I TAS. NOS. 703/KB AND 1499/KB OF 1999-2000 VS I TAS. NOS. 703/KB AND 1499/KB OF 1999-2000, 2000 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 3776 (2000)

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

----Ss.80D & 22---Minimum tax on income of certain persons---Income from business or profession---Use of terms "trade discount", "invoices or bills" "sale of goods", "rendering, giving or supplying services or benefits" and "execution of contracts" in the context of "gross receipts" in the Explanation. to S.80D explicitly connote that such "gross receipts" were from "business or profession", profits and gains which were ordinarily chargeable under S.22 of the Income Tax Ordinance, 1979 and that the use of the word "means" in the Explanation was intended to restrict the scope of the word "turnover''.

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

----S.80D, First Explanation---Expressions "where no tax is payable or paid" and "or the tax payable or paid"---Applicability---Expressions "where no tax is payable or paid" and "or the tax payable or paid" apply to all cases where tax was not payable or paid for any reason whatsoever including certain situations conceived therein---Situations conceived in the Explanation I to S.80D include where tax is not payable due to any loss of income, profits and gains; set off of loss of earlier years; exemption from tax and allowances and deductions (including depreciation) admissible under any provision of the Ordinance or any other law for the time being in force.

(c) Interpretation of statutes---

---- Fiscal statute---Construction---Principles.

Where a word is inclusively defined it does not take away its ordinary meaning for the reasons that interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable.

Interpretation clause is meant to enable the word as used in the statute, when there is nothing in the context or the subject-matter to the contrary, to be applied to something to which it would not ordinarily be confined.

Word as used in the statute shall be so construed as the context or the subject-matter of the section warrants.

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

----Ss.80D & 22---Minimum tax on income of certain persons---Income from business or profession---Word "tax" used in S.80D(1) of the Income Tax Ordinance, , 1979 and in its First Explanation---Meaning---Word "tax" as used in S.SOD(1) of the Income Tax Ordinance, 1979 as well as in the First Explanation appended to the said section in the context and the subject-matter of the main section means the tax not payable or paid on the income from business or profession chargeable under S.22 of the Income Tax Ordinance, 1979.

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

----Ss.80D & 30(2)(a)---Minimum tax on income of certain persons-- Dividend income---Tax was imposed on dividend income in addition to the tax under S.80D of the Income Tax Ordinance, 1979---First Appellate Authority directed to allow credit of tax paid on dividend income while working out the tax under S.80D of the Income Tax Ordinance, 1979-- Validity---Expression "the amount representing its turnover from all sources" as used in S.80D(1) of the Income Tax Ordinance, 1979, refers to turnover of business or profession carried on by the companies and registered firms-- Expressions "where no tax is payable or paid" and "or the tax payable and paid" as used in S.80D(1) of the Income Tax Ordinance, 1979 were used in the context of income, profits and gains from business and profession as computed under the Income Tax Ordinance, 1979 and that tax on income of such companies and registered firms under any head other than the income under the head "income from business or profession" was payable in addition to the tax chargeable in the manner specified in S.SOD(2) of the Income Tax Ordinance, 1979---[I.T.As. Nos.1220 and 1221/KB of 1998-99 overruled]. [pp. 3787] H I. T. As. Nos. 1220 and 1221 /KB of 1998-99 overruled. I.T.A. No.955/KB of 1998-99 approved.

1996 PTD (Trib.) 286; Lt.-Col. Muhammad Amin Khan and others v. Government of West Pakistan and others PLD 1966 (W. P.) Lah. 111;Ellahi Cotton Mills Ptd. and others v. Federationof Pakistan through Secretary, Ministry of Finance, Islamabad and others PLD 1997 SC 582 = 1997 PTD 1555; I.T.A. No.523/KB of 1999-2000; CGT, Madras v. M. S. Gette Chettiar (1971)82 ITR 590 and CIT v. Amarchand N. Shroff (1963)ITR 59 ref.

Abdul Mateen, F.C.A. for Appellant.

Khalid Siddique, D.R. Mahfuz-ur-Rehrnan Pasha, IAC and Ilyas Elahi Ganjani, D.R. for Respondent

Iqbal Naeem Pasha, Rehan Hasan Naqvi and 'Siraj-ul-Haque Memon: Amicus curiae.

Date of hearing: 26th August, 2000.

ORDER

S: M. SIBTAIN (ACCOUNTANT MEMBER).---This Full Bench has been constituted to consider if the provision relating to minimum tax under section 80D is restricted to business income only or the tax paid or payable appearing in section 80D covers tax taxable under the heads other than business income also and whether the charging of minimum tax on turnover shall have the effect of non-charging of tax on the income which is not to be included in expression 'turnover' used in section ' 80D. In other words the Full Bench shall consider if charging of minimum talc on turn over shall constitute full and final discharge of tax liability in respect of income/receipts outside the purview of turnover as well.

2. We have heard Mr. Abdul Mateen, the learned authorized representative of the appellant and Mr. Mahfooz-ur Rehman Pasha, the learned D.R. while Mr. Iqbal Nadeem Pasha, Mr. Rehan Hasan Naqvi and Mr. Sirajul Haq Memon, the learned Advocates have assisted the Court as under-

3. Briefly, the facts are that the learned DCIT has worked out the tax payable by the appellant under normal provisions as under:

4. Further the learned DCIT has calculated the tax on the amount representing appellant's turnover from all sources deeming the aggregate of declared turnover to b< the income of the appellant, in the manner specified in subsection (2) of section 80-D as under: '

5. Having calculated the tax on the deemed income under section 80D in the manner supra and having found that the former sum is less than the later sum, he has proceeded to determine the full and final tax liability of the appellant under the I.T. Ordinance, 1979 as under:

6. The appellant is aggrieved by the order, of the learned DCIT for not treating the tax charged under section 80D as full and final tax liability under the Ordinance and for further charging tax on appellant's dividend income: The impugned action supra has been challenged in an appeal instituted before the learned CIT (Appeal).

7. It has been submitted on behalf of the appellant before the learned CIT (A) that though the dividend receipts are not to be included in the turnover for calculation of tax under section 80D yet the tax paid on dividend income is to be allowed credit and excluded from the gross liability under section 80D worked out on the gross business receipts, as the word 'tax' is not confined to business receipts alone but includes any sum leviable under the Ordinance including penalty, fees, etc. from whatever head charged and paid by the assessee.

8. The learned CIT (A), in view of the submission supra, has held:

"The next contention that the tax paid on dividend is to be allowed credit while working out the tax under section 80D is correct. It is therefore, directed accordingly."

9. Mr. Abdul Mateen, the learned A.R: of the appellant has submitted that the learned CIT(A) has not appreciated the issue properly. He submits that the basic issue to be decided is whether charging of tax in the manner specified and subsection,(2) of section 80D on turnover shall constitute full and final discharge of tax liability in respect of income/receipts outside the purview of turnover as well.

10. Mr: Abdul Mateen submits that, appellant's case does not fall in the category of a company by which no tax is payable or paid because tax is payable and paid by it. However, the tax payable by it is less than one-half per cent of the amount representing its turnover from all sources. Mr. Abdul Mateen submits that in the facts and circumstances supra, section 80D, that begins with a non obstante clause, provides that aggregate of the declared turnover of such an assessee shall be deemed to be the income of the such company and it shall pay as income-tax equal to the difference between the tax payable or paid and the sum equal to one-half percent. of the said turnover. He has placed reliance upon an unreported decision of the Tribunal in ITAs. Nos.1220 and 1221/KB of 1998-99 (A. Years 1993-94, 1994-95), dated 20-5-1999 wherein it is held:

"Tax under section 80-D was not chargeable for the year on dividend receipts because these do not constitute turnover as per definition of the term vide Explanation to section 80-D read with Circular 10 of 1991. Charging of tax at normal rates on dividend income over and above minimum on gross turnover than such tax exceeds tax otherwise chargeable is also not permissible. "

11. The learned A.R., therefore, submits that the word 'income' as used under section 80D(1) means 'total income' and the tax charged in the manner specified under subsection (2) of section 80(1)) amounts to full and final discharge of appellant's liability under the Income Tax Ordinance, 1979.

12. Mr. Mahfoozur Rehman Pasha, the learned D.R. on the other hand, is opposing the view canvassed supra by the learned A.R. of the appellant. He is placing reliance upon another unreported decision of the Tribunal in ITA No.955/KB of 1998-99 (A. Year 1996-97), dated 20-3-1999 where the JAC had cancelled the assessment order for de novo assessment by invoking his jurisdiction under section 66-A because the learned DCIT had charged tax under section 80D(2) on turnover of the assessee from industrial undertaking covered by clause (118C) of Part I of the Second Schedule to the I.T. Ordinance, 1979 but tax on income from interest on deposits chargeable under section 30 was omitted to be charged. The Tribunal has dismissed the appeal holding:

"Minimum tax under section 80D is charged on receipts/turnover, from all sources relating from business and commerce. This has been explained by C.B.R. vide Circular No. 10 of 1991, dated 30th June:

"The minimum tax is payable on the deemed income representing the total amount of the declared turnover from all sources falling under the head 'income from business or profession'. This. would mean the gross receipts of the company, body corporate or trust derived from---

(a) goods sold;

(b) services rendered, given or supplied;

(c) benefits rendered, given or supplied; or

(d) contracts executed:"

13. The ratio of decision reported in 1996 PTD (Trib.) 286 has been construed in their favour by each of the two learned representatives of the appellant as well as the respondent-Department. We shall briefly reproduce hereunder the relevant extracts relating to the facts and finding in the reported case supra:

"During the assessment years 1991-92 and 1992-93 the assessee having the status of a company, besides income from business, earned income from property and interest from certain investments. The Assessing Officer has levied tax under section 80D of the Ordinance on the total income of the assessee including receipts of income from house property and from interest etc,

On assessee's appeal, the Appeal Commissioner has directed that the tax under section. 80D ibid shall not be charged on assessee's income from house property and interest The Appeal Commissioner is of the view that tax on turnover under section 80D ibid is payable only in respect of receipts from business and not receipts from other sources,

Through these appeals, the I.T.O. has objected to the order of the Appeal Commissioner on the sole ground that since the Appeal Commissioner had no jurisdiction to entertain appeal against his order made under section 80D of the Ordinance his directions to exclude the rental and interest income from the assessee's turnover are illegal."

14. The Tribunal has held:

"The Department's contention' is not well-founded. Section 80D is a charging section and forms part of substantive provision of the law and is not the part of the machinery sections. The chargeability of tax under section 80D is of course assessable under section 62 of the Ordinance and any order made by the ITO under section 62 of the Ordinance is appeal able before the Appeal Commissioner. We have also examined the merits of the Appeal Commissioner's order. Under section 80D ibid all receipts of an assessee from whatever source derived are not to be charged to tax. Tax under section 80D is chargeable only on 'turnover' as defined in the Explanation below. Subsection (2) of the said section, which reads to mean 'gross receipts exclusive of trade discount shown on invoices or bills derived from sale of goods or from rendering giving or supplying services or benefits, or from execution of contracts'. The meaningsof the expression 'turnover' as given in the above Explanation are to be construed narrowly and strictly for two reasons; firstly that the definition starts with the word 'means' and where any definition begins with the word 'means' the meanings are to be confined within the four corners of the words used and secondly, the meanings of the 'turnover' would involve burden on the citizen and any provision which imposes any pecuniary burden on the citizen is to be construed strictly."

15. Presenting his view on the impugned issue as amicus curiae Mr. Iqbal Naeem Pasha submits that in order to resolve the issue one must find firstly how the words 'turnover from all sources' as used in sub section (1) of section 80D are explained by the second Explanation provided in section 80D. He. submits that for the removal of doubt it is declared," in the aforementioned Explanation, that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts." (Emphasis provided by us).

16. 'It is submitted by Mr. Iqbal Naeem Pasha that the use of the terms "trade discount", "invoices or bills", "sale of goods" "rendering, giving or supplying services or benefits" and "execution of contracts" in the context of "gross receipts" in the Explanation supra explicitly connote that such "gross receipts" are from "business or profession', profits and gains whereof are ordinarily chargeable under section 22 of the Ordinance. Further according to him it is evident from the use of the word "means" in the Explanation supra that the turnover under section 80D refers to gross receipts exclusively of business or profession carried on by an assessee, or derived by any trade, professional and similar association from specific services performed for its members or as value of any benefits or perquisite, whether convertible into money or not, arising from business or the exercise of a profession normally chargeable under section 22 of the Ordinance.

17. Mr. Iqbal Naeem Pasha submits that the view canvassed supra is on the authority of the following enunciation of the West Pakistan High Court, Lahore in Lt.-Col. Muhammad Amin Khan and others v. Government of West Pakistan and others: PLD 1966 (W. P) Lahore 111:---

"One of the two words 'means' or 'includes' is generally employed to define the scope of a word in the interpretation clause of a statute. The former is used to restrict the scope of the word to the four corners of what is stated in the clause and to deprive it of any other meaning that it may have in the English language. The word 'include', on the other hand, is used with a view to enlarging the meaning of the word, by also clothing it with the connotation given to it in the interpretation clause in addition to the sense which it conveys in common parlance."

18: Mr. Iqbal Naeem Pasha has referred to pages 147 and 148 of Principles of Statutory Interpretation by Guru Prasanna Singh (Fifth Edition, 1992) where the purpose of appending an explanation to a section is discussed in the following terms:

"An Explanation is at times appended to a section to explain the meaning of words contained in the section. It becomes a part and parcel of the enactment. The meaning to be given to an Explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used'. But if the language of the Explanation shows a purpose and a construction consistent with that purpose can be reasonably placed upon- it, that construction will be preferred as against any other construction which does not fit in with the description or the avowed purpose."

An explanation, normally, should be so read as to harmonise with and clear up any ambiguity in the main section and should not be so construed as, to widen the ambit of the section."

19. Thus, he submits that the words 'turnover from all sources' as used in subsection (I) of section 80D, according to the Explanation supra appended to the section restricts the scope of the words "from all sources" to the sources of business or profession carried on by an assessee. The purpose of the Explanation supra as shown by the word "means" used therein in the context of the word "turnover" is to harmonise and clear up the ambiguity in the main section and the only construction consistent with that purpose is to restrict the meaning of the words "turnover from all sources only to gross receipts from all sources of business or profession and to exclude receipts or incomes under all the heads of income other than income from business or profession as conceived in the I.T. Ordinance, 1979 under section 15 thereof.

20. Thus the receipts that have no nexus with the business or profession carried on by. the assessee mentioned in section 80D are excluded from the term "gross receipts" as used in the Explanation and consequently from the scope of the words "turnover from all sources' as used in subsection (1) of section 80D, submits Mr. Iqbal Naeem Pasha. The scope of the non obstante cause in subsection (1) of section 80D, as a corollary, is confined to provisions contained in the Ordinance or any other law for the time being in force relating only to the charge of tax on incomes under section 22 and its computation under section 23 for the purposes of assessment under section 62 or 63 and to calculation of tax thereon. .All provisions of the I.T. Ordinance, 1979 or any other law for the time being in force relating to income under the heads other than "income from business or profession" and to the determination and collection of tax thereon remain operative even when the provisions of section 80D are invoked. According to Mr. Iqbal Naeem Pasha this is the ratio of decision of the Supreme Court of Pakistan in Elahi Cotton Mills Ltd: and others v Federation of Pakistani through Secretary, Ministry of Finance, Islamabad and others PLD 1997 SC 582 = 1997 PTD 1555.

21. Finally,' Mr. Iqbal Naeem Pasha has cited an unreported decision of the Tribunal in ITA No.523/KB of 1999-2000 (A.Y. 1994-95), dated 29-10-1999 wherein it is held that "stocks and shares" being capital assets, by virtue of having been specifically distinguished from 'stock-in-trade" in clause (i) of subsection (12) of section 2, any gain from transactions therein is chargeable only under section 27 and not-under section 22 of the Income Tax Ordinance. As such any transactions that do not fall under the ambit of section 22 are not "turnover" chargeable under section 80D of the Ordinance. Thus, according to Mr. Iqbal Naeem Pasha "turnover" deemed to be income of an assessee under section 80D(1) is confined to income, profits and gain chargeable under section 22 of the Ordinance and any receipt of income or gain under sections 16,17,19,27 and 30 does not fall under the ambit of such turnover. Further in his view of the provisions of law referred by him supra incomes and gains under sections 16,17,19,27 and 30 of the Ordinance are chargeable in addition to the amount of tax chargeable under section 80D of the Ordinance.

22. Mr. Rehan Hasan Naqvi also appearing as amicus curiae besides endorsing the view canvassed by Mr. Iqbal Naeem Pasha supra has referred to provisions of subsections (24) and (44) of section 2 to elaborate that the words "shall be deemed to be the income" as used in subsection (1) of section 80D refer to 'income' as defined by clause (e) of subsection (24) of section 2 which is only a component of "total income" as defined, under subsection (44) of section 2 of the Ordinance.

23. Further, he refers to the term "turnover from all sources as used in subsection (1) of section 80D to emphasise that it does not mean the total income from all sources "because- meanings of the term "turnover" have been restricted by the Second Explanation to section 80D",

24. Mr. Sirajul Haque Memon, the learned amicus curiae has also subscribed to the views expressed supra by Mr lqbal Naeem Pasha and Mr. Rehan Hasan Naqvi to a large extent but he has sought indulgence of the Court to the First Explanation appended to section 80D that provides:

"Explanation.---For the removal of doubt, it is declared that the expressions 'where no tax is payable or paid' and 'or the tax payable or paid' apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income profits or gains or set off of loss or earlier years exemption from tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for. the time being in force."

25. According to the learned counsel meanings of the word "tax" have been extended by the interpretation clause supra with the use of words "tax not payable or paid for any reason whatsoever including" any loss of income etc. He, therefore, considers that the tax to be charged on turnover deemed to be the income of an assessee under section 80D means the full and final tax liability of the assessee because the word 'tax' as defined under section 2(48) of the Ordinance means income-tax, chargeable or payable under this Ordinance, and includes any penalty fee, or other charge or any sum or amount leviable or payable under this Ordinance. He places reliance in support of his view on the decision of Supreme Court of India in CGT, Madras v. M. S. Gette Chettiar (1971) 82 ITR 590 wherein the following observation in Craies on Statute Law (Sixth Edition, page 213) is referred to by the Court with approval:

"An interpretation clause which extends the meaning of a word does not take away its ordinary meaning. An interpretation clause is not meant to present the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the statute, when there is nothing in the context or the subject-matter to the contrary, to be applied to some things to which it would not ordinarily be applicable."

26. Reliance is also placed by him on another decision of Supreme Court of India in CIT v. Amarchand N. Shroff (1963) 68 ITR 59.

27. We have carefully considered the facts and circumstances of the case, the submissions made by the learned representatives of the parties as well as the invaluable assistance provided by Mr. Iqbal Naeem Pasha, Mr. Rehan Hasan Naqvi and Mr Sirajul Haq Memon as amicus curiae and the leases cited at the bar.

28. Firstly we find that only companies and registered firms resident in Pakistan, fall under the ambit of section 80D of the Ordinance in case no tax is payable or paid or the tax payable or paid by them is less than one-half per cent of the amount representing their turnover from all sources. It follows that the words "no tax is payable or paid or the tax payable or paid" are used in subsection (1) of section 80D with reference to the turnover from all sources of business carried on by such companies and registered firms.

29.The order of precedence of the two Explanations appended to section 80D is in accord with the sequence in which the terms explained therein have been used in subsection (1) of section 80D. Since the words "no tax is payable or paid" and "or tax payable or paid" have occurred prior to the words "turnover from all sources" the former are explained in First Explanation and the latter are explained in the Second Explanation. However, in order to construe the main section in proper perspective the context in which the term "tax" has been used therein needs to be comprehended first.

30. We, therefore, shall refer to the Second Explanation first. It declares for removal of doubt that "turnover" means the gross receipts, exclusive of trade discount shown on' invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts.

31. Accordingly, we are inclined to subscribe to the view canvassed by Mr. Iqbal Naeem Pasha and endorsed by Mr. Rehan Hasan Naqvi as well as Mr. Sirajul Haq Memon that the use of the terms "trade discount", "invoices or bills". "Sale of goods", "rendering, giving or supplying services or benefits" and "execution of contracts" in the context of "gross receipts" in the Explanation supra explicitly connote that such "gross receipts" are from "business or profession", profits and gains whereof are ordinarily chargeable under section 22 of the Ordinance and that the use of the word "means" in the Explanation supra is intended to restrict the scope of the word "turnover".

32. Thus, our second finding is that the Legislature through a fiction of law enacted in section 80D of the Ordinance has deemed the aggregate of turnover from all sources of business or profession carried on by the companies and registered firms in the cases whereof either no tax is payable or paid or the tax payable or paid is less than one-half per cent of the amount representing their turnover supra.

33. Further it is declared in the First Explanation reproduced in para. 24 supra, for removal of doubt; that the expressions "where no tax is payable. or paid" and "or the tax payable or paid" apply to all cases where tax is not payable or paid for any reason whatsoever including certain situation conceived therein. The situations conceived in Explanation supra include where tax is not payable due to---

(i) any loss of income, profits and gains;

(ii) set off of loss of earlier year;

(iii) exemption from tax;

(iv) allowances and deductions (including depreciation), admissible under any provision of this Ordinance or any other law for the time being in force.

34. The situations envisaged supra are not exhaustive and one may conceive other situations as well where no tax is payable by a company or a registered firm. There is no cavil either with the proposition that where a word is inclusively defined it does not take away its ordinary meaning. It is also well settled that an interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable. Likewise it is also well settled that an interpretation clause is meant to enable the word as used in the statute, when there is nothing in the context or the subject-matter to the contrary, to be applied to something to which it would not ordinarily be confined. Thus, in either case the word as used in the statute shall be so construed as the context or the subject-matter of the section warrants.

35. Construed on the principle of interpretation of statutes, the word "tax", as used in subsection (1) of section 80D as well as in the First Explanation appended to it, in the context and the subject-matter of the main section means the tax not payable or paid on the income from business or profession chargeable under section 22 of the Ordinance.

36. We are pursuaded to arrive at the conclusion supra firstly because we have already concluded that the income deemed under subsection (1) of section 80D is confined to turnover of business and profession and. secondly the inclusions among the possible reasons for tax being not payable or paid supra refer without a single exemption to the computation of income, profits and gains from business or profession. Any other construction of the words "tax not payable or paid", in our considered view, would be contrary to the context and the subject-matter of section 80D of the Ordinance.

37. Accordingly, we hold that the expression 'the amount representing its turnover from all sources' as used in subsection (1) of section 80D of the I.T. Ordinance, 1979, refers to turnover of business or profession carried on by the companies and registered firms envisaged under the section; that the expressions "where no tax is payable or paid and "or the tax payable and paid" as used in subsection supra are used in the context of income, profits and gains from business and profession as computed under the Ordinance and that tax on income of such companies and registered firms under any head other than the income under the head "income from business or profession' is payable in addition to the tax chargeable in the manner specified in subsection (2) of section 80D of the Ordinance.

38. Consequently decision of the Division Bench of the Tribunal in I.T.As. Nos. 1220 and 1221/KB of 1998-99; dated 20-5-1999 is overruled and the decision in I.T.A. No.955/KB of 1998-99, dated 20-3-1999 is approved. The reported decision in 1996 PTD (Trib.) 286 deals with the interpretation of the term "turnover" as used under section 80D but the other issue of chargeability of income from house property and interest on deposits in addition to tax charged under section 80D(2) was not before the Tribunal.

39. As already observed in para. 1 of the Order, this Full Bench was constituted to consider a limited question pertaining the scope of section 80D only, therefore, the appeal may be placed before a Division Bench of this Tribunal for deciding other issues raised in the appeal.

C.M.A./M.A.K./43/Tax(Trib.)Order accordingly.