I.T.AS. NOS.262/KB TO 264/KB OF 1999-2000 VS I.T.AS. NOS.262/KB TO 264/KB OF 1999-2000
2001 P T D (Trib.) 2951
[Income-tax Appellate Tribunal Pakistan]
Before S.M. Sibtain, Accountant Member and Tahseen Ahmad Bhatti, Judicial Member
I.T.As. Nos.262/KB to 264/KB of 1999-2000, decided on 30/11/1999.
Income Tax Ordinance (XXXI of 1979)---
----S. 66-A---Companies Profit (Workers' Participation) Act (XII of 1968)-- Companies Profit (Workers Participation) Rules, 1971---Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order---Assessing Officer allowed claim on account of contribution to Workers Participation Fund---Inspecting Additional Commissioner directed the Assessing Officer to modify the order by disallowing the respective claims on the ground that allocation made with interest earned on the accumulated balances were neither distributed amongst the workers, nor the same were transferred to W.W.F. as required under the law yet the Assessing Officer erroneously allowed the entire amounts while framing the assessments---Validity---Provisions of Companies Profits (Workers Participation Fund) Act, 1968 and Rules thereunder as well as the Schedule provided that if a company established a fund and paid to the Fund every year 5 % of its profits during such year, it had to constitute a Board Trustees within the prescribed time to manage the Fund---Board of Trustees expresses the share of each worker in the annual allocation and distributes 100% of annual income of the Fund including capital gains realised each year in proportion to their units of entitlement---Discretion of the worker who continues to remain in service to leave his share in the Fund and such allocated or accruing amounts to the Fund shall be available to the company for business operations subject to the condition that it will pay interest to the Fund on such amount---Company shall be allowed the allocation made to the Scheme as a deduction to arrive at the taxable income---Order was set aside by the Tribunal with the direction to allow the claim after verification of establishment of the Fund.
I.T.As. Nos.1195 to 1201/IB of 1998-99 and 2118 to 2121/KB of 1997-98 ref.
Jawed Zakaria for Appellant.
Muhammad Umer Farooque, D.R. for Respondent.
Date of hearing: 26th November, 1999.
ORDER
S. M. SIBTAIN (ACCOUNTANT MEMBER). ---These three appeals by the assessee company are directed against orders passed under section 66-A by the learned I.A.C. Range-I Co:, IV, Karachi holding the orders of the learned DCIT allowing claims on account of contributions to Workers Participation Fund to be erroneous in so far as those were found by him prejudicial to the interest of revenue and for modifying the orders of the DCIT to disallow the respective Claims.
2. We have heard Mr. `Jawed Zakaria, the learned counsel of the appellant and Mr. Muhammad Omar Farooque, the learned Representative of the Department.
3. Briefly, the facts are that during the years under consideration, assessee has deducted sums of Rs.4,771,478, Rs.2,234,915 and Rs.627,245 from his total incomes on account of annual allocation to the Workers Participation Fund. Besides on Balances carried forwarded to the tune of Rs.12,138,650. Rs.18,730,926 and Rs.23,775,480 interest of Rs.1,820,598 Rs.2,809,639 and Rs.3,922,954 were charged by the assessee and the same have been debited to the Fund. Thus entire amounts of Rs.6,592,776, Rs.5,044,554 and Rs.4,550,199 were allowed by the Assessing Officer while framing the assessments.
4. According to the learned I.A.C. under the Companies Profits (Workers Participation) Act, 1968 and Rules, 1971 the assessee was required to allocate a percentage of its annual profit to Workers Participation Fund (W.P.F.) and the amount so allocated to the W.P.F. together with interest earned thereon (being income earned on unallocated balance) was required to be distributed amongst the Workers of the Company during the year under mechanism provided in paragraph 4 and clauses (a) to (c) of the said paragraph. Under clause (d) of paragraph 4 it is further laid down that the amount left over after the said distribution shall be transferred to the Fund constituted under section 3 of Workers Welfare Fund Ordinance. 1971 (XXXVI of 1971). He further observed that the amount deducted from the total income and allocated to the said fund in a year shall be distributed in the same year amongst such Workers whose average monthly drawings of wages did not exceed Rs. 3,000 and the left over amount shall be transferred to W.W.F. However, according to him it is evident from the details furnished by the appellant that the allocation made during the years together with interest earned on the accumulated balances were neither distributed amongst the workers, nor the same were transferred to W.W.F. as required under the law yet the Assessing Officer erroneously allowed the entire amounts while framing the assessments.
5. The learned I.A.C. therefore, assumed jurisdiction under section 66A and after the explanation offered in response to the notices was found unsatisfactory passed the impugned orders.
6. Mr. Jawed Zakaria, the learned counsel of the appellant has submitted that the learned I.A.C. has misconstrued the law. According to him section 3 of the Companies Profits (Workers Participation) Act, 1968 requires every company to which the Scheme applies to establish a Workers Participation Fund in accordance with the Scheme as soon as the accounts for the year in which the Scheme becomes applicable to it are finalised but not later than nine months after the close of that year and subject to adjustments, if any, pay every year to the Fund not later than nine months after the close of that year, five per cent. of its profits during such year.
7. Further he submits that under section 4 of the Act it is required as soon as may be but not later than two months, after the establishment by a company of a Fund under section 3, there shall be constituted a Board of Trustees. The Board shall manage and administer the Fund in accordance with the provisions of this Act, the Scheme and any rules made in this behalf. The learned counsel submits that clause 2 of the Schedule to the Act provides that the amount allocated or accruing to the Fund shall be available to the company for its business operations. The company shall pay to the Fund, in respect of the amount in the Fund available to it for its business operations as aforesaid, interest at the rate of 2-1 /2 % above the bank rate or 75 per cent. of the rate at which dividend is declared on its ordinary share whichever is higher.
8. Regarding the share of a worker clause 4 of the schedule provides that the share of a worker in the annual allocation to the Fund shall be expressed in units or fractions of units (worked out to two places of decimal) of the face value of Rs.10.
9. Regarding the distribution of benefits clause 5 of the schedule inter alia provides that 100 per cent of the annual income of the Fund, including capital gain, realized, shall be distributed each year to workers in proportion to their units of entitlement, a worker who voluntarily leaves the employment of the company or whose services are terminated shall be entitled to receive 100 per cent of the net asset value of the units standing in his name. A Worker who continues in the service of the company shall be entitled to receive 100 percent of the net asset value of the units in his name each year or he may choose to leave his share in the Fund. Provided that a worker while in employment may choose to encash all the units standing in his name at any time at his discretion.
10. Further, paragraph (d) of clause 4 of the, schedule provides:
"Notwithstanding anything contained in this Scheme, no worker shall, in any one year, be entitled out of the annual allocation to units exceeding rupees (three thousand) in value in so far as such allocation is relatable to clause (b) of subsection (1) of section 3.
Any amount left out of the annual allocation after the units have been so allocated shall be transferred to the Fund constituted under section 3 of the Workers Welfare Fund Ordinance, 1971 (XXXVI of 1971). No part of such amount shall be deemed to be included in the net asset value of the Fund established under this Act and no individual worker shall have any lien on this amount by virtue of holding any units."
11. The learned counsel submits that it is evident from the provisions of the Act and the schedule supra that if a company establishes a Fund and pays to the Fund every year 5 % of its profits during such year, constitutes a Board of Trustees within the prescribed time to manage the Fund, the Board of Trustees expresses the share of each worker in the annual allocation and distributes 100 % of annual income of the Fund including capital gains realised each year in proportion to their units of entitlement, it is at the discretion of the worker who continues to remain in service to leave his share m the Fund and such allotted or accruing amounts to the Fund shall be available to the company for business operations subject to the condition that it will pay to the Fund interest on such amount prescribed, it shall be allowed the allocation made to the Scheme as a deduction to arrive at the taxable income as provided under clause 8. of the Schedule.
12. Mr. Javed Zakaria submits that the learned I.A.C. has thus misconstrued the requirement of distribution of income and capital gain to the Fund for actual disbursement without appreciating the import of other provisions. He submits that if the Act does not envisage any accumulation of allocations what is the nee6 for the provision to establish a Fund or to constitute the Board of Trustees.
13. Further, the learned counsel has submitted that two Division Benches of the Tribunal have already decided the issue supra in favour of the assessees on the facts and under the circumstances supra. in ITAs Nos. 1195 to 1201/113 of 1998-99 (Assessment years 1991-92 to 1997-98), dated 24-4-1999 and ITAs Nos. 2118 to 2121/KB of 1997-98 (Assessment year 1994-95 to 1997-98), dated 24-6-1999.
14. The learned D.R. is supporting the impugned orders but we find no substance in his submissions so far as the provisions of law are concerned.
15. It is our considered view that in accordance with the provisions of the Companies Profits (Workers Participation) Act; 1968 and Rules 1971 as well as the Schedule if a company established a Fund and pays to the Fund every year 5 % of its profits during such year, constitutes a Board of Trustees within the prescribed time to manage the Fund, the Board of Trustees expresses the share of each worker in the annual allocation and distributes 100% of annual income of the Fund including capital gains realised each year in proportion to their units of entitlement, it is at the discretion of the worker who continues to remain in service to leave his share in the Fund and such allocated or accruing amounts to the Fund shall be available to the company for business operations subject to the condition that it will pay to the Fund interest on such amount prescribed, it shall be allowed the allocation made to the Scheme as a deduction to arrive at the taxable income as provided under clause 8 of the Schedule.
16. However, we find substance in the alternate submission of the learned D.R. that it transpires from the perusal of the impugned assessment orders that the learned DCIT has not verified the facts of establishment of the Fund, constitution of the Board of Trustees and the subsequent action prescribed under the law.
17. Accordingly, we find that the impugned orders are not sustainable hence set aside with the directions to allow the claims after verification of the fulfilment of the preconditions supra.
18. The appeals are allowed in the manner supra.
C. M. A. /M. A. K./109/Tax (Trib.)Appeals allowed.