W.T.AS. NOS.314/IB TO 316/113 OF 1996-97, DECIDED ON 23RD NOVEMBER, 1998. VS W.T.AS. NOS.314/IB TO 316/113 OF 1996-97, DECIDED ON 23RD NOVEMBER, 1998.
1999 P T D (Trib.) 1444
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman, Mansoor Ahmad Accountant Member and Syed Masood-ul-Hassan Shah, Judicial Member
W.T.As. Nos.314/IB to 316/113 of 1996-97, decided on 23/11/1998.
(a) Interpretation of statutes---
---- Statutory provision---Construction---Two modes of construction---Present trend---Literal approach---Purposive approach---" Purposive approach" has replaced "literal approach".
(b) Interpretation of statutes-
---- Leading provision---In order to determine as to which provision of enactment must give way to the other, it should be determined which one is the leading provision.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 19(3), Explanation ---C.B.R. Circular No. IT-13(24)80-PT, dated 8-7-1985---Rental income from self-hired house ---Assessee an employee declared rental income from self-hired house and claimed exemption-- Assessing Officer added the rental income in total income---First Appellate Authority deleted the addition in view of provision of S.19(3) of the Income Tax Ordinance, 1979---Validity---Income-tax Appellate Tribunal restored the order of the Assessing Officer on the point of taxing of the rent received by the assessee as income from house property under S.19 of the Income Tax Ordinance, 1979, with the remarks that "Explanation" added by the Finance Act, 1996 contained leading provision and, therefore, the Authorities were bound to give effect to the legislative intent---Consequences flowing from insertion of "Explanation" to S.19 of the Income Tax Ordinance, 1979 were approved by Income-tax Appellate Tribunal.---[ 1989 PTD (Trib.) 917 overruled].
1997 PTD (Trib.) 318; Manj Khan v. The Controlling Authority PLD 1968 Lah. 202; Muhammad Shafi v. Deputy Superintendent of Police PLD 1992 Lah. 178; Inspector of Taxes v. Hart 1993 SCMR 1019; In re: Marr and another (Bankrupts) (1990) 2 All ER 880 = (1990) 2 WLR 1246; Maxwell on Interpretation of Statutes, 1969, 12th Edn., p.187; Wood v. Riley (1867) LR 3 CP 26; Patent Agents v. Lockwood (1894) AC 347; Ownes Bank Ltd. v. Gerard Cauche (1989) 1WLR 559; Rabnawaz v. Jahana PLD 1974 SC 210; Merwan K. Irani v. The Commissioner of Income-tax 1968 PTD 429; Kishan Singh v. Brain Singh AIR 1939 Lah. 587; Naeemuddin v. Lokeswar Goghi 1972 ALR 8; Subhash Gampatrao Bury v. Maroti Krishanji Doctikar 1975 Mah. LJ 244; Balji Singh v. Chakka Gangamma AIR 1927 Mad. 85; Krishna Ayyanger v. Nallah Peromal Pillai ILR 43 Mad. 550; Burmah Shell Oil etc. Ltd. v. Commercial Tax Officer AIR 1961 SC 315; Collector of Customs v. G. Dass & Company AIR 1966 SC 1577; Dattatarya Govind Mahajan v. State of Maharashtra AIR 1977 SC 915 and Harilal Ratanlal v. State of U.P. (1973) I SCC 216 ref.
1989 PTD (Trib.) 917 overruled.
(d) Income Tax Ordinance (XXXI of 1979)---
---S.19---Income from house property ---Assessee an employee---Rent received by assessee as owner of house under Self-hiring Scheme-- Assessment of rental income after minus/taking the house rent allowance admissible to assessee under terms and conditions of assessee's employment- Validity---Held, tax on rental income after taking the house rent allowance, could not be acted upon without doing violence to the provision contained in Ss. 19 & 20 of the Income Tax Ordinance, 1979 and therefore was not in consonance with the provision of law.---[1997 PTD (Trib.) 318 overruled].
Marvan K. Irani v. C.I.T. 1968 PTD 429 distinguished.
Muhammad Riaz, D.R. for Appellant.
Respondent in person.
Date of hearing: 13th October, 1998.
ORDER
MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).---All the above appeals have been preferred at the instance of Department. The appeals initially came for hearing before a Division Bench of this Tribunal at Islamabad.
2. After hearing of appeal and perusal of record the learned Judicial Member, Syed Masood-ul-Hassan Shah and the learned Accountant Member, Mr. Mansoor Ahmad, recommended hearing of appeal by larger Bench for the following reasons:---
"The main question involved in the appeals is regarding the taxability of income received by a Government employee in respect of self-hired accommodation and the concept of real income. We have heard the respective sides. We have been referred a case decided by this Tribunal as reported in 1997 PTD (Trib.) 318. Keeping in view the decision on this Tribunal referred to above and the issues involved in the appeals in hand, we are of the view that the question regarding concept of real income vis-a-vis taxability of income received from self-hired accommodation in the context of main provisions of section 19(3) of the Income Tax Ordinance, 1979 and the effect of Explanation under subsection (3) of the said section inserted subsequently by way of en amendment through the Finance Act, 1996 having an overriding effect to the main provision, require determination to have an authoritative pronouncement by a larger Bench."
3. This larger Bench has, therefore, been constituted to re-consider the issue decided by the Division Bench of this Tribunal in the judgment reported as 1997 PTD (Trib.) 318 and to consider if the Explanation added to section 19, subsection (3) of the Income Tax Ordinance, 1979 can enhance the liability of an assessee by taking away a category of property out of scope of subsection (3) of section 19 of the Income Tax Ordinance, 1979.
4. Briefly stated the relevant facts are that the respondent a C.D.A. employee did not file the return of total income. On the basis of survey report notices were issued and the respondent filed return of total income declaring property income in the assessment year 1992-93 at Rs.5,400 in the assessment years 1993-94 and 1994-95 at Rs.20,078 each. On further examination of salary certificate the assessing officer discovered that the respondent was not drawing house rent and house rent charges at 5 % were being recovered from the salary. The assessing officer, therefore, inferred that the respondent was enjoying rental income from self-hiring. The Circle Inspector was, therefore, deputed to collect the information from C.D.A. on the point of, respondent was enjoying rental income from self-hired house. It was reported that the respondent got his self-owned house hired from 180. An agreement was executed according to which C.D.A. agreed to pay monthly rent of Rs.2,250 w.e.f. 1-1-1991 to 31-12-1993 and from 1-1-1994 to 31-12-196 at Rs.2,825. The respondent was, therefore, confronted on the point as to why the rental income has not been declared. The respondent claimed exemption in respect of property income derived from self-hired house. The assessing officer did not accept the contention by placing reliance on C.B.R.'s Circular No.IT-13(24)80-pt, dated 8-7-1985. The assessing officer ultimately held that the income of the person living in such house would be computed (a) from rent under section 19 of the Income Tax Ordinance, 1979 and (b) on account of the value of perquisite of having a rent free accommodation provided. The assessing officer, therefore, added the rent which the respondent was receiving per month from self-hiring and further added 10% to the salary income on account of free unfurnished accommodation. The treatment was given in all the three assessment years under appeals.
5. The respondent preferred first appeal assailing the additions. It was contended by the respondent that the house in question consisted of two parts. The ground floor was self-occupied/self-hired and the first floor was rented out. The appellant had declared the property income from the first floor only, because the self-hired portion was exempt under subsections (2) and (3) of section 19 of the Income Tax Ordinance, 1979. The addition of 10% of the salary on account of free, unfurnished accommodation was also assailed. The learned A.A.C. held that in view of provision of section 19, subsections (2) and (3) as well as decision of Tribunal vide I.T.A. No.2234/KB of 1986-87, he was of the opinion that the assessing officer unjustly taxed the assessee's rental income from self-occupied portion. The learned A.A.C. further held that the addition on account of unfurnished accommodation was not maintainable in view of earlier decisions on the subject. He, therefore, directed to delete the rental income derived from self hired house and 10 % addition on account of free unfurnished accommodation. Being aggrieved with the direction for deleting the income received by the respondent on account of hiring of his own property, the department has preferred these second appeals before us. The Department has not objected to the deletion of addition made at 10 % of salary on account of free-unfurnished accommodation. The reason for not raising objection to the deletion of addition at 10% of the salary obviously is that the respondent was paying rent charges at 5 % of the salary and was not provided free accommodation.
6. We have heard Mr. Muhammad Riaz, learned representative for the Department and Mr. Salik Hussain, respondent in person. In order to properly appreciate the issues under consideration by this Full Bench it would be appropriate to narrate the facts in historical perspective. Section 19, subsection (3) of the Income Tax Ordinance, 1979 reads as follows:---
"Section 19(3).---Nothing contained in this section shall apply in the case of any such property which is in the occupation of the owner for purposes of his own residence."
7. A question was referred for consideration of the C.B.R., if a self occupied house under self-requisition would fall within the preview of subsection (3) of section 19 and the A.L.V. of such house shall not be subjected to tax in the hands of owners under section 19 (3) of the Income Tax Ordinance, 1979. The C.B.R. in its Circular Letter No.IT-13(24)/80-pt, dated July 8, 1985 opined that in a situation where an employer hires house from a person who owns it and then in accordance to his employment, provides the same house to him to be used as his residence. It shall not be treated a self-occupied house, because the owner is occupying the house as employee and not as the owner. The question then came for consideration before of Full Bench of this Tribunal in I.T.A. No.2234/KB of 1986-87. The appeal was heard on 2-1-1989. The judgment in this case is reported as 1989 PTD (Trib.) 917. In the cited case the facts and circumstances are similar as in the appeal before us. The Assessing Officer subjected to tax the rent received on self-hiring of the house. The learned A.A.C. deleted the rental income. The department preferred appeal before the Tribunal. It was contended on behalf of the department that the exemption yeas wrongly claimed under section 19(3) of the Income Tax Ordinance, 1979 as it was available to owner of the house property which is self-occupied and is not applicable to such property which has been leased out on rent as in the case of assessee who leased out his house to the National Bank of Pakistan, and the bank in return authorised the respondent to occupy the premises as permitted under the Service Rules of the Bank. It was submitted on behalf of the department that in these circumstances it cannot be held that the house was in self-occupation, and therefore, exemption was not available under section 19(3) of the Income Tax Ordinance, 1979. The learned members of the Full Bench formulated a question, "whether the property in occupation of the owner for which the rent is received from the employer or owner can be treated to be property let out in terms of section 19 of the Ordinance." The learned Accountant Member held that the house cannot be treated as self occupied for the simple reason that the owner is occupying the house as an employee and not as owner. The learned Judicial Member did not agree with the finding of the learned Accountant Member. He observed as follows:---
"There is no dispute that the respondent continued to be the owner of the property and only his right to occupy it as owner for his own residence had been taken away from him during the subsistence of the lease agreement. Subsection (3) of section 19 of the Ordinance exempts annual letting value of a property from charge to tax -if it is occupied by the owner for the purpose of his own residence. A perusal of subsection (3) of section 19 of the Ordinance reveals that the only requirement for exemption of the Annual Letting Value of a property is that it should be occupied by the owner for his own residence. It does not contemplate that the occupation of the owner should be in his capacity as owner of the property. In imposing the condition that the exemption of the Annual Letting Value of a property from charge to tax will be available only if the property is occupied by the owner for his own residence in his capacity as owner will amount to giving a different meaning than what the Legislature has intended to give. In interpreting the provisions of a statute the Courts are required to construe the same according to the plain language used by the Legislature, where the language used is clear and unambiguous and not capable of any other construction irrespective of the absurdity of the result. According to the established principle of interpretation of statute laid down by the Superior Courts in the cases decided by them, the guiding principles are that meaning of a section or a provision of a statute should be ascertained from the plain language used in the statute without reading anything which is not there and implying that the Legislature intended something which the words used do not spell or make out -- ..After taking into consideration the law laid down above by the Supreme Court in interpreting taxing and fiscal statutes, the only interpretation which can be had of subsection (3) of section 19 of the Ordinance is that the Annual Letting Value or the annual rent received by an owner of a house property will be exempt from charge of tax provided that the property is occupied by the owner for his residence. It is absolutely immaterial and of no consequence as to in what capacity the owner occupies it. Even if he occupies the property for his residence as a licensee or as an employee of the employer who has obtained the property on lease and pays rent to him the benefit of subsection (3) of section 19 will continue to be available to him and the rent received by him will not be subject to tax. "
The then learned Chairman, Income Tax Appellate Tribunal agreed with the opinion of the learned Judicial Member and held that "subsection (3) does not lay down that a property should remain in the occupation of an owner for the purposes of his own residence in his capacity of an owner. From plain reading of this subsection it appears that in order to make sub sections (1) and (2) of section 19 inapplicable only two conditions are to be met with namely---
"(i) the occupant should be the owner of the property, and
(ii) the occupation should be for the purposes 4 his own residence
The learned Chairman further observed as follows:---
"Since subsection (3) of section 19 does not lay down that the occupation of a property should be for the purposes of the residence of the owner in the same capacity. I am not prepared to read it in between the lines. After all it is a fiscal statute. The Legislature, however, may amend subsection (3) of section 19 in order to restrict its application to the owner of a property if he occupies it for the purpose of his own residence. in the same capacity."
8. It appears that taking clue from the above observation of the then learned Chairman, Income Tax Appellate Tribunal, the Legislature inserted an explanation to section 19 of the Income Tax Ordinance by Finance Act, 1996, stating that the explanation should be deemed always to have been so added. The Explanation reads as follows:---
" Explanation.---For the purpose of this section, any property, the owner of which is in receipt of any rent, whether in cash or otherwise, whether from employer or otherwise, shall not be taken to be in the occupation of such owner for the purpose of his own residence."
9. Another appeal being I.T.A. N0.524/IB of 1992-93 was heard by a Division Bench of this Tribunal at Islamabad on 30-11-1996. The order in this appeal is reported as 1997 PTD (Trib.) 318, to which reference has been made by the learned Members of the Bench at Islamabad who recommended for hearing of this appeal by Full Bench. The relevant facts in this case were that the assessee was a Federal Government employee who received rent from his employer in respect of his house under the Self-Hiring Scheme. The assessing officer included the amount of rent received from his employer in his taxable income as income from house property under section 19 of the Income Tax Ordinance, 1979. The assessee preferred first appeal and the learned Commissioner of Income Tax by placing reliance on the judgment reported as 1989 PTD (Trib.) 917 referred to above, directed that the rent received by the employee from his employer under the Self-Hiring Scheme shall not be included in his income chargeable to tax. The Department preferred second appeal before the Tribunal. The learned Members of the Bench considered the details of Self-Hiring Scheme and observed that in addition to the salary, the employees are paid house rent allowance. However, if an employee lives in the accommodation provided to him by the employer rented under the Self-Hiring Scheme the employee is not paid the house rent. Under the Scheme, the employee's house is not rented at the rental value on which his house might reasonably be expected to let from year to year, rather it is rented at the prescribed rate with reference to the employee's scale of pay irrespective of the fact that the annual rental value of the house is much higher. It was further observed that if an employer does not provide living accommodation to an employee and pays him the house rent allowance in cash to extent of 45 % of the minimum time scale of the basic salary of the employee, it is exempt from payment of tax under Rule (4) of the Income Tax Rules, 1982.
10. The learned Members of the Bench at Islamabad referred to the Full Bench judgment, which is reported as 1989 PTD (Trib.) 917. The explanation added to section 19 after subsection (3) by Finance Act, 1996 with retrospective effect, was also considered. A contention was raised on behalf of the assessee before the Division Bench of this Tribunal that since the provision of subsection (3) of section 19 was in conflict with the newly added explanation, the explanation must give way to the provision of this section. Reliance was placed in this behalf on the decision of Hon'ble Lahore High Court in Manj Khan v. The Controlling Authority PLD 1968 Lahore 202. The learned Members of the Division Bench dealt with issue in depth and detail, which is reproduced below:---
"We have no doubt in our mind that the explanation has been added to section 19 of the 1979 Ordinance to nullify the effect of the Tribunal's decision reported as 1989 PTD (Trib.) 917; (1989) 60 Tax 164 (Trib). To say that one part of the statute has preference over the other part of the statute pertains to the era of the literal approach or strict constructions. view of interpretation of statutes. But, those days have long past. Now the Courts adopt a purposive approach to interpret the statutes and the statute as a whole is considered to ascertain the true purpose of the law-maker. For full discussion regarding the replacement of 'literal approach' by 'purposive approach' reference may be made to a Full Bench decision of the Lahore High Court in Mr'. Muhammad Shafi v. Deputy Superintendent of Police PLD 1992 Lahore 178 and the decision of the House of Lord in Pepper (Inspector of Taxes) v. Hart 1993 SCMR 1019 (page 1026). A recent decision by the English Court of Appeal in Re: Marr and another (Bankrupts) (1990) 2 AM ER 880 = (1990) 2 WLR 1246 can perhaps be quoted as the best example how the Courts have replaced 'literal approach' rules. Under the former era if two sections (parts) of the same statute were found to be repugnant the rule was that the last section (part) must prevail. (Maxwell on the Interpretation of Statutes (1969, 12th Edition, page 187). The Court of Appeal has held that such a rule cannot be accepted today. Lord Justice Nicholls said:---
the judge referred to the rule of last resort' mentioned in Maxwell on the Interpretation of Statutes (1969, 12th Edition, page 187) quoting a dictum in Wood v. Riley (1867) LR 3 CP 26 at 27 to the effect that, if two sections of the same statute are repugnant, the known rule is that the last must prevail. Or, for those who still like their law in Latin, leges psteriores priores contraries abrogant.
I cannot accept that there is such a rule today. If there ever was such a principle, it is long since obsolete. Such a machanical approach to the construction of statutes is altogether out of step with the modern, purposive approach to the interpretation of statutes and documents. As long ago as 1894 Lord Herschell LC in Institute of Patent Agents v. Lockwood (1894) AC 347 at 360 stated what should be done when two sections in the same Act were irreconcilable .
......there is a conflict sometimes between two sections to be found to the same Act. You have to try and reconcile them as best 'you way. If you cannot, you have to determine which is the leading provision and which the subordinate provision, and which must give way to the other.
The same is true of two subsections within one section.
Earlier the Privy Council in Ownes Bank Ltd. v. Gerard Cauche (1989) 1WLR,559 in the context of the lower Courts, reliance on he rule of last resort said to have been laid down by Keeling, J. in Wood v. Riley that where there is (an inconsistency) between two provisions of the same statute the later provision shall prevail to interpret two inconsistent provisions of the same statute said:
'Their Lordships do not accept that there is such a rule. Where such an inconsistency exists the Court must determine as a matter of construction which is the leading provision and which one must giveway to the other.
It is also an accepted principle of construction of statute that when a statute is enacted a in background it is the duty of the Judge to make such construction of the statute as shall suppress the mischief and advance the remedy. This principle known as 'The Mischief Rule fully explained in Maxwell on the Interpretation of Statutes (12thEdition), pages 40-43, 96-99 is one of the main principles of Interpretation of statutes. For more elaborate and fuller discussion reference must be made to the decision of the Supreme Court of Pakistan in Rabnawaz v. Jahana PLD 1974 Supreme Court 210. It is also an accepted principle that an Explanation to a provision of a statute is to be read to harmonize with and to clear up any ambiguity in the main provision. The Explanation added to section 19(3) of the 1979 Ordinance by Finance Act, 1996 simply explains that when the owner of a property receives rent it will not be deemed to be in the occupation of the owner for the purposes of his residence. Besides that we see no inconsistency in the language of the explanation with the language of the section we are of the firm view that the explanation has been added to the 1979 Ordinance to declare that the Tribunal's view in 1989 PTD (Trib.) 917 was not acceptable to the law-maker and subsection (3) of section 19 of the 1979 Ordinance would not apply where the owner of the property was receiving rent under the Scheme, and in the context of suppressing the mischief caused by the Tribunal's decision the provision of the 'Explanation' is leading provision. Thus, even if there is any inconsistency between subsection (3) of section 19 of the 1979 Ordinance and the 'Explanation', the provision of subsection must give way to the provision of the Explanation. Thus, we hold that the assessee shall be charged to tax in respect of the amount of rent he has received from his employer under the Scheme. " [sic]
11. After dealing with the effects of Explanation, the learned Members of the Bench dealt with another question which pertains to the quantum of income that shall be charged to tax which an assessee has received as rent from his employer under the Self-Hiring Scheme. It was held that where an employer rents the employee's house under the Scheme he does not pay the employee the true rent of the house but pays him only a rate prescribed with reference to the employee's status, and does not pay the house rent allowance which, under the rules regulating the terms and conditions of his employment, the employee is entitled to receive and which to the extent of 45 % of the minimum time scale of the employee's basic salary is exempt from tax It was further held that in their view the provision of section 19 of the 1979 Ordinance shall apply to that part of the rent received by an employee under the Scheme which is in excess of 45 % of the minimum time` scale of his basic salary, because that is his real income. It was held that the concept of real income is well-recognised in the administration of Income 'Fax Law Reliance was placed in that behalf on the judgment of erstwhile High Court of West Pakistan in Merwan K. Irani v. The Commissioner of Income Tax 1968 PTD 429 (H.C. Kar.). In that case, the facts were that father had 1/4th and 1/3rd share in two partnerships,. He agreed to share his e share of profit with his sons who would work for him in the partnerships. The question was whether the father was liable to pay tax in respect of the whole of his share of profit in the partnerships or only in respect of what remained with him after paying the share to his sons who worked for him. The Court held that father will pay tax only on that part of his share which would remain with him after paying his sons' share. The Hon'ble High Court held as follows:---
"When the question arises as to (father's) individual assessment it is not the income allocated to his share from the (partnerships) that has to be taken into consideration but his real income. Otherwise if this principle is not followed what would be assessed would not be his real income but an artificial income said to be earned by him. There can in law be no manner of doubt that his real income would be what remains after deducting the amount diverted which never constituted his income and both in law and equity it shall have to be excluded in order to determine his real income. "
12. Applying the concept of real income to the cases concerning the Self-Hiring Scheme, it was held by the learned Members of the Division Bench that what really an employee receives as rent of his property under the scheme is the amount of prescribed rate minus the house rent allowance which was payable to him under the rules regulating the terms and conditions of his employment and which to the extent of 45 % of his minimum time scale was exempt from tax. It was directed that the rent received by the assessee minus the house rent allowance admissible to him under the terms and conditions of his employment not exceeding 45 % of the minimum of his time scale shall be charged to tax as his income under section 19 of the Income Tax Ordinance, 1979.
13. A perusal of the two judgments above shows that in the Full Bench judgment of the Tribunal every aspect of the law as prevailing before the insertion of Explanation to section 19 by the Finance Act, 1996 was discussed and considered threadbare. In the second Division Bench judgment reported as 1997 PTD (Trib.) 318 the effect of explanation has been considered and it has been held that the Tribunal's view in 1989 PTD (Trib.) 917 was not acceptable to law-makers and the explanation was inserted in the context of suppressing the mischief caused by the Tribunal's decision and that the provision of explanation is leading provision. The first issue for consideration whereof, this Full Bench has been constituted is the above finding of Division Bench. The reason agitating, the minds of learned Members who made reference for the constitution of Full Bench to re consider above view is the classical principle of interpretation of statute as prevailing in English Courts and borrowed from them in the Indo-Pak Sub continent. The old view which is based on technicalities of legislation and contains preconceived notions about the scope, effect and consequences of legislation under a particular heads is contained in Kishan Singh v. Brain Singh AIR 1939 Lahore 587. It is held in this judgment that an explanation does not enlarge the scope of original section which it is supposed to explain. In some other judgments also it has been held that an explanation cannot be read into a definition as limiting or restricting the scope of the later and that theExplanation simply explains what has been said in substantive provision of enactment. It has been held in some of the earlier judgments in the sub continent that it is axiomatic that an Explanation, only explains and does not expand or add to the scope of original section. However, a change has taken place in interpreting the effect and consequences of explanation to an enactment. The subject has been dealt with by the learned Judicial Member Ch. Irshad Ahmad, in the judgment reported as 1997 PTD (Trib.) 318 (supra) and has been rightly held by him that:---
"To say that one part of the statute has preference over the other part of the statute pertains to the era of the literal approach or strict constructions view of interpretation of statutes. But, those days have long past. Now the Courts adopt a purposive approach to interpret the statutes and the statute as a whole is considered to ascertain the true purpose of the law-maker."
14. The learned Judicial Member has referred to various cases from Pakistan jurisdiction and English Courts. The discussion in this behalf has already been reproduced in earlier part of this order and we need not to repeat the same. We find ourselves in total agreement with the view that in interpreting the statutes, the "purposive approach" has replaced "literal approach". We further find ourselves in agreement with the views expressed by the superior Courts in English jurisdiction which have already been referred in the judgment 1997 PTD (Trib.) 318 that in order to determine as to which provision of enactment must give way to the other, it should be determined which one is the leading provision. We regret that due to lack of assistance for the reason that the assessee appeared in person and the Department was represented by the I.A.C., we were not able to lay hand on the judgments from Pakistan jurisdiction on the point under consideration, i.e., the effect of explanation added to an enactment except a Full Bench Judgment of the Hon'ble Lahore High Court in Mr. Muhammad Shafi v. Deputy Superintendent of Police already relied upon in the Division Bench judgment under consideration. However, there are large number of judgments from Indian jurisdiction on this point. In Naeemuddin v Lokeswar Goghi 1972 Aasam Law Reports-8, it has been held by Goswami, CJ, that explanations are keys to the sections to which they are appended. They explain the heart of the matter with a purpose. It has been held by Full Bench of Maharashtra High Court in Subhash Gampatrao Buty v. Mareti Krishanji Doctikar, 1975 Mah. LJ 244, that the purpose of an explanation is often to explain some concept or explanation or phrase occurring in the main provision and it is not uncommon for the Legislature to accord either an extended meaning or a restricted meaning to such concept or expression or phrase by inserting the appropriate explanation. We would like to refer that as early as 1927 it was held by Madras High Court in Balji Singh v. Chakka Gangamma, AIR 1927 Mad. 85, that when any phrase or word or expression in an enactment is explained by the Legislature, the Act has to be applied with the authoritative explanation; for the very object of authoritative explanation is to enable the Court to understand the Act in the light of Explanation. It has been held in Krishna Ayyanger v. Nallah Peromal Pillai, ILR 43 Mad 550, that, the construction of explanation must depend upon its terms and no theory of purpose can be entertained unless it is to be inferred from the language used. The Supreme Court of India held in Burmah Shell Oil etc., Limited v. Commercial Tax Officer AIR 1961 SC 315, that it is an error to explain the explanation with the aid of the section to which it is annexed. An explanation must be interpreted according to its own tenor. It was held by the Supreme Court of India in Collector of Custom v. G. Dass & Company AIR 1966 Supreme Court 1577, that the construction of explanation must depend upon its terms. The Supreme Court of India reiterated the above views in the Dattatarya Govind Mahajan v. State of Maharashtra AIR 1 977 Supreme Court 915 that the mere description of certain provision, such as "Explanation" is not decisive of its true meaning and ultimately it is the intention of legislative which is paramount. In another case Supreme Court of India has held that if on a true reading of an "Explanation" it appears that it has widened the scope of the main section, effect be given to the legislative intent notwithstanding the fact that the legislature named that provision as an explanation. (Harilal Ratanlal v. State of U.P. (1973) 1 SCC 216). Respectfully following the judgments referred to by the learned Members of the Division Bench in the judgment reported as 1997 PTD (Trib.) 318 and other judgments discussed above it is held that the language of explanation inserted in section 19 after subsection (3) being very clear, the learned Division Bench of this Tribunal has very rightly held that the explanation contains leading provision and, therefore, the Courts are bound to give effect to the legislative intent. The finding of Division Bench in respect of consequences flowing from insertion of Explanation to section 19, is, therefore hereby approved.
15. This brings us to the second issue pertaining to the direction that the rent received by the assessee minus the house rent allowance admissible to him under the terms and conditions of his time scale shall be charged to tax as his income under section 19 of the Income Tax Ordinance, 1979 by resort to the concept of real income. We are of the opinion that the concept has been stretched too far. We find that the learned Members of the Division Bench while explaining the silent features of Self-Hiring Scheme have observed that "when an employee lives in the accommodation provided to him by the employer rented under the scheme, the employee is not paid the house rent". Thus, we fail to understand as to how an adjustment can be allowed to the extent of 45 % minimum time scale against the property income purely on hypothetical basis. Once it is held that in the case of Self -Hiring the rent received by the owner does not enjoy exemption, it is to be held as income from house property chargeable to tax under section 19. As soon as the income falls under the head "income from house property" chargeable to tax under section 19, such allowances and deduction only can be allowed as are admissible under section 20. No other allowance or deduction can be allowed by resort to the theory/concept of real income. We are of the considered opinion that the ratio of judgment in Marvan K. Irani v. CIT 1968 PTD 429 (HC Kar.) is not attracted to the case of rent received by the owner of a house as income from house property. In the cited case the principle of diversion of income was applied by the Hon'ble High Court, while in the case under consideration by us there is no question of diversion of income. It is established principal of taxation that no concept/theory including the theory of real income is to be interpreted or applied in such a manner that the very purpose of enactment is defeated. The direction contained in the Division Bench judgment reported as 1997 PTD (Trib.) 318 that the rent received by the owner of house under the Self-Hiring Scheme should be taxed after taking the house rent allowance, cannot be acted upon without any violence to the provisions contained in sections 19 and 20 of the Income Tax Ordinance, 1979. The exemption allowed in respect of house rent allowance receivable by the employee in cash under Rule 4 of the Income Tax Rules, 1982, is not applicable at all when an employer provides accommodation to an employee and this fact has been stated by the learned Members of the Division Bench in the judgment under consideration as follows:---
"To complete the statement of pertinent facts relevant to the scheme it is quite relevant to mention that if an employer does not provide living accommodation to an employee and pays him the house rent allowance in cash, the allowance paid by the employer to the employee is, to the extent of 45 % of the minimum time scale of the basic salary of the employee, exempt from payment of tax under rule 4 of the Income Tax Rules, 1982."
16. Looking to the fact that the learned Members of the Division Bench have themselves explained very clearly that when an employee lives in the accommodation provided to him by the employer rented under the Self -Hiring Scheme, the employee is not paid the house rent, the question of allowing any deduction does not arise. We asked the respondent/assessee if after Self-Hiring of the house he was entitled for any house rent, to which he candidly replied that he' was not entitled to any benefit of the house rent allowance. We have considered yet another aspect of the matter that an employee enjoying facility of Self-Hiring Scheme thereby receiving rent ceiling may not be sufferer in terms of net income after the rent so received is charged to tax. We asked the respondent if it was still beneficial to receive, the rent ceiling and to pay income-tax thereon without deduction of 45 % of the minimum time scale of the basic salary as compared to the enjoying of exemption from tax of the house rent allowance. The respondent replied that even after payment of income-tax it is beneficial to an employee to receive rent ceiling as compared to the receiving of house rent allowance. Although the question of hardship no any particular party is not relevant for interpreting the provision of a statute but we made this enquiry just to ascertain the facts.
17. For the foregoing reasons it is held that the opinion in the judgment reported as 1997 PTD (Trib.) 318 that the rent received by the assessee minus the house rent allowance admissible to him under the terms and conditions of his employment not exceeding 45 % of the minimum of his time scale shall be charged to tax as ant income under section 19 of the Income Tax Ordinance, 1979, is not in consonance with the provision of law, and therefore, it is hereby overruled.
18. Consequent to the above finding the impugned direction of the learned C. I. T. (A) deleting the rental income received by the respondent from the total income and the finding that in view of decision of Tribunal vide No.ITA/2234/HQ of 1986-87 the assessing officer unjustly taxed the respondent's rental income from self-occupied portion is hereby vacated. The treatment given by the assessing officer on the point of taxing of the rent received by the respondent as income from house property under section 19 is hereby restored. The appeals at the instance of Department are allowed accordingly.
C.M.A./18/Tax(Trib.) Appeals allowed