MUHAMMAD HUSSAIN VS RAZIA BIBI
1999 P T D 1329
[Lahore High Court]
Before Mian Allah Nawaz and Ch. Ijaz Ahmad, JJ
THE COMMISSIONER OF INCOME-TAX ZONE, GUJRANWALA
Versus
Messrs ANWAR ENTERPRISES, SIALKOT
C. T. R. No. 61 of 1990, heard on 26/11/1998.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.32---Income Tax Rules, 1982, 8.216---Method of accounting---Export sale---Sale on FOB/CIF basis did not pertain to the method of accounting but fell within the realm of international export trade.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss.32 & 60 to 65---Method of accounting---Computation of profit---Export sale---Sale on FOB/CIF basis---Rejection of account ---Discretion-- Assessing Officer has a discretion to reject the defective/discrepant accounts or the method of accounting maintained by the assessee and use a reasonable method to assess the liability of assessee---Power to do so was not contained in S.32 but was embodied in Ss.60 to 65 of the Income Tax Ordinance, 1979---Computation of profit and gains/taxable income in such eventualities was not done under S.32 but under Ss.60 to 65 and any other enabling provision of the Income Tax Ordinance, 1979.
(c) Income Tax Ordinance (XXXI of 1979)----
----5.136---Income Tax Rules, 1982, 8.216---Reference---Export sales-- Assessee an exporter declared sales on C.I.F. basis but Assessing Officer took sales on F.O.B. basis---Income-tax Appellate Tribunal on appeal directed the Assessing Officer that sales be taken on C.I.F. basis--Department moved an application under S.136 of the Income Tax Ordinance, 1979 to Appellate Tribunal for seeking opinion of the High Court on two questions i.e. whether Tribunal was justified in directing that while computing the income of assessee, C.I.F. sales be adopted and whether Tribunal was justified in giving the directions to adopt C.I.F. sales in view of provisions of S.32(3) of the Income Tax Ordinance, 1979 when the assessee's trading results were discarded by the Assessing Officer-- Maintainability of reference---References were dismissed by the High Court on the ground that questions referred were not questions of law needing opinion of High Court and were without any merit.
E. Clemens Horst CO. v. Biddell Bros. (1911) 1 KB 93.4; Seth Kishori Lal Bubulal v. Commissioner of Income-tax, U.P. ITR 1963 Vol. XLIX 503; Commissioner of Income-tax, Tamal Nadu v. Motor Credit Co. (P.) Ltd. 1981 ITR 572; Dhakeshwar Prasad Narain Singh v. Commissioner of Income Tax, Bihar and Orissa (1936) 4 ITR 71; Commissioner of Income tax, Madras v. A. Krishnaswami Mudaliar and others ITR 1964 (LIII) 122 and Commissioner of Income-tax, Companies-III, Karachi v. Krudd Sons Ltd. 1994 SCMR 229 ref.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss.80-CC & 136---Income Tax Rules, 1982, 8.216---Reference---Export sales---Assessment year 1980-81---Sales were declared on C.I.F. basis and assessed/took sales on F.O.B. basis by the Assessing Officer ---Validity-- Income-tax Appellate Tribunal found that sales be taken on C.I.F. basis-- Reference to High Court on the request of Department---Subsequently, during the pendency of the case, S.80-CC was incorporated in the Income Tax Ordinance, 1979 (Assessment Year 1992-93)---Opinion rendered by High Court, held, would not be relevant in proceedings under S.80-CC of the Income Tax Ordinance, 1979.
M/s: Prime Chemicals Limited v. Federation of Pakistan etc. 1995 PTD 493; Samina Shaukat Ayub v. Commissioner of Income-tax, Rawalpindi PLD 1981 SC 85 and United Provinces v. Mst. Attiqua Begum and others AIR 1941 FC 16 ref.
M. Ilyas Khan for Petitioner. Dr. Ilyas Zafar and Iqbal Naeem Pasha for Respondents.
Dates of hearing: 23rd to 26th November, 1998.
JUDGMENT
MIAN ALLAH NAWAZ, J.---This order will govern four hundred sixty one (461) PTRs/petitions for References. These have been filed by Commissioners of Income Tax Zone, Gujranwala/Sialkot under section 136(1) of Income Tax Ordinance, 1979. Aforesaid petitioners will be, hereinafter, referred to as Revenue' Assessing Authority. Respondents in all these references are individual, registered partnerships, private limited companies. They derived their income from export trade. They shall be called as assessees/tax-payers. Mr. Muhammad Ilyas Khan, Advocate with Mr. Shafqat Chohan, Advocate, represented 'Revenue' while assessees were represented by Messrs Iqbal Naeem Pasha, Dr. Ilyas Zafar and Naveed Andrabi, Advocates. Learned counsel for the parties agreed that the fate of all the References depend upon the scope of expressions of F.O.B. and C.I.F. They, therefore, suggested that all these matters be heard together and factual background of P.T.R. No.61 of 1990 be noted. They further proposed that questions referred to in the aforesaid P.T.Rs. were same, all the cases, therefore, be answered through single judgment. Resultantly, we have acceded to above suggested course.
2. The facts, of the aforesaid P.T.R. are as follows. M/s. Anwar Enterprises filed return under the Self-Assessment Scheme in charging year 1980-81 /declaring therein that Assessee had received as income of Rs.10,356. This return was filed in pursuance of a Notice issued under section 61 of the Income Tax Ordinance, 1979 (shortly referred as Ordinance). The learned Assessing Officer did not accept the aforesaid return and determined the liability of Assessee in following terms:---
| Export declared | Rs.1,76,654 |
| Less Freight & Insurance | Rs.12,369 |
| Export on FOB | Rs.1,64,285 |
Gross profit at 30% was worked out and so net income was computed as Rs.29,805. Feeling aggrieved, the Assessee filed Income Tax Appeal No. 1595 on 27-3-1982 which succeeded in the following terms:---
"The appellant, an individual, derives income from the export sales. The appellant declared sales of C.I.F. basis but the I.T.O. took sales on F.O.B. basis. Although the basis for working of sales were changed yet the I.T.O. applied the same G.P. rate of 30% as was being applied in the past. The appellant is aggrieved against this treatment. It is argued by the learned A.R. that the I.T.O. was little justified in taking different view from the past history of the case when the circumstances were similar. In support of his contention, the learned A.R. has referred to the appeals decided by the learned I.T.A.T. in I.T.A. No.2570 of 1981-82, dated 7-7-1983 and I.T.A. Nos.2785 and 2786 of 1981-82, dated 7-7-1983 wherein the learned Tribunal had directed that the basis for taking sales should be the same as in the past.
Respectfully following the decision of the learned Tribunal it is directed that the sales be taken on C.I.F. basis when the G.P. rate of 30 % is being applied. Expenses allowed may accordingly be amended."
Dissatisfied with the above order, Revenue filed I.T.A. No.1639/LB of 1983-84, which was dismissed on 11-11-1984. Feeling aggrieved, the Revenue moved an application under section 136 of the Ordinance to Tribunal for seeking opinion of this Court on two questions formulated therein. Accordingly, the Tribunal allowed the application, drew statement of facts of the case and sent the following two questions to this Court for its opinion:---
"(1) Whether on the facts and in the circumstances of the case the Tribunal was justified in directing that while computing the income of the Assessee, C.I.F. sales be adopted?
(2) Whether Income Tax Appellate Tribunal was justified in giving the directions to adopt C.I.F. sales in spite of provisions of sub section 3 of section 32 of Income Tax Ordinance, 1979 when the Assessee's trading results are discarded by the Income Tax Officer?
The arguments, advanced on behalf of Revenue may be summarised as below:---
Firstly, that section 32 of the Ordinance and Rule 216 of Income Tax Rules, 1982 clearly enact that Assessing Authority is to compute the tax liability of Assessee on F.O.B. basis and not on C.I.F. basis. According to Mr. Muhammad Ilyas Khan, Advocate, neither the Appellate Authority nor the Tribunal had power to change the aforesaid basis.
Secondly, C.I.F. and F.O.B. are terms which relate to sea-borne trade; that C.I.F. meant the price inclusive of Insurance and Freight; that Seller was required under this contract to ship the goods and deliver its documents to buyer within a reasonable time; the moment the buyer receive the documents, the delivery of the consignment stood complete vis-a-vis the buyer. Continuing, the learned counsel submitted that on the contrary, under F.O.B. Transaction the Seller is required to put the consignment on board of the ship; receive the price and the buyer is responsible for freight and insurance. Conceptually, these two methods did not relate to methods of accounting. He explained his point by referring to a number of examples, which were put in his written note.
Thirdly, that the Commissioner Income Tax as well as the Tribunal did not appreciate that assessment of the liability on the basis of F.O.B. was more, easy, more convenient and more simple. Mr. Shafqat Chauhan, Advocate, who appeared next on behalf of Revenue adopted the above line of arguments.
4. Mr. Naeem Pasha, Advocate for the assessee opened the debate and supported the order of Appellate Authority and that of the Income Tax Appellate Tribunal. In the first place, he stressed that C.I.F. contract was a sound international transaction; that all the assessees used to export their goods on that basis and prepared the accounts accordingly. On the strength of the above circumstances it was stressed that the learned First Assessing Officer had no authority to change that method of accounting in view of section 32 of the Ordinance.
5. Having penned down the major outlines of these references and before we proceed to answer the referred questions, we wish to say a few words about two terms, namely, F.O.B. sales and C.I.F. sales. These are abbreviations of two categories of contracts which relate international trade. The term F.O.B. means "free on board". This term is employed to pin-point the responsibilities of the seller and buyer. This category of contracts is defined by Clive M. Mschmitthoff in his famous treaties "The Export Trade" published by London Stevens & Sons Limited, 1975:---
"The seller when selling F.O.B. 'free on board') assumes still further responsibilities that in the preceding instances. He undertakes to place the goods on board a ship that has been named to him by the buyer and that is berthed at the agreed port of shipment. All charges incurred up to and including the delivery of the goods over the ship's rail have to be borne by the seller while the buyer has to pay all subsequent charges, such as the storage of goods on board ship, freight, marine insurance as well as unloading charges, import duties, consular fees and other incidental charges due on arrival of the consignment in the port of destination. This transaction differs considerably from an ordinary sale in the home market where no dealings in a port have to be carried out, and yet it does not exhibit the foreign complexion which is a true characteristic of an export transaction. "
The other term C.I.F. sales indicates cost, insurance and freight. This abbreviation applies also international mercantile activity. It is the type of contract which is extensively being employed and entered into by the parties. Clive explains the fundamentals of this contract is following terms:---
"This is the most characteristic export clause which the custom of the merchants has evolved. Lord Wright observed that the C.I.F ('cost insurance, freight') is a type of contract which is more widely and more frequently in use than any other contract used for purpose of sea borne commerce. An enormous number of transactions, in value amounting to untold sums, is carried out every year under C.I.F. contracts,' and Lord Porter indicated the general characteristics of the C.I.F. stipulation in the following passage.
The obligations imposed on a seller under a C.I.F. contract are well-known, and in the ordinary case include the tender of a bill of lading covering the goods contracted to be sold and no others, coupled with an insurance policy in the normal form and accompanied by an invoice which shows the price and, as in this case, usually contains a deduction of the freight which the buyer pays before delivery at the port of discharge. Against tender of these documents the purchaser must pay the price. In such a case the property may pass either on shipment or on tender, the risk generally passes on shipment or as from shipment, but possession does not pass until the documents which represent the goods are handed over in exchange of the price. In the result, the buyer after receipt of the documents, can claim against the ship for breach of the contract of carriage and against the underwriters for any loss covered by the policy. The strict form of C.I.F. contract may, however, be modified. A provision that a delivery order may be substituted for a bill of lading or a certificate of insurance or a policy would not, I think, make the contract be concluded on something other that C. I. F. terms.
6. Continuing, the author highlighted duties and responsibilities of seller and buyer in following manner:
Charges and responsibilities of seller under C.I.F. contract according to Clive are---
(1) To make available at the report of loading to ship free on board goods answering in all respects the description in the contract of sale.
(2 ) To pay all handing and transport charges in connection with the above operation.
(3)In case of delivery of goods from bond or under drawback to complete declarations required by H.M. Customs and Excise.
(4) To meet all charges arising in connection with goods up to the time of their passing over the ships rail.
(4) To meet all charges arising in connection with goods up to the time of their passing over the ships rail.
"Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involves sea transit, under circumstances in which it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their sea transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such sea transit. "
(4-B) The seller has the onus of passing Customs entry and bears the cost and charges for it.
The charges and responsibilities falling on the buyer are:---
(1) To advise the seller in good time on what ship at the port of loading agreed in the contract the seller has to put the goods free on board.
(2) To secure shipping space in the designated vessel. (3) ...................................................
(4) To designate an effective ship in time to enable the seller to deliver within the period agreed in the control.
(5)....................................................
(6) To make entry and meet charges arising from the upkeep and conservancy of water ways used by the ship in her passage out of port, e.g. London Port rates.
(7) In the event of breakdown of his arrangement with the ship to arrange for substitute vessel or vessels with the least possible delay and pay all additional costs of transport, rent, and other charges incurred on account of substitution and/or transfer.
7. Thus, in a F.O.B. contract, seller has to prepare one invoice showing the FOR value of the goods plus all expenses incurred by seller to the point of place of ship where the goods are put on board and in other invoice showing the additional services rendered by seller on the request of buyer. As against it, the C.I.F. contract obliges the seller to tender shipping documents, that is/bill of lading covering the goods sold coupled with an insurance policy and freight charges which buyer has to pay before the delivery of consignment at port of discharge. Under this contract, the consigned goods passes over to the buyer when he receives the shipping documents that is, a clean bill of lading, marine insurance policy. Manifestly, these two terms pertain to two types of contracts relating to sale/purchase of export goods and has no nexus with the method of accounting. The above discussed categories of the contract were evolved by international /mercantile community after taking into consideration the local and international practices. At this juncture, we are tempted to refer to classical case E. Clemens Horst Co. v. Biddell Bros. (1911) 1 KB 934 at pp.958-950. In this case, there was a contract of sale of hops to be imported into United Kingdom for payment at 90s per 112 Ibs. C.I.F. to London. Liverpool or Hull. Terms net cash. There was no provision for payment against document and when the latter were in due course presented to them with a request for payment, the buyers refused/contending that they were not bound to do so under the contract until they had been able to examine the goods. It was held by the House of Lords that under a C.I.F. contract payment is due upon tender of documents unless the contract expressly provides otherwise. The first Court upheld the seller contention. In the Court of Appeal, the buyer case was upheld by majority. However, Kennedy, L.J. delivered a dissenting opinion which was approved by the House of Lords, and may be regarded as of great authority. Kennedy, L.J., in dissenting opinion, said:
"But in truth, the duty of the purchasers to pay against the shipping documents, under such a contract as the present, does not need the application of that doctrine of the inference in mercantile contract that each party will do what is 'mercantilely responsible', for which we have the great authority of Lord Esher. The plaintiff's assertion of the right under a cost freight and insurance contract to withhold payment until delivery of the goods themselves, and until after an opportunity of examining them, cannot possibly be effectuated except in one or two ways. Landing and delivery can rightfully be given by the ship-owner only to the holder of the bill of lading. Therefore, if the plaintiff's contention is right, one of the two things must happen. Either the seller must surrender to the purchaser the bill of lading, whereunder the delivery can be obtained, without receiving payment, which, as the bill of lading carries with it an absolute power of disposition, is in the absence of special agreement in the contract of false, so unreasonable as to absurd; or alternatively, the vendor must himself retain the bill of lading, himself land and take delivery of the goods, and himself store the good on quay (if the rule of the port permit), or warehouse the goods, for such time as may elapse before the purchaser has an opportunity of examining them. But this involves a manifest violation of the express terms of the contract '90s per 112 lbs. cost freight and insurance'. The parties have in terms agreed that for the buyer's benefit nothing beyond freight and insurance. But, if the plaintiff's contention were to prevail, the vendor must be saddled with the further payment of those charges at the post of discharge which ex necessitate rei would be added to the freight and insurance premium which aline he has by the terms of the contract undertaken to defray."
This is a classic statement of law approved by the House of Lords on the nature and scope of F.O.B. contract and C.I.F. sale.
8. A few words about method of accounting. It means systems of making up or settling accounts; statements of account of debit and credit in financial transactions. Briefly, method of accounting is manner in which income and expenses are brought in/recorded in books of account of-any business activity. The principal methods of accounting are Cash System, -Accrual Basis/mercantile system or by brid system. Cash system means that it is only actual receipts and disbursement, which are incorporated into book of accounts. As against it, in mercantile system of accounting, the entries of actual receipts/disbursement are not only recorded in books of accounts but the amounts which might have been acquired and the entries or liabilities that might have been incurred are also recorded. There is, however, no rigid system to be adopted. Some business men may adhere to both, cash system and mercantile system. Such a method of accounting is known as by brid system. Reference be made to Seth Kishori Lal Bubulal v. Commissioner of Income Tax, U.P. (I.T.R. 1963 Volume XLIX 503) and Commissioner of Income Tax, Tamal Nadu v. Motor Credit Co. (P.) Ltd. (1981 ITR 572).
9. Manifestly, the method of accounting is an expression of wide scope pertaining to incorporation of entries of business activities of a concern in books of accounts. They are indispensable to commercial activities. The balance sheet of any business is prepared therefrom; loses/profits of business activities are gathered from accounts kept by businessmen. These are prepared by the Accountants. It, therefore, clearly follows that the method of accounting is placing of activities of business/commercial transactions in the books of accounts according to cash system, accrual basis or by following a mixed system. It is not confined only to entries of receipts of income but it also relates to the incurring of expenditure. The profit, gains and losses are calculated therefrom by an objective method. Seen from the above context, it is difficult to accept that entries of receipts of sale on the basis of C.I.F. and F.O.B. pertains to method of accounting. No doubt, it can be said that these are the entries of only income.
10. The question for consideration is whether the entries of income on the basis of C.I.F. sales/F.O.B. sales pertain to method of accounting; whether the Commissioner of Income Tax (Appeal) erred in law in directing the computation of profits and gains of assessee on the basis of C I.F. sales instead of F.O.B. sales. The questions depend upon the interpretation of section 32 of the Ordinance which reads as under:---
"Method of accounting. ---(1) Income, profits and gains except income from dividends, shall be computed for the purpose of sections 17, 19, 22, 27 and 30 in accordance with the method of accounting regularly employed basis and in such manner as the Deputy Commissioner thinks fit.
(4) For the purpose of subsection (3), where the Central Board of Revenue deems necessary, it may, by a general or special order in writing prescribe the rates of net profit or gross profit and conditions of their applicability in respect of any trade, business or profession for any assessment year or years:
Provided that such rates shall be applicable in case of an assessee at his option to be exercised in writing before finalisation of assessment proceedings for an assessment year:
Provided further that, where in any previous year or years, an assessee has declared the net profit or gross profit in respect of his trade, business or profession, or has been for more than once assessed in the previous years, in excess of the rate of profits prescribed by the Central Board of Revenue under this subsection, such option shall not be available to him."
Subsection (1) of section 32 prescribes that income profit and gains except from dividends shall be calculated for the purpose of sections 17, 19, 22, 27 and 30 on the basis of method of accounting regularly employed by the assessee. Next is subsection (2). Subsection (3) of this provision is important. It enacts that when no method of accounting is regularly employed by the assessee or the method employed by him is so defective/discrepant that income, profit and gains cannot be properly deduced therefrom, the Income Tax Officer has a power to compute the income, profit and gains of assessee for the purpose of determining his liability on a basis which must be reasonable and cogent. Reference be made to Dhakeshwar Prasad Narain Singh v. Commissioner of Income Tax, Bihar and Orissa (1936 (4) ITR 71), Commissioner of Income Tax, Madras v. A. Krishnaswami Mudaliar and others (ITR 196 (LIII) 122) and Commissioner of Income Tax, Companies-III, Karachi v. Krudd Sons Ltd. (1994 SCMR 229). The scope of this provision was beautifully examined by the Supreme Court in 1994 SCMR 229. Speaking for the Bench, his lordship Mr. Justice Saleem Akhtar, (as he then was) said:---
"The main reason for rejecting the method of accounting by the Assessing Officer and maintained by the Tribunal was that the respondents were showing stocks by weight and production by measurement. Further, consideration which compelled their to reject was that separate manufacturing and trading accounts of enamelled utensils and extruded aluminum products were not maintained. For these reasons it was concluded that the income, gains and profits could not be deduced from the account books. The past history of the respondent establishes that it had been maintaining it's accounts in similar manner. The Assessing Authorities have been deducing income, gains and profits without any difficulty and have been assessing for many years. Nothing has been brought on record to controvert these facts to show what defects have been detected in the method of accounting which made it impossible to deduce income, profits and gains. Mere expression of opinion that such deduction cannot be made is not sufficient unless cogent reasons to support this conclusion are also stated. It has been pointed out that separate manufacturing and trading accounts in respect of enamelled utensils and extruded aluminium products have not been maintained The respondent has explained that maintenance of such accounts is possible as common labour and energy are employed for their production. They have also stated that such practice is in vogue from the very beginning and accounts have been prepared in the same manner which were accepted. It was further stated that in this line of trade no one maintains accounts in the manner required by the Department. In these circumstances the question is whether the Assessing Officer could form an opinion that income, profits and gains could not be deduced from the method of accounting adopted by the respondent. The history of the respondent's case supports its contention. If the Assessing Authority had not felt any difficulty in determining income, profits and gains on the basis of the accounting method maintained by the respondent how is it that in these two years they have been facing difficulty and invoking proviso to section 13. Furthermore, if in line of trade certain method of accounting has been adopted and accepted by the Assessing Officer without pointing out any difficulty in determining the income, profits and gains then if they went to resort to proviso to section 13, they must give cogent reasons and convincing grounds to justify their action. In Star Re-rolling Mills v. Commissioner of Income Tax 1974 PTD 200 in somewhat similar circumstances the stand of the assessee was that in the line of business which it was carrying on it was not practicable to maintain a regular stock register or manufacturing accounts. During the past years the assessee's method of accounting and the rate of profit given by it was accepted although no such stock register or manufacturing account was maintained. The learned Judges of the Division Bench observed that there was no material to controvert the averment made by the assessee and there was nothing to indicate either in the order of the Assessing Officer or in the Tribunal that it was feasible and practicable in the line of business in which the assessee was engaged to maintain a regular stock register or manufacturing accounts, 'or that other persons engaged in such business were maintaining such accounts and register'. In such circumstances if on the basis of such accounts the Assessing Officer could deduce income, profits and gains in the past merely by change of opinion without any substantial material or cogent reasons the method of accounting cannot be rejected. In this regard reference can also be made to Pioneer Sports Limited v. Commissioner of Income Tax (1934) 2 ITR (Lah.) 305."
Learned Judge went on to say:
"It is the duty of the Income Tax Officer to determine whether the assessee has adopted method of accounting from which income, profits and gains can properly be deduced. In this case the Assessing Officer did not proceed in the indicated manner although from the accounts laid down and on its examination true income and profit could be deduced. This judgment is of no help to the appellant There can be no cavil that a regular method of accounting in the past cannot be accepted as a matter of routine without examining it and if the Assessing Authority comes to the conclusion that it is defective and true income, profit and gains cannot be deduced from it then on the principle, stated above it can be rejected. In the present case the reasons given for rejecting the accounts are not proper, sufficient and valid."
11. Applying the above rules to the facts and circumstances of the case in hand, it is crystal clear that F.O.B. sales/C.I.F. sales do not pertain to the method of accounting. These fall within the realm of international export trade. These are the two categories of shipping contracts. They determine and fix the duties and responsibilities of seller and buyer in a contract of exports. In the F.O.B. contract, the seller receives the price of the exported goods without insurance and freight charges while in the latter contract, the seller receives from buyer the price of the goods plus insurance and freight charges.
12. Seen from the statutory scheme of computation of tax liability of assessee, it is very clear that the entries of income do not play only role. The Assessing Officer is to apply a comprehensive mechanism to determine the tax liability. What section 32 of the Ordinance enacts is simple that Assessing Officer has a discretion to reject the defective/discrepant accounts maintained by the assessee or the method of accounting and use a reasonable method to assess his liability. The power to do so is not contained in section 32 but is embodied in sections 60 to 65 of the Ordinance. We are accordingly clear in our mind that computation of profit and gains/taxable income in such an eventualities is not done under section 32 but under sections 60 to 65 and any other enabling provision of the Ordinance. Our conclusion is fortified by the notes furnished by the learned counsel for both the sides. One thing clearly emerges from these notes that in case of C.I.F. sale, the Income Tax Officer while calculating the taxable income of the assessee deducts the expenses incurred by the tax payer on shipping and freight of export goods. Having regard to this scenario of the case we are absolutely clear in our mind that these tax references do not raise any question of law arising from the orders of the Income Tax Appellate Tribunal. The questions referred by the Tribunal are not the questions of law C needing our opinion. On this conclusion, we find these references are without any merit and are so dismissed.
13. While closing our order, we are impelled to note that the aforesaid questions were simply academic in nature. The methodology of computing tax liability of the assessees/exporters was done away with in section 80-CC, which was inserted into Ordinance by Finance Act (VIII of 1992) on 1-7-1992. This became effective from 1st July, 1992. The aforesaid provision was found valid by us in M/s. Prime Chemicals Limited v. Federation of Pakistan etc. (NLR 1995 Tax 51). This newly enacted provision says that whole of export proceeds of a person is taken to be income and the assessee is made liable to pay a fixed percentage/minimum tax on the said income. This new methodology is built upon taxes on presumptive income. We are pursuaded to quote para. 19 of the said report:--
"It appears that the Federal Legislature on account of impediments created by vested Elites was not able to give statutory recognition to aforesaid remedical measures suggested by the Commissioner. Resultantly our cherised State had to face macro-economic instabilities and colossal deficits, in the budgets. Those, who mattered, had to listen to what the World Bank suggested to them. A round-table discussion in relation to economies of 3rd World, was arganised by the World Bank in 1991. Musgrave and Gillis/renown economists suggested that taxation in developing countries be based upon presumptive incomes of individuals, legal entitles/companies. They must pay tax on the basis of 8 % of their wealth. Number of other Economists followed the suggestions of Musgrave with further analysis of economies of IIIrd World. Resultantly the presumptive income tax was experimented in Malavi, Korea and Spain with success. The studies further reveal that this concept of tax had been in vogue in France in some what different forms. It will be apt to note that France is said to be the mother of democratic traditions and is house of Voltaire and Rousseau who had evolved the underlying philosophies of basic rights. Confronted with the above dismal position, the Legislatures enacted sections 80-C, 80-CC and 80-D in order to plug tax evasion. These challenged provisions instituted presumptive income as a base for levying of the income tax. The normal methodology of computation of total income, deductions, exemptions were done away with a minimum rate of income tax on the basis of turn over, gross receipts and sale proceeds. In this methodology prohibited by any provision of the Constitution or any provision of the Ordinance? On in depth study of the Ordinance, our answer is 'no'. The deemed income/ presumptive income has been the part and parcel of the taxation deign introduced in Income-tax Act, 1922 and Income Tax Ordinance, 1979. The receipt of the income is not the sole criterion for the tax liability. It was so held by the Supreme Court of Pakistan in Samina Shaukat Ayub v. Commissioner of Income Tax, Rawalpindi (PLD 1981 SC 85) Their lordships in the said case, quoted with approval, the observation contained in United Provinces v. Mst. Attqua Begum and others (AIR 1941 FC 16):
'None of the items in the list is to be read in narrow or restricted sense and that each general word should be held to extend to ancillary or subsidiary matters which can fairly or reasonably be said to be comprehended in it'.
14. In view of the above, the opinion rendered by us in this judgment will not be relevant in proceedings under section 80-CC of the Ordinance. Since the questions involved in these references were not free from difficulty, there shall be no order as to cost.
Q.M.H./C-20/L Order accordingly.