FAKHRUDDIN G. EBRABIM, J.-By an agreement in writing dated 29-4-1974, the petitioner-Company, agreed to sell the subject-property to the purchasers, Messrs Eastern Packages Ltd., for a sum of Rs.
6,00,000. The property consisted of a factory situate on a one acre plot at S. I. T. E., Karachi. On 24- 5-1975, sale deed was executed and registered in favour of the purchasers in which the price shown is the same as in the sale Agree--ment. The petitioner-Company then filed its Capital Gains Returns showing a loss of Re. 3,23,992, being the difference between its original cost price amounting to Re. 9,23,992 and the sale price of Re. 6,00.000. The Excise and Taxation Officer did not accept this return for he was not prepared to accept that the property had been sold for Re.
6,00,000 only as according to him the value of the properties in Karachi was increasing day by day and the question, therefore of selling the property at a huge loss was out of question He determined the value at its. 11,16,000 by multiplying the G. A. R. V. Of H s. 64,000 by 19. Those the gain according to him was of Rs. 2,921008 and the petitioner was called upon to pay Re. 41,a01.60 as capital gains tax.
2. In appeal this order was partly modified for the G. A. R. V. Re. 64,000 was multiplied by 17 times.
The lenient view was taken in view of the reputation of the petitioner. On merits the observation was that the value declared was on the low side as it had no comparison with the prevailing sale value of such properties.
3. The petitioner went in revision which was dismissed. In the order made it was conceded that no identical property unit bad been sold in the recent past in the same area and it was, therefore, not possible to ascertain the real market price, thus leaving the authority to determine the sale price on the basis of G. A R. V. Which was done in the present case.
4. Mr. S. A. Sarwana, the learned counsel for the petitioner invited our attention to proviso (i) to section 16 of the West Pakistan Finance Act, 1963. Under this proviso the authority making the assessm ent has the power to reject the valuation put by the assesses but only if he has reason to believe that the sale had been effected with the object of avoidance of reduction of the liability of the assesses and only in that event proceed to ascertain fair market value of the property on the date of the sale for computing the capital gains tax, being the difference in such value and the actual cost to the assessee. The requirements, therefore, are that the assessing authority must have reason to believe that the property had been undervalued with a view to avoid payment of capital gains tax and only thereafter proceed to determine fair market value on the date of the Bale for which, in so far as the Act is concerned, no guidelines have been prescribed. The assessing authority in the present case appears to have proceeded on the assumption that rule 8 of the West Pakistan Capital Gain Tax Rules, 1964 gives the requisite guideline, namely, an amount exceeding fifteen times but not exceeding twenty times the gross annual rental value of the property, but we End on examination of this rule that is not so, for this rule, in so far as it is relevant for our present purposes, lays down, the guidelines for determining the actual cost of the property in pursue of clause (2) of proviso (if) to subsection (2) of section 16 of the Act. In other words in so far as this rule enables the Assessing Authority to value a property at an amount exceeding 15 times but not exceeding 20 times the gross annual rental value, it is limited to valuing the property far the purpose of determining fair value of the property under clause (t) of proviso to subsection (2) of section 16 of the Act. However, we should not be-- understood as saying that independently of the rules it would be open to the Assessing Authority in appropriate cases to determine fair value of a property by reference to G. A. R. V. And its multiplication by specified number of years. The question, however, in this case is whether on the material before the Assessing Authority it can reasonably be said that they had reason to believe that the property had been undervalued by the assessee with a view to avoid payment of capital gains tax. It was the petitioner's case which has not been rebutted in any of the orders impugned in this petition that original cost of the property was Re. 9 23,992 its depreciated cost as on the date of the agreement was tie. 5.63,092 and that the property was lying vacant since 1972 with a view for its early disposal but no buyer was available until middle of 1974 and in the meanwhile they bad been incurring an annual expenditure of Re. 83,000 on the property. They had produced before the assessing authority their efforts in ascertaining the price of one acre plot in S. 1. T. E. In December, 1973 which varied from Re. 85,000 to Re. 1,00,000. They hall also produced detailed survey and valuation report of the property made in January 1974, at Re. s 38,000. The rates given in this report are higher rates acceptable to House Building Finance Corporation and even on this valuation there would be no occasion for the petitioner to pay any tax. It may be noticed that the Assessing Authority did not find any sale in the area in the recent past i.e. Sale of an industrial plot in S. I. T. E. From which an inference vas justified that there was reason to believe that the petitioner had underpriced the property. This also goes to support the petitioner's case that in spite of its best effort purchaser was not available. The assessing authority could have come to the conclusion that it had reason to believe that the sale price was inadequate and with the object of avoiding the payment of tax only if the finding was that the documents relied upon by the petitioner were either irrelevant or not genuine. They could not increase the price merely by sweeping generalization that property values in Karachi have been continuously on the increase which may or may not be true but was certainly not true in relation to industrial plot at the relevant time for according to the Assessing Authority itself there were no sales of such plots In recent past.
5. The result therefore, is that this petition is allowed with cost and the petitioner will be refunded the taxes paid.
S. A. H.Petition allotted.