-925. It was contended that the order of Excise and Taxation Officer was arbitrary, fanciful and whimsical in nature.
(iii) It was argued by the learned counsel that neither the Appellate Authority nor the Revisional Authority applied their conscious mind to the facts of the case. The Appellate Authority reduced the valuation from Rs,6,00,000 to Rs,5,50,000 without examination of evidence. The Revisional Authority reduced the valuation from Rs,5,50,000 to Rs,4,50,000 on the basis of assumptions totally foreign to record.
(iv) The learned counsel for the petitioner placed reliance upon Messrs Abid & Sons Ltd. And others v. Excise & Taxation Officer and 3 others (PLD 1985 Kar.546) and urged that the principles laid down in the aforesaid authority were totally ignored.
6. The learned counsel for the respondent supported the order of the Revisional Authority. He argued that the order was well reasoned, eminently just and was in consonance with the material on record. Before I proceed to examine the respective contentions of the parties it is appropriate to examine the provisions of the law applicable to this case.
7. The West Pakistan Finance Act 1963 (Act No,IX of 1963) was enforced from 1st of July, 1963. It provided a capital gains tax leviable on any profits or gains accruing from sale, exchange or the transfer of immovable property effected after 30th day of June, 1963 within the urban areas specified by the Government under section 3 of the West Pakistan Urban Immovable Property Tax Act, 1958. Section 16 of the Act is as follows:- "(1) A capital gains tax shall be levied on any profits or gains arising from the sale, exchange or transfer of immovable property effected after the 30th day of June, 1963, within urban areas specified by Government under section 3 of the West Pakistan Urban Immovable Property Tax Act, 1958 (West Pakistan Act No,V of 1958): Provided that the tax shall not be levied on the transfer of immovable property in consequence of the compulsory acquisition thereof under any law for the time being in force relating to compulsory acquisition of property for public purposes, or the distribution of immovable property on the total or partial partition of a Hindu undivided family or the distribution of such property for the dissolution of a firm or other association of persons or on the liquidation of a company or under a deed of gift, bequest, will or transfer of irrevocable trust.
(2) The 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 be assessed of the property including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto: 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;
(ii) Where the immovable property was acquired by the assessee before the first day of January, 1950, he may on proof of its fair market value which shall be deemed to be the actual cost to him of the immovable property;
(iii) where the immovable property became the property of the ,assessee by succession, inheritance or devolution, or under any of the circumstances referred to in the proviso to subsection (1) its actual cost allowable to him for the purpose of this subsection shall be its actual cost to the previous owner thereof.
(3) The tax shall be levied according to the scale set out in the seventh Schedule to this Act.
(4) Government may by notification exempt any class of immovable property from the levy of tax under this section.
8. Section 16 of the Act provided for the levying of the tax on the acutal profit or gain. Rules were accordingly framed, known as West Pakistan Capital Gains Tax Rules, 1964. Under section 20 of the Act to provide the guidelines for assessment of the tax and for provision of machinery for the purpose of determining the tax. The relevant rules 3, 4, 5, 6, 7 and 8 are as follows:-
(3) Assessm ent.-- Every assessee shall, within thirty days of the publication of these rules or within fifteen days of the sale, exchange or transfer of immovable property concerned whichever is later, submit to the Excise and Taxation Officer a return in Form CGT.I.
(4) If the assessee fails or neglects to submit the return under rule 3, the Excise and Taxation Officer shall serve the assessee with a notice in Form CGT.2 requiring him to submit the return within such period as may be specified in the notice;
(5) If the Excise and Taxation Officer is satisfied that the return submitted under rule 3 or rule 4, as the case may be, is correct and complete, he shall accept such return and assess the capital gains tax payable on the basis thereof.
(6) If in the opinion of the Excise and Taxation Officer a return submitted under rule 3 or rule 4 is not correct or complete, or no return is furnished in response to the notice referred to in rule 4 he shall serve the assessee with a notice in Form CGT.3 requiring him to appear before him and after giving the assessee an opportunity of being heard and examining such evidence as he may produce, and after making such enquiries as may be deemed necessary, assess to the best of his judgment the capital gains tax payable by him.
(7) If an assessee has sold, exchanged or transferred immovable property for valuable consideration other than money he shall separately specifiy in the return the details of the valuable consideration received and its estimated value in terms of money. The Excise and Taxation Officer shall after such enquiries as he may deemed necessary determine the value of the consideration in terms of money and assess the tax accordingly.
(8) Determination of actual cost and value of consideration.--If in the opinion of the Excise and Taxation Officer, the actual cost of property as stated by the assessee is not correct and is to be determined in pursuance of clause (ii) of the proviso to subsection (2) of section 16 of the Act, or the value of the consideration in terms of money is to be determined in pursuance of rule 7 the Excise and Taxation Officer may, among other factors, take into consideration-
9. The review of section 16 of the Act and the Rules 3, 4, 5, 6, 7 and 8 makes it clear that the Act provided the levy of tax. It also stipulated that the tax was to be computed on the actual profit or gain which was to accrue to a person from the sale, exchange or the transfer of property effected after 30th of June.
1963. In the scheme of the law, Rule 3, provided that every assessee shall within 15 days of sale, exchange or transfer submit a return in Form CGT .1. The Rule 5 provided that if the Excise and Taxation Officer was satisfied that the return submitted under Rule 3 is correct and complete he shall accept such return and assess the capital gains tax payable thereof while Rule 6 empowered the Excise and Taxation Officer to serve a notice to assessee. If he came to the conclusion that the return submitted under Rule 3 is not correct then the assessee shall be given an opportunity of producing evidence and establishing the valuation declared by him in the return. The Rule 8 gives the guidelines to assessing authority in the task of determining the correct, fair value of the property in dispute for the purpose of passing an order of assessment under Rule 9. The proposition emerging from these laws and rules came for examination in Messrs Abid & Sons Ltd.
And others v. Excise & Taxation Officers and 3 others (PLD 1985 Kar. 546). The Division Bench of Karachi High Court examined the West Pakistan Finance Act, 1963 and Rules and laid down following tests:
(i) That, after a sale is completed, the seller shall disclose all the particulars as are stated in CGT. I Form;
(ii) The Assessing Authority shall examine that Form to find out the correctness, or otherwise of the disclosures.
(iii) That out of the sale price, the assessee can deduct the actual cost incurred, or borne by him for the initial purchase of the property, together with expenditure of capital nature borne by the seller in making any additions or alterations.
(iv) If the Assessing Authority, is satisfied with the disclosures in form CGT.I, he shall call upon the seller to pay the tax, which is payable on the basis of such disclosures;
(v) If the Assessing Authority, on examination of Form CGT. I comes to the conclusion that the seller and purchaser are directly or indirectly connected, or if he comes to believe that the transaction has been effected with the object of avoidance and reduction of the liability to pay the tax, then he can open the case by issuing a notice in Form CGT.III.
(vi) After giving the notice in Form CGT.III the Assessing Authority shall afford to the seller a hearing and also give him an opportunity to lead evidence on the point.
(vii) After hearing an examination of witnesses, the Assessing Authority shall determine the full value of the consideration for the sale, which shall be taken to be the fair market value of the property on the date of sale. Viii) for the purposes of arriving at such conclusions in regard to the full value, or considerations, the Assessing Authority shall have to consider the price at which sales, or tranfers of similarly situated properties have been effected.
(ix) That the decision of the Assessing Authority shall be according to best of judgment.
10. I am in complete agreement with the test laid down in the aforesaid authority. Applying the aforesaid rules to the facts of the present case it appears quite clear that Excise and Taxation Officer gave no reasons at all for rejecting the valuation contained in the registered sale-deed and put by the petitioner in his assessm ent. As a matter of fact the Excise and Taxation Officer had not undertaken his duty of examining the merit of valuation in his assessment. Right from the start he started inquiry under rule 6 without recourse to rule 5. It was also imperative duty of the Excise & Taxation Officer to examine the valuation of number of sales in the vicinity in consonance with the requirement of rule 8 even it was not done. Very apparently the Excise & Taxation Officer proceeded arbitrarily to fix the valuation for the purpose of order of assessment without any reason and rhyme and in complete flagrant violation of rules.
11. The order of the first Appellate Court is no better than the order of Excise and Taxation Officer.
The first Appellate Court observed that the examples quoted by the Excise and Taxation Officer were irrelevant, however, he proceeded to reduce the arbitrary valuation of the Excise and Taxation Officer by yet another arbitrary valuation. The Revisional Authority even did not lag behind. He reduced the valuation to Rs,4,50,000 without any factual or legal basis. The final order of the Revisional Authority is as follows:- "Keeping in view all the factors particularly the location and the transaction to the brother of the assessee I feel that the sale price has sufficiently been suppressed to avoid tax liability. At the same time I also feel that the assessed price of Rs,5,50,000 against the declared sale price of Rs,1,01,000 is also on the higher side. I also feel that the location of the unit just on the ganda nala also affects the sale price to some extent. To the best of my judgment I assume the sale price at Rs,4,50,000 instead of Rs,5,50,000."
12. From the appraisal of the relevant law and the findings of the authorities, I am clear in my mind that neither the Revisional Authority nor the Appellate Authority nor the Excise & Taxation Officer have examined the question of assessment in consonance with the law. Neither they have recorded a finding that the valuation was correct or not nor they have taken into consideration the evidence produced by the assessee nor they have taken into consideration the number of sales and various circumstances, mentioned in rule 8 for ascertaining the value for the purpose of assessm ent.
13. In result I have come to a definite conclusion that the order passed by the Revisional Authority dated 17-4-1983, the order passed by the Appellate Authority dated 12-5-1982 and the order of the Excise & Taxation Officer dated 23-12-1981 have been passed in direct contravention of the laws and rules mentioned above. I therefore, declare that the order of the Director General Excise & Taxation dated 17-4-1983, the Appellate Authority dated 12-5-1982 and the Excise & Taxation Officer dated 23-12-1981 have been passed without jurisdiction and without any lawful authority and hence have no legal effect. I accordingly accept the petition. In result, I remand the case to the Excise & Taxation Officer, Rawalpindi who shall decide the question of valuation in accordance with the law. There shall be no order as to costs.