Income Tax Ordinance (XXXI of 1979)---

----S. 164---Working out average rate of tax- for tic purpose of double income-tax relief---Assessing Officer while working out the rate of tax for the purpose of relief under S.164 of the Ordinance excluded the amount a surcharge from the amount of tax---Validity---Held, for working out average rate of tax for the purpose of S.164 of the Income Tax Ordinance, 1979 the income-tax, super tax and surcharge are to be included in the amount of tax because a total of all these three would reflect the amount of tax on the total income of assessee.

Khaliqur Rehman, F.C.A. for Appellant.

Misri Ladhani, D.R. for Respondent.

Date of hearing: 9th May, 1998.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---The above appeals at the instance of assessee are directed against the order, dated -1-12-1997 by the learned C.I.T.(A-1), Karachi in I.T.As. Nos.34, 35, 36 and 37 of 1997, relating to the assessment years 1988-89, 1989-90, 1990-91 and 1992-93.

2. The only objection pressed by the learned counsel for the appellant Mr. Khaliqur Rehman is to the working of average rate of tax for the purpose of double income-tax relief allowable under section 164 of the Income Tax Ordinance, 1979.

3. Heard Mr. Khaliqur Rehman, learned counsel for the appellant and Mr. Misri Ladhani, learned representative for the department. Mr. Khaliqur Rehman has submitted that the assessing officer while working out the average rate of tax of Pakistan has excluded the amount of surcharge from the amount of tax, which is not justified. He has submitted that the expression "average rate of tax" has been defined in clause (9) of section 2 of the Income Tax Ordinance, 1979 to mean, "the rate arrived at by dividing the amount of tax calculated on the total income by such income He has further submitted that the term "tax" has been defined in clause (43) of section 2 of the Income-tax Ordinance to mean income-tax, super tax, surcharge and additional tax chargeable or payable under the Ordinance and includes any penalty, fee or other charge or any sum or amount leviable or payback under the Ordinance. He has, thus, submitted that while working out average rate of tax for the purpose of section 164 of the Income Tax Ordinance clauses (9) and (43) of section 2 of the Income Tax Ordinance are to be read together. He has further submitted that the assessing officer himself while calculating the amount of tax on the total income has included income-tax, super tax, the tax on dividend income and has thereafter, deducted the rebates/credits and on the balance of tax so worked out has added surcharge. The resultant amount has been determined as the total tax payable on the total income of the appellant. However, while working average rate of tax he has excluded the surcharge from the tax liability for the year. He has further pointed out that the learned C.I.T. (A) while considering the issue has made reference to the definition of term "average rate of tax" in clause (9) of section 2 of the Income Tax Ordinance and has observed that the definition is very clear and unambiguous. He has further observed that, "it refers neither to the heads or source of income nor to the rates of tax applicable to them. The only correct method of working out the average rate of tax is, therefore, to work out the total income and the total amount of tax determined on such income and divide the latter by the former". Mr. Khaliqur Rehman has submitted that after making the above observation the learned C.I.T. (A) has fallen in error by holding that "this has rightly been done by the D.C.I.T. and the average rate of tax worked out by him, being in accordance with the law, are confirmed". He has submitted that while confirming the working of average rate of tax by the assessing officer the learned C.I.T.(A) failed to notice that the assessing officer has excluded surcharge from the total amount of tax determined on total income.

4. The learned D.R has supported the two officers below but he is not able to rebut the contentions raised by the learned counsel for the appellant.

5. We have carefully considered the contentions raised by the learned representatives for the parties, findings of the learned two officers below and the relevant law. We are persuaded to agree with the submissions made by Mr. Khaliqur Rehman, learned counsel for the appellant. We are of the considered opinion that for the purpose of working out average rate of tax for the purpose of section 164 of the Income-tax Ordinance, the income-tax, super tax and surcharge are to be included in the amount of tax because a total of all these three, reflect the amount of tax on the total income, of assessee. We are further fortified in our views with the comparison of relevant provisions in the repealed Income-tax Act, 1922 and the Income Tax Ordinance, 1979. Section 49-D of the Repealed Act contained provisions analogous to the provisions contained in section 164 of the Income Tax Ordinance, 1979. For the sake of comparison section 49-D of the repealed Income-tax Act, 1922 and section 164 of the Income Tax Ordinance, 1979 are reproduced below-

"49-D. ---(I) If any person, who is resident in Pakistan in any year, proves that, in respect of any income which has accrued or arisen to him during that year without Pakistan and which is not deemed to have accrued or arisen in Pakistan, he has paid in any country with which there is no reciprocal arrangement for relief or the avoidance of double taxation, income-tax, by deduction or otherwise, under the Jaw in force, in that country, he shall be entitled to the deduction from the Pakistan Income-tax payable by him of a sum equal to the tax calculated on such doubly taxed income at the Pakistan rate of tax or the rate of tax of the said country whichever is the lower:

Provided that for the purposes of section 49-C the amount of double taxation relief allowed against income-tax (but not super tax) shall be the amount (in any) by which the said deduction exceeds a sum equal to the tax calculated on such doubly taxed income at a rate of tax determined in accordance with Explanation (ii), but as if for the reference to income-tax therein there were substituted a reference to super-tax.

Provided further that where such person has paid tax in more countries than one, he shall be entitled to the deduction of the aggregate foreign tax or the Pakistan Income-tax leviable in respect of the aggregate doubly taxed income, whichever is the lower.

Explanation.---(i) the expression 'Pakistan Income-tax' means income-tax and super-tax charged in accordance with the provisions of this Act;

(ii) the expression 'Pakistan rate of tax' means the rate determined by dividing the amount of Pakistan Income-tax after deduction of any relief under the other provisions of this Act, but before the deduction of any relief due tinder this section or by virtue of an agreement having effect under section -l9-AA, by the total income computed in accordance with paragraph (5) of Rule 6 of the Third Schedule.

(iii) the expression rate of tax of the said country' means income tax and super- tax actually paid in the said country in accordance with the corresponding laws of the said country after deduction of all reliefs due, but before deduction of any relief due in the said country in respect of double taxation, divided by the whole amount of income assessed in the said country; and

(iv) income-tax in relation to any country includes any excess profits tar or business profits tax charged on the profits by the Government of that country and not by the Government of any part of that country or a local authority in that country."

Section 164 of the Income Tax Ordinance, 1979:

Unilateral relief.---If any person who is resident in Pakistan in any year proves to the satisfaction of the Deputy Commissioner that in respect of any income which has accrued or arisen to him during that year outside Pakistan, he has paid income tar. by deduction or otherwise, in any country (including a country with which there is an agreement under section 163 for the avoidance of double taxation, the Deputy Commissioner .may, subject to such rules as may be made in this behalf, deduct from the tax payable by him under this Ordinance a sum equal to the tax calculated on such doubly taxed income at the average rate of tax of Pakistan or the average rate of tax of the said country, whichever is the lower.

6. A comparative perusal of the above sections shows that in the Repealed Income-tax Act, 1922 it was provided that assessee shall be entitled to the deduction from the Pakistan Income-tax payable by him of the sum equal to the tax calculated on such doubly taxed income at the Pakistan rate of tax or the rate of tax of the said country whichever is lower. The expression 'Pakistan Income-tax' was defined in the explanation, to mean, income-tax and super-tax charged in accordance with the provisions of said Act. The expression 'Pakistan rate of tax' was defined to mean the rate determined by dividing the amount of Pakistan Income-tax after deduction of any relief under the other provisions of the said Act by the total income.

7. On the other hand, it is provided in section l64 of the Income Tax Ordinance, 1979 that the Deputy Commissioner of Income-tax may deduct from the tax payable by him under the Ordinance a sum equal to the tax calculated on such doubly taxed income at the average rate of tax of Pakistan or the average rate of the said country whichever is lower. The definition of the average rate of tax of Pakistan contained in clause (9) of section 2 and the definition of tax contained in clause (43) of section 2 of the Income Tax Ordinance have already been reproduced above and need not be repeated. The' point which we want to highlight by comparison of the two provisions is that in the repealed Income-tax Act the expression used was "Pakistan Income-tax payable" and the expression "Pakistan Income-tax" was defined to mean income-tax and super tax only and again while defining Pakistan rate of tax the expression "Pakistan Income-tax" was used, while in the Income Tax Ordinance, 1979 the term "tax payable" has been used in section 164 as well as section 2(9) and not the income-tax and in the term "tax", surcharge is also included alongwith income-tax and super-tax. We further get support to our view from the perusal of Chapter III of the Income Tax Ordinance, 1979 which deals with "charge of tax". Section 9 contained in this Chapter deals with the charge of income-tax, while section 10 contains provision for charge of additional, duty of income-tax referred to as super tax and surcharge. Thus, the provisions relating to charge of income-tax, super tax and surcharge have been dealt with under the common heading of "charge of tax" and all the three charges are to be levied and paid 9n the total income for the year. Thus, we have no scintilla of doubt in our mind that for the purpose of working out the average rate of tax under the Income Tax Ordinance, 1979 for the purpose of section 164, while granting double income-tax relief, the surcharge is also to be included in the amount of tax.

8. For the foregoing reasons the findings to the contrary by the learned two officers below are hereby vacated and the assessing officer is directed to recalculate the average rate of tax in accordance with the definition given in clause (9) of section 2 of the Income Tax Ordinance, 1979 as interpreted and discussed above. To be more precise, by including the amount of surcharge in the amount of tax-payable on the total income.

9The appeals ale allowed as above.

M.B.A./542/Trib. Appeals allowed.