COMMISSIONER OF INCOME-TAX VS FAYSAL ISLAMIC BANK OF BAHRAIN, KARACHI
2001 P T D 682
[Karachi High Court]
Before Saiyed Saeed Ashhad, C.J. and Sarmad Jalal Osmany, J
COMMISSIONER OF INCOME‑TAX
versus
Messrs FAYSAL ISLAMIC BANK OF BAHRAIN, KARACHI
I.T.As. Nos. 66 and 67 of 1999, decided on 22/05/2000.
(a) Interpretation of statutes‑‑‑
‑‑‑‑ Meaning of word/expression in a particular section of statute ‑‑Resorting to ordinary dictionary meaning‑‑‑Scope‑‑‑Courts in assigning/defining the meaning of a word/expression has to take into consideration the object or the purpose of the statute‑‑‑Where the Word/expression is defined in the statute, that meaning, or definition would serve the purpose and object of the section‑‑‑If the Court finds that the definition of a word/expression given in the statute does not tit in or is not in the context with the declared object or purpose of a particular section of a statute, (lien the Court can reject the definition given in the statute and resort to the ordinary dictionary meaning of the word/expression.
Iftikhar Ahmed and others v. President National Bank of Pakistan and others PLD 1988 SC 53 rel.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.2(24)‑‑‑Income as mentioned in S.2(24), Income Tax Ordinance, 1979‑ Connotation‑‑‑Expression "income" does not mean "net income" after making all permissible allowances, deductions, depreciations etc.
(c) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑S.23‑‑‑"Income" as mentioned in S.23', Income Tax Ordinance, 1979‑‑ Expression "income" denotes "gross income" and not "net income"‑‑‑Various permissible allowances, depreciations, expenditures etc. are to be deducted from income, under the provisions of S.23 of income Tax Ordinance, 1979‑‑‑Such deductions can only be made from "gross income" and not from the "net income" as the "net income" would be arrived at after providing/deducting all the permissible allowances, expenditures, depreciation etc.‑‑‑If the meaning of word "income" is to be assigned as "net income", then .the very purpose of S.23 of Income Tax Ordinance, 1979, would be rendered nugatory‑‑‑Expression "income" as appearing in S.23 of Income Tax Ordinance, 1979, means "gross income" and not "net income".
(d) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑Ss. 23 & 136(1)‑‑‑Depreciation on leased assets‑‑‑Refusal to allow the depreciation from net income from lease rentals‑‑‑Assessee being dissatisfied with the assessment filed appeal before Appellate Authority‑‑‑Assessment framed by the Income Tax Authorities was set aside by the Appellate Authority and directed that disallowing the depreciation on leased assets be restricted to the net income from lease rentals‑‑‑Validity‑‑‑Depreciation on assets' given on lease, under the provisions of S.23(i)(v) of Income Tax Ordinance, 1979, was to be allowed against lease rentals only‑‑‑Appeal filed by the department was dismissed accordingly.
Laxmi Insurance Co. Ltd., Lahore v. Commissioner of Income‑tax, Punjab, N.W.F.P and Delhi Provinces AIR 1931 Lah. 441; Shaw Wallace & Co. v. Privy Council AIR 1932 PC 138; (1969) 73 ITR 546; Pakistan Fisheries Ltd., Karachi and others v. United Bank Ltd. PLD 1993 SC 109; Shorter Oxford English Dictionary, 3rd Edn., p.1046; Stroud's Judicial Dictionary; Words and Phrases on pp.1265, 1267; The New Hamlyn Encyclopaedic World Dictionary, p. 836; Concise Oxford. Dictionary of Current English, 7th Edn., p.598; Iftikhar Ahmed and others v. President National Bank of Pakistan and others PLD 1988 SC 53; 2000 PTD (Trib.) 474 and 1999 PTD 3958 ref.
(e) Words and phrases‑‑‑
‑‑‑‑"Income"‑‑‑Meaning.
Muhammad Fareed for Appellant.
Fatehali W. Vellani for Respondent.
Dates of hearing: 8th and 9th March, 2000.
JUDGMENT
SAIYED SAEED ASHHAD, C.J.‑‑‑These two Income Tax Appeals have been tiled by the appellant/department against the order, dated 30‑7‑1998 of the Income‑tax Appellate Tribunal in I.T.As. Nos. 1100/KB and 707/KB of 1997‑98 pertaining to the assessment years 1994‑95 and 1995‑96 respectively, wherein the following questions of law have been framed for seeking opinion of this Court:‑‑‑
"(1) Whether on the facts and in the circumstances of this case the, learned Income Tax Appellate Tribunal was justified in holding that the allowance for depreciation has to be adjusted against amount of leased rentals first and other expenses and deductions, as provided in section 23(1) afterwards and against income from any other sources if such expenses are not adjustable against leased rentals after allowance of depreciation there against?
(2) Whether on the facts and in the circumstances of this case the learned Income‑tax Appellate Tribunal was justified in holding that the word income as used in section 23(1)(v) of the Income Tax Ordinance 1979 denotes gross receipts on account of leased rentals and not net thereof after excluding the other related expenses although the word income as used in section 23(1) means net income chargeable to tax after subtracting from gross receipts all the related expenses same is the connotation of this term throughout Ordinance unless specifically provided otherwise by a specific deeming provisions?
3. Whether on the facts and in the circumstances of this case the learned Income‑tax Appellate Tribunal was justified to lay down a law whereby the restrictive amendment brought about in section 23(1)(v) by Finance Act, 1994 to restrict allowance of depreciation on leased assets against the leased rentals from such assets is to be construed to allow other related expenses allowable under section 23 against other receipts of such concern?
4. Whether on the facts and in the circumstances of the case the learned Income‑tax Appellate Tribunal was justified to profound a law in total derogation of and detracting from the law and practice of allowance of all expenses including depreciation against the related gross receipts and adjusting the unabsorbed amount against income from other sources of the year and carry forward of the still unabsorbed amounts to succeeding years by ordaining that other expenses related to leased assets as cannot be absorbed by the residue amount of leased rentals after adjustment of depreciation be deducted from receipts under other heads?
5. Whether on the facts and in the circumstances of this case the learned Income‑tax Appellate Tribunal was justified to hold that word income as used in sections 12(19) and 23(1)(v) had different connotations i.e., it denoted net income liable to charge of tax for the purposes of sections mentioned first i.e., sections 12(19) and 23(1) and gross income for the purposes of section 23(1)(v) against well established law that words and phrases used in statute have same meaning all over unless specifically provided otherwise?"
The brief facts of the case are that the respondent is a Behrain based Non‑resident company deriving income from banking business as well as leasing of assets. In the assessment year 1994‑95, the respondent claimed an amount of Rs.142,833,990 as tax depreciation in respect of leased assets. The Assessing Officer after allocating the proportionate expenses relating to the business towards lease rentals, allowed the tax depreciation allowance in respect of leased assets against the income so arrived at from leased rentals and carried forward the unabsorbed depreciation to be ~ set off against the income of leased rentals for the subsequent years.
The respondent not feeling satisfied with the order of the Assessing Officer, filed an appeal before the Commissioner of Income‑tax (Appeals), who set aside the assessment framed by Deputy Commissioner of Income‑tax with the direction to reframe the order after allowing the respondent a proper opportunity and considering the clarification issued by Central Board of Revenue's Circular.No.6/94 in disallowing the depreciation on leased assets by restricting it to the net income from lease rentals.
The appellant/department feeling aggrieved and dissatisfied with the finding of the Commissioner of Income‑tax (Appeals), filed IInd Appeal before Income‑tax Appellate Tribunal for both the above assessment years. The Income‑tax Appellate Tribunal by its order, dated 30‑7‑1998 held that the depreciation allowance was to be deducted from the gross lease rentals and not from the profit and‑ gains thereof. The appellant/department felt aggrieved and dissatisfied with the aforesaid finding of the Income‑tax Appellate Tribunal and has challenged the same by way of these appeals under section 136(1) of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance).
We have heard the arguments of M/s. Muhammad Fareed and Fatcheali W. Vallani the learned counsel for the appellant/department and respondent respectively, have perused the material on record, the relevant provisions of the Ordinance and the case law relied upon by the above learned counsel in support of their respective contentions.
Mr. Muhammad Fareed submitted an application under section 151, C.P.C. redrafting the questions of law framed by him in the memo of appeal and reducing the same from 6 to 4. On 2‑3‑2000, an amendment was proposed in question No. 1 by Mr. Fatehali W. Vellani, the learned counsel for the respondent, which was accepted by Mr. Muhammad Fareed and he made "the amendment in his own handwriting in the application under section 151, C.P.C. redrafting the questions of law. Mr. Muhammad Fareed also stated that Question No.4 in the said application under section 151, C.P.C. did not arise out of the order of the Tribunal and he would not press the same. Mr. Fatehali W. Vallani submitted that Questions Nos.2 and 3 also did not arise out of the order of the Tribunal. However, it was decided that the objection of Mr. Fatehali W. Vellani would be heard and disposed of at the time of final hearing.
During the course of the arguments advanced by Mr. Muhammad Fareed, he had confined himself to the arguments solely with regard to the interpretation of the word "Income" appearing in section 23 of the Ordinance. His contention was that the word "Income' as used in section 23 of the Ordinance denotes the "Net Income" on which income tax is to be charged/levied and not the "Gross Income" which is covered by the Tax Net. He further submitted that as per the provision contained in section 23(1)(v) of the Ordinance allowing depreciation on assets given on lease against income from leased rentals only, the word "Income" would have to be treated as "Net Income" and not "Gross Income". For his above contention, he placed reliance on the definition of the word "Income" as provided in section 2(24) of the Ordinance and submitted that a bare perusal of the definition is sufficient to hold that the legislators in defining the word "Income" had defined it to mean the "Net Income" after providing benefit and giving deduction of all the expenditures, allowances and other amounts, which are legally to be deducted from the "Gross Income" for deriving the "Net Taxable Income". His further submission was that once a word/expression has been defined in a Statute, then the definition given in the Statute is to be given or applied to the said word/expression wherever it is used in the Statute. In support of his above contention, he placed reliance on the cases of:
(1) Laxmi Insurance Co. Ltd. Lahore v. Commissioner of Income‑tax, Punjab, N.W.F.P. and Delhi Provinces. (AIR 1931 Lahore 441);
(2) Shaw Wallace & Co. v. Privy Council (AIR 1932 P.C. 138); and
(3) (1969) 73 ITR 546.
On the basis of his arguments, he submitted that by no stretch of imagination the word "Income" used in section 23 of the Ordinance can be taken to mean or denote the "Gross Income" of an assessee without making deductions of all the permissible expenditures, allowances and depreciation provided in section 23 of the Ordinance and the Schedule attached to the Ordinance.
Mr. Fatehali W. Vallani, the learned counsel for the respondent, on the other hand submitted that irrespective of the fact as to whether the definition of the word "Income" as provided in section 2(24) of the Ordinance is to be taken to mean "Gross Income" or "Net Income" and as to whether the word "Income" whenever used in relation to Income‑tax Laws would mean "Gross Income" or "Net Income", the word "Income" used in section 23 of the Ordinance is to be given the meaning of "Net Income" arrived at after making deductions of all the permissible expenditure, allowances, depreciation etc. provided under the Ordinance and the Schedule attached thereto. Mr. Fatehali W. Vellani has supported his above contention by arguing that in interpreting the meaning of word/expression in a particular section of a Statute, the Court has to see the object and the purpose of the section and has 'to assign the meaning/definition to a particular word in the context of the object and the purpose of the particular section. He further submitted that section 23 of the Ordinance provides the various expenditures, allowances, depreciation and the sums paid, which an assessee is entitled to claim deduction from his "Gross Income" earned by him from business or profession for computing the "Net Income" earned by him and, therefore, the word "Income'." appearing in section 23 could never be used to mean the "Net Income" as from "Net Income" nothing would be deductable. With regard to the contention of Mr. Muhammad Fareed that when a word/expression is defined in a Statute, then the definition assigned to the said word/expression is to be given wherever the said word expression is used in the Statute, Mr. Fatehali W. Vellani submitted that this was not a rigid or strict rule and the Courts would refuse to assign the meaning to a particular word/expression assigned in the Statute if the said meaning/definition did not fit in with the provisions or the object of a section of the Statute and it would be open to the Court to assign a meaning to such word/expression which would fit in and be more suitable in the context of the object or the purpose of particular section. In support of his above contention, he placed reliance on the case of Pakistan Fisheries Ltd., Karachi and others v. United Bank Ltd., and 6 others appeals (PLD 1993 SC 109), Mr. Fatehali W. Vellani had also placed reliance on several legal dictionaries as well as ordinary English dictionaries for establishing that the word "Income" is usually used to‑denote the "Gross Income" without making deductions. In this connection, he had drawn our attention to the definition of the word "Income" as given in the Third Edition of The Shorter Oxford English Dictionary on page 1046; Fifth Edition of Stroud's Judicial Dictionary of Words and Phrases on pages 1265 and 1267; The New Hamlyn Encyclopedic World Dictionary on page 836; and Seventh Edition of the Concise Oxford Dictionary of current English on page 598.
We have taken into consideration the respective arguments of the learned counsel for the parties and have also gone through the various provisions of the Ordinance, the case law cited by the learned counsel for the parties and meaning of the word "Income" in ordinary English and legal dictionaries for determining the definition of the word "Income".
In the first place, we would like to take up the contention of Mr. Muhammad Fareed that if a word/expression is defined in a Statute, then the said definition/meaning is to be assigned to it wherever it is used in the Statute and the Courts are barred from applying the ordinary dictionary meaning or any other meaning to the said word/expression whenever a word/expression is used in the Statute. This contention of Mr: Muhammad Fareed holds no ground in view of the pronouncement of the Supreme Court that the Courts in assigning/defining the meaning of a word/expression in a particular section of the Statute have to take into consideration the object or the purpose of the Statute and to see whether, if the word/expression is defined in the Statute, the said meaning or definition would serve the purpose and object of the section; If the Courts find that the definition of a word/expression given in the Statute would not fit in or would not be in the, context with the particular object or purpose of a particular section of a Statute, then it can reject the definition given in the Statute and resort to the ordinary dictionary meaning of the word/expression. In support of the above, reliance is placed on the case of Iftikhar Ahmed and others v. President National Bank of Pakistan and others (PLD 1988 SC 53). In this case, the Supreme Court observed that normally a word/expression if defined in a Statute is to be given the same meaning wherever it occurs therein yet a definition of a term in a Statute is merely declaratory in nature and should not be unnecessarily inflicted where it does not fit in with the object or context. In the first place, we are not in agreement with Mr. Muhammad Fareed that the definition as appearing in section 2(24) of the Ordinance of the word/expression income" would mean "Net Income" after making all permissible allowances, deductions, depreciation etc. If assuming for the sake of arguments that the definition is to be taken to mean "Net Income"', the said definition cannot be assigned to the word/expression "Income" as used in section 23 of the Ordinance as the very purpose of section 23 of the Ordinance would be defeated. As has already been stated herein above, section 23 of the Ordinance provides the various permissible allowances: depreciations, expenditures etc., which are to be deducted from income. Such deduction can only be made from the "Gross Income" and not from the "Net Income" as the "Net Income" would be arrived at after providing/deducting all the permissible allowance, expenditures, depreciation etc. If the meaning of the word "Income" is to be assigned as "Net Income", then the very purpose of section 23 of the Ordinance would be rendered nugatory. Alternatively, if the meaning/definition of the word "Income" is to be given as "Net Income" then the assessee would be provided a double benefit as he would be entitled to have deductions of all the permissible allowances, expenditures, depreciation etc. from his "Net Income" which would be arrived at after making deductions of all the aforesaid allowances, expenditures, depreciation etc.
Mr. Muhammad Fareed drew our attention to sections 34, 35 and 38 of the Ordinance and submitted that after the amendment in section 23(1)(v) by addition of the words "except depreciation on assets given on lease shall be allowed against income from lease rentals only", necessary amendments were made in. sections 34, 35 and 38 of the Ordinance to cover the amendments/additions made in section 23(l)(v) of the Ordinance. We are unable to understand as to how the additions/amendments made in sections 34, 35 and 38 would affect the meaning/definition of the word "Income" to be assigned to it in section 23 of the Ordinance. By the aforesaid addition in section 23(1)(v), the legislature has given its clear intention that depreciation on assets given on lease shall be allowed against lease, rentals only. The question which is to be determined is as to whether income from lease, rentals only would mean the ‑"Gross Income" received from leasing of the property/properties or the "Net Income" arrived at after providing the benefits of all the permissible allowances, expenditures, depreciation etc. As has already been discussed above, if the meaning/definition of the word "Income" as appearing in section 23 of the Ordinance is to be taken as "Net Taxable Income", then either the very purpose of section 23 of the Ordinance would be negated or it would be used to provide double benefit to the assessee, which we are certain that the legislature had no intention to provide. We are of the view that the corresponding provisions of sections 34, 35 and 38 had to be amended to give effect to the words added in section 23(1)(v) of the Ordinance by Finance Act, 1994 allowing depreciation on leased assets against income derived from lease rentals. Our attention was also drawn to the judgment reported in 2000 PTD (Trib.) 474. In this case, a larger Bench of the Appellate Tribunal overruled its earlier finding given in 1999 PTD 3958, wherein it has held that the depreciation was to be allowed first against the amount of leased rentals received by the assessee and other allowance or deduction provided in section 23(1) of the Ordinance. We have gone through both the afore‑cited judgments and we find that the finding of the Appellate Tribunal in the case reported in 2000 PTD (Trib.) 474 is not in proper and correct appreciation of the provisions of sections 23, 34, 35 and 38 of the Ordinance.
In I.T.A. No.67 of 1999 the question of limitation was also involved and an application for condonation of delay in filing the appeal in this Court had been submitted on behalf of the appellant/department. However, in view of the fact that we have decided the questions of law against the appellant/department and their appeals are to be dismissed, we do not consider it necessary to discuss the question whether sufficient grounds have been made out by the appellant/department for condonation of the delay in filing the appeal.
Upon the above discussion, we hold that the appeals filed by the appellant/department are without any substance and do not merit consideration. Accordingly, we dismiss both the appeals. Questions Nos. 1 and 2 are decided in the Affirmative while the remaining questions do not require to be answered.
Q.M.H./M.A.K./C‑12/KAppeal dismissed.