COMMISSIONER OF INCOME-TAX VS NATIONAL AGRICULTURE LTD., KARACHI, 2000 PTD-KARACHI-HIGH-COURT-SINDH 2173 (1998)

(a) Interpretation of statutes---

----Non obstante clause---Overriding effect---Non obstante clause overrides other or the earlier provisions only when there is a conflict or inconsistency between the earlier provisions and in the later, provision obstante clause must be read in the context in which same would operate.

(b) Interpretation of statutes---

----Expression "notwithstanding any judgment of any Court"---Scope-- Expression would save act, order, proceedings or thing done validly-- Benefit of said expression would not extend to save acts done, orders made or proceedings taken without jurisdiction, coram non judice or mala fide.

(c) Interpretation of statutes--

------Expression "notwithstanding" or "non obstante" clause---Effect --When a provision-of a statute starts with expression "notwithstanding" or with non obstante clause, the effect thereof would be that such provision would have to be given preference and would override any other provision or section of the statute---Other provisions or the sections of the statute inconsistent with the provisions containing the. "non obstante" clause would be subjugated and preference would be given to the provision or the section containing the non obstante clause.

(d) Interpretation of statutes---

---- If two provisions of statute are not consistent or are in conflict with each other, the provisions of the section starting with expression "notwithstanding" or with non obstante clause would have preference and would override the provisions or the sections of the statute dealing with the same subject-matter.

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

----Second Sched., Part I, cl.99 & Third Sched., cl.7(c)---Exemption-- Slump sale of business ---Profit---Taxability---Assessee, sold its entire poultry farm business and earned profit from the sale thereof---Sale proceeds were treated by the Assessing Officer as profit and was subjected to tax in view of the provision of cl.7(c) of Third Sched. of the Income Tax Ordinance, 1979---Validity---Entire assets of business consisting of building. cages, equipment, furniture and fixtures were sold for a lump sum price as assessee had decided to bring an end to the business of poultry farm---Sale being that of sale of whole concern in one transaction, proceed of such sale represented the price of entire business and assets thereof consisting of the building, cages, equipment, furniture and fixtures it was, thus., not possible to assign any particular amount or price to the building, cages, equipment,. furniture and fixtures sold---Sale transaction of the nature where the whole business concern was sold together with all the assets for a lump sum price and where it was not possible to separately determine or assign an amount or price of the building, equipment of plant, furniture or fixture was a "slump transaction" or "slump sale"---Sale proceeds resulting from disposal of the whole business concern together with the building, plant and machinery were not liable to be taxed in accordance with the provisions of cl.7 of the Third Sched. of the Income Tax Ordinance, 1979---Sale. of poultry farming business together with all the assets was to be treated as a "slump transaction" the proceeds of which would not be liable to be taxed.

Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258; Federation of Pakistan and others v. Saeed Ahmed and others PLD 1974 SC 151 and Arif Hussain Shah v.. The Operative Director Administration, Electric Equipments Manufacturing Co. Limited 1979 PLC 389 ref.

Al-Samrez Enterprises v. The Federation of Pakistan 1986 SCMR 1917 and Commissioner of Income-tax v. Ayurvedic Pharmacy (Dacca) Limited and others PLD 1970 SC 93 distinguished.

Commissioner-of Income-tax (East) v. Messrs Crescent Pak Soap and Oil Mills Ltd. 1985 PTD 3 rel.

Shaikh Haider for Applicant.

Mansoor Ahmed Khan far Respondent.

JUDGMENT

SAIYED SAEED ASHHAD, J.---(1) The Income-tax Appellate Tribunal by its order dated 8-8-1990 in R. A. No.90/HQB of 1985-86 referred the following question of law to this Court for seeking its opinion:

"Whether on the facts and circumstances of the case the learned I.T.A.T. was justified to exclude the income arisen from the sale proceeds of assets of poultry."

2. The facts leading to this Income Tax Reference are that the respondent/assessee. was enjoying .income from several sources which were liable to tax as well as from poultry farming which income was exempted from charge to tax in view of clause (99) of Part 1 of the Second Schedule to the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance). The respondent/assessee sold its poultry farm during the period relative to assessment year 1979-80 and earned profit from the sale thereon. The sale proceeds of Rs.3,77,499 were treated by the Income Tax Officer as profit and was subjected to tax by him m view of the provisions of Rule 7(c) of the Third Schedule to the Ordinance. In the First Appeal filed by the respondent/assessee, the Commissioner of Income Tax (Appeals) upheld the Order of the Income Tax Officer. The respondent/assessee field the Second Appeals before the Appellate Tribunal. The Appellate Tribunal relying on its earlier decision set aide the findings of the Income Tax Ordinance and the Commissioner of Income Tax (Appeals) and held that the Income Tax Officer had no jurisdiction to compute the income which was exempted under the Second Schedule. It is further held that the provisions of the Third Schedule to the Ordinance would be attracted only if income from business and profession was to be computed under section 23 of the Ordinance but if the Income Tax Officer had no jurisdiction to compute certain income as it was exempted then the Income-tax Officer would have no jurisdiction to have recourse to` the provisions contained in the Third Schedule. The applicant/Department feeling aggrieved with the Order of the Appellate Tribunal dated 22-11-1988 in I.T.A. No.878/KB of 1984-85 filed a Reference Application framing therein the aforesaid question of. law and praying the Tribunal to refer the question to this Court, which the Tribunal did by its aforesaid Order.

3. We have heard the arguments of M/s. Shaikh Haider and Mansoor Ahmed Khan, learned counsel for the parties and have perused the material on record as well as the relevant provisions of the Ordinance relating to the effects and circumstances of the case.

4. An assessee 'declaring income under section-22 of the Ordinance being income from business or profession, is entitled to claim certain deduction/allowance as provided by section 23 of the Ordinance for computing taxable/total income of the Assessee. Clause (v) of subsection (1) of section 23 of the Ordinance provides for allowance/deduction in respect of depreciation of any building, machinery, plant, furniture or fittings, stock or stores, being the property of the assessee and used for deriving income from the business or profession. This deduction/allowance is to be governed by the Third Schedule to the Ordinance. A bare perusal of clause (v) of section 23(1) of the Ordinance is sufficient to conclude that the question of allowing benefit of depreciation in the value of any building, machinery, plant, furniture or fittings would be allowed in accordance, with the provisions of the Third Schedule to the Income Tax Ordinance only when the Assessing Officer proceeds with computation of taxable -income of the Assessee. In other words, it is necessary that the Assessing Officer should have jurisdiction to compute the income of any assessee derived, from a business or profession in accordance with the provisions of the Ordinance and while computing the income for arriving at the total/taxable income for subjecting the game to tax, the question of depreciation allowance, if claimed, is to be inquired into it by the Assessing Officer. Income derived from any business or profession 'which has been specifically exempted from charge to tax under the Second Schedule to the Ordinance cannot be subjected to computation by the Assessing Officer as he has no jurisdiction to compute the various kinds of income enumerated in the Second Schedule to the Ordinance. Since the Assessing Officer would have no authority to proceed with the computation of income of an assessee derived from business or profession which has been specifically exempted from charge to tax, it follows that he would have no jurisdiction to proceed with or take into consideration the question of allowing or disallowing depreciation allowance of any building, machinery, plant, furniture or fittings used for the purpose of business or profession in question. In the, present case, however, the question which requires determination is that whether the respondent/assessee would be entitled to claim depreciation allowance but whether the sale proceeds from disposal of entire assets, used by the respondent/assessee for carrying on the business of poultry farming, should be dealt with in accordance with Rule 7 of the Third Schedule to the Ordinance: Mr. Shaikh Haider, learned counsel for the applicant/Department vehemently submitted that the provisions of Rule. 7 of the Third Schedule to the Ordinance are independent of the provisions of the Ordinance and cannot be controlled, regulated the abridged by any provisions of the Ordinance. He further submitted that providing depreciation allowance is a different issue and taxing the sale proceeds obtained by an assessee from disposal of assets is entirely a different issue and the two cannot be linked together. According to him the Assessment Officer may not have any authority or jurisdiction to consider the issue of allowing depreciation allowance in respect of income derived from business or profession which has been exempted but such bar of jurisdiction or authority of the Assessing Officer would not oust or bar his authority or jurisdiction from treating the sale proceeds obtained from disposal of assets as income and charging the same to tax under the head income from business or profession. For his above contention Mr. Shaikh Haider relied in the language or Rule 7 Third Schedule which starts with the non obstante clause i.e, with the word "notwithstanding" as well as on the pronouncements made in tae cases of (i) Packages Limited and others v. Muhammad Maqbool (PLD 1991 SC 258); (ii) Federation of Pakistan and others v. -Saeed Ahmed and others (PLD 1974 SC 151); and (iii) Arif Hussain Shah v. The Operative Director Administration, Electric Equipments Manufacturing Co. Limited (1979 PLC 389).

5. The contention of Mr. Mansoor Ahmed Khan, is that the provisions of Rule 7 of the Third Schedule to the Ordinance would not supersede or override the provisions of any clause of the Second Schedule to the Ordinance and the provisions of Rule 7 would remain subject to and be regulated by other substantive provisions of the Ordinance irrespective of the fact that Rule 7 starts with non obstante clause i.e. the 'word "notwithstanding". He further submitted that the authority or jurisdiction of the Assessing Officer to deal with an income derived from any business or profession which has been exempted under the Second Schedule to the Ordinance would be completely ousted and he would be precluded from looking into any aspect, whatsoever, in respect of such income. He supported his arguments by placing reliance on the cases of Al-Samrez Enterprises v. The Federation of Pakistan reported in 1986 SCMR 1917 and Commissioner of Income7tax v. Ayurvedic Pharmacy (Dacca) Limited and others reported in PLD 1970 SC 93.

6. There is no dispute with the contention advanced by Mr. Mansoor Ahmed Khan, that when an assessee derives an income from business or profession which has been specifically exempted from charge to tax, the Assessing Officer would have no jurisdiction or authority to compute the taxable/total income for charging tax thereon. However, there is no bar or restriction on the Assessing Officer from examining or scrutinizing a return wherein exempt income has been-disclosed and he would be at liberty to examine the same but would not proceed any further in view of the exemption granted by the Ordinance from subjecting the same to tax. However, if on scrutiny of the return, the Assessing Officer found that the respondent/assessee had brought an end to the business and had disposed of the entire assets owned and used by him for carrying on the business then the Assessing Officer would have the authority to proceed further for applying the provisions of rule 7 of the Third Schedule to the Ordinance to the proceeds obtained from sale of the assets. According to Mr. Mansoor Ahmad Khan the Assessing Officer would have no authority or even jurisdiction to proceed under the provisions of rule 7 of the Third Schedule to the Ordinance. In this connection it may be observed that rule 7 of the Third Schedule starts with the word "notwithstanding". It has been contended on behalf of the applicant that by using the word "notwithstanding" the Legislature has disclosed its intention that the provisions of rule 7 of the Third Schedule are absolutely independent and have preference over all other provisions of the Ordinance and that no provision of the Ordinance can be pressed into service for restricting, regulating or limiting the scope of rule 7 of the Third Schedule. We may refer here to the cases relied upon by Mr. Shaikh Haider, wherein pronouncements have been made which support the contention advanced by him.

7. The first case is that the Packages Limited and others v. Muhammad Maqbool PLD 1991 SC 258. In this case the Honorable Supreme Court considered the scope and the manner of operation of non obstante clause in a provision of law and how and when it overrides the application of other provisions of the Statute. It was observed by the Supreme Court that a non obstante clause overrides other or the earlier provisions only when there is a conflict or -inconsistency between the earlier provision and in the latter provision and, therefore, must be read in the context in which it would operate. In the case of Federation of Pakistan and others v. Saeed Ahmed and others PLD 1974 SC 151, the Supreme Court while considering and examining the expression "notwithstanding" observed that the words "notwithstanding any judgment of any Court" were introduced to take away the effect -of the decision of the Supreme Court in the case of Ms. Asma Jilani under which the acts impugned in the above case would have beer invalid. The Supreme Court further observed that the expression "notwithstanding any judgment of any Court" would save act, order, proceedings or thing done validly and the benefit thereof would not extend to save acts done, orders made or proceedings taken. without jurisdiction, coram non judice or mala fide. Our attention was also drawn to the case of Arif Hussain Shah v. The Operative Director Administration, Election Equipments Manufacturing Co. Limited, Lahore and another 1979 PLC 389, wherein a learned Single Judge of Lahore High Court while examining the scope of the expression "notwithstanding" or the "non obstante clause" made the following observation:-

"The word 'non obstante' means 'notwithstanding'. It means despite of or in spite of'. A 'non obstante' clause is used in a provision to indicate' that the provisions should prevail despite anything to contrary in any provision. No doubt one of the objects is to indicate that, despite any repugnancy between the provision containing a ' non obstante' clause and another provision the former should prevail. This clause owes its origin to the fact that in the year 1950 a British King began to issue licences to do such and such things 'non obstante' any law to the contrary. "

8. On perusal of the observations and the pronouncements made in, the afore-cited cases, it is established beyond any doubt that when a provision of the Statute starts with the expression "notwithstanding" or with "non obstante" clause then the effect thereof would be that such provisions would have to be given preference and would override any other provision or section of the Statute. The other provisions or the sections of the statute, inconsistent with the provision containing the "non obstante" clause would be subjugated and preference, would be given to the provision or the section containing the non obstante clause. From the pronouncement made in the aforecited cases it is also to be deduced that if two provisions of a Statute are not consistent or are in. conflict with each other then the provision of the section starting with the expression "notwithstanding" or with "non obstante" clause would have preference and would override the provisions or the sections of the State dealing with the same subject-matter. Applying the above principle of law to the facts and the circumstances of the case, it is to be noted that clause (99) of the Second Schedule provide exemption from charge to tax the income derived or generated by an assessee from carrying on the business of poultry farming. In view of the exemption granted by clause (99) of the Second Schedule to the Ordinance the authority or the jurisdiction of the Assessing Officer to proceed with the computation of total/taxable income in accordance with the provision of section 23 of the Ordinance is completely ousted. However, this concession would be available to the respondent/assessee as long as it continued to carry on the business of poultry farming and derived income therefrom. The Third Schedule too the Ordinance lays down rules for the computation of depreciation allowance in pursuance of clause.(5) of section 23(1) of the Ordinance as well as treatment of resultant gains or losses from dispose of assets used for carrying on a business or profession. The concession or the exemption made available by clause (99) of the Second Schedule would come to an end and the sale proceeds would have to be dealt with in accordance with the provisions of rule 7 of the Third Schedule to the Ordinance. This would be so because rule 7 starts with the expression "notwithstanding anything contained in this Ordinance or the repealed Act" by using the said expression the Legislature has made its intention clear that in dealing with the resultant gains or losses from disposal of assets used for carrying on business or profession, the provisions of Rule 7 would not be regulated, restricted or limited by any provision of the Ordinance or of the 'repealed Act. Thus, despite the fact that the income derived by the respondent/assessee from the business-of poultry farming was exempted, the benefit of such concession or exemption would not be available to the respondent/assessee on disposal of the business and the assets used by him for carrying on the business of poultry farming and the sale proceeds in the hands of the respondent assessee from disposal of the assets would be subjected to the provisions of Rule 7 of the Third Schedule for dealing with resultant gains/sale proceeds. In the circumstances, the contention of Mr. Mansoor Ahmed Khan, that in view of the concession, provided by clause (99) of the Second Schedule exempting from charge to tax the income derived by the respondent/assessee front the business of poultry farming the same would continue to be available even in respect of the sale process from the disposal of the assets is without any substance and is not sustainable. The observations made by the Supreme Court of Pakistan in the case of Al Samrez Enterprise v. The Federation of Pakistan (supra) and the case of Commissioner of Income Tax, East Pakistan (Dacca) v. Ayurvedic Pharmacy (Dacca) Limited and others (ibid), have no application to the facts and the circumstances of the case and are of no assistance to the respondent/assessee. Mr. Mansoor Ahmed Khan, further submitted that it is a well-established principle of interpretation of Statutes that if there are two provisions. or sections which are inconsistent or in conflict with each other then the Court is required to interpret the two provisions of the Statute in a harmonious manner and both the provisions should be made to work side by side and none of the two provisions for the sections is to be rendered surplus or redundant. The contention of Mr. Mansoor Ahmad Khan, would have merited consideration if the Legislature had not used the expression "notwithstanding" or "non obstante" clause in rule 7 of the Third Schedule whereby the provision of rule 7 has been given preference and an overriding effect overall the provisions of the Ordinance as a result of which the only possible conclusion to be drawn is that the provisions of rule 7 of the Third Schedule of the Ordinance would be applicable in the case in hand and the sale proceeds from disposal of the assets used by the respondent/assessee in carrying on the business of poultry farming, would be treated as income of the respondent in the assessment year relating to the income year in which the assets were disposed of in accordance with provisions of rule 7.

9. The question which now requires determination is as to which of the three clauses of rule 7 to the Third Schedule would be attracted for dealingwith the resultant gains or proceeds in the hands of the respondent/assessee from the sale of the assets. It is the case of the respondent/assessee that it sold the entire assets of the business consisting of the building, cages, equipment, furniture and fixtures for a lump sum price of Rs.3,77,499 as it had decided to bring an end to the business of poultry farming. It was the sale of a whole concern in one transaction and the sale proceeds represented the price of the entire business and the assets thereof consisting of the building, cages, equipment, furniture and fixtures. It is, thus, not possible to assign any particular amount or price to the building, cages, equipment, furniture and fixtures sold. Sale transactions of the nature where the whole business concern is sold together with all the assets for a lump sum price and where it is not possible to separately determine or assign an amount or price of the building, equipment or plant, furniture or fixture is referred to as "slump transaction" or "slump sale". In the case of Commissioner of Income tax (East) v. Messrs Crescent Pak Soap and Oil Mills Ltd. 1985 PTD 3, a Full Bench of this Court while considering the question whether the difference between the sale proceeds of a concern together with all the assets over the written down value of the assets would be the profit liable to tax held as under:--

"(iv) The sale and transfer of the assets and liabilities was in the nature of slump transaction for a slump price as the excess amount could not be pitched against any particular item or items and the present case is governed by the principle laid down by the Judicial Committee of the privy Council in William Richard Doughty v. Commissioner of Taxes AIR 1927 PC 76. "

10. On the basis of aforecited observation the Full Bench pronounced that the sale proceeds resulting from disposal of the whole business concern together with the building, plant and machinery were not liable to be taxed in accordance with the provisions of section 10(2) (vii) of the repealed Income Tax Act. The provisions of rule 7 of the Third Schedule to the Ordinance are similar and analogous to the provisions of section 10(2) (vii) of the repealed Tax Act. As such, the pronouncement made in the case of Commissioner of Income Tax (East) v. M/s. Crescent Pak Soap and Oil Mills Ltd. (ibid) would be applicable to the facts and circumstances of this' case with the result that the transaction of sale of poultry farming business' together with all the assets is to be treated as a "slump transaction" the proceeds of which would not be liable to be taxed.

11. Upon the above discussion, we are satisfied beyond any doubt that the finding of the Appellate Tribunal that the sale proceeds obtained by the' respondent/assessee from disposal of its business and assets would not be liable to be taxed as per rule 7 of the Third Schedule is proper. Accordingly, we answer the question in the affirmative. This Income Tax Reference stands disposed of confirming the order of the Appellate Tribunal.

C.M.A./M.A.K./C-4/K Reference disposed of.