I.TAS. NOS.624/LB TO 626/LB OF 1991-92, DECIDED ON 10TH MAY, 1992. VS I.TAS. NOS.624/LB TO 626/LB OF 1991-92, DECIDED ON 10TH MAY, 1992.
1992 P T D (Trib.) 1402
[Income Tax Appellate Tribunal Pakistan]
Before Abrar Hussain Naqvi, Judicial Member and Nasim Sabir Syed Accountant Members
I.TAs. Nos.624/LB to 626/LB of 1991-92, decided on /01/.
th
May, 1992. Workers' Welfare Fund Ordinance (XXVI of 1971)---
----S.4---Income Tax Ordinance (XXXIX of 1979), S.49--- Calculation/determination of Workers' Welfare Fund due ---Principles-- Amount of Workers Welfare Fund could be determined either at the time of making the assessment or after making the assessment but before the calculation of tax---Working out of taxable income---Method---Workers' Welfare Fund though was not an allowable expenditure but at the same time this amount had to be excluded from the total income for the purposes of calculation of income-tax.
The I.T.O. has to determine the amount due on account of Workers' Welfare Fund either at the time of making the assessment or as soon thereafter as may be. This means that the Workers' Welfare Fund may not necessarily be calculated at the time of assessment. The &mount of Workers' Welfare Fund could lie determined either at the time of making the assessment or after making the assessment but before the calculation of tax. In other words calculation of Workers' Welfare Fund is to be made between an intermediary stage of working out the total income and preparing the IT-30 (calculating the income-tax). The key to interpretation is that notwithstanding the fact that under subsection (7) of section 4 of the Workers' Welfare Funds Ordinance, the payment of Workers Welfare Fund is to be treated as an expenditure for the purposes of working out the taxable income but it is not to be are allowable expenditure for the purposes of determining the total income.
Under subsection (1) of section 4 of the Workers' Welfare Fund Ordinance 1971 the Workers' Welfare Fund has to be calculated at the rate of 2% of the `total income'. Then subsection (7), which probably created a confusion in the mind of the assessee, only provides that this fund has to be treated as an expenditure for the purposes of assessment of income-tax.
There are two different stages, which should not be mixed together. The first stage is when after determining the total income in accordance with the Income Tax Ordinance, the assessing officer has to calculate the Workers' Welfare Fund at the rate of 2% of this total income. This has nothing to do with subsecion (7) as the scope and purpose of that subsection is entirely different. What subsection (7) provides is a concession that the Workers. Welfare Fund calculated under subsection (1) would be deducted as anexpenditure not for the purposes of working out the total income but for the purposes of calculation of income tax. Thus it is evident that to work out the total income and to work out the taxable income for the purposes of calculation of income-tax are two different methods and cannot be mixed together. Thus what the I.T.O. has to do is:
(1) To work out the total income
(2) To work out the Workers' Welfare Fund at the rate of 2% of the totalincome;
(3) To deduct the Workers' Welfare Fund from the total income to world out the taxable income;
(4) To apply the tax rate at the net income or the taxable income which obviously is not the total income.
Though the Workers' Welfare Fund is not an allowable expenditure but at the same time this amount has to be excluded from the total income for the purposes of calculation of income-tax.
Pakistan Tobacco Company Limited v. C.I.T. 1992 PTD 227 fol.
Mahmood Mirza for Appellant. F.D. Qaiser, D.R. for Respondent.
Date of hearing: 6th May, 1992.
ORDER
ABRAR HUSSAIN NAQVI (JUDICIAL MEMBER).---These are three appeals filed by a Company and relate to the assessment years 1985-86, 1986-87 and 1987-88. In all these three appeals only one common question has been raised as to whether the Workers Welfare Fund is to be charged at the rate of 2% of the total income i.e. 2/100 or at the rate of 2/102. The assessing officer has calculated the Workers Welfare Fund at the rate of 2% of the total income while giving effect to the Tribunal's order. The income for all the three years worked out by the I.T.O. after giving appeal effect and the Workers Welfare Fund calculated at the rate of 2% is as under:--
| | Total income | Welfare Fund @ 2% | Balance Taxable Income |
| 1985-86 | Rs.7,87,17,263 | 15,43,475 | 7,71,73,788 |
| 1986-87 | Rs.6,30,46,632 | 12,36,208 | 6,18,10,424 |
| 1987-88 | Rs.7,05,23,094 | 13,82,865 | |
2. The assessee's case before the learned C.I.T.(A) as well as before us was that the method of calculation adopted by the I.T.O. was incorrect in that the Workers Welfare Fund should have been added to the total income first and then 2% of that income should have been calculated. The learned counsel for the assessee elaborating his arguments contended that under subsection (7) of section 4 of the Workers Welfare Fund Ordinance, the payment made by an establishment to the Workers Welfare Fund, is to be treated as an expenditure and therefore, it has to be deducted from the total income. The method of calculation, according to the learned counsel for the assessee should be as under:--
"That the Workers Welfare Fund should be charged at the rate of 2/102 instead of 2/100 and this amount then should be deducted from the total income."
According to the assessee's calculations the taxable income and the Workers Welfare Fund would work out as under:--
| 1985-86 | Income before W.W.F. | Less W.W. Fund at 2% | Total income | W.W. Fund at 2% |
| 1985-86 | Rs.7,87,17,263 | 15,43,475 | 7,71,73,788 | 15,43,475 |
| 1986-87 | Rs.6,30,46,632 | 12,36,208 | 6,18,10,424 | 12,36,208 |
| 1987-88 | Rs.7,05,23,094 | 13,82,805 | 6,91,40,289 | 13,82,805 |
We have not been able to appreciate the contention of the learned counsel for the assessee as, to our mind, the contention of the learned counsel for the assessee is completely misconceived. Here we would like to reproduce section 4 of the Workers Welfare Fund Ordinance, 1990 in toto:--
"4.Mode of payment by and recovery from. Industrial establishments.- (1) Every industrial establishment the total income of which in any year of account commencing on or after the date specified by the (Federal Government) in the official Gazette in this behalf is not less than one lakh of rupees shall pay to the Fund in respect of the year a sum equal to two per cent of so much of its total income as is assessable under the Ordinance or would have been so assessable but for the exemption made by section 48 thereof.
(2) Every Industrial establishment which is liable under subsection (1) shall pay the amount due from it to the Income Tax Officer having jurisdiction over the industrial establishment for purposes of the Act.
(3) The industrial establishment shall, on or before the date on which it is required to furnish a return of income under section 55 of the Ordinance pay the amount due from it under subsection (1) calculated with reference to the total income reported in the said return.
(4) At the time of making an assessment under (the Ordinance) or as soon thereafter as may be the Income Tax Officer shall, by order in writing determine the amount due from industrial establishment under subsection (1) if any, on the basis of the income so assessed after taking into account the amount paid by the industrial establishment under subsection (3) in respect of the year and the industrial establishment shall pay the amount so determined on or before the date specified in the order.
(5) Any change by way of enhancement or reduction in the assessed income subsequent to the assessment made under the Ordinance shall be given effect to by adjustment of the amount due under subsection (1).
(6) Any amount paid by an industrial establishment under subsection (3) which is found on the basis of an order in appeal or revision under the Ordinance to have been paid in excess shall be refunded to it by the Income Tax Officer.
(7) The payment by an individual establishment to the Fund under subsection (1) shall be treated as an expenditure for purposes of assessment of income-tax."
From the examination of the above provision it would be evident that under subsection (1) the Workers' Welfare Fund has to be calculated at the rate of 2% of the `total income'. Then subsection (7), which probably created a confusion in the mind of the assessee, only provides that this fund has to be treated as an expenditure for the purposes of assessment of income-tax.
4. Now there are two different stages, which should not be mixed together. The first stage is when after determining the total income in accordance with the Income Tax Ordinance, the assessing officer has to calculate the Workers Welfare Fund at the rate of 2% of this total income. Now this has nothing to do with subsection (7) as the scope and purpose of that subsection is entirely different. What subsection (7) provides is a concession that the Workers Welfare Fund calculated under subsection (1) would be deducted as an expenditure not for the purposes of working out the total income but for the purposes of calculation of income tax. Thus it is evident that to work out the total income and to work out the taxable income for the purposes of calculation of income-tax are two different methods and cannot be mixed together. Thus what the I.T.O. has to do so is:
(1) to work out the total income;
(2) to work out the Workers Welfare Fund at the rate of 2% of the total income;
(3) to deduct the Workers Welfare Fund from the total income to work out the taxable income.
(4) to apply the tax rate at the net income or the taxable income which obviously is not the total income.
5. In a recent decision, Karachi High Court in Pakistan Tobacco Company Limited v. C.I.T. reported as 1992 PTD 227 a similar view has been taken supporting the view which we have taken above. In that case the Karachi High Court has held that though the Workers Welfare Fund is not an allowable expenditure but at the same time this amount has to be excluded from the total income for the purposes of calculation of income-tax. The confusion in the mind of the learned counsel for the assessee is that since the, Workers' Welfare Fund has to be deducted from the total income treating it as an expenditure, therefore, it was to be excluded from the gross income so as to arrive at the total income. The argument of the learned counsel for the assessee seems to be that the working out of the total income and the calculation of Workers Welfare Fund, has to be done simultaneously. This contention is negated by the provisions contained in subsection (4) according to which the I.T.O. has to determine the amount due on account of Workers Welfare Fund either at the time of making the assessment or as soon thereafter as may be. This means that the Workers Welfare Fund may not necessarily be calculated at the time of assessment. The amount of Workers Welfare Fund could be. determined either at the time of making the assessment or after making the assessment but before the calculation of tax. In other words calculation of Workers Welfare Fund is to be made between an.
M.BA./1626/TAppeals dismissed.