I.T AS. NOS.838/113 TO 841/113 OF 1998-99 VS I.T AS. NOS.838/113 TO 841/113 OF 1998-99, 2000 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2401 (1999)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 14 & 2(16) & Second Sched., Part I, cls.62, 62A---SRO No.240(KE)/90, dated 7-10-1990---SRO No.1042(1)/83, dated 3-11-1983-- Finance Act (VII of 1992)---Charitable Endowment Act, (VI of 1890)-- Exemption---Assessment years 1991-92, 1992-93, 1994-95 and 1995-96-- Assesssee was a charitable trust/a company as defined in S.2(16) of the Income Tax Ordinance, 1979 and earning income from donations, voluntary contribution, investment in securities of Federal Government and from business of printing and manufacturing of steel and wooden furniture and stitching of garments---Trust was set up for the welfare of ex-employees. and serving personnel of Federal Government and their dependents under the scheme approved by the Federal Government---Income declared by the assessee was claimed to be exempt under c1.62A of Part I of the Second Sched. to the Income Tax Ordinance, 1979---Assessing Officer rejected the claim of the assessee and assessments were finalized by accepting the declared sales, G.P rate and making certain disallowances out of various heads of profit and loss account---First Appellate Authority found that business income of the assessee was not exempt under cl.62A of Part I of the Second Sched. of the Income Tax Ordinance, 1979 and certain relief in the add backs were granted---Validity---Business income of charitable trust established in accordance with the requirement of c1.62A was brought to tax net w.e.f. 1-7-1983 but proviso inserted by Finance Ordinance, 1983 wasomitted through SRO No.1042 (1)/83, dated 3-11-1983 and up till 30-6 1992 c1.62A remained unamended and as a result, the income including the business income of a trust/assessee remained outside the purview of levy of tax under the Income Tax Ordinance, 1979---Income of the assessee's Trust, therefore, was not taxable for the assessment year 1991-92---Exemption was taken away through an amendment in c1.62A brought by the Finance, Act, 1992, therefore, the business income for the assessment year 1992-93 was not exempt from the levy of tax under c1.62A of Part I of the Second Sched. of the Income Tax Ordinance, 1979---Word "expend" used in cl.62, substituted by cl.62A through Finance Act, 1992, referred to actual, expenditure and so much of the business income as was actually expended on welfare projects was exempt under cl.62 of Part-I of the Second Sched. of the Income Tax Ordinance, 1979---Appellate Tribunal modified the order of First Appellate Authority by directing that so much of the income from business as had been actually expended on the welfare activities, being exempt shall be deleted from the assessments made for the assessment years 1992-93, 1994-95 and 1995-96.

1992 SCMR 1652 ref.

(b) Income Tax Ordinance (XXXI of 1979)---

----Second Sched. Part I, cl.62---Exemption--Words "so much of the income"---Meanings---Words used in cI.62 of Part I of the Second Sched. of the Income Tax Ordinance, 1979 were very important and meant that only the amount from the income earned by the Trust from business which had been actually spent on the welfare activities was exempt from the levy of tax and not the amount which had not been actually spent on such projects.

Syed Ali Imran for Appellant.

Muhammad Ali Shah; D.R. for Respondent.

Date of hearing: 4th May, 1999.

ORDER

KARAMAT HUSSAIN NIAZI (JUDICIAL MEMBER). ---This order will dispose of. the above four appeals relating to assessment years 1991-92, 1992-93, 1994-95 and 1995-96-. The appellant, a trust, objects to the refusal of exemption of income under clause 62A Part 1, Second Schedule to the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) and disallowance made under various heads of P&L expenses.

2. Briefly the relevant facts leading to these appeals are that the appellant (assessee), is a charitable trust set up to promote welfare and benefit of serving and retired personnel of P ..P .O and their dependents. The assessee is a company as defined to section 2(16) of the Ordinance, and earning income from donations, voluntary contribution investment in the securities of the Federal Government and froth business of printing and manufacturing of steel and wooden furniture and stitching of garments. The assessee did not file the returns of income for the assessment years 1991-92 to 1995-96. The Assessing Officer vide Notice dated 8-2-1994 issued under section 56 of the Ordinance, required the assessee to furnish the returns of total income for the year under consideration as in his opinion the income of the assessee was chargeable to tax. In response, the assessee filer return declaring nil income in Part-I of the return of the income while in Part-II of the return the income declared was claimed to be exempt unde r clause 62A of Part-I of the Second Schedule to the Ordinance. However, the Assessing Officer did not agree to the contention of the assessee regarding the exemption of the income under the above provisions of law. Accordingly, the claim of the assessee regarding the exemption of income under clause 62A of Part-I of Second Schedule to the Ordinance was rejected and the assessment was finalized by accepting the declared sales, G.P. rate of 32A and making certain disallowance of the various heads of the P&L account. Dissatisfied with the treatment, the assessee preferred appeals wherein the same contention of exemption of its income under clause 62A of the Ordinance was reiterated. The learned first appellate forum was of the view that the business income of the assessee was not exempt under the above provisions of law and, thus, the findings of the Assessing Officer was confirmed on this issue. However, certain relief in the add backs were granted to the assessee. Still not satisfied with the order of the first appellate forum the assessee is in further appeals before us.

3. The main objection of the assessee is regarding the exemption of its income for the assessment years 1991-92 and 1992-93 under clause 62A and exemption of its income which has been laid out for the purposes of carrying out welfare activities for the assessment years 1983-94 and 1994-95 under clause 62(as amended) of Part-I of Second Schedule to the Ordinance for the sake of facility, we reproduce the provision of clause 62A of Part-I of Second Schedule to the Ordinance as under :---

Exemption from total income.

"Income of trust for benefit of ex-Government Employes.--62A Any income of a trust administered under a scheme approved by the Federal Government in this behalf exclusively for the ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents by a committee nominated by the Federal Government or as the case may be a Provincial Government. "

4. The learned A.R. has submitted that the assessee trust was established under the scheme, approved by the Federal Government. The trust has been established exclusively for the welfare of the ex-employees and serving personnel of the Federal Government and their dependents and is administered by a committee nominated by the Federal Government. In support of this 'contention the learned A.R. has referred to a Notification, dated October 7, 1990 of the Government of Pakistan, Ministry of Health, Special Education and Social Welfare whereby through SRO 240(KE)/90, the Federal Government accorded sanction to the proposal to set up a charitable trust under the name of Post Office Foundation conforming to the requirements of the Charitable Endowments Act, 1890 and approved the scheme of administration of this trust by a committee constituted under the said scheme.

5. In view of the above facts, we have no doubt in our mind that the trust has been set up for the welfare of ex-employees and serving personnel of Federal Government and their dependents under the scheme approved by the Federal Government and administered by a committee nominated by the Federal Government.

6. The question now arises .for our consideration is whether the business income of the assessee's trust was exempt from taxation for the assessment years 1991-92 and 1992-93 under the above referred unamended clause 62A. It is pertinent to mention here that clause 62A, of the Ordinance remained in force till the end of financial year 1992, when it was substituted with new clause 62 by the Finance Act, 1992 w.e.f. 1-7-1992. However, by Finance Ordinance; 1983 the following proviso was inserted under Clauses 62 and 62A w.e.f. 1-7-1983:

"Provided that nothing declared in this clause shall apply to any income, which is derived from business."

It follows that w.e.f. 1-7-1983 the business income of a. charitable trust established as above in accordance with the requirement of clause 62A was brought to tax .net. But through a Notification No SRO 1042(1)/83, dated 3-11-1983 the above "Proviso" inserted by the Finance Ordinance, 1983 was omitted up till 30-6-1992 clause 62A Part-I of the Second Schedule remained unamended as it was reproduced above. As a result, the income including the business income of a trust established for the welfare of the Federal employees in conformity with the requirements of clause 62A remained outside the purview of levy of tax under the Ordinance. Therefore, the contention of the learned A.R. of the assessee that the business income of the assessee's trust was not taxable as it was exempt under 62A of the Ordinance for the assessment year 1991-92 has legal force but as regard to the exemption of income for the assessment year 1992-93, suffice it to say that this exemption was taken away through an amendment in clause 62A, brought by the Finance Act, 1992 which applied to the income earned for the income year 1991-92 relevant to the assessment year 1992-93, therefore, the business income for the assessment year 1992-93 is not exempt from the levy of tax under clause 62A. We, therefore, are of the considered view that the business income of the assessee's trust was exempt under the said provisions of law for the assessment year 1991-92 is annulled.

7. The provisions of clauses 62 and 62A of Part-1 o i Second Schedule to the Ordinance suffered change as stated here above, by Finance Act. 1992 which became effective from 1-7-1992, wherein clause 62A was omitted while clauses 62 was substituted by a new clause 62 which reads as under:---

Exemption from total income.

62 (1) Any income of a trust or welfare institution specified in sub clauses (2) and (3) donations, voluntary contributions subscriptions house property, investments in the securities of the Federal Government and so much of the income chargeable under the head'Income from business or profession' as is expended in Pakistan for the purposes of carrying out welfare activities:

Provided that in the case of income under the head 'Income from business or profession', the exemption in respect of income under the said head-shall not exceed an amount which bears to the income under the said head the same proportion as the said amount bears to the aggregate of the Income from the aforesaid source of income.

(2) A trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of.

(i) ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependents or

(ii) ex-employees and serving personnel of the Federal Government or a Provincial Government and their dependents where the said trust is administered by a committee nominated by the Federal Government or as the case may be a Provincial Government.

(3) A trust or welfare institution approved by the Central Board of Revenue for purposes of this sub-clause."

8. The learned A.R. of the assessee contends that as the assessee's trust fulfills all the requirements of clause 62(2)(ii), therefore, its business income expended in Pakistan for the purposes of carrying on welfare activities is also exempt for assessment years 1993-94 and 1994-95 under the above referred sub-clause (1) of clause 62 of the Second Schedule to the Ordinance. In order to substantiate his arguments the learned A.R. has laid much stress upon the meaning of the word "expended". It is submitted that the word "expended" has not been defined in Ordinance. Therefore, according to well-settled principle of interpretation the word used in the statute but not defined by the statute itself is to be interpreted according to its ordinary dictionary meaning. According to Black's Law Dictionary Sixth Edition the word "expend" means to "pay out, "lay out' "consume" "use up" "normally implying receiving something in return". In Chambers Twentieth Century Dictionary *"expend" means to "layout", to employ of consume in any way, to spend. The word "expend" according to the Oxford English Dictionary Volume-III, means to "pay .out", to lay out", spend (money), to spend, make away with, consume in outlay.

9. It is contended by the learned A.R. that the word "expend" according to dictionary meaning represents not only the actual expenditure of money but also includes the amount or money which was laid out for spending or to be consumed in future or retained for the projects. In this way, the learned A.R. tried to convince us that so much of the business income which the assessee had shown to be spent or to be used in future for welfare activities, is also exempt from the levy of tax under clause 62 of the Ordinance. We are afraid, that we-do not subscribe to the interpretation as laid down by the learned A.R. for the reason that if the meaning of word "expend" is accepted as interpreted by the learned A.R. then the business income of a charitable trust formed in conformity with the above clause would never be brought to tax net and the provisions of clause 62 will become redundant and superfluous and secondly, it would never be the intention of the Legislature while enacting the above provisions of law, the words "so much of the income" are very important to ascertain the legislative intent. It means that amount from the income earned by the trust from business which has been actually spent on the welfare activities "is only exempt from the levy of tax and not the amount which has not been actually spent on these projects. The general principle is that the claim of an exemption from levy of a tax must be established in clear and unequivocal terms. In regard to interpretation of a provision involving exemption, the Supreme Court of Pakistan in 1992 SCMR 1652 observed as under.

"There are two basic principles of constructing a provision of statute involving exemption from payment of tax, namely, the first rule is that the burden of proof is on the person who claims exemption. The second rule is that a provision relating to grant to tax exemption is to be construed strictly against the person asserting and in favour of taxing officer."

Applying the above criteria we are very clear in our mind that the word "expend" refers to actual expenditure and the so much of the business income as is actually expended on welfare projects is only exempt under clause 62. We hold that so much of the business income of the assessee which has been actually spent on the welfare activities of the trust is exempt from the levy of income tax, we, therefore, modify the order of the learned CIT(A) by directing that so much of the income from business as has been actually spent on the welfare activities being exempt shall be deleted from the assessments made for the assessment years 1992-93, 1994-95 and 1995-96.

10. The next issue raised in these appeals is regarding disallowances under the heads miscellaneous expenses, petrol expenses, repair and maintenance expenses, vehicle running expenses as being excessive and unjustified.. The learned first appellate authority has already granted sufficient relief to the assessee in respect of the disallowances under various heads of the P&L account. If the above disallowances are placed in juxtaposition with the expenses claimed then these are seemed to be reasonable. The treatment given by the authorities below is fair and proper and calls for no interference on our side. The order of the learned CIT(A) is therefore maintained on this issue.

11. For the foregoing reasons, the assessee's appeal for the year 1991 92 succeeds, while the appeals for the years 1992-93, 1994-95 and 1995-96 partially succeed to the extent and in the manner indicated above.

C.M.A./M.A.K./29/Tax(Trib.) Appeals decided accordingly.