ITA NO. 1129/LB AND 1130/LB OF 1987-88, DECIDED ON 23RD JANUARY, 1995. VS ITA NO. 1129/LB AND 1130/LB OF 1987-88, DECIDED ON 23RD JANUARY, 1995., 1995 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 797 (1995)

(a) Income Tax Ordinance (XXXI of 1979)---

----S. 14(2) [as inserted by Income Tax (Third Amendment) Ordinance (LXII of 1994), S.16(2)(b)(iv) & Second Sched., Part IV ---C.B.R. Letter C.No.4(8)/IT-J/91, dated 30th June, 1991---Constitution of Pakistan (1973) Art.77---Income Tax Rules, 1982, R.18---Notional interest in respect of interest-free loan to employee--- Exemption--- Perquisite---Central Board of Revenue---Power to allow an exemption to a certain kind of assessee placed in a certain situation cannot be exercised by the Central Board of Revenue---Such power, however, could be exercised only by the Federal Government in the manner prescribed in S.14(2) of the Income Tax Ordinance, 1979-- Interpretation or explanation of departmental view by Central Board of Revenue cannot be enlarged to encroach upon legislative authority of the Parliament---To say that such and such benefit does constitute perquisite and, therefore, gives birth to notional income but the revenue not deciding to treat it as such is clearly ultra vires of the powers and functions of the Central Board of Revenue as by such declaration not only Board has transgressed the supremacy of Parliament but also arrogated an authority without there being any support from the law and was thus a denial of a notion created by the statute and a blatant refusal to presume something the law ordains to presume.

Article 77 of the Constitution of the Islamic Republic of Pakistan provides "No tax shall be levied for the purposes of Federation except by or under the authority of Act of Parliament". Accordingly, when the Parliament exercises its power an exception to such exercise or levy will also be regulated by or under the authority of the Parliament. Income Tax Ordinance, unlike most of other statutes, provides for a mechanism by which exemption to incomes or classes of incomes or person or classes of persons specified in the Second Schedule of the Ordinance can be given. According to subsection (2) of section 14. of the Ordinance, as it existed at the relevant time, the Federal Government could by Notification in the Official Gazette make such amendments in the Second Schedule to add, delete or change the existing clauses in the Schedule.

The object of the C.B.R. Letter No. 4(8) I.T.J./91, dated 30th June, 1991 is clearly to allow an exemption to a certain kind of assessee placed in a certain situation. This power could not be exercised by the C.B.R. It could have been exercised only by the Federal Government at the relevant time and that too, in the manner prescribed in subsection (2) of section 14 of the Income Tax Ordinance, 1979, omitted by Finance Act, 1994 and reinserted by Income Tax (Third Amendment) Ordinance, 1979 on 13-9-1994 with the addition of a proviso.

The C.B.R. at times, issues instructions or explanations in reply to clarifications sought from individual tax, payers, their authorized representatives, I.T.Ps. and Advocates, individually or through their representative associations. Its privilege to do so is not denied. The scope of such interpretation or explanation of departmental view cannot however be enlarged to encroach upon legislative authority of the Parliament. To say that such and such benefit does constitute perquisite and, therefore, gives birth to notional income but the Revenue has decided not to treat it as such is clearly ultra vires of the powers and functions of the Board. Not only it has transgressed the supremacy of Parliament but also arrogated an authority without there being any support from the law. It is not an interpretation of a statutory provision nor a construction of a legal principle. It is rather a denial of a notion created by the statute and a blatant refusal to presume something the law ordains to presume.

The phrase "although such benefit does constitute a perquisite in the hands of the employee yet it is not desirable to impute notional income in such cases" in the said letter is the ratiocination. It says that although such benefit does constitute a perquisite in the hands of the employee yet it is not "desirable" to impute notional income in such cases. Nothing can be more contemptuous to a "presumption" created by law. Translated into simple words it means that legal presumption of accrual of income in such cases notwithstanding, the will of C.B.R. being otherwise, the legal presumption may well be ignored. This kind of despotic benevolence can neither be favoured nor connived. All exemptions generally being intrinsically discriminative, extreme care needs to be employed while creating interpreting or enforcing them.

Presumptions created by law are binding upon all who are involved in the enforcement of law just like those who are directly intended to be bound by them. To borrow a phrase from English Law, these bind both the Crown and the subject, the State and the citizen. A presumption is a rule of law, statutory or judicial, by which finding of a basic fact gives rise to the existence of presumed fact, unless presumption is rebutted. A presumption where rebut able, is an assumption of fact that the, law requires to be made-from another fact or group of facts found or otherwise established in an action. Also a presumption juris et de jure or an irebuttable presumption is the one which the law will not suffer to be rebutted by any counter-evidence but establishes as conclusive; while a presumption juris tantum is one which holds good in absence of evidence to contrary but may be rebutted. Inclusion of "value of any benefit provided free of cost or at a concessional rate" in the definition of word "perquisite" as contained in subsection (2)(b)(iv) of section 16 of the Ordinance indicates that the law presumes accrual of a "perquisite" in the given circumstances to an employee for its inclusion in the definition of salary for tax purposes. Such presumption is rebuttable only to the extent that benefit provided free of cost or at a concessional rate has no "value". A similar concession could not have been obtained by the assessee-employee without the payment of some extra money called interest. To do away with that presumption of accrual of a value to the assessee after conceding that it did arise in such situation was clearly beyond the scope of the powers and functions of the C.B.R.

If there is a departure from the law involved in the provision for relaxation contained in the Circular, then that Circular is to the extentof the deviation invalid and ineffective and power thereunder is illegally exercised.

The letter by C.B.R. is not a case of mere interpretation. It is rather a declaration of redundancy of a provision in the Ordinance without there being an authority or following the procedure prescribed by law itself. In the guise of interpreting a provision in a fiscal statute, C.B.R. can neither lay down a new law nor can sustain anything opposed to letter and spirit of. the law.

C.B.R. has no power to issue a Circular which could override, modify or in effect amend a provision of the Act.

The C.B.R. itself is a creation of statute viz. Central Board of Revenue Act (IV of 1924). Its functions as such have clearly been defined in the Act read with the Income Tax Ordinance. It has power to make subordinate legislation in the form of rules and their change whenever required. These rules can be made within the prescribed limits but creation of exemption is not included in the rule-making power of the C.B.R. as available to it under section 165 of the Ordinance. This power vested in the Federal Government under section 14(2) of the Ordinance and for that purpose a definite mode was prescribed. Thus even Federal Government could not create an exemption in the way the C.B.R. did in this case through the letter. Where a statute provides a procedure, for doing a thing in a particular manner that thing should be done in that manner and in no other way or it should not be done at all. Again whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise.

Muhammad Ayyub and another v. Muhammad Yaqoob and another PLD 1975 Lah. 445; Province of East Pakistan v. Muhammad Hussain Mia PLD 1965 SC 1; L. Prasad and another v. Kishwar Lal Chaudhary AIR 1941 FC (sic); Commissioner of Sales Tax (West), Karachi v. M/s. Kruddsons Limited PLD 1974 SC 180; John Lenum v. Thomas Alexander Mitchel (1912) AC 400; Province of West Pakistan v. Din Muhammad and another PLD 1964 SC 21; Pakistan v. Sheikh Abdul Majid PLD 1961 SC 105; Government of Pakistan v. Dr. AA. Aziz PLD 1966 SC 188; Habibur Rehman v. Pakistan Public Safety Commission PLD 1973 SC 144; ITO, Central Circle II, Karachi v. Cement Agencies Ltd. PLD 1969 SC 322: Haji Muhammad Ibrahim and three others v. Surrayia-un-Nisa and 9 others PLD 1992 SC 637; CIT v. Shahnawaz Limited and others 1993 SCMR 73; Black's Law Dictionary, 5th Edn.; Central Insurance Company and others v. CBR and others 1993 PTD 766 =1993 SCMR 1232; CIT, East Pakistan, Dacca v. Noor Hussain PLD 1964 SC 657; 1986 PTD (Trib.) 828; 1994 PTD (Trib.) 1288; (1985) 152 ITR 130; 1986 PTD 793 (Trib.); 1991 PTD (Trib.) 1078; PLD 1994 Kar. 67 and PLD 1971 Lah. 217 ref.

(b) Letter by C.B.R---

----Scope of jurisdiction of C. B. R. to interpret statutes etc. detailed.

(c) Income-tax---

----"Perquisite"---Connotation.

(d) Presumption---

---- Presumption created by law---Binding nature.

(e) Income Tax Ordinance (XXXI of 1979)---

----S.16(2)(b)(iv)---"Perquisite"---Definition---Law presumes accrual of a perquisite in the given circumstances to an employee for its inclusion in the definition of salary for the purposes---Such presumption, however, is rebuttable only to the extent that benefit provided free of cost or at concessional rate has no "value".

(f) C.B.R. letter--

---- Letter C. No.4(8)-IT-J/91, dated 30t1h June, 1991 is ultra vires of the powers of the C.B.R. issuing the same.

Jamil Hussain and Sheikh Bashir Ahmad for Appellant.

Qaiser M. Yahya, D.R. for Respondent.

Date of hearing: 11th December, 1994.

ORDER

The assessee, an individual now deceased, returned incomes respectively at Rs.100,749 and Rs.87,777 for the two years, 1984-85 and 1985-86. In these years he was employed in an executive position with a company engaged in running an industrial concern. In the wealth statements accompanying returns, loan liability towards his employer was declared respectively at Rs.280,000 and Rs.217,800 in the years under review. On a reference by the assessing officer, the employer confirmed that out of the aforesaid total amount of Rs.280,000 a sum of Rs.250,000 was advanced to the assessee for purchase of land without any strings. On this the assessing officer opined that if the assessee had taken the said amount from a bank, he would have paid interest @ 14% per annum. Accordingly, the amount advanced was taken as a perquisite as defined in section 16(2)(b)(iv) of the Ordinance and the deemed interest @ 14% for 8 months in the year 1984-85 at Rs.23,336 and for the whole year in 1985-86 added towards already declared income from salary and brought to tax. Learned first appellate authority, AAC, Range-E, Lahore, confirmed the addition of deemed interest through his order, dated 28-9-1987. Two reasons were assigned. First that this kind of facility, enjoyment of use. of Rs.Z50,000 without paying anything thereon, was not being enjoyed by other public or private employees and that the facility could easily be translated into value in terms of bank interest rate. This has brought the assessee in further appeal before us.

2. Learned counsel for the assessee has changed the stance he put forth at the first appeal stage; that no benefit had arisen to the assessee and that the benefit accrued, if any, had no value. Instead, he now relies upon a CBR Letter C.No.4(8)-IT-J/91, dated 30th June, 1991, addressed by a Second Secretary to all the three Regional Commissioners. The subject of the letter reads "Notional interest in respect of interest-free loans to employees". First two paras are relevant and need to be reproduced in exact terms:

"I am directed to say that clarification has been sought from certain quarters whether the benefit accruing to an employee on account of provision of a loan either totally free of interest or at a concessional rate of interest, by the employer would constitute a taxable benefit in the hands of the employee in terms of Rule 18 of the Income Tax Rules, 1982.

2. The matter has been examined in the Board. Although such benefit does constitute a pequisite in the hands of the employee vet it is not desirable to impute notional income in such cases The officers should, therefore, be directed not to tax such notional income under rule 18 of the Income Tax Rules, 1982".

3. That the aforesaid letter favours the assessee in the nature of proposition before us is not denied by the Revenue. Its objections qua validity and retrospective application of the letter to the assessment years 1984-85 and 1985-86 have very ably been countered by the learned counsel for the assessee. It is argued that during the pendency of these appeals, all issues under contest remained intact and, therefore, every kind of administrative instructions, judicial pronouncements or legislative changes manifesting curative charge favorable to the assessee must be held applicable to these appeals. In support of these submissions reliance has been placed upon various reported decisions of the superior Courts.

4. In PLD 1975 Lah. 445 Re: Muhammad Ayyub and another v, Muhammad Yaqoob and another a Single Bench of the Lahore High Court found that on filing of an appeal entire matter becomes reopened and sub judice and has to be decided according to law prevailing at the time of appeal. Reliance in this regard was placed upon PLD 1965 SC 1 Re: Province of East Pakistan v. Muhammad Hussain Mia. Also AIR 1941 FC (sic) Re: L. Prasad and another v. Kishwar Lal Chaudhry was referred to hold it to be a well settled proposition that it was open to a Court to take into consideration the subsequent events including any amendment in legislation which may have occurred during the pendency of an appeal and to decide the matter in accordance with these events. His Lordship also made a spec mention of PLD 1974 SC 180 Re: Commissioner of Sales Tax (West), Karachi v. M/s. Krudd sons Limited wherein it was held that pendency of an appeal before Supreme Court destroyed finality of judgment of High Court. Accordingly, the curative legislation/statute passed during the pendency of appeal was taken into consideration and the matter decided in the light of the amended law. For this, the Supreme Court referred to the dictum laid down in Re: John Lenum v. Thomas Alexander Mitchel (1912) AC 400.

5. Learned counsel for the assessee has also placed reliance upon Province of West Pakistan v. Din Muhammad and another PLD 1964 SC 21, Pakistan v. Sheikh Abdul Majid, PLD 1961 SC 105, Government of Pakistan v. Dr. A.A. Aziz, PLD 1966 SC 188 and Habibur Rehman v. Pakistan Public Safety Commission PLD 1973 SC 144 in which administrative instructions were permitted to be construed as rules. All these cases were earlier mentioned with favour by the learned Single Bench in the aforesaid case Re: Muhammad Ayyub v. Muhammad Yaqoob (supra). The next case relied upon being PLD 1969 SC 322 Re: ITO, Central Circle-II, Karachi v. Cement Agencies Ltd. It has been cited to support the submission that a matter is finally disposed of only after its travel through the final forum as provided by law has completed. For the assessee it has also been asserted that the letter in question, even if not considered to be law, or fresh and curative legislation yet can be implemented with retrospective effect as it explains a provision of the Ordinance and expresses the department's view as well.

6. The submissions made for the assessee and the propositions of law formulated do find support from the case-law relied upon. Some recent cases decided by the Supreme Court also lend support to the contentions made in this regard. For example, in PLD 1992 SC 637 Re: Haji Muhammad Ibrahim and 3 others v. Surrayia-un-Nisa and 9 others the Supreme Court held the right of second appeal enacted and allowed during the pendency of litigation to be available to the parties to the pending proceedings. In 1993 SCMR 73: CIT v. Shahnawaz Limited and others remedial law was held could be given retrospective effect to that extent.

7. As said above, the learned counsel for the assessee has been successful in carrying us along as far the points formulated are concerned: However, the matter that has been overlooked by him completely is the competency of the CBR to issue the letter in question. Article 77 of the Constitution of the Islamic Republic of Pakistan provides "No tax shall be levied for the purposes of Federation except by or under the authority of Act of Parliament". Accordingly, when the Parliament exercises its power an exception to such exercise or levy will also be regulated by or under the authority of the Parliament. Income Tax Ordinance unlike most of other statutes, provides for a mechanism by which exemption to Incomes or classes of incomes or person or classes of persons specified in the Second Schedule of the Ordinance can be given. According to subsection (2) of section 14 of the Ordinance, as it existed at the relevant time, the Federal Government could by Notification in the official Gazette make such amendments in the Second Schedule to add, delete or change the existing clauses in the Schedule. In fact the Federal Government exercised these powers on a number of occasions and Part IV of Second Schedule contains list of at least 14 cases where different provisions of the Ordinance were held to be either not applicable or applicable with some modification.

The object of the letter under review is clearly to allow an exemption to a certain kind of assessee placed in a certain situation. This power, it goes without saying, could not be exercised by the C.B.R. It could have been exercised only by the Federal Government at the relevant time and that too in the manner prescribed in subsection (2) of section 14 of the Income Tax Ordinance, 1979, omitted by Finance Act, 1994 and reinserted by Income Tax (Third Amendment) Ordinance, 1994 on 13-9-1994 with the addition of a proviso.

8. The C.B.R. at times, issues instructions or explanations in reply to clarifications sought from individual tax payers, their authorised representatives, I.T.Ps and Advocates, individually or through their representative associations. Its privilege to do so is not denied. The scope of such interpretation or explanation of departmental view cannot however be enlarged to encroach upon legislative authority of the Parliament. To say that such and such benefit does constitute perquisite and, therefore, gives birth to notional income but the Revenue has decided not to treat it as such is clearly ultra vires of the powers and functions of the Board. Not only it has transgressed the supremacy of Parliament but also arrogated an authority without there being any support from the law. It is not an interpretation of a statutory provision nor a construction of a legal principle. It is rather a denial of a notion created by the statute and a blatant refusal to presume something the law ordains to presume. A number of assessees must have had the brunt of the notional income till the said letter was issued.

9. The phrase underlined in the said letter is the ratiocination. It says that although such benefit does constitute a perquisite in the hands of the employee yet it is not "desirable" to impute notional income in such cases. Nothing can be more contemptuous to a "presumption" created by law. Translated into simple words it means that legal presumption of accrual of income in such cases notwithstanding, the will of C.B.R. being otherwise, the legal presumption may well be ignored. This kind of despotic benevolence can neither be favoured nor connived. All exemptions generally being intrinsically discriminative, extreme care needs to be employed while creating interpreting or enforcing them.

10. Presumptions created by law are binding upon all who are involved in the enforcement of law just like those who are directly intended to be bound by them. To borrow a phase from English Law, these bind the Crown and the subject, the Stated and the citizen. A presumption according to the Black's Law Dictionary, 5th Edition is a rule of law, statutory or judicial, by which finding of a basic fact gives rise to the existence of presumed fact, unless presumption is rebutted. A presumption where rebuttable, according to the same treatise is an assumption of fact that the law requires to be made from another fact or group of facts found or otherwise established in an action. Also a presumption juriset de jure or an irrebuttable presumption is the one which the law will not suffer to be rebutted by any counter-evidence but establishes as conclusive; while a presumption juris tantum is one which holds good in absence of evidence to contrary but may be rebutted. Inclusion of "value of any benefit provided free of cost or at a concessional rate" in the definition of word "perquisite" as contained in subsection (2)(b)(iv) of section 16 of the Ordinance indicates that the law presumes accrual of a "perquisite" in the given circumstances to an employee for its inclusion in the definition of salary for tax purposes. Such presumption is rebuttable only to the extent that benefit provided free of cost or at a concessional rate has no "value". The assessee attempted to make out a case, as aforesaid, at the earlier stages to say that no monetary benefit or value had in fact arisen to him which could be brought to tax. However, this defence. was later dropped and rightly so because both of the authorities below agreed and we find no justification to disagree with them that a similar concession could not have been obtained by the assessee-employee without the payment of some extra money called interest. To do away with that presumption of accrual of a value to the assessee after conceding that it did arise in such situation was clearly beyond the scope of the powers and functions of the C.B.R.

11. The Supreme Court in Re: Central Insurance Company and others v. CBR and others 1993 PTD 766 = 1993 SCMR 1232 reproduced observations of Cornelius, CJ., made as to the status of the CBR's interpretation of provisions of fiscal statutes in Re: The CIT, East Pakistan, Dacca v. Noor Hussain PLD 1964 SC 657. He remarked "In my view, if there is a departure from the law involved in the provision for relaxation contained in the Circular, then that Circular is to the extent of the deviation invalid and ineffective and power thereunder is illegally exercised". His Lordship, it may be stated, had the following para. of CBR Circular No. 8 of 1957 before him for ruling upon:

"On a strict interpretation of law, a firm can be registered only from the date on which the partnership deed has been executed. Since this would create hardship, the Board is disposed to agree to the benefit of registration being allowed for the full previous year provided, of course, the other conditions laid down for the registration of the firms under section 26-A are fulfilled".

12. In 1986 PTD (Trib.) 828, this Tribunal favoured and upheld the meaning ascribed by CBR to fiscal statutes if these were not otherwise in conflict with the principles of interpretation of statutes. The observation of the Division Bench in this case "surely no one can better appreciate connotation of a word used in fiscal laws than CBR" is restricted only to mere interpretation and construction. The letter in question as aforesaid is not a case of mere interpretation. It is rather a declaration of redundancy of a provision in the Ordinance without there being an authority or following the procedure prescribed by law itself. In the guise of interpreting a provision in a fiscal statute, C.B.R. can neither lay down a new law nor can sustain anything opposed to letter, and spirit of the law. In 1994 PTD (Trib.) 1288 this Tribunal allowed a plea that C.B.R. had no power to issue a Circular which could override, modify or in effect amend a provision of the Act on account of its being a well-settled proposition. For this reason the cases relied upon by the learned counsel viz. (1985) 152 ITR 130; 1986 PTD 793 (Trib.) and 1991 PTD (Trib.) 1078 were not discussed at any length.

13. It has been suggested that when the prime tax collecting authority/agency decides not to make or enforce a levy against a particular assessee or class of assessees, this Tribunal need not strain on such concession. The idea is fallacious. The C.B.R. as stated above, itself is a creation of statute (Act IV of 1924). Its functions as such have clearly been defined in the Act read with the Income Tax Ordinance. It has power to make subordinate legislation in the form of rules and their change whenever required. These rules can be made within the prescribed limits but creation of exemption is not included in the rule-making power of the, C.B.R. as available to it under section 165 of the Ordinance. This power is vested in the Federal Government under section 14(2) of the Ordinance and for that purpose a definite mode was prescribed as discussed in para. 7 ante. Thus even Federal Government could not create an exemption in the way of C.B.R. did in this case through the aforesaid letter. "Where a statute provides a procedure for doing a thing in a particular manner that thing should be done in that manner and in no other way or it should not be done at all" was reiterated in PLD 1994 Karachi 67 Re: Syed Ali Azhar Naqvi v. G.O.P. through Sec. Finance etc. Again, " whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise", was held by their Lordships of the Lahore High Court in PLD 1971 Lah. 217 Re: Chairman, Evacuee Trust Property, W.P., Lahore v. Muhammad Din and another.

14. Accordingly, 'we will hold the aforesaid letter C. No. 4(8) IT-J/91, dated 30-6-1991 to be of no avail to the assessee on account of its being ultra vires of the powers of the authority issuing it.

15. Both of these appeals shall, therefore, be dismissed.

M.BA./87/T.T Appeals dismissed,