Messrs SHAMA SOAP FACTORY, FAISALABAD vs COMMISSIONER OF INCOME-

1. ' MIAN HAMID FAROOQ, J.---Following questions of law have been referred to this Court for interpretation of law, by the Income Tax Appellate Tribunal:--

(1) Whether the deficiency of the Stamp Duty rendered the Lease Deed not operative for the purpose of Income Tax proceedings?

(2) Whether the non-registration of the Lease Deed under the Registration Act of 1925, affected the genuineness of the Lease Deed for the purposes of Income Tax proceedings?

2. ' The aforenoted questions are answered as under:- Question No, 1.

3. If a document is not properly stamped, as required under the law, it will not render the said instrument as invalid. Section 35 of the Stamp Act, 1899, envisages that no instrument chargeable with duty shall be admitted in evidence for any purpose or shall be acted upon, unless such instrument is duly stamped. It would be appropriate to refer a portion of the judgment from the case reported as Union Insurance Company of Pakistan Ltd. v. Hafiz Muhammad Siddique (PLD 1978 SC 279), which is a complete answer to question in hand and clinches the matter:-- "I would now examine section 35 in some detail. It prescribes that no instrument, which is not properly stamped, shall be admitted in evidence for any purpose.. Or shall be acted upon....". Now merely because an instrument cannot be admitted in evidence for any purpose as because it cannot be acted upon by the persons specified in the section, does not mean that such an instrument is valid, and it is not irrelevant to observe here that the words which I have quoted have to be construed strictly, because they are to be found in a provision of a penal nature. Therefore, it would be against all canons of construction to enlarge the meaning of these words, so as to render invalid instruments which fall within the mischief of the section. After all, instruments, which are not duly stamped, are executed every day, but I venture to think that most persons, who incur obligations under such instruments, honour their liabilities under such instruments, regardless of the provisions of section 35. In any event, this section is attracted only when an instrument is produced before the persons specified in the section. But, for example, an instrument would be produced in evidence only when there is a dispute about it, therefore, if the intention of the legislature had been to render invalid all instruments not properly stamped, it would have made express provision in this respect and it would also have provided some machinery for enforcing its mandate in those cases in which the parties did not have occasion to produce unstamped instruments before the persons specified in the section.

4. ' Additionally, I find nothing in the section which would support the appellant's plea that an instrument becomes invalid, if it falls within the mischief of the section. After all, if an instrument is invalid, it must be invalid for all purposes, but proviso (d) to the section expressly saves unstamped instruments in most criminal proceedings, whilst the other proviso to the section enable the parties to overcome disabilities attached to an instrument not properly stamped by paying the requisite duty together with a penalty, therefore, this would suggest that the object of the section is to protect public revenue. Again, if an instrument is invalid, it should not be admissible in evidence, and it is so stated in section 35. But, the next section prescribes that if an instrument had been admitted in evidence, howsoever erroneously, its admissibility cannot be questioned at any stage thereafter, and even the appellate Court's power to entertain an objection about the admissibility of documents have been removed but section 61, which instead empowers the appellate Court to collect the duty payable on the unstamped instrument together with a penalty. These provisions as well as other provisions in Chapter IV of the said Act, such as sections 33, 38, 39 and 40, can only lead to the conclusion that the object of the legislature in enacting the said Act was to protect the public revenues and not to interfere with commercial life by invalidating instruments vital to the smooth flow of trade and commerce."

5. Question No,2.

6. ' Section 49 of the Registration Act provides that no document required to be registered under this Act shall operate to create, declare, assign, limit or extinguish, any right, title or interest in the immovable property. It has been held in Malik Muhammad Ishaque v. Messrs Erose Theatre and others (PLD 1977 SC 109) that in view of section 49 as amended by Registration (Amendment)

7. Ordinance (XLV of 1962). "the only penalty for non-registration is that the document in question shall not be operative in respect of rights in immovable property..."

8. As regards unregistered lease the same is invalid for the purposes of West Pakistan Urban Rent Restriction Ordinance, however, the same could be acted upon for other collateral terms and conditions between the parties. Reference can be made to Messrs Syed Brothers v. Messrs Film Exhibitors Ltd. And 10 others (1984 CLC 3434).

9. ' Both the questions are answered accordingly. Resultantly lease arrangements are held to have been accepted by the Commissioner of Income Tax (Appeals), Sargodha, correctly and no exception to his conclusion can legally be made.