C.I.T., CENTRAL ZONE `B', KARACHI VS MESSRS HUSSAIN SUGAR MILLS LTD.
1991 P T D 207
[Karachi High Court]
Before Saleem Akhtar and Haziqul Khairi, JJ
C.I.T., CENTRAL ZONE `B', KARACHI
versus
Messrs HUSSAIN SUGAR MILLS LTD.
I.T.R. No.65 of 1982, decided on 09/07/1990.
Income-tax Act (XI of 1922)--
----S. 15-BB---Notification NO.S.R.O: 130(R)/61, dated 1-7-1969---Exemption-- Assessee, a Sugar Mill claimed exemption of commissions received on purchase of fertilizer sold to the growers who supplied sugarcane and receipts from hire of tractors and trollies under S.15-BB of the Income-tax ---He exclusive business of the assessee-company being neither renting out tractors and trollies nor commissions received by them on account of the sale of fertilizer to growers but the industrial activity of the assessee mainly related to running a Sugar Mill, both the receipts were not exempted.
Muhammadi Steamship Co. Ltd. v. The Commissioner of Income Tax, Central, Karachi P L D 1966 SC 828 ref.
Shaikh Haider for Appellant.
Ali Athar for Respondent.
Date of hearing: 9th April, 1990.
JUDGMENT
HAZIQUL KHAIRI, J: --The. Income Tax Appellate Tribunal, Karachi Bench, Karachi, have referred these applications under section 66(1) of the Income Tax Act containing the following questions of law for our opinion:--
"(1) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that commissions received on purchase of fertilizer were exempt under section 15-BB of the Income Tax Act?
(2) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that receipts from hire of tractors and trollies are profits of industrial undertaking exempt under section 15-BB of the Income Tax Act?"
The assessee is a public limited company and was running a sugar factory at Jaranwala, having Head Office in Karachi. This company enjoyed tax exemption under section 15-BB of the Income Tax Act. During the assessment years 1969-70 and 1970-71 the assessee-company had received, besides other income commission of Rs.14,072 and Rs.37,704 respectively on sales of fertilizer made to the growers who supplied sugarcane to the assessee-company. The assessee claimed exemption in respect thereof for both the years under section 15-BB of Income Tax Act which was rejected by the Income Tax Officer. In appeal, however. Income Tax Appellate Tribunal took the contrary view and held that the purchase and sale of fertilizer was linked with the assessee's industrial activities and hence the commission was also exempt under section 15-BB of the Act in the both the years.
In the assessment year 1970-71, the assessee-company had also received some income from hiring out tractors and trollies, which it claimed to be exempted under section 15-BB of Act. The Income Tax Officer did not accept this contention and treated the income from this source as liable to tax. In appeal the Tribunal directed that if the hire receipts are only from those growers who supplied sugarcane to the assessee-company then the amount of hire receipts would be treated as income from industrial activities liable to be exempted under section 15-BB of Income Tax Act. Reference here may, however, be made to Notification No.S.R.O.-130(R)/61, dated 1-7-1969, under which the assessee-company claims exemption under section 15-BB of the Act as under:--
"In exercise of powers conferred by subsection (1) of section 60 of the Income Tax Act, 1922 (XI of 1922), the Central Government is pleased to exempt from tax payable under the said Act, the incomes, profits and gains derived by any person engaged exclusively is the business of:--
(a) Renting out of machinery used for agricultural operations, such as bulldozers, tractors, power tillers and water pumps etc.
OR
(b) Providing Pest Control services to agriculturists."
Learned counsel for the respondent/assessee-company has throughout maintained that the nature of the business of assessee-company was such that hiring of tractors etc. and supplies of fertilizer were part and parcel of the business of their industrial undertaking. Reference was made to Tribunal's order dated 22-8-1978, relevant portion of which is reproduced below:--
"The assessee's case, however, was that Tractors and Trollies were rented out to sugarcane growers who supplied the sugarcane to the assessee. As far as the sale of junk scraps etc. are concerned they become junks and scraps in the course of carrying on the industrial activity. We agree with the authorised representative that income from sale of such scraps was income from industrial activity of assessee. As for the receipt from hire of Tractors and Trollies it could not be said with certainty that the assessee had received the hire only from these growers of sugarcane to the assessee. It was, therefore, necessary that the matter be looked into by the Income Tax Officer again .................
The assessee earned commission on purchase of fertilizer which he sold to the growers who supplied sugarcane to the assessee. In our opinion this was again linked with the assessee's industrial activity and hence exempt under section 15-BB."
On the other hand, it is urged by Mr. Shaikh Haider, learned counsel for the applicant that in order to claim exemption from income, profit and gain it was incumbent upon the respondent/assessee-company to establish that they were engaged exclusively in any of the two businesses referred to in the Notification namely of renting out of machinery used for agricultural operations or of providing pest control services to agriculturists. The respondent/assessee company have failed to establish their engagement exclusively in any of the said businesses and have admittedly treated these business activities as ancillary or subsidiary to the main industrial undertaking which is running of sugar factory. According to the learned counsel firstly neither of two business activities is ancillary or subsidiary to the main business activity and secondly, even if it is so, it will be of no consequence as this plea stands rebutted by the notification itself which extends to exclusive engagement of either of the two business activities named therein. In support learned counsel has placed reliance on Muhammadi Steamship Co. Ltd. v. The Commissioner of Income, Tax (Central), Karachi P L D 1966 SC 828, in which the Supreme Court of Pakistan in the context of section 15-B(1)(3) of Income Tax Act has laid down principles and guidelines inter alia that provisions granting exemption or privileges must be construed strictly against those to whom such exemptions or privileges have been granted and further in order to claim the exemption it is necessary for the assessee to show that it has been carrying on an undertaking of any of the specified classes and that it has earned profits and gains from such an undertaking.
Learned counsel for the respondent has also frankly conceded that the exclusive business of the respondent/assessee-company is neither renting out Tractors and Trollies nor commission received by them on account of the sale of fertilizer to growers but the industrial activity of the respondent/assessee-company mainly relates to running a Sugar Mill. Hence we reply to both these questions in negative.
M.B.A./C-175/KReference answered in the negative.