I.T.A NO.142/LB OF 1994, DECIDED ON 23RD OCTOBER,1994. VS I.T.A NO.142/LB OF 1994, DECIDED ON 23RD OCTOBER,1994.
1995 PTD (Trib.) 946
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mushtaq Accountant Member
I.T.A No.142/LB of 1994, decided on /01/.
rd
October,1994. Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cls. 93 & 94---Exemption---Assessee, a Charitable Institution---Categories of income exempt from income-tax under Cls. 93 & 94 of Second Sched., Income-tax Ordinance, 1979---Income derived by assessee from sale of car, by process of elimination, does not fall under any category of such exempt incomes.
The following categories have been exempted under clauses 93 and 94 of Second Schedule of the Income Tax Ordinance, 1979 from income-tax:--
(i) Income from house property held under legal obligations.
(ii) Income from investment in securities of the Federal Government.
(iii) Income from voluntary contributions.
By a process of elimination income derived by the assessee from sale of car does not fall under any of above categories, hence not exempt from tax under clause 93/94 of the Second Schedule.
1986 PTD (Trib.) 441 and 1994 PTD (Trib.) 1294 ref.
Rangarya Medical College v. I.T.O. 117 ITR 284 and 1986 PTD 441 (Trib.) distinguished.
Mrs. Sabiha Mujahid for Appellant.
Sh. Zulfiqar Ali, I.T.P. for Respondent.
Date of hearing: 23rd October, 1994.
ORDER
This appeal has been filed on behalf of the Income-tax Department challenging the order of the learned C.I.T.(A), Zone 2, Lahore vide A.O. No.1252, dated 1-12-1993. '
2. The brief facts leading to this appeal are that the respondent in this case Messrs Maternity and Child Welfare Association of Pakistan (hereinafter referred to as the assessee) has been indicated to be a charitable institution as per assessment order. The income of the assessee from various heads has been treated to be exempt by the I.T.O., however, he brought to tax an amount of Rs.67,900 This income was received by the assessee from the sale of vehicles. The assessee claimed that the entire income of the assessee was exempt under clause 93/94 of the Second Schedule to the Income Tax Ordinance, 1979. But the I.T.O. had taken the view that profit from sale of vehicles was not covered by the above clauses of the Second Schedule to the Income Tax Ordinance, 1979.
3. Aggrieved by this treatment the assessee went into appeal. The learned C.I.T.(A) on the strength of certain reported cases and provisions of clause 21(d) and (e) of the constitution of the assessee held profit from sale of vehicles to be exempt from the income-tax under clause 93/94 of the Second Schedule.
4. The relief allowed by the learned C.I.T.(A) as above has caused grievance to the Income Tax Department and as per grounds of appeal it has been contended that the learned C.I.T.(A) was not justified in treating the profit from sale of cars to be exempt from income-tax. The learned D.R. supported the order of the Assessing Officer and repeated the arguments as given by the Assessing Officer in his assessment order.
5. The learned A.R. of the assessee, Mr. Zulfiqar Ali Sh, on the other hand contended that the assessee was a charitable institution and its main source of income was donations from World Bank and other such organizations. The learned A.R. of the assessee .contended that assessee was not doing any business and the entire income of the assessee was applied towards charitable purposes. According to the learned A.R. of the assessee the sale of car was not a regular business of the assessee but instead profit on sale of car arose in the course of charitable activity conducted by the assessee. According to the learned A.R. of the assessee the entire income of the assessee association was exempt from the income-tax under clause 93/94 of Second Schedule of the Income Tax Ordinance' 1979. The learned A.R. of the assessee also relied on a case reported as 1986 PTD 441 (Trib.). The alternative contention of the learned A.R. of the assessee was that income earned by the assessee from sale of car was a casual income and not liable to tax as provided by clause 65 of Second Schedule.
6. We have carefully examined the facts of the case and arguments advanced from both the sides. It will be pertinent to reproduce the clauses 93 and 94 of the Second Schedule of the Income Tax Ordinance, 1979, these are as under:--
"93. Any income which is derived from investments in securities of the Federal Government and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto;
94. Any income of a religious or charitable institution derived from voluntary contribution, applicable solely to religious or charitable purposes of the institutions."
7. From a perusal of the clause 93 reproduced above it is evident that two categories of incomes have been exempted from income-tax under this clause i.e. income from house property and income derived by the assessee from investment in securities in Federal Government. It has been further provided that even the income from these two heads will be exempted if house property is held under any legal obligation and income from the above two heads of income is solely applied for charitable purpose.
8. Under clause 94 of the Second Schedule only income derived by the assessee from voluntary, contribution is exempt from income-tax if it is solely applied for religious and charitable purposes.
9. The learned C.I.T.(A) .has exempted the income of the assessee under clauses 93 and 94 of the Second Schedule with the; following observations:--
"Keeping in view all the above discussion, I tend to agree with the contention of the appellant's learned counsel that the case of the appellant company is covered under clauses 93 and 94 of the Second Schedule. As such the gain of Rs.67,900 shown by the appellant on sale of its vehicles during the year under appeal is declared not taxable under Income Tax Ordinance, 1979."
10. The learned C.I.T.(A) for arriving at the above decision relied on following reported cases:--
(a) Rangarya Medical College v. I.T.O.117 ITR 284.
(b) 1986 PTD 441(Trib.).
11. At this stage it will be proper to discuss the cases relied on by the learned C.I.T.(A.) as well as by the learned A.R. of the assessee. The first case relied on by the learned C.I.T.(A) is 117 ITR 284. In this case the question to be decided by the Court was whether a society could be said to be running for purposes of profit merely because certain surplus arose from the society's operations but obviously this issue is not existing in the case under consideration because the source of income in the present case is donation from the World Bank and there is no dispute about the fact that the assessee concern is a charitable institution.
12. The second case relied on by the learned C.I.T (A) is 1986 PTD 441 (Trib.) has also been relied on by the A.R. of the assessee. In this case the issue to be decided by the Members of the Tribunal was that whether Lahore Flying Club was a charitable institution or not. The said flying club was registered under section 26 of Companies Act, 1913. It was deriving its income from providing Air Crafts on loan, Spraying of pesticide and medicines, distribution of advertisement bills, providing aeronautical training for commercial flying and providing joy rides. The; question to be decided in this case was whether in view of these activities and fact that the membership of club was limited, the said club could be considered as charitable institution or not and income derived by the said club was exempt from tax or not. In this case exemption was claimed under section 4(3) of the Income-tax Act, 1922. This case again is not parallel to the case under discussion because provisions of section 4(3) of the Income-tax Act, 1922 and provisions of clause 93/94 of the Second Schedule of the Income Tax Ordinance, 1979 are not in pari materia. Secondly in the instant case there is no dispute regarding charitable character of the association
13. Looking from another angle let us see whether the income derived by the assessee is exempt froth tax or not under clause 93/94 of the Second Schedule. The following categories have been exempted from income-tax:--
(i) Income from house property held under legal obligations.
(ii) Income from investment in securities of the Federal Government.
(iii) Income from voluntary contributions.
Now we have to see whether the income earned by the assessee from sale of cars falls under any of the above categories or not. By a process of elimination we arrive at the conclusion that income derived by the assessee from sale of car does not fall under any of above categories, hence not exempt from tax under clause 93/94 of the Second Schedule. Here it will also be relevant to look for parallel cases. In this connection the most pertinent case has been decided by the Tribunal is 1994 PTD 1294 (Trib.). In this case the assessee was a charitable trust running schools. This trust was also deriving income from renting of the Neon Signs and dividend. It was held that the above income of the assessee from renting of Neon Signs was not exempt under clause 93/94 of the Second Schedule of the Income Tax Ordinance, 1979.
14. As regards the alternative contention of the learned A.R. of the assessee that income earned by the assessee from sale of cars is a casual income and is exempt under clause 65 of the Second Schedule of the Income Tax Ordinance, 1979 is concerned, this does not require any serious discussion because the learned A.R. of the assessee perhaps is not aware of the amendment made is clause 65 of the Second Schedule by the Finance Ordinance, 1990. After amendment in 1990, now the casual income is also liable to tax if income is ore than Rs.25,000. In case the casual income exceeds Rs.24,999 the entire income shall be taxable (C.B.R. Circular No.9 of 1990, dated 31-7-1990).
15. Because of these reasons we conclude that income derived by the assessee from sale of cars is not exempt from income-tax under clause 93/94 of Second Schedule of the Income Tax Ordinance, 1979. Accordingly we vacate the order of the learned C.I.T.(A.) and restore the order of the I.T.O.
M.BA./92/T???????????????????????????????????????????????????????????????????????????????????????? Appeal allowed.