COMMISSIONER OF INCOME-TAX (CENTRAL), KARACHI VS MASERS FAKIR COTTON GINNING AND PRESSING INDUSTRIES LIMITED,
GAMBAT
1991 P T D 573
[Supreme Court of Pakistan]
Present: Naimuddin, Ajmal Mian and Abdul Hafeez Memon, JJ
COMMISSIONER OF INCOME-TAX (CENTRAL), KARACHI
versus
Masers FAKIR COTTON GINNING AND PRESSING INDUSTRIES LIMITED,
GAMBAT and another
Civil Appeals Nos. 21-K of 1978 and 12-K of 1985, decided on 30/05/1990.
(a) Income-tax Act (XI of 1922)---
----S. 10(2)(vii), proviso (ii) [as substituted by Finance Act (I of 1962), S. 6]-- Object and interpretation of S. 10(2)(vii), proviso (ii) [as amended]---Assessee had not carried on any business in the relevant accounting year during which the building, machinery etc. or the factory was sold by it---Surplus mentioned in S.10(2)(ii), proviso (ii) (as amended) was thus not exigible to tax in circumstances.
Commissioner of Income-tax v. Messrs West Punjab Factories Limited, Okara PLD 1966 Iah. 236 not approved.
Liquidators of Pursa Limited v. Commissioner of Income-tax, Bihar (1954) 25 ITR 265; Commissioner of Income-tax v. West Punjab Factories Ltd.,, Okara PLD 1966 Lah. 236; Commissioner of Income-tax v. Philips Holzman A.G. Ameejee Valeeiee & Sons 1968 PTD 73; Income-tax Commissioner v. Ajax Products AIR 1965 SC 1358; 18 Tax Cas. 67; Messrs Hirjina & Company (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax, Central, Karachi 1971 SCMR 128; Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and others 1977 SCMR 371 and The Cape Brandy Syndicate v. The Commissioner of Inland Revenue (1921) 1 KB 64 = 12 Tax Cas. 358 ref.
(b) Interpretation of statutes---
---- Taxing statute---Court, while interpreting taxing statute, must look to the words of the statute and interpret it in the light of what is clearly expressed-- Court cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency.
Messrs Hirjina & Company (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax, Central, Karachi 1971 SCMR 128; Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and others 1977 SCMR 371 and The Cape Brandy Syndicate v. The Commissioner of Inland Revenue (1921) 1 KB 64 = 12 Tax Cas. 358 ref.
Shaikh Haider, Advocate Supreme Court and Muzaffar Hassan, Advocate-on-Record for Appellants (in both cases).
Iqbal Naim Pasha, Advocate Supreme Court and Faizanul Haq, Advocate-on-Record for Respondents (in both cases).
Date of hearing: 30th May, 1990.
ORDER
NAIMUDDIN, J.---The facts relevant to these appeals are as follows:
2. Supreme Court Appeal No.1 of 1968, which was re-numbered as Civil Appeal No.12-K of 1985, is a certified appeal. The Certificate was issued under section 66-A(2) of the Income Tax Act, 1922 read with section 109(c) and Order 45, Rule 3 of the Civil Procedure Code on 20th January, 1969 whereby it was certified that the questions which are raised in the petition are substantial enough to justify the grant of certificate applied for.
3. The appeal was from the judgment dated 31-8-1967 passed by a Full Bench of the ers4hile High Court of West Pakistan, Karachi Bench, Karachi in Reference Cases Nos.330 of 1961 and 206 of 1963. The questions raised in the references are, respectively, as follows and both the References are between the same parties:--
"Whether on the facts and in the circumstances of the case, the Tribunal was justified in deleting the sum of Rs.4,02,064 and Rs.2,72,879 added back by the Income-tax Officer for the assessment years 1957-58 and 1958-59, respectively, being the difference between the sale price of the machinery and plant and their written down value, liable to be assessed under section 10(2)(vii) of the Income Tax Act?
Whether in the facts and circumstances of the case, the surplus of Rs.2,68,672, arising out of the sale of the assessee's factory was liable to be assessed for the charge year 1958-59 under the second proviso to section 10(2)(vii) of the Income-tax Act, as amended in 1955?"
Civil Appeal No.21-K of 1978 is by leave from the judgment of the erstwhile High Court of Sindh and Balochistan at Karachi dated 21st October, 1975 passed in Reference No.2 of 1969. The leave was granted in view of the pendency of Supreme Court Appeal No.1 of 1968 (Civil Appeal No.12-K of 1985) to consider the following question:--
"Whether on facts and circumstances of the case the surplus of Rs.4,45,927 resulting from the sale of the plant, building and machinery as well equal to the depreciation allowed was assessable for the charge year 1961-62 under the Second Proviso to section 10(2)(vii) of the Income Tax Act?"
It will be seen that the questions in both the appeals involve the interpretation of second proviso to section 10, subsection (2), clause (vii) of the Income Tax Act, 1922. Before proceeding to examine the questions, some relevant facts may be stated.
5. In Appeal No.12-K of 1985 the respondent is a registered firm composed of 4 Pakistani individuals and a German Company styled as "M/s. Phillips Holzman A.G.". ,'The relevant assessment years are 1957-58 and 1958-59, corresponding to accounting periods, the 12th month ending on 30th September, 1956 and 30th September, 1957 respectively. The respondent carried on P.W.D. contract for the then Government of Sindh from June, 1952 to March 1955 for making a tunnel below the bed of river Bara-nai. The construction of that tunnel came to an end in March, 1955. The machinery imported for carrying out this work was disposed of during the two years in question and the respondent company earned profit to the tune of Rs.4,02,064 in 1957-58 and 2,72,879 in 1958 59. Both the amounts represented the difference between the original cost price and the written down value. On the 1st August, 1959, the Income-tax Officer assessed these amounts by invoking the provisions of the second proviso to clause (vii) of subsection (2) of section 10 of the Income Tax Act, 1922 on the assumption that the respondent-company had not stopped its business. The contention of the respondent-company that the amounts could not be taxed was repelled by him. The respondents, however, succeeded in their appeal before the Income-tax Appellate Tribunal, as the Tribunal came to the conclusion that since the above machinery was disposed of and not used at any time during the accounting period, the surplus amount was not liable to taxation under the second proviso to clause (vii) of subsection (2) of section 10 of the Act. The Department was dissatisfied, resulting in the reference in which the impugned judgment was passed. The reference was first taken up by a Division Bench of the High Court, but, in view of the conflicting decision in the case of Liquidators of Pursa Limited v. Commissioner of Income-tax, Bihar (1954) 25 I T R 265 on which reliance was placed by the Tribunal and a decision of Division Bench of West Pakistan High Court, Lahore, namely, the Commissioner of Income-tax v. West Punjab Factories Ltd., Okara P L D 1966 Lah. 236, the question in the reference and similar questions in other references were ordered to be fixed before the Full Bench.
6. Since in Civil Appeal No.21-K of 1978, the question is same with the difference of year and the amount, the facts need not be stated in detail except that the charge year is 1961-62 and the accounting period from 1-9-1960 to 31-8-1961. The respondent during this period carried on no business. On 21-10-1960 it went into voluntary liquidation and on 23-10-1960, by an agreement in writing, all its assets were sold to the allied concern, namely, Fakir Spinning and Weaving Factory, for a sum of Rs.1,50,000. The value of machinery, building and land was fixed on the book value less depreciation, as determined by the Income-tax Authorities and in this way the value of the assets was worked out to Rs.5,45,105,96.3, resultantly there was a surplus of Rs.4,37,241. It was subsequently rectified at Rs.4,45,927 and taxed under the provision in question.
7. Now, before considering the question, it would be convenient, if we reproduce, for the convenience of future reference, the relevant provisions of section 10, as existing and applicable at the time relevant to both the appeals.
"Section 10.--(1) The tax shall be payable by an assessee under the Business head Profits and gains of business, profession or vocation in respect of the profits or gains of any business, profession or vocation, carried on by him.
(2) Such profits or gains shall be computed after making the following allowances, namely:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: .................
Provided further that where the amount for which any such building, machinery or plant is sold (whether during the continuance of the business or after the cessation thereof), exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place."
8. It may be advantageous, if at this stage it is pointed out that clause (vii) and its first and second provisos were substituted by section 6 of the Finance Act, 1962 (Act I of 1962). The substituted provisions read as follows:-
"(vii) In respect of any such building, machinery or plant which has been sold, transferred by way of exchange or is compulsorily acquired by a competent authority under any law for the time being in farce, or discarded or demolished or destroyed in the previous years, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant is actually sold, transferred or compulsorily acquired, as the case may be, or its scrap value:
Provided that such amount is actually written off in the book of the assessee:
Provided further that where the amount for which such building, machinery or plant is sold, transferred or compulsorily acquired, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale, transfer or compulsory acquisition, as the case may be, took place and the business, profession or vocation in which such building, machinery or plant has been used shall, for the purpose of subsection (1), be deemed to be carried on by the assessee in the year in which the sale, exchange or acquisition, as the case may be, took place:"
Now, it is admitted position that the respondent did not carry on any business in the relevant accounting year during which the building, machinery etc. or the factory was sold by it. Accordingly, the question is to be examined in the light of these admitted facts.
9. Mr. Shaikh Haider, learned counsel for the appellant/Department relying on Commissioner of Income-tax v. M/s. West Punjab Factories Ltd., Okara P L D 1966 Lah. 236 contend that the 2nd proviso to clause (Vii) of subsection (1) of section 10 of the Income-tax Act, 1922 then in force as amended by the Finance Act of 1956, is a substantive and independent provision of law and has no relation whatsoever with the other clauses preceding it and that it is a charging provision by itself. In the Commissioner of Income-tax v. West Punjab Factories Ltd. (supra) a Division Bench of erstwhile West Pakistan High Court, Lahore Bench, consisting of Muhammad Yaqub Ali and Muhammad Fazle Ghani, JJ., took the view as summarised in Commissioner of Income tax v. Phillips Holzman A.G. Ameejee Valeejee & Sons 1968 P T D 73 as follow:--
"(1) That the second proviso to clause (vii) is an independent provision, having no relation whatsoever with the use of machinery or plans in the relevant accounting period. By this proviso, the revenue, in fact, takes back what it had given by way of depreciation allowance in preceding years and not only in the previous year, for otherwise the assessee would receive allowance in excess of his original cost.
(2) That grammatically `such' refers to `building, machinery and plant' used for the purpose of the business, profession or vocation as provided in clauses (iv) and (vi), but it will be noticed that no specific accounting period is mentioned in these clauses. The result that the `building' etc. must have been used in the previous year is, therefore, achieved by reading section 10(1) alongwith section 3 of the Act which provides that tax shall be charged in respect of the total income of the `previous year'. There is thus no warrant for the proposition that `building, machinery or plant' must have been used in the relevant accounting period to attract the second proviso to clause (vii) of section 10(2). Another reason cited in support of the Tribunal's view is that a proviso cannot travel beyond the scope of the main enactment. This, of course, is a well-established rule of interpretation, but apart from the use of the word `such' to which reference is made above, there are no words in the clause to the effect that the building, machinery or plant must have been used for the purpose of the business during the `previous year.
(3) That the proviso does not travel beyond the scope of the main enactment or seeks to control it. In fact, as stated above there is no true relationship between the main clause (vii) and the second proviso to it. The clauses deals with an allowance and the proviso takes back what was given as an; allowance in the preceding years."
10. But the above view has not been accepted by a Full Bench of erstwhile West Pakistan High Court, Karachi Bench (now also under appeal before us) wherein, Wahiduddin Ahmed, CJ (as his Lordship then was) expressing the opinion on behalf of the Full Bench consisting of Wahiduddin Ahmed, C.J., Ilahi Baksh Khamisani and A.S. Faruqui, JJ., has taken a different view and has in detail dealt with the reasoning on which the judgment in Commissioner of Income-tax v. West Punjab Factories Limited, Okara was mainly based and it was observed as follows:--
"11. The contention of the Department that the above proviso gives power to the taxing authorities to tax the surplus amount, though the assessee did not in fact conduct any business during the previous year or that the machinery in fact was not used in the said business during any part of the whole accounting year has not impressed us, In our opinion, the key words for interpretation of the proviso under consideration are `any such building, machinery or plant'. There can be no two opinions that the adjective `any such' clearly refers back to that property which is mentioned in clauses (iv), (vi) and (vii) of subsection (2) of section 10 of -the Act. On examining clause (iv) it will be found that the basic idea is to grant allowances in respect of an amount of premium on account of insurance. against risk of damage or destruction of building, machinery, plant, etc. used for the purpose of the business, profession or vocation. Similarly under clauses (vi) and (vii) the allowance is permissible only in respect of such building, machinery, plant, etc., as have been used for the purposes of business, profession or vocation in the previous year. It is in this context and background that the use of the above words in the second proviso are to be interpreted."
12. The view expressed in the Lahore case has received our anxious consideration. The objects of clause (vii) and the second proviso to it are quite different. Clause (vii) grants allowance in respect of property which is discarded, demolished or destroyed, whereas the object of the second proviso is to bring to charge by fiction the excess of the sale price over the written down value. They apply to different situations, though they are in respect of the same property, namely, the one which was used in the previous year. It is further difficult to hold that the words `any such' have no reference to the property mentioned in the earlier clauses. Had that been the intention of the Legislature it would not have used the words `any auch' or `previous year'. Thus on the phraseology of the proviso, it cannot be treated as an independent provision of law because it relates to the same property which is referred to in the main enactment and it is only by fiction that profits have been created for the purposes of taxation even in cases where the sale takes place after the close of business. The object of the amendment was only to avoid the condition that the machinery must have been sold before the business was closed down, otherwise this limited fiction was in existence even when the second proviso was amended. This seems to be the only plausible explanation of the incorporation of the words "whether during the continuance of the business or after the cessation thereof' in it. The amendment does not in the least carry the fiction further. It only provides that whenever a sale takes place after the cessation of the business, the surplus must be deemed to have been the profits of the business conducted by the assessee during the previous year."
11. The learned Judges in support of the view relied on a decision of the Supreme 'Court of India in the case of Income-tax Commissioner v. Ajax Products A I R 1965 SC 1358 and quoted a passage therefrom which appears on page 1363 and reads as follows:--
"To put it' in other words, the subject is not to be taxed unless the charging provision clearly imposes the obligation. Equally important the rule of construction is that if the words of a statute are precise and unambiguous, they must be accepted as declaring the express intention of the Legislature. Giving a close scrutiny to the second proviso it will be clear that by giving the natural meaning to every word used therein, it clearly fits in within the scheme, of the entire section. The key expressions in the proviso are (1) such building, (2) whether during the continuance of the business or after the cessation thereof, and (3) `deemed to be profits of the previous year'. The words `such building' have already been given an authoritative interpretation by this Court in the aforesaid two decisions. In the latter decision [Express Newspaper's case (1964) 53 I T R SC 250 at p.254], [A I R 1965 SC 33 at p. 36], it is observed thus:
"The adjective `such' refers back to clauses (iv), (v), (vi) and (vii) of section 10(2). Under clause (iv) an allowance is allowed in regard to any premium paid in respect of .insurance against risk of damage or destruction of buildings, machinery, plant etc. used for the purpose of the business, profession or vocation. Under this clause allowance is allowed only in respect of the machinery used for the purpose of the business. Clauses (v), (vi) and (vii) refer to such buildings, machinery, plant, etc. used for the purpose of the business. The result is that the second proviso will only apply to the sale of such machinery which was used for the purpose of the business during the account year."
12. The learned Judges in the judgment in appeal in Phillips Holzman's case further reasoned:--
"The words `whether during the continuance of the business or after the cessation thereof' ere not present in the unamended proviso. In the two decisions cited earlier, in the absence of such words, this Court held that to attract the said proviso the machinery shall have been sold before the business was closed down. This clause omits that condition for the exigibility of the tax. '
The third expression `shall be deemed to be profits of the previous year' in its ordinary connotation, carries a natural meaning with it. Though the surplus contemplated by the proviso is not in the technical sense of the term profits of the previous year, it is deemed to be the profits of the previous year. It is a limited fiction for a specific purpose. What are not profits in commercial practice are treated as profits for the purpose of the proviso. This fiction was in existence even before the amendment. The two decisions of this Court cited earlier laid down the scope of the fiction. In the Express Newspaper's case, it was held that having regard to section 10(1) of the Act, the main condition which attracts all the other subsections and clauses of the section is that the tax shall be payable by an assessee in respect of profits or gains of the business carried on by him. If the business was carried on by him during the accounting year, this Court held that the said surplus, if the other conditions laid down by the proviso were complied with, would be deemed to be the profits of the previous year. One of the important expressions in the proviso is `previous year'. Previous year is defined in section 2(11)(b) to mean in the case of any person, business or company, or class of persons, business or company, such period as may be determined by the Central Board of Revenue or by such authority as the Board may authorise in this behalf. In the present case the previous year is the calendar year preceding the assessment year. Deemed profits must, therefore, relate to the calendar year preceding the assessment year. By giving the natural meaning to every expression used in the proviso we reach the result namely, that the surplus mentioned in the said proviso is not exigible to tax unless the assessee did business during the accounting year preceding the assessment year and unless such buildings or machinery yielding surplus were used for the business in the said year, or at any rate, part of the year, though they were sold after the cessation of the business. To illustrate an assessee did business during some part of the accounting year, 1955 but closed it in October of that year. He used the machinery during some part of the year for business. He sold it in December. The price realised yielded a surplus within the meaning of the proviso during the assessment year 1956-57, the said surplus could be brought into charge notwithstanding the fact that the machinery was sold after the cessation of the business. Before the amendment, the said surplus could riot be taxed as the sale was subsequent to the cessation of the business. By giving the natural meaning to every expression in the proviso, the proviso serves the purpose intended by the Legislature."
13. And finally concluded as follows:--
"13. In the light of the above discussion, it seems to us that the main enactment and the second proviso are reconcilable with each other. In our opinion, the condition precedent laid down in section 10(1) that the business must be carried on in the year of account before any item is treated as income is implicit in the second proviso. Its very language supports this condition. We would, therefore, hold that the view of the Tribunal that since in the present cases business was not done by the assessees in the relevant years of the account and the machinery or plant were not used during any part of the year, the main section and clause would have no application and the above second proviso would also have no application is correct."
14. Another reason which weighed with the learned Judges of the Division Bench of the West Pakistan High Court in the case of commissioner of Income tax v. West Punjab Factories Limited, Okara P L D 1966 Lah. 236 as summarised by the Full Bench in the judgment under appeal also reported as 1g Tax Cases 67, was that "by this proviso the Revenue in fact takes back what it had given by way of depreciation allowance in the preceding years and not only in the previous year, for, otherwise the assessee would receive allowance in excess to his original cost". This observation is correct to this extent that "by this proviso the Revenue in fact takes back what it had given by way of depreciation allowance in preceding years not only in the previous year". But the reasoning "for otherwise the assessee would have received allowance in excess of his original cost" is not, with utmost respect, correct, for, neither the sale price nor the excess between the sale price and the written down value can be equated with depreciation allowance. In no case the assessee could receive allowance in excess of his original cost.
15. Learned counsel for the Department advanced no arguments or gave no reasons to differ from the view taken by the Full Bench in Phillips Holzman's case. Indeed it is well-settled that in interpreting the taxing statute the Courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency, see M/s. Hirjina & Company (Pakistan) Ltd., Karachi v. Commissioner of Sales Tax, Central, Karachi 1971 S C M R 128, (ii) Collector of Customs (Appraisement) Karachi and others v. Messrs Abdul Majeed Khan and others 1977 S C M R 371. It will be relevant, if at this stage a passage from the judgment of the Court of Appeal in the case of The Cape Brandy Syndicate v. The Commissioner of Inland Revenue (1921) I K.B. 64 = 12 Tax Cases 358, is quoted here, which reads as follows:--
"Now of course it is said and urged by Sir William Finlay that in taxing Act clear words are necessary to tax the subject. But it is often endeavoured to give to that maxim a wide and fanciful construction. It does not mean that words are to be unduly restricted against the Crown or that there is to be any discrimination against the Crown in such Acts. It means this, I think; it means that in taxation you have to look simply at what is clearly said. There is no room for any intendment, there is no equity about a tax, there is no presumption as to a tax; you read nothing in; you imply nothing, but you look fairly at what is said and what is said clearly and this is the tax."
16. It may be pertinent to point out that the Legislature must be aware of the decision in C.I.T. v. Phillips Holzman (supra) when it substituted clause (vii) and its Ist and 2nd provisos by Finance Act I of 1962, as mentioned in para.8 hereinabove and made a deeming provision in the following words:--
"and the business, profession or vocation in which such building, machinery or plant has been used shall, for the purpose of subsection (1), be deemed to be carried on by the assessee in the year in which the sale, exchange or acquisition, as the case may be, took place."
No such words were there in the Statute at the relevant time, therefore, the rule laid down in the Court of Appeals' case quoted above is fully applicable to these appeals.
17. We are, therefore, of the view that the High Court has taken correct view of the law then applicable and accordingly find no merits in these appeals and dismiss them, leaving the parties to bear their own costs.
M.B.A./C-72/S Appeals dismissed.