I.T.AS. NOS. 3863/LB AND 3864/LB OF 1998 VS I.T.AS. NOS. 3863/LB AND 3864/LB OF 1998
2001 P T D 2880
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Chairman,
Muhammad Tauqir Afzal Malik, Judicial Member and
Mahmood Ahmad Malik, Accountant Member
I.T.As. Nos. 3863/LB and 3864/LB of 1998, decided on 30/10/1999.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.12{18) & 66-A---Income deemed to accrue or arise in Pakistan---Share deposit money---Authorised capital---Loan---Share deposit money was treated as loan on the ground that it was in excess of authorised capital treated was neither competent nor had any authority to call for share deposit in excess of authorised capital---Department proceeded in accordance with law---Revising Authority was justified in invoking the provisions of S.66-A of the Income Tax Ordinance, 1979 by treating the share deposit money as loan under S.12(18) of the Income Tax Ordinance, 1979 in circumstances ---Assessee's appeal was rejected by the Tribunal.
Messrs Kanwar Textile Mills Limited. Lahore I.T.A. N6.983/LB of 1997; PLD 1966 SC 738; PLD 1979 Lah. 252; 1999 PTD 2949; 1999 PTD 2895; 1996 SCMR 1264; PLD 1971 Lah. 217; 1994 PTD 758 and 1999 PTD (Trib.) 1672 ref.
Messrs Quality Casting (Pvt.) Limited, Lahore I.T.A. No. 1206/LB of 1995-96 rel.
(b) Income Tax Ordinance (XXXI of 1979)--
----S.12(18)---Deemed income---Intention of Legislature---Plain reading of provision contained in S.12(18) of the Income Tax Ordinance, 1979 shows that the intention of Legislature was that if any transaction was claimed or shown which was in the nature of a loan then the deeming provision shall come into operation.
(c) Administration of justice--
---- Duty of Court---True facts are to be discovered by the Court and then the law is to be applied to such facts.
(d) Income-tax--
----Charge of tax---Substance and real nature of the transaction in all judicial proceedings including tax proceedings is to be seen for the simple reason that when the Legislature invests a taxing authority with the power and jurisdiction to tax a particular transaction then it empowers such Authority to discover the real nature of transaction and apply the correct law.
Abrar P.ssain Naqvi, Iqbal Hashmi and Yousaf Ali Chaudhary, I.T.P. for Appellant.
Shafqat Mehmood Chohan and Shahid Bashir, D.R. for Respondent.
Date of hearing: 2nd September, 1999.
ORDER
MUHAMMAD TAUQIR AFZAL MALIK (JUDICIAL MEMBER). ---These two appeals for the years 1992-93 and 1993-94 were earlier heard by a Division Bench on 3-6-1999. Both the assessee as well as the Revenue has supported there argumentswith two different orders of the Tribunal. The assessee placed reliance on the case of M/s. Kanwar Textile Mills Limited, Lahore in I.T.A. No.983/LB of 1997, dated 30-10-1998, wherein it was held that since the sum deposited as share deposit money had not been claimed or shown by the assessee as a loan the provisions of section 12(18) were not applicable even if the amount shown as share deposit money exceeded the authorised capital of the company. The revenue on the other hand supported their view with the Tribunal's order re: Messrs Quality Casting (Pvt.) Limited, Lahore I.T,A No. 1206/LB of 1995-96, dated 24-11-1997 wherein the treatment of the Assessing Officer in applying the provisions of section 12(18) was upheld on the reasoning that the Income-tax Authorities are empowered to discover the substance and real nature of the transaction. Due to these two conciliating judgments, one in favour of the assessee and the other against it a Full Bench was constituted to resolve the controversy where it is contained in the main objection raised in the ground of appeals which is as followed.
'That the learned Inspecting Additional Commissioner of Income Tax/Wealth Tax was not justified in invoking the provisions of section 66-A of the Income Tax Ordinance by treating the share money as loan under section 12(18) of the Income Tax Ordinance. He has not appreciated the facts of the case as explained to him through factual position and case law of various Superior Courts."
2. Before proceeding further, here we would like to state the facts briefly. The assessee is a private limited company and is engaged in carrying on the business of knitted garments manufacturing, through different processes, out of natural and man-made fibers and to process the same through dyeing, finishing and printing process. The original assessments for the two years were finalised on 3-4-1996 and the exemption claimed under clause (118-E) part of the Second Schedule to the Income Tax Ordinance was granted. However, the interest incomes were determined at Rs.10,837 and Rs.1.18,052 under section 30 of the Ordinance and income from other sources. Subsequently the I.A.C. Range-II Companies Zone-1, Lahore on authority of record found that the authorised and paid up capital of the company were at Rs.25,00,000 each whereas the appellant has shown share deposit money respectively to the tune of Rs.33,00,000 and Rs.50,00,000. According to the revising authority the assessee was not competent to call for the share deposit money in excess of the authorised capital. He field the view that it was actually loan taken from the directors in the garb of the share deposit money. Therefore, he issued a show-cause notice to the assessee as to why the original assessment should not be cancelled under section 66-A of the Ordinance. The A.R. of the assessee vide his reply, dated 6-6-1998 contended that there is no restriction in law that the company cannot increase its authorized/paid up capital. It was further contended before the revising authority that the amounts in question were received as share deposit money and not loan as alleged by him. The A.R. also argued that since the company had issued the shares in succeeding year the authorized capital was fully paid up. Therefore, no adverse inference could be drawn and the provisions of section 12(18) were not applicable in the facts and circumstances of the case. However, the I.A.C. did not agree and consequently held that the share deposit money shown by the assessee in its accounts books were in fact loan and the Assessing Officer was wrong to not make additions of these amounts under section 12(18) of the Ordinance. He formed the view that the original assessments were erroneous and prejudicial to the interest of the revenue and cancelled the same vide his order, dated 30-9-1998 and made additions under section 12(18) at Rs.33,00,000 and Rs.17,00,000 respectively for the years 1992-93 and 1993-94.
3. The first contention of the learned counsel was that in the facts and circumstances of the case section 12(18) is not attracted. In this connection he invited our attention to the wordings of section 12(18) as it stood before amendment through Finance Act, 1998. It reads as under:---
"Where any sum or the aggregate of sums, claimed or shown to have been received as loan ...the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance. "
The learned counsel for the assessee submitted that on plain reading of the section it is manifestly clear that the sum should either be "claimed or shown to have been received as loan". According to him any sum which is neither claimed nor shown to have been received as loan cannot be treated as such by deductive logic or through process of reasoning. In the present case the disputed amounts were admittedly shown in the accounts as share deposit money. The Assessing Officer treated the share deposit money as loan solely on the ground that it was in excess of the authorized capital. However, the question is, the learned counsel argued, whether mere fact, that there has been some irregularity, if it can be called, the irregularity at all under the Companies Ordinance, the receipt of any sum shall be automatically converted into loan?. The learned counsel further stated that the sum of money received by the assessee, having not been shown as loan, burden heavily lay on the Department to show that it was in fact a loan. He argued that the word "loan" has not been defined but the Superior Courts have laid down that the repayment of money on specified conditions is an essential part of the loan. In this connection he placed reliance upon the judgment of the Supreme Court of Pakistan reported as PLD 1966 SC 738 whereby it was held as under:---
"We would, therefore, read the term loan in this section as meaning a contract by which a person received upon his own credit advances of money from another on specified conditions of repayment.
The learned counsel further submitted that the word "loan" has also been defined in the judgment reportedas PLD 1979 Lah. 252 as under:
"Loan according to Wherton's Law Lexicon is anything lent or given to another on condition of return or repayment."
4. The next contention of the learned counsel for the assessee was that the departmental view simply is that since there has been some irregularity in receiving advance share deposits money in excess of the authorized capital, therefore, it must be a loan. According to him the whole superstructure has been built by the Department on a mere presumption that it might be the loan: He further submitted that no tax can be imposed on mere presumption. This contention was supported by the learned counsel by placing reliance on a reported decision of the 'Full Bench of the Tribunal cited as 1999 PTD 2949. The operative part of this decision is as under:--
"Taxing statutes must state with the most clearness what and whom and in what manners they are taxing. Likewise the extent of fiscal, burden should also be in clear words and without any ambiguity. In any taxing provision, .if there are two possible constructions of the words of the-statute then the effect is to be given to the one that is in favour of the citizen and not the one that enhances the burden or increases the burden on him. Neither any tax nor any higher rate of tax can be imposed by any interpretive process. No provisions in fiscal statute can be extended on analogy and, therefore, the Court would never be justified in straining the language in order to hold a subject liable to tax or to a higher rate of tax than by looking at the clear words used by the legislature."
The learned counsel further stated that similar view was also taken by the Karachi High Court in a case reported as 1999 PTD 2895 wherein it was held as under:
"In interpreting the provisions of a statute the Court should adhere to the plain meaning of the expression and the words used in a statute and would not deduce a meaning which is not available from a plain reading of the expression and the words used in the statute but to require addition or reading of word in a statute."
The Karachi High Court by laying down the above principle followed the judgment of the Supreme Court reported as 1996 SCMR 1264 wherein it was laid down that nothing was to be read in a statute which was expressly enacted therein. The learned counsel pointed out that to the present case the Department requires that in section 12(18) the sums received other than loan should also be read in that subsection. He also stated that this is the basic principle of law that express mention of one thing implies the exclusion of another. This maxim has been quoted with approval by the Lahore High Court in the judgment reported as PLD 1971 Lah. 217.
6. The next contention of the learned counsel was that since section 12(18) raised a presumptions being deeming provision, therefore, it has to be strictly interpreted inasmuch as an income which is not an income in reality has been made the income by fiction of law. The A.R. submitted that such a provision has to be strictly interpreted as has been laid down by superior Courts in numerous cases. In this connection he placed reliance upon a recent judgment of this Tribunal reported as 1994 PTD 758 wherein it was held as under:---
"All the deeming provisions are to be applied strictly in accordance with law as the deeming provisions are the fiction of law and all fiction of .law are to be interpreted and applied strictly and the doubt if any is to be resolved in favour of assessee. "
To further support his contention the learned counsel has also produced a reported case cited as PLD 1994 Kar. 67 whereby the Court observed as under:---
"It is well-recognized principle of law that in a case where a statute provides procedure -for doing a thing in a particular manner that thing should be done in that manner and in not other way or it should not be done at all. "
According to learned counsel when the law has laid down that only the sum which has been claimed or shown to have been received as loan, otherwise than through a crossed cheque, on other sum which is neither claimed nor shown to have been received as loan could be treated as loan by the Department. The learned counsel submitted that in another Full Bench judgment of the Tribunal reported as 1999 PTD (Trib.) 1672 in an unequivocal language it has been laid down that section 12(18) has to be taken on its face- value and nothing cold be added or subtracted from the plain wording of this subsection. In this case it was held as under:---
"It needs to be repeated that question of interpretation arises only where the words of statute are not expressive or admit of a doubt or uncertainty....the words of the statute being clear no occasion has arisen not entertain material extraneous to the provisions in hand."
In the same case it was further held:
"The settled principle being that in taxing statutes due regard must be given to the letters of law used in a provision without stretching it either in favour of the assessee or against the revenue. "
7. Lastly the learned counsel argued that no power has been assigned to the Department to make an enquiry under section 12(18) as to whether a particular amount received by an assessee is a loan or not which has not been claimed by the assessee as loan. He submitted that where the legislature has an intention to assign powers of enquiry, it has fixed some standard and qualification as for instance under section 13(2) of the Ordinance certain powers have been given to the Deputy Commissioners to make enquiry. The learned counsel for the assessee continued that no' such corresponding powers having been assigned to the departmental authorities to make any enquiry into the nature of amount received by an assessee or shown in the accounts, the action of the I.A.C. to hold the share deposit money as a loan was patently wrong.
8. On merits the learned counsel for the assessee contended that the fact of the present case and that of M/s. Quality Casting (Pvt.). Limited wherein the share deposit money was held as loan were quite different. The learned counsel argued that it was admitted position that in the assessee's case shares have been issued subsequently whereas in the above case the position was different as the learned A.R of that assessee admitted vide order sheet entry dated 16-6-1993 that no shares have ever been issued. It was further submitted that in the case of M/s. Quality Casting the I.T.A.T. held that:
"It is established principle of law that nobody can be allowed to perpetrate a fraud, on the law with impunity. It would be a very dangerous thing to allow the perpetration of fraud on the law and then grant a licence to reap its benefit."
Whereas in the present case there is no allegation of fraud against the assessee and even the learned L.A./D.R. has not advanced any such allegation before us. The assessee had shown the amounts of Rs.33,00,000 and. Rs.50,00,000 as share deposit money and the shares have subsequently been issued. Thus, the contention of the assessee is proved by his subsequent action. On the other hand he submitted that the department presumed that this was a loan and not the share deposit money. Therefore, heavy onus laid upon the revenue to prove the negative. He pointed out that the Department having failed to discharge its onus, the action of the I.A.C in treating the share deposit money as loan was not correct.
9. The learned Legal Advisor on the other hand supported the view of the department and contended that total income of the assessee is chargeable to tax and since this was the Income of the assessee from whatever source and under whatever name it was disclosed, the Revenue is empou eyed to tax the same. According to him the Revising Authority rightly observed that this was in loan and not the share deposit money as alleged by the assessee. In this connection he placed reliance on Section 9 of the Income Tax Ordinance which reads as under:---
"9. Charge of Income tax.---(1) Subject to the provisions of this Ordinance, there shall be charged, levied, and paid for each assessment year commencing on or after the first day of July, 1979, income tax in respect of the total income of the income year or year, as the case may be, of every person at the rate or rates specified in the First Schedule."
The learned Legal Advisor also relied upon the meaning of words "total income" given in Black's Law Dictionary in this regard. (This contention is misplaced. It should have been appropriate if he had referred to total income as given in Income Tax Ordinance in section 2(44) which reads as follows:--
'Total income' means the total amount of income referred to in section 11 computed in the manner laid down in this Ordinance; and includes any income which, under any provisions of this Ordinance, is to be included in the total income of an assessee. ")
10. We have heard the rival arguments and perused the relevant law. After careful consideration of the submissions of the-parties we are of the view that the depart had proceeded in accordance with law. At the relevant time the authorised and paid up capital was at Rs.25,00,000 each, during both the assessment years. Neither the company was competent nor had any authority to call for share deposit money in excess of authorised capital. I (author of this judgment) agree with the findings recorded by the learned Chairman in I.T.A. No.1206/LB of 1995-96, dated 24-11-1997 reads as under:--
"Their contention that as the transaction has not been claimed or shown as loan, though in reality it may be a transaction of loan, the deeming provision contained in section 12(18) of the Income Tax Ordinance is not attracted, is not tenable. We are persuaded to agree with the submission of learned D.R. that no law can be allowed to be circumvented by use of wrong expressions or incorrect terminology. It would amount to granting licence for perpetration of fraud on the law. It is established principle of law that nobody can be allowed to perpetrate a fraud on the law with impunity. It could be a very dangerous thing to allow the perpetration of fraud on the law and then grant a licence to reap its benefit. A plain reading of provision contained in section 12(18) shows that the intention of legislature is that if any transaction is claimed or shown which is in the nature of a loan then the deeming provision shall come into operation. It as an established principle of the administration of justice and application of law that true facts are to be discerned and then the law is to be applied to such truth discovered by the judicial and other functionaries of the State. We are persuaded to agree with the submission of learned D.R. that in all judicial proceedings including tax proceedings the substance and real nature of the transaction is to be seen for the simple reason that when the legislature invests a taxing authority with the power and jurisdiction to tax a particular transaction then it empowers such authority to discover the real nature of transaction and apply the correct law so that the intention of enacting a law by the legislature is fulfilled." ,
11. Respectfully following the above findings we hold that the I.A.C. was justified in invoking the provisions of section 66-A of the Income-Tax Ordinance by treating the share money as loan under section 12(18) of the Ordinance and consequently reject the appeals of the assessee on this issue.
12. For the remaining grounds it is directed that the appeals be fixed for bearing before any available Bench in the first week of December, 1999.
C.M.A./M.A.K./91/Tax (Trib.) Appeal rejected.