I.T.AS. NOS.999/IB TO 1001/IB OF 1991-92 AND I.T.A. NOS. 804/IB AND 805/IB OF 1993-94, VS I.T.AS. NOS.999/IB TO 1001/IB OF 1991-92 AND I.T.A. NOS. 804/IB AND 805/IB OF 1993-94,
1996 P T D (Trib.) 407
[Income-tax Appellate Tribunal Pakistan]
Before Ch. Irshad Ahmad, Judicial Member and Junejo M. Iqbal, Accountant
Member.
I.T.As. Nos.999/IB to 1001/IB of 1991-92 and I.T.A. Nos. 804/IB and 805/IB of 1993-94, decided on 18/12/1995.
(a) Income Tax Ordinance (XXXI of 1979)--
----Fifth Sched., Part I, Rules & Ss.26, 24 & 23--Computation of profits and gains for the exploration and production of petroleum---Held, in view of the fact that S.26, Income Tax Ordinance, 1979 started with non obstante clause nothing from S.23 or S.24, Income Tax Ordinance, 1979 shall be read into Rules to Fifth Sched., Part I of the Income Tax Ordinance, 1979.
1993 PTD (Trib.) 290 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----Fifth Sched., Part 1, R.2(1) & S.24---Computation of profits and gains from exploration and production of gas and petroleum---Application of S.24, Income Tax Ordinance, 1979 in computation of profits and gains for ,business of production. of oil and natural gas is not in any manner inconsistent with or repugnant to anything provided for in Rules to Fifth Sched., Part I, Income Tax Ordinance, 1979.
There is no doubt that in-view of the language of section 26 of the Ordinance section 23 and 24 of the Ordinance by their own force do not apply in computing the income of the assessee from its business. And, primarily for computing the assessee's income from its business one has to look into the Rules. The question that, however, does arise is whether or not the provisions of the Rules oblige the authority to apply section 24(i) of the Ordinance while computing the assessee's profits and gains from its business. Rule 2 of the Rules provides that "subject to the provisions of this Part (Part I) of the Fifth Schedule) the profits and gains of any undertaking shall be computed in the manner applicable to income, profit and gains chargeable under the head "income from business or profession". Thus section 26 which at one moment debars the authority to apply section 23 or 24 in computing profits and gains of any undertaking engaged in the business of production of oil and natural gas at the other moment on the authority of sub-rule (1) of rule 2 of the Rules to Part 1, Fifth Schedule of the Income Tax Ordinance, 1979 permit the authority to apply the said sections while making the computation as aforesaid but not to the extent the Rules. provide otherwise. Authority has, therefore to see whether the Rules permit explicitly or implicitly not to read anything from section 23 or section 24 of the Ordinance while computing the income of an assessee engaged in the business of production of oil and natural gas. It is not like that, that only that much from sections 23 and 24 of the Ordinance shall be applied in computing profits and gains from the business of production of oil and natural gas as is, specifically provided but it is like that every thing in sections 23 and 24 shall be applied while making the computation except anything therein that shall be inconsistent with or repugnant to the provisions of the Rules. While examining the repugnancy of one provision against another established rule is that the repugnancy is to be avoided to the maximum extent and both the provisions are required to be harmonized so far as possible. Thus the question for consideration is: is there anything in the Rules which would make the application of section 23 or section 24 of the Ordinance repugnant to the provisions of the Rules. Section 23 has been referred to in the Rules only once, and that is in sub-rule (6) of rule 2 of the Rules. Similarly, the content of clause (xviii) of subsection (1) of section 23 of the Ordinance, has without reference to the number of above clause, been referred to in sub-rule (5) of Rule 2 of the Rules. Proceeding on the principle that in such situation the repugnancy is to be avoided one will read the provisions of sub-rules (5) and (6) of rule 2 of the Rules only so far as they effect the application of clause (xviii) of subsection (1) of section 23 and apply section 23 only so far as it is relevant to sections 35 and 38 of, and the Third Schedule to, the Ordinance. The provisions of section 24 which by sub-rule (1) of rule 2 of the Rules have been applied to compute the profits and gains from business of production of oil and natural gas are not in any manner inconsistent with or repugnant to anything provided for in the Rules.
(c) Interpretation of statutes---
---Repugnancy of one provision to the other in a statute ---Repugnancy to be avoided to the maximum extent and both the provisions are required to be harmonized so far as possible.
Shahid Hussain, F.C.A. for the Assessee.
Pervez Akhtar, D.R. for the I.T.O.
Date of hearing: 10th December, 1995.
ORDER
CH. IRSHAD AHMAD (JUDICIAL MEMBER).---This order disposes of I.T.O's appeals relating to the assessment years 1988-89, 1989-90 and 1990-91 and assessee's appeals relating to the assessment years 1991-92 and 1992-93. In all the appeals a single question is involved and the question is whether the assessee is also not permitted to deduct the sum referred to in clause (i) of section 24 of the Income Tax Ordinance in computing its income from business.
Section 23 of the Ordinance specifies the allowances and deductions which shall be made in computing the income under the head "income from business or profession". Section 24 of the Ordinance, however, provides that "nothing contained in section 23 shall be construed as to authorise the allowance and deduction of various sums specified in it. One of the sums which cannot be deducted is "any expenditure incurred by an assessee on the provision of perquisites, allowances or other benefits to any employee in excess of 50 per cent of his salary excluding perquisites, allowances and other benefits etc.." Section 24(i) section 26 of the Ordinance however, provides that notwithstanding anything contained in the Ordinance the profits and gains from the business of production of oil and natural gas and the tax payable thereon shall be computed in accordance with the rules contained in Part I of the Fifth Schedule to the Ordinance (the Rules).
The assessee, a private limited company, is engaged in the business of production of natural gas. The assessee's case is that since its profits and gains are computable in accordance with the Rules, therefore, the prohibition contained in section 24(i) ibid would not apply to it. The Department concedes that the profits and gains of the assessee are computable in accordance with the provision of the Rules but contends in view of the language of sub-rule (1) of rule 2 of the Rules the profits and gains of the assessee are computable in accordance with the provisions of sections 23 and 24 except to the extent that the application of any provision of any of the said sections has been specifically excluded and that the application of clause (i) of section 24 of the Ordinance has not been so excluded.
The assessing officers who finalized assessments for the above years under appeals have disallowed the assessee to deduct the expenditure incurred by the assessee on the provision of perquisites, allowances or other benefits to any of its employees in excess of 50 percent. of his salary excluding perquisites etc., as provided in clause (i) of section 24 of the Ordinance in computing its profits and gains from business.
On assessee's appeals, the Appeal Commissioner who decided the appeals against the assessment orders relating to the assessment years 1988-89, 1989-90 and 1990-91 has held that neither section 23 nor section 24 was applicable for computing the income of the assessee. The Appeal Commissioner who decided the appeals relating to assessment years 1991-92 and 1992-93 has, however, held that section 24(i) was applicable to the assessee's case and the assessee was not permitted to deduct any expenditure incurred to provide any perquisite or other benefit to any of its employees that was in excess of 50 percent. of the employee's salary.
In the above scenario the I.T.O. has objected to the order of the Appeal Commissioner relating to the assessment years 1988-89, 1989-90 and 1990-91 wherein it was held that the restriction contained in section 24(i) of the Ordinance was not applicable to the assessee and the assessee has objected to the order of the Appeal Commissioner relating to the assessment years 1991-92 and 1992-93 wherein it was held that the restriction contained in section 24(i) of the Ordinance were applicable to the assessee.
We have heard Mr. Pervez Akhtar, D.R. for the I.T.O. and Mr. Shahid Hussain, F.C.A. for the assessee.
Section 26 of the Income Tax Ordinance provides, in pertinent, that "notwithstanding anything contained in this Ordinance the profits and gains from the business of production of oil and natural gas and the tax payable thereon shall be computed in accordance with the Rules., In view of the fact that section 26 ibid starts with non obstante clause it is agreed that nothing from section 23 or section 24 of the Ordinance shall be read into the Rules. This is, an accepted proposition on both sides. The above proposition is also supported by this Tribunal's decision reported 1993 PTD (Trib.) 290. The point on which the I.T.O. and the assessee differ is: that according to the I.T.O. in view of the language of sub-rule (1) of rule 2 of the Rules the provision of section 24(i) of the Ordinance are applicable in computing the assessee's business income whereas according to the assessee the provisions of section 24(i) are not applicable because under sub-rule (5) of rule 2 of the Rules any expenditure without any limit laid out of expended wholly and exclusively for the purpose of business of production of oil and natural gas carried on by the assessee was allowable. According to the I.T.O. the provision of sub-rule (5) of rule 2 ibid only expands clause (xviii) of subsection (1) of section 23 of the Ordinance and it does not affect the applicability of section 24 including clause (i) thereof.
After hearing the representatives of the parties and going through the provisions of section 26 of the Ordinance read with the Rules in the light of the rules of construction of statutes, in our view section 24(i) would apply to assessee's case while computing its profits and gains from business. There is no doubt that in view of the language of section 26 of the Ordinance sections 23 and 24 of the Ordinance by their own force do not apply in computing the income of the assessee from its business. And, primarily for computing the assessee's income from its business to look into only the Rules. The question that, however, does arise is whether or not the provisions of the Rules oblige to apply section 24(i) of the Ordinance while computing the assessee's profits and gains from its business. Rule 2 of the Rules provides that "subject to the provisions of this Part (Part I of the Fifth Schedule) the profits and gains of any undertaking shall be computed in the manner applicable to income, profit and gains chargeable under the head "income from business or profession". Thus section 26 which at one moment debars us to apply section 23 or 24 in computing profits and gains of any undertaking engaged in the business of production of oil and natural gas at the other moment on the authority of sub?-rule (1) of rule 2 of the Rules permit us to apply the said sections while making the computation as aforesaid but not to the extent the Rules provide otherwise. We have, therefore, to see whether the Rules permit us explicitly or implicitly not to read anything from section 23 or section 24 of the Ordinance while computing the income of an assessee engaged in the business of production of oil and natural gas. It is not like that, that only that much from sections 23 and 24 of the Ordinance shall be applied in computing profits and gains from the business of production of oil and natural gas as is, specifically provided but it is like that every thing in sections 23 and 24 shall be applied while making the computation except anything therein that shall be inconsistent with or repugnant to the provisions of the Rules. While examining the, repugnancy of one provision against another established rule is that the repugnancy is to be avoided to the maximum extent and both the provisions are required to be harmonized so far as-possible. Thus the question for consideration is: is there anything in the Rules which would make the application of section 23 or section 24 of the Ordinance repugnant to the provisions of the Rules. Section 23 has been referred to in the Rules only once, and that is a sub-rule (6) of rule 2 of the Rules. Similarly, the content of clause (xviii) of subsection (1) of section 23 of the Ordinance, has without reference to the number of above clause, been referred to in sub-rule (5) of Rule 2 of the Rules. Proceeding on the principle that in such situations the repugnancy is to be avoided we will read the provisions of sub-rules (5) and (6) of rule 2 of the Rules only so far as they affect the application of clause (xviii) of subsection (1) of section 23 and apply section 23 only so far as it is relevant to sections 35 and 38 of, and the Third Schedule to the Ordinance. The provisions of section 24 which by sub-rule (1) of rule 2 of the Rules have been applied to compute the profits and gains from business of production of oil and natural gas are not in any manner inconsistent with or repugnant to anything provided for in the Rules.
For these reasons the I.T.O.'s appeals for the years 1988-89, 1989-9C and 1990-91 are accepted and that of the assessee for the years 1991-92 and 1992-93 are rejected.
M. B. A./166/T ?????????????????????????????????????????????????????????????????????????????????? ?????Order accordingly,