2008 SLD 1 Equiv.

Citation: 2008 PTD 19 = 96 TAX 321 = =

Income-tax Appellate Tribunal Pakistan

I.T.A. No.2133/LB of 2003, decided on 07-14-2005

PRESENT:
MUNSIF KHAN MINHAS AND SYED NADEEM SAQLAIN, JUDICIAL MEMBERS
SYED AQEEL ZAFARUL HASAN, ACCOUNTANT MEMBER

PETITIONER(S): MUNSIF KHAN MINHAS, JUDICIAL MEMBER,

RESPONDENT(S): SYED NADEEM SAQLAIN, JUDICIAL MEMBER

Petition(s) by: Gh. Muhammad Zulfiqar Ali, D.R.

Respondent(s) by: Mumtaz Hussain Khokhar

Law: Income Tax Ordinance (XXXI OF 1979)

Sections: 12(18)

ORDER

MUNSIF KHAN MINHAS (JUDICIAL MEMBER)---This departmental appeal has been directed
against the order dated 27-2-2003 recorded by the learned CIT(A) Multan, for the
assessment year 1999-2000.

2. It is the departmental contention that the learned CIT (A) has unjustifiably deleted the
addition amounting to Rs.5,00,000 made under section 12(18) of the late Income Tax
Ordinance, 1979.

3. Facts in brief are that as per reconciliation statement, the assessee declared to have
received a gift from her husband amounting to Rs.5,00,000. No proof regarding its receipt
through banking channel or by crossed cheque was appended to reconciliation statement.
Therefore, an opportunity was afforded to the assessee by issuing a specific notice
requiring proof to this effect if any. The notice was issued vide Assessing Officer office
No.012360 dated 22-6-2001. In response to this notice, the AR took the plea in his written
reply that the gift was made to the assessee by her husband from known sources out of
cash available with him. He has further stated that the proviso to section 12(18) read with
section 13 says that this deeming provision is not applicable in cases where the assessee
offers explanation about the nature and sources of such sum. The AR has stated that the
donor is the existing assessee and is in possession of proof regarding nature and source of
money he gifted to her wife. In such circumstances, this deeming provision cannot be
invoked. Assessing officer has made the addition under section 12(18).

4. In first appeal the learned CIT (A) has deleted this addition with the following
observation:---

"Therefore, I find contention of the learned AR to be forceful. A husband can give gift to
his wife. Keeping in view relation, there must not be transaction through cross cheque. But
real thing to be ascertained is genuineness of the transaction whether the husband has
means to give a gift to his wife. In this case gilt has been accepted genuine one. In fact,
the law of deemed income was enacted in order to detect bogus transaction made in order
to evade proper taxation and not genuine and verifiable) transaction. The Honourable
Peshawar High Court, in a reported case 2002 PTD 63 quoted supra has already held that
amount received through cross cheques, cash or any other banking channels was not liable
to tax under section 12(18) i.e. any amount received through cross cheques, cash or any
other banking channel was not liable to tax under section 12(18). Under these facts and
circumstances of the case, when the gift obtained by a wife from his husband through cash
is verifiable. I feel no hesitation in respectfully following the cases quoted above and
deleting the addition of Rs.500,000 made under section 12(18). So ordered."

5. The learned AR has argued that:-

"The insertion of word "Gift" in section 12(18) of Income Tax Ordinance, 1979 through
Finance Act, 1998 is directly in collision with Article No.227 of Constitution of Islamic
Republic of Pakistan according to which no law shall be enacted which is repugnant to the
injunctions of Islam as laid down in the Holy Quraan and Sunnah. He also referred to the
judgment of Maulvi Abdullah and others v. Abdul Aziz and others reported at 1986 SCMR
1403 and another reported case 1986 SCMR 1121 for the validity of gift with the
aforementioned three requirements.

In the last para of his reply, AR has stated that in this case both the donor and donee are
Muslims and the gift by donor to donee cannot be rejected with the only reason that the
amount gifted was not given through crossed cheque."

He has further relied upon full bench Tribunal orders dated 22-8-2003 and 26-5-2005 in
I.T.A. No.1683/LB of 2002 whereby the Honourable Tribunal relying upon the reported
judgment of the Honourable Lahore High Court of writ petition No.13534 of 2001 has
deleted the addition. Hence the transaction that too in between husband and wife is not to
be suspected. The departmental appeal being without any merit hereby stands dismissed.

(Sd.)
Munsif Khan Minhas
Judicial Member

SYED AQEEL ZAFARUL HASAN (ACCOUNTANT MEMBER, CONTRA).---I am unable to

subscribe to the judgment of the learned Judicial Member. The provisions of section 13
cannot be read with those of section 12(18) to infer that only such amounts attract the
provisions of section 12(18) as are not explained by the assessee. The only criterion
applicable in the present case is that the amount should have been paid through a crossed
cheque. The assessee has been unable to meet this criterion and therefore the amount
was rightly added to her income under section 12(18).

7. There is no cavil with the fact that a gift is permissible subject to three conditions of a
valid offer, its acceptance by the donee and the passing of the corpus from the donor to
the donee. However, seen in the context of the income tax law a valid offer must take the
form of a crossed cheque, even between a man and his wife. This condition is c neither
violative of the Constitution of Pakistan nor does it depend upon the verifiability of the
transaction ex the availability of adequate sources with the donor.

8. As regards the ratio laid down in the case reported as 2002 PTD 63 the same has no
application to the present case. The Honourable Peshawar High Court while examining the
vires of C.B.R. Circulars Nos. 3, 11 and 12 of 1992 and Circular No. 1 of 1993 merely
declared those Circulars as intra vires of the law. However, the effect of such declaration is
confined to the year 1992-93 and not beyond that. The present appeal relates to the
assessment year 1999-2000 and is, therefore, not hit by the aforementioned case-law.
9. Reliance placed by the assessee on the Full Bench decision of the Tribunal in I.T.A. No.
1683/LB of 2002 dated 26-5-2005 is of no avail in the present case as the issue involved
in the stated case is not on all fours with the present one. The Full Bench was seized with
the case where the addition made under section 12(18) consisted of an investment in the
construction of a building which was treated as a loan/advance and taxed under section
12(18) of the repealed Ordinance. The Tribunal held that unless an amount was declared
as an advance or a loan, it could not be treated as falling within the ambit of the said
section 12(18). Further, it also held that only an amount of money was capable of falling
within the ambit of section 12(18) as other transactions could not be transferred through
crossed cheque or, other banking channels. The present case, on the other hand, is a case
of cash gift from the husband to the wife, which under the law should have been made
through a crossed cheque drawn on a bank or through banking channels. It is a universal
rule of interpretation that in fiscal laws a strict interpretation has to be made of the words
of law.

10. Seen in the foregoing context I am of the opinion that the Commissioner Appeals was
not justified in deleting the addition made under section 12(18) of the Ordinance.

11. Admittedly, in the present case, the gift in question was not made through a crossed
cheque. It is, therefore hit by the provisions of section 12(18) of the Income Tax
Ordinance, 1979. The order of the Commissioner Appeals being unsustainable in law, is
hereby vacated while that of the assessing officer is restored.

12. As the difference of opinion has arisen between the two members, so the file be placed
before the Honourable Chairperson for entrusting the matter in issue to another Member
for his opinion on the following issue:---

"Whether in the facts and circumstances of the case, the principle that where the law
prescribes something to be done in a particular manner, it must be done accordingly or not
done at all is not attracted and the CIT (A) was justified to deviate from the express
provisions of law enunciated in section 12(18) of the income tax Ordinance, 1979 keeping
in view the philosophy behind it?"

(Sd.)
Syed Aqeel Zafarul Hasan
Judicial Member

SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---The Honourable Chairperson of the

Tribunal referred the titled case to the undersigned for resolving the controversy arising
out of difference of opinion between the learned Judicial Member and learned Accountant
Member: As per reference by the Honourable Chairperson, following question was posed
for seeking the referee's opinion, which is as follows:

"Whether in the facts and circumstances, the principle that "where the law prescribes
something to be done in a particular manner, it must be done accordingly or not done at
all" is not attracted and the CIT (A) was justified to deviate from the express provisions of
law enunciated in section 12(18) of the Income Tax Ordinance, 1979 keeping in view the
philosophy behind it?"

14. The facts relevant for disposal of the present issue already stands narrated in the
assessment order, first appellate order and divergent views given by the learned Judicial
Member as well as the learned Accountant Member in their respective findings. The
learned counsel for both the parties have almost reiterated their arguments, which were
put forth by them at the time of hearing of main appeal. I have given due consideration to
the rival arguments tendered at the bar. I find myself in full agreement with the
observations made by the learned Judicial Member on the issue for the reasons given in
the following paragraphs.

15. Admittedly, this was a gift of cash which was given by the husband to his wife. It is
also a matter of record that genuineness of the gift has not been challenged by the
assessing authority. Before I proceed further, it would not be out of place to reproduce
section 12(18) of the repealed Ordinance which is as under:

Section-12(18):-

"Section 12(18).---Where any sum, or the aggregate of sums claimed, or shown to have
been received as loan by an assessee during any income year commencing on or after the
first day of July, 1987, from any person, not being a banking company, or a financial
institution notified by the Central Board of Revenue for this purpose, otherwise than by a
crossed cheque drawn on a bank, exceeds one hundred thousand rupees, the said sum or
the aggregate of sums shall be deemed to be the income of the assessee for the said
income year chargeable to tax under this Ordinance."

Undoubtedly, it refers to the sum received as loan or gift, otherwise than by crossed
cheque……..the sum shall be deemed to be the income of the assessee. But, it is not
only the plain wording which has been adopted by the legislature which is to be seen at
the time of interpretation but also the spirit of law i.e. object of enactment coupled with
the judicial interpretation given to the such piece of legislation over the period it went
through process of evolution. This issue also came up for hearing before another Division
Bench of the Tribunal reported vide (2007 PTD (Trib) 199) wherein it has been held that
object of section 12(18) is to check the back-dated fictitious transactions and section
12(18) is not applicable in valuable transactions. The facts in the supra case are somewhat
similar to the facts which are being dealt with in the present case. In the said case the
husband gave away Rs.6,00,000 in cash as gift to his wife. The assessing officer rejected
the same and made addition under section 12(18) ibid. The learned first appellate
authority upheld the treatment meted out to the assessee by the assessing , officer,
however, on appeal the learned Division Bench of the Tribunal deleted the addition made
under section 12(18) of the repealed Ordinance. In another judgment by the Peshawar
High Court reported as 2006 PTD 529 (H.C.Pesh.), on the identical issue where 'cash gift
was made in favour of the assessee by her brother. It was held by the Honourable High
Court that:---

"that was sufficient documentary evidence available in the shape of affidavit in which all
the three requisites of a valid gift had been completed. Statement of the donor recorded
by the Assessing Officer and letter of Tehsildar to prove that a sum had been gifted by the
donor to his sister Gift was discarded without assigning any reason in circumstances."

(8) It is pertinent to mention here that under section 138 of Muhammad Law by Mulla a
gift is complete when is a declaration of gift by the donor, acceptance of the gift, express
or implied by or on behalf of the donee and delivery of possession of the subject of the gift
by the donor to the doneee. Unregistered gift deed, notwithstanding the amendment of
section 49 of Registration Act by Registration Amendment Ordinance, 1962 was admissible
in evidence. Donor and donee being brother and sister were governed by Muslim Law and
as mentioned above the registration of the document was not sine qua non for validity of
the gift.
(9) So far as the second as to whether the amount of gift can be accepted if transferred
without banking channel is concerned, answer of the same is also in affirmative.
Subsection (18) was inserted to section 12 of the Income Tax Ordinance, 1979 by Finance
Act, 1987. This subsection was, however, held in abeyance. The Federal Government while
exercising powers granted in subsection (2) of section 14 of the Ordinance issued
Notification No.S.R.O.838(I)/87 dated October 26, 1987 added clause (7) in Part VI of
Second Schedule to the Ordinance. The said 'subsection (18) of section 12 of the
Ordinance was brought in force with effect from 1-7-1990 by Finance Act, 1990. It was
however, through Finance Act, 1992 that another sub-section i.e. (18-A) was inserted in
section 12 of the Ordinance which was made effective from 1-7-1992. It was omitted by
Finance Act, 1996 which means that subsection (18-A) of section 12 remained on statute
book from 1-7-1992 to 30-6-1996. Due to insertion of subsection (18) of section 12 of the
Ordinance certain difficulties had arisen for the assessee, therefore, Central Board of
Revenue in order to facilitate the assessee made certain relaxation by issuing Circulars
Nos.3, 11 and 12 of 1992 and Circular No.1 of 1993. When we read section 12(18) with
the abovementioned Circulars, we are of the view that since the transaction which took
place through gift was duly verified by the Assessing officer not only by recording
statement of Allauddin, but by the letter of the Tehsildar Timargara also, we feel no
hesitation to hold that such transfer could be made without banking transaction."

16. In the light of aforementioned case law, I have no option but to follow the ratio settled
by the Tribunal as well as Honourable High Court. Now coming to the question which has
been posed for seeking my opinion that "whether in the facts and circumstances of the
case, the principle that 'where the law prescribes something to be done in a particular
manner, it must be done accordingly or not done at all' is not attracted and the CIT (A)
was justified to deviate from the express provisions of law enunciated in section 12(18) of
the Income Tax Ordinance, 1979 keeping in view the philosophy behind it". I would like to
observe that this "phrase" has three aspects which are as under:---

(i) Constitution of Pakistan provides that every Court or Tribunal invested with powers of
judicial function is bound to follow the judgments of superior Courts as well as judgments
given by Courts and Tribunals at the same level. Since in the present case the Tribunal as
well the Honourable High Court has already held that cash gift from husband to wife and
from brother to sister is distinguishable from the gifts made during an ordinary course of
business. Keeping in view the peculiar circumstances and the culture prevalent in our
country, a gift from husband to wife or involving any other family member could not be
anticipated to be made through banking channels.

(ii) Intention of the legislature and spirit of law at the time of legislation could not be
overlooked. The notice of this factum has also been taken by the different judicial forums
wherein it has been held that the purpose of provision of section 12(18) was to check the
bogus and fictitious transactions which are effected to evade taxation. Obviously, when a
husband makes a gift to his wife and which stands proved being genuine one, such gift
could not be considered to be one which was envisaged by law makers while enacting
section 12(18) of the repealed Ordinance.

(iii) The apex Court/authorities pronouncements regarding gift made under the Muslim Law
are also worth mentioning since under the Muslim Personal Law an ordinary gift could be
made orally if the requisite conditions stood fulfilled i.e. intention of the donor to make
gift, acceptance by the donee and delivery of corpus. In my opinion if a gift is to be made
compulsorily through banking channels it would amount to going against the ratio settled
by the apex Court on the issue of gift under the Muslim Personal Law because making gift
through banking channels equates with the gift made in writing.

17. For the foregoing reasons, I am of the considered view that principle of every thing
should be done in a particular manner is not attracted in the instant case, therefore, the
learned CIT (A) was justified to deviate from the same while deleting the addition made
under section 12(18) regarding cash gift made in favour of the assessee by her husband. I
do hereby concur with the findings given by my learned .brother, Mr. Munsif Khan Minhas,
Judicial Member.

Appeal dismissed.