(On appeal from the judgment and order of the High Court of Sindh in ITR No.148 of 1984, dated 12-12-1991).

Workers Welfare Fund Ordinance (XXXVI of 1971)---

----S.4---Income Tax Act (XI of 1922), S.10---Income Tax Ordinance (XXXI of 1979), Ss.23 & 49---While computing total income of the assessee, amount paid towards Workers' Welfare Fund could not be deducted---Such amount, however, could be deducted for purposes of computing the income-tax.

Palkhiwala & Kanga in the Law and Practice of Income Tax, 8th edition ref.

Iqbal Naeem Pasha, Advocate Supreme Court and M. Shabbir Ghaury, Advocate-on-Record for Petitioner.

Sheikh Haider, Advocate Supreme Court with S.M. Abbas, Advocate -on-Record for Respondent.

Date of hearing: 20th May, 1992.

JUDGMENT

SALEEM AKHTAR, J.---The petitioner seeks leave to appeal against the judgment of the Division Bench of the High Court whereby the following question referred under section 136 of the Income Tax Ordinance was answered in the affirmative:

"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. The brief facts giving rise to this petition are that the petitioner is engaged in manufacture and sale of cigarettes. During the assessment years 1978-79 and 1979-80 it claimed deductions on account of payment made by it towards Workers Welfare Fund which is leviable under section 4(1) of the Workers Welfare Fund Ordinance, 1971. The point of difference between the parties is how this amount should be computed. The petitioner claimed that Workers' Welfare Fund (WWF) should be computed at a sum equal to 2% of so much of the "total income as is assessable under the Income Tax Act/Ordinance". According to the petitioner WWF should have been calculated on the basis of total income arrived at after deducting the amount payable towards the Fund. The Income Tax Officer did not agree with this treatment. He first calculated the total income as assessable under the Income Tax Act/Ordinance then calculated 2% of such total income and thereafter granted allowance of the amount so calculated while calculating the income tax. The Assistant Appellate Commissioner accepted the petitioner's appeal but the Income Tax Appellate Tribunal did not agree with that order. The petitioner then filed application under section 136 of the Income Tax Ordinance and the aforestated question was referred to the High Court. The learned Judges of the High Court observed that:---

"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 and 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."

3. The entire controversy revolves round the interpretation of section 4 of the Workers Welfare Fund Ordinance which reads as follows:

"4. Mode of payment by, and recover 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 lac 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 been so assessable but for the exemption made by section 15 BB 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 (i) 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 reduction in the assessed income subsequent to the assessment made under (the Ordinance) shall be given effect to pay adjustment of the amount due under subsection (1).

(6) Any amount paid by an industrial establishment under subsection (3) which is fund, 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 the purposes -of assessment of income tax."

4. After hearing Mr. Iqbal Naeem Pasha, the learned counsel for the petitioner, we issued notice to the respondent, in response to which Mr. Sheikh Haider has appeared and we have heard the learned counsel for both the parties. Mr. Pasha has contended that any amount paid to WWF under section 4, subsection (1) of the Ordinance should be treated as an expenditure for the purposes of assessment of income tax as provided by subsection (7) of the said section and consequently such amount should be deducted at the time of computation of the assessable total income of the assessee. In other words it should not 'be included in the total income assessable under the Income Tax Act/Ordinance. A perusal of section 4 reproduced above will show that it provides a complete machinery for computation, adjustment, deduction and payment of the amount payable to the Fund. Section 4, subsection (1) is the charging provision whereby every industrial establishment total income of which is not less than one lac of rupees in a year is required to pay to the Fund in respect of that year an amount equal to 2% of its total income as assessable under the Income Tax Act/Ordinance or would have been so assessable without taking into consideration the exemption made under section 15BB. The procedure for assessment of the amount payable has also been provided in this section. The calculation of this amount should be with reference to the total income assessable under the Income Tax Act/Ordinance. Subsection (7) of section 4 provides that the amount so paid shall be treated as a business expense in assessing the income tax. The question is whether 2% should be calculated on the total income after excluding the amount paid to the Fund from it. According to Mr. Pasha as the amount paid to the Fund is otherwise to be treated as a business expense under the Income Tax Act/Ordinance 2% should be calculated after deducting the amount paid to the Fund from the total income. According to the learned counsel WWF is chargeable at the rate of 2/102 instead of 2/100.

5. The controversy is with regard to the manner in which the total income is to be computed for the purpose of levying 2% Workers' Welfare Fund. The total income tax is assessable as provided by the Income Tax Act/Ordinance. So far the Act is concerned, the definition of total income was given in section 2(15) which reads as follows:

"Total income means total amount of income, profits and gains referred to in subsection (1) section 4 computed in the manner laid down in this Act ......................

Under the Ordinance, section 2(44) reads as follows:

"Total income means the total amount of income referred to in section 11, computed in the manner laid down in this Ordinance; and includes any income which, under any provision of this Ordinance, is to be included in the total income of an assessee:"

6. Both the definitions are almost to the same effect and there is no material change. The Income Tax Act, 1961 of India, under section 2(45) maintains the same definition as in the Income Tax Act, 1922. The method of computation of total income is to be regulated from various provisions of the Act/Ordinance. Section 4 of the Act and section 9 of the Ordinance charge total income to tax but under the scheme and the provision of these statutes exemption, allowance and deduction have been provided for the purposes of calculating the income tax. There are two kinds exemptions granted by the Act/Ordinance. According to Palkhiwala and Kanga in the Law and Practice of Income Tax, 8th edition "certain incomes are exempted from charge and are also excluded from the assessee's total incomeCertain other incomes are exempted from income tax but they are to be included in the assessee's total income". It follows that the total income, of an assessee may include the amount which is exempt from tax. Under the Ordinance there seems to be some deviation from the Act as section 49 of the Ordinance provides, as follows: .

"49. Allowance to be treated as deductions from income.---Save as otherwise provided in this Ordinance, any allowance admissible or any sum exempt from tax under any provision contained in this Ordinance shall be included in the total income, but may be deducted from such income for the purposes of computing the tax payable by an assessee."

7. Under the Ordinance the deductions have been provided under sections 18, 20. 23 and 31 while other allowances and exemptions have been mentioned to Chapter-V, sections 39 to 48. In view of section 49 all admissible allowances or income exempted from income tax shall form part of the total income unless otherwise provided by the Ordinance.

8. The learned counsel for the petitioner has relied on section 4(7) of the WWF Ordinance to claim that the amount payable to the Fund is to be treated as an expenditure and contended that it should be excluded from the total income. Nothing has been shown in the Ordinance which provides for exemption of such amount from including in the total income of the assessee. So far the Act is concerned, reference could be made to section 10(2)(xvi) to claim exemption from income) tax. This plea may not be available to the assessment for the year 1978-79 because the WWF Ordinance has specifically provided for such deductions and therefore general provision of the Income Tax Act cannot be pressed for such reliefs. It was probably for this reason that the learned Judges of the High Court observed that no consequential amendment as provided by section 4(7) of the WWF Ordinance has been made in the Income-tax Act/Ordinance. Considering the provision of law in the light of the above discussion we are of the view that while computing total income income of the petitioner the amount paid towards W.W. Fund could not have been deducted. It could be deducted for purposes of computing the income tax. We,therefore refuse to grant leave and dismiss the petition with no order as to costs.

M.B.A./P-192/S Petition dismissed.