1992 P T D 227

[Karachi High Court]

Before Mamoon Kazi and Muhammad Hussain Adil Khatri, JJ

M/s. PAKISTAN TOBACCO COMPANY LIMITED

Versus

COMMISSIONER OF INCOME-TAX, CENTRAL ZONE 'A'

Income-tax Reference No.148 of 1984, decided 12th December, 1991.

Income-tax Ordinance (XXXI of 1979)---

----S. 23---Income-tax Act (XI of 1922), S. 10---Workers' Welfare Fund Ordinance (XXXVI of 1971), S. 4(1) & (7)---Deduction en account of payment made by assessee towards Workers' Welfare Fund leviable under S. 4(1) read with S. 2(1) of the Workers' Welfare Fund Ordinance, 1971---Procedure---Levy of Workers' Welfare Fund though was not an admissible expenditure under the Income-tax Ordinance, 1979 or Income-tax Act, 1922, but such expenditure would still be deductible from the total gross income of the assessee.

From the provisions of subsection (1) of section 4 of Workers' Welfare Fund Ordinance, 1971 it is clear that the two per cent payable to the Fund is to be calculated on the basis of the total assessable income of an assessee. According to subsection (7), such payment is to be treated as an expenditure for the purpose of assessment of income-tax. A perusal of subsection (1) of section 4 clearly indicates that no amount payable under the said subsection can be computed without first determining the assessable income of the assessee. No corresponding amendment has been made in section 10 of the repealed Income Tax Act or section 23 of the Income Tax Ordinance, 1979 under which net taxable income of the assessee is determinable. No doubt, subsection (7) of section 4 of the Workers' Welfare round Ordinance provides that any payment made to the said Fund shall be treated as an expenditure for the purposes of assessment of income-tax but if the legislative intent was to make such expenditure as an expenditure under section 10 of the repealed Income Tax Act or section 23 of the Income Tax Ordinance, a corresponding amendment would have been made therein in this regard. Consequently, it would be erroneous to assume that the amount payable to the Fund under section 4(1) is to be calculated at the time of computation of the assessable income of the assessee. Subsection (1) of section 4 clearly indicates that the said two per cent is to be calculated on the basis of the assessable income of the assessee, as pointed out earlier, and unless such income is determined, it would not be possible for the Income-tax Officer to calculate the amount payable to the said Fund. However, the Legislature has made its intention clear by providing that any expenditure made by the assessee on account of the said Fund shall be treated as an expenditure for the purpose of assessment of income-tax. Consequently, although, such expenditure would not be an expenditure allowable under the Income-Tax Act, but the same is nevertheless to be excluded from the total gross income of the assessee to give effect to the provisions of subsection (7) of section 4 of the Workers' Fund Ordinance. Effect to subsections (1) and (7) of` section 4, therefore, can be given by computation of the assessable income while excluding the amount payable to the Fund and after calculating two per cent on the basis of such assessable income, excluding the same from the gross income of the assessee. Any amount payable by the assessee to the said Fund is to be treated as an expenditure for the purpose of assessment of income-tax, therefore, the Incomes-tax Officer is obliged to exclude such amount from the total gross income of the assessee alongwith any other admissible expenditure.

Although the levy of Workers' Welfare Fund is not an admissible expenditure under the repealed Income Tax Act or as the case may be the Income Tax Ordinance, 1979 but such expenditure would still be deductible from the total gross income of the assessee.

1983 PTD (Trib.) .17 ref.

Iqbal Naeem Pasha for Applicant.

Shaik Haider for Respondent.

Date of hearing: 7th November, 1991.

JUDGMENT

MAMOON KAZI, J: --The applicant is engaged in the manufacture and sale of cigarettes. It claimed deductions on account of payment made by it towards Workers' Welfare Fund, which is leviable under section 4(1) read with section 2(1) of the Workers' Welfare Fund Ordinance, 1971, as an. admissible business expenditure for the purpose of assessment of income tax, however, the Income Tax Officer who assessed the income of the applicant did not agree with its method of calculation. The applicant went in appeal which was allowed and the applicant's contention was accepted by the learned Assistant Commissioner(Appeals). However, in the second appeal, the learned Income Tax Appellate Tribunal declined to agree with the learned Assistant Commissioner and held that computation was to be made in this regard in accordance with its earlier decision reported in 1983 PTD (Trib.) 17 wherein it had been held that the said fund is not an admissible expenditure under the Income-tax Act. The applicant was, therefore, aggrieved and it requested the Tribunal to make a reference to this Court under section 136 of the Income Tax Ordinance. Consequently, the following question has been referred to us for determination:-

"Whether the Appellate Tribunal is correct in law in holding that the levy of Workers' Welfare Fund is not an admissible expenditure to arrive at "Total Income" for purposes of levy of 2% on total income under section 4(1) and (7) read with section 2(a) and (i) of Workers' Welfare Fund Ordinance, 1971."

2. Section 4 of the Workers' Welfare Fund Ordinance provides as follows:-

"4. Mode of payment bar, 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 lakhs of rupees shall pay to the Fund in respect of that year a sum equal to two per cent of so much of its total income as is assessable under the (Ordinance) or would have [peen 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 speed 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 made by an industrial establishment to the Fund under subsection (1) shall be treated as an expenditure for purposes of assessment of income-tax."

On the basis of section 4(1), the contention put forth on behalf of the applicant was that the method of calculation applicable was:

Total Income x 2.

100

Although, the learned Appellate Commissioner agreed with the said method of computation but the learned Tribunal declined to accept the same, as according to it, Workers' Welfare Fund at the rate of taw per cent is to be first computed from the assessable income of the assessee in pursuance of the provisions of section 4(1) and thereafter the amount payable is to be excluded from the total income of the assessee as provided by subsection (7) of section 4.

3. Mr. Iqbal Naeem Pasha, learned Counsel for the applicant has, however, taken an exception to the above method of calculation as, according to him, any amount paid to the said Fund under section 4 of the said Ordinance, subsection (1), was to be treated as an expenditure for the purpose of assessment of income tax according to subsection (7) of the said section and consequently, such amount is deductible at the time of computation of the assessable income of the assessee. Mr, Shaik Haider, on the other hand, has fully supported the order of the learned Tribunal.

4. From the provisions' of subsection (1) of section 4 of the said Ordinance, it is clear that the said two per cent payable to the Fund is to be calculated on the basis of the total assessable income of an assessee. According to subsection (7), such payment is to be treated as an expenditure for the purpose of assessment of income-tax. A perusal of subsection (1) of section 4 clearly indicates that no amount payable under the said subsection can be computed without first determining the assessable income of the assessee. It is pertinent to point out that no corresponding amendment has been made in section 10 of the repealed Income Tax Act or section 23 of the Income Tax Ordinance, 1979 under which net taxable income of the assessee is determinable. No doubt, subsection (7) of section 4 of the Workers' Welfare Fund Ordinance provides that any payment made to the said Fund shall be treated as an expenditure for the purposes of assessment of income-tax but if the legislative intent was to make such expenditure as an expenditure under section 10 of the repealed Income Tax Act or section 23 of the Income Tax Ordinance, a corresponding amendment would have been made therein in this regard. Consequently, it would be erroneous to assume that the amount payable to the Fund under section 4(1) is to be calculated at the time of computation of the assessable income of the assessee. Subsection (1) of section 4 clearly indicates that the said two per cent is to be calculated on the basis of the assessable income of the assessee, as pointed out earlier, and unless such income is determined, it would not be possible for the Income-Tax Officer to calculate the amount payable to the said Fund. However, the Legislature has made its intention clear by providing that any expenditure made by the assessee on account of the said Fund shall be treated as an expenditure for the purpose of assessment of income-tax. Consequently, although, such expenditure would not be an expenditure allowable under the Income-Tax Act, but the same is nevertheless to be excluded from the total gross income of the assessee to give effect to the provisions of subsection (7) of section 4 of the Workers' Welfare Fund Ordinance. Effect to subsections (1) and (7) of section 4, therefore, can be given by computation of the assessable income while excluding the amount payable to the Fund and after calculating two per cent on the basis of such assessable income, excluding the same from the gross income of the assessee. As pointed out earlier, any amount payable by the assessee to the said Fund is to be treated as an expenditure for the purpose of assessment of income-tax, therefore, the Income-Tax Officer is obliged to exclude such amount from the total gross income of the assessee alongwith any other admissible expenditure. '

5. Consequently, in our view, although the learned Tribunal was right in holding that the levy of Workers' Welfare Fund is not an admissible expenditure under the repealed Income Tax Act or as the case may be the Income Tax Ordinance, 1979 but such expenditure would still be deductible from the total gross income of the assessee.

M.BA/P-223/K??????????????????????????????????????????????????????????????????????????????????? Order accordingly.