Income Tax Ordinance (XXXXIX 1979)

----First Schedule, Part V, paras A & D---Public company included a banking company---Held, for the purpose of Para D of Part V of the First Schedule of Income Tax Ordinance, 1979 a banking company can be a public company mentioned in cl. (a); foreign association specified in clause (b) and any other company falling in cl.(c).

On reading the provisions of First Schedule, Part V, Paras A and D, Income Tax Ordinance, 1979, it is evident that a special rate of tax for a banking company has been provided in para A only. The fact that public company includes a banking company is clear from Para A(1)(b) which mentions "the case of public company other than a banking company". If banking company was a distinct specie Para A(1)(b) would have been suffixed with the heading "in the case of a public company". Again the legislature could have used the same format in Para D as in the Para A if a higher rate of tax was contemplated for dividend income of a banking company irrespective of its being a public or private company. Banking company as a class is mentioned in Para A but is conspicuously absent in Para D. For the purpose of Para D of Part V of the First Schedule a Banking Company can be;

(a) public company mentioned in clause (a);

(b) foreign association specified in clause (b); and

(c) any other company falling in clause (c).

The assessee being undisputedly a public company its dividend income was liable to be taxed under Para D(a) of Part V of the First Schedule. The Assessing Officer and the C.I.T. (Appeals) had erred in holding that Para D(c) of Part V of the First Schedule was applicable in the case. The assessment on this score was unsustainable. The assessing officer would recompute assessee's tax liability in accordance with law.

Ahmed Shuja Khan for Appellant.

Javid-ur-Rehman, D.R. and Muhammad Anwar Goraya, Deputy Commissioner for Respondent.

Date of hearing: 4th January, 1994.

ORDER

IFTIKHAR AHMAD BAJWA (ACCOUNTANT MEMBER).--The only grievance in this appeal is regarding the rate of income tax on inter corporate dividend. According to the Appellant, its dividend income for assessment year 1992-93 was assessable @ 5% under Para D(a) of Part V of the First Schedule whereas the assessing officer charged tax @ 20% under para. D(c) of Part V of the First Schedule.

Appellant is a `company', being a body corporate formed by Act XII of 1989 of the Government of Punjab. Its business and functions place it fairly and squarely in the category of a `banking company' as defined in section 2(10) of the Income Tax Ordinance. At the same time it is a `public company' as defined in Para B(2) of Part IV of the First Schedule as its shares were quoted on the stock exchange during the income year and it remained listed on the stock exchange till the close of the income year relevant to assessment year 1992-93.

For the purpose of appreciating the stances of the assessing officer and the assessee, Para D of Part V of the First Schedule, which prescribes the rates of tax for inter-corporate dividends, is reproduced below:

"D. The rates of income tax in respect of the amount representing income from dividends declared or distributed by a Pakistani company or a modaraba shall be as under:

According to the assessing officer appellant was a banking company and, therefore, it did not fall in Para D(a) governing public companies nor is Para. D(b) meant for foreign associations and thus the rate of tax laid down in Para. D(c) "for other cases" was applicable to its income representing dividends. The CIT (Appeals) also upheld this view.

Mr. Muhammad Anwar Goraya, D.C. Income Tax, who appeared before us on behalf of the Department, put up stout defence of the assessment and the order of the first appellate authority. He cited extensively from the Banking Companies Ordinance, State Bank Regulations and Income Tax Ordinance to show that Appellant's status was that of a `banking company'. The distinct character of banking business was highlighted by him quite eloquently. He quoted para A(1) of Part V of the First Schedule of the Income Tax Ordinance to show that different tax treatment had been envisaged for banking companies under the Income Tax Law and contended that both para. A and Para D had provided a higher rate of tax for a banking company. It was urged by him that banking company was a distinct status and since it had not been mentioned in clauses (a) and (b) of Para D, it fell in residual clause (c) which covered other cases'. Thus it was claimed that tax rate of 20% applied by the assessing officer had rightly been upheld by the CIT (Appeals).

Mr. Ahmed Shuja Khan, appearing on behalf of the Appellant vehemently disputed the findings of the tax authorities. It was, argued by him that for purposes of tax assessment, companies were generally divided is public and private companies which were subjected to different rates of tax for obvious reasons. Wherever different treatment was envisaged for a specialised business such as insurance, mining, oil exploration, banking etc. it was specifically provided in the Ordinance. In this respect the A.R. also referred to Para A(1) of Part V of the First Schedule which lays down rates of Income Tax for companies. In the said Para, separate rates for `banking companies', public companies other than banking companies' and `other cases' have been provided. It was contended by the A.R. that banking companies were placed in the highest braket of rate of tax in view of their profitability but the high rate of tax was restricted to banking activities. It was pointed out by him that income representing dividends, bonus shares and income taxable under section 80C and 80CC had been deliberately excluded from Para A of Part V otherwise it would have discouraged corporate investment by commercial banks. According to the A.R. exclusion of dividend income from Part A was a deliberate fiscal measure to place banking companies pari passu with other companies so that commercial banks are not discouraged from making corporate investments. It was urged by the A.R. that appellant was unquestionably a public company as defined in Para B(2) of Part IV of the First Schedule and since it fell in clause (a) of Para D of the First Schedule, the residual clause (c) was not ,applicable to the Appellant.

A plain reading of paras A and D of Part V of the First Schedule shows that appellant's arguments are quite valid. Para D has been quoted in earlier part of this order while Para A reads as under:--

"A. Notwithstanding anything contained in this Schedule, except Part IV, in the case of a company, not being a modaraba, the rates of income tax on total income excluding such part of total income to which paragraphs D and E or sections 80C and 80CC apply, shall be as under:--

(1) in respect of the assessment year commencing on the first day of July, 1992--

On reading both the provisions, it is evident that a special rate of tax for a banking company has been provided in para A only. The fact that public company includes a banking company is clear from para A(1)(b) which mentions `the case of public company other than a banking company'. If banking company was a distinct specie as urged by the assessing officer, para A(1)(b) would have suffixed with the heading `in the case of a public company'. Again the legislature could have used the same format in Para D as in the para. A if a higher rate of tax was contemplated for dividend income of a banking company irrespective of its being a public or private company. Banking Company as a class is mentioned in Para A but is conspicuously absent in para. D. For the purpose of Para D of Part V of the First Schedule a banking company can be:

(a) public company mentioned in clause (a),

(b) foreign association specified in clause (b), and

(c) any other company falling in clause (c).

The appellant was undisputedly a public company and its dividend income was liable to be taxed under Para D(a) of Part V of the First Schedule. The Assessing Officer and the CIT (Appeals) erred in holding that para D(c) of Part V of the First Schedule was applicable in this case. The assessment on this score is unsustainable. The assessing officer would recompute appellant's tax liability in accordance with the law explained above.

The appeal succeeds accordingly.

M.B.A./19/T.T. Order accordingly.