MUHAMMAD RAMZAN BALOUCH VS THE STATE
2001 P T D 1538
[Supreme Court (AJ&K)]
Present: Sardar Said Muhammad Khan, C.J. and Muhammad Yunus Surakhvi, J
Civil Appeal No. 110 of 2000
COMMISSIONER OF INCOMETAX, MUZAFFARABAD
versus
ALTAF AHMAD MIR, AVP, NBP, RHQ, MUZAFFARABAD and 22 others
(On appeal from the judgment of the High Court dated 19-4-2000 in Writ Petitions Nos.206 and 331 of 1999).
Civil Appeals Nos. 190 and 191 of 2000
SALARY OFFICER, TAXATION DEPARTMENT AZAD JAMMU AND KASHMIR and others
versus
MUHAMMAD ISHAQUE and others
(On appeal from the judgment of the High Court dated 22-8-2000 in Writ Petitions Nos.260 of 1998 and 269 of 1999).
Civil Appeals Nos. 110, 190 and 191 of 2000, decided on 12/03/2001.
(a) Azad Jammu and Kashmir Interim Constitution Act (VIII of 1974)---
----S. 44---Writ petition---Maintainability---Branches of the Bank established under the authority of Government of Pakistan in Azad Jammu and Kashmir were neither acting in connection with the affairs of the State of Azad Jammu and Kashmir nor were the "authorities" under the control of the Azad Jammu and Kashmir Government or the Council---No writ could be issued against the management of the said Banks under S.44 of Azad Jammu and Kashmir Interim Constitution Act, 1974.
United Bank Ltd. Employees' Union v. United Bank Ltd. 2000KC (C.S.) 930; Salah-ud-Din v. Frontier Sugar Mills & Distillery Ltd., Takht Bhai PLD 1975 SC 244 and Muhammad Rashid Chaudhry v. Chairman AKLASC arid others 1993 PLC (C.S.) 1201 ref.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.16---"Salary" and "profit in lieu of salary"---Definition---Salary according to provisions of S.16(2)(a)(iii) of Income Tax Ordinance, 1979 would include profit in lieu of salary and under S.16(2)(c)(i) of said Ordinance, profit in lieu of salary would include any compensation due to or received by an assessee from his employer for termination or modification of terms and conditions of his employment---Any compensation which was paid by an employer to his employee in connection with the termination of his service or-in connection with the modification of any terns and conditions of his service would be deemed to be "profit in lieu of salary "---Contention that lump sum amount paid as compensation for the termination of services of the employees or for that matter their premature retirement was not a profit in lieu of salary and same could not be regarded to be a "salary" was repelled-- Compensation in lieu of the termination of services of the employees or for that matter the modification in terms and conditions of their services having been declared as "profit in lieu of salary" by the Legislature, said meanings were to be followed by the Courts of law and not the dictionary meaning 'of the same, because particular meaning could not be attributed to a word or phrase in view of its dictionary meanings but by fiction of law, such meanings were attributable if the Legislature would say so.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 16(2)(c)(i)---Profit in lieu of salary---Section 16(2)(c)(i) of Income Tax Ordinance, 1979 had provided that any lump sum amount which would be paid to an employee as compensation for the termination or the modification of the terms and conditions of his service would be deemed to be "profit in lieu of salary "---Meaning of expression "profit in lieu of salary" attributed to it by the statute were to be followed---Contention that lump sum, amount paid to the employee was not a "profit in lieu of salary" was repelled---Lump sum amount paid to the employee being salary, was taxable at source.
(d) Interpretation of statutes---
---- Courts of law were to interpret the law as it was not as it should be.
(e) Interpretation of statutes---
---- While interpreting a provision of law the intention of the Legislature was to be gathered from the phraseology employed in a particular statutory provision.
Syed Nazir Hussain Shah Kazmi, Advocate Supreme Court for Appellant (in Civil Appeal No. 110 of 2000).
Ghulam Mustafa Mughal, Advocate Supreme Court for Respondents (in Civil Appeal No. 110 of 2000).
Ch. Muhammad Afzal, Advocate Supreme Court for Appellants (in Civil Appeals Nos. 190 and 191 of 2000).
Muhammad Farid Khan and Habib Zia, Advocates Supreme Court for Respondents (in Civil Appeals. Nos. 190 and .191 of 2000)
Date of hearing: 15th February, 2001.
JUDGMENT
SARDAR SAID MUHAMMAD KHAN, C.J.---As common questions of law and facts-are involved in the above entitled appeals, we propose to dispose of the same by this single judgment.
2. The brief facts giving rise to the present appeals are that a Scheme known as 'Golden Handshake Scheme' was introduced in Pakistan vide Government Circular No.9, dated 23-10-1997, whereby certain lump sum compensation was offered to the employees of various organizations with a choice to opt for their premature retirement. Consequently, a number of employees of the Banks, including the respondents-employees, opted for their premature retirement on receiving the compensation worked out according to the aforesaid Scheme. Subsequently, a Circular No. 15 of 1997, dated 6-11-1997 was issued by the Central Board of Revenue, Government of Pakistan, wherein it was stated that payment made under the Golden Handshake Scheme was primarily a 'compensation in connection with termination of employment' and, thus, was taxable under the head 'salary' under section 16(2)0) of the Income Tax Ordinance, 1979; a mode was prescribed according to which the income tax was to be deducted at source. The respondents, herein, who were employees of the United Bank Ltd. and the National Bank of Pakistan and were serving at the branches of the same established in Azad Kashmir, opted for their premature retirement on receiving compensation according to the formula envisaged in the Scheme. Consequently, certain amounts were deducted as income tax from the compensation amount in compliance of Circular No. 15 of the Central Board of Revenue which was duly adapted in the State by Azad Jammu and Kashmir Council. The respondents-employees filed writ petitions in the High Court challenging the validity of the aforesaid Circular No. 15 of 1997, issued by the Central Board of Revenue, on the ground that same travelled beyond the scope of relevant provisions contained in the Income Tax Ordinance, 1979, because the lump sum amount which was to be paid in pursuance of the Golden Handshake Scheme could not be regarded as 'salary' within the meaning of sections 50 and 16 of the Income Tax Ordinance, 1979. Thus, they prayed that the said Circular may be declared to have been issued without legal authority and the concerned Bank Authorities might be directed not to remit the said amount to the Income Tax Authorities; if the amount deducted had already been remitted, a writ of mandamus should be issued to the concerned, authorities for refunding the same to the respondents employees. The High Court accepted the writ petitions by striking down the said Circular and directing the concerned Banks to pay the respective amounts to their concerned employees; it was further directed that if the amount had already been remitted to the Income Tax Authorities, the same should be refunded to the assessees. It is against the aforesaid judgments of the High Court that present appeals, with leave, have been preferred to this Court.
3. Ch. Muhammad Afzal, Advocate, the learned counsel appearing on behalf of the appellants in Appeals Nos. 190 and 191, has contended that the High Court has committed an error in holding that Circular No. 15 of 1997, issued by the Central Board of Revenue, was violative of any provisions contained in the Income Tax Ordinance, 1979 and, thus, the same was issued without legal competence. He has submitted that in fact the said Circular is in consonance with the provisions contained in section 16(2)(c)(i) of the. Income Tax Ordinance and the lump sum amount paid in pursuance of Golden Handshake Scheme falls within the purview of 'salary' as defined in section 16 of the Ordinance. Thus, he has submitted that Circular No. 15 issued by the Central Board of Revenue is nothing but a reiteration of the provisions contained in the aforesaid provision. The learned counsel has argued that the High Court was not legally justified to hold that lump sum amount paid to the employees was not 'salary' within the meanings of sections 16 and 50 of the Ordinance. He has contended that an amount paid as compensation to an employee ' in connection with the termination of his employment or for varying the terms and conditions of his service' would be deemed to be a profit in lieu of 'salary' under section 16(2)(c)(i) of the Income Tax Ordinance and, thus, would be a 'salary', therefore, the deduction of income tax at source in pursuance of Circular No. 15 cannot be held violative of the Income Tax Ordinance. He has further submitted that even otherwise, the branches of Banks established in Azad Kashmir cannot be said to be acting in connection with the affairs of the State as envisaged under section 44 of the Azad Jammu and Kashmir Interim Constitution Act, 1974, and, thus, no writ could be issued against the management of the concerned Banks. He has referred to a case reported as United Bank Ltd. Employees' Union v. United Bank Ltd. 2000 PLC (C. S.) 930 wherein it has /a been held that in view of the meanings of the word 'person' as defined in subsection (5) of section 44 of the Azad Jammu and Kashmir Interim Constitution Act, the United Bank Ltd. cannot be regarded to be acting in connection with the affairs of the State of Azad Jammu and Kashmir and is not a local authority under the control of the Azad Jammu and Kashmir Government or the Council and, as such, no writ was competent against the management of the Bank; reliance was placed on a case reported as Salah-ud- Din v. Frontier Sugar Mills & Distillery Ltd., Takht Bahi (PLD 1975 SC 244).
4. Syed Nazir Hussain Shah Kazmi, Advocate, the learned counsel appearing for the appellants in Appeal No.110, owned the arguments advanced by Ch. Muhammad Afzal, Advocate.
5. In reply, Mr. Muhammad Farid, Advocate, the learned counsel, for the respondents in Appeals Nos. 190 and 191, has controverted the arguments advanced on behalf of the appellants. He has referred to an unreported judgment of the Lahore High Court which was also relied upon by the High Court while passing the impugned judgment. The learned counsel has argued that 'salary' as envisaged in sections 50 and 16(2) of the Income Tax Ordinance is altogether different from lump sum amount which is paid in pursuance of the Golden Handshake Scheme as compensation for the voluntary retirement to an employee and it cannot be regarded as 'salary' within the meanings of section 16(2)(a)(iii) of the Ordinance. According to the learned counsel, the amount paid is a compensation for accepting the offer of premature retirement; the compensation is for surrendering the right of service for the remaining period and not a 'profit in lieu of salary' because the salary could not be paid without rendering actual service. So far as the question of issuing writ to the Banks is concerned, the learned counsel has submitted that branches of the Banks functioning in the Azad Jammu and Kashmir territory are 'authorities' within the meaning of subsection (5) of section 44 of the Azad Jammu and Kashmir Interim Constitution Act, 1974, and, thus, even if the Banks were not established by the Azad Jammu and Kashmir Government or the Council, the same are the local -authorities and a writ can be issued against them.
6. Mr. Ghulam Mustafa Mughal, Advocate, the learned counsel for the respondents in Appeal No. 110, has submitted that until and unless a 'profit' is 'in lieu of salary' within the meaning of section 16(2)(a)(iii) of the Income Tax Ordinance, that cannot be regarded as 'salary' and, thus, is not taxable at source as was done in the present case. The learned counsel has relied upon an unreported judgment of the Lahore High Court in Writ Petition No.2086 of 1999 decided on 10-12-1999, whereby Circular No.15 issued by the Central Board of Revenue was struck down observing that lump stun amount which was paid in pursuance of the Golden Handshake Scheme was not a 'salary' as defined in section 1.6 of the Income Tax Ordinance and, thus, the Income Tax deducted at source was violative of the policy laid down in the Income Tax Ordinance. The learned, counsel has also taken us through the provisions contained in section 16(2)(c)(i) of the Income Tax Ordinance and has maintained that the amount paid as compensation for premature retirement under Golden Handshake Scheme cannot be regarded as an amount paid as a profit in lieu of salary within the meaning of the relevant provisions and, thus, was not taxable at source.
7. We have given due consideration to the matter in the light of arguments advanced at Bar. Dealing with the objection that no writ was competent against the management of the Banks functioning in Azad Kashmir, it may be observed that this Court in a case reported as United Batik Ltd Employees; Union v. United Bank Ltd. 2000 PLC (C.S.) 930 has observed as under:---
It is clear from the phraseology of section 44 that a writ petition -is maintainable against a 'person' as defined in subsection (5) who is performing functions in connection with the affairs of Azad Jammu and Kashmir, a local authority or, the State. United Bank Limited is a corporation but it is under the control of Government of Pakistan and not under control of Azad Jammu and Kashmir Council or the Azad Government of the State of Jammu and Kashmir. Thus, it does not fall under the definition of 'person' contained in subsection (5) reproduced above. Apart from that, it does not perform functions in connection with the affairs of the Azad Government of the State of Jammu and Kashmir, local authority or the Azad Jammu and Kashmir Council. In Muhammad Rashid Chaudhry v. Chairman AKLASC and others 1993 PLC (C.S.) 1201 this Court followed the judgment of the Supreme Court of Pakistan reported as Salah-ud Din and 2 others v. Frontier-Sugar Mills & Distillery Ltd., Takht Bhai and 10 others (PLD 1975 SC 244) in so far as it laid down as follows:
Now, what is meant by the phrase 'performing functions in connection with the affairs of. the Federation or a Province'. It is clear that the reference is to Governmental or State functions, involving, in one form or another, an element of exercise of public power. The functions may be the traditional police 'functions of the State, involving the maintenance of law and order and other regulatory activities; or they may comprise functions pertaining to economic development, social welfare, education, public utility services and other State enterprises of an industrial or commercial nature. Ordinarily, these functions could be performed by persons or agencies directly appointed, controlled and financed by the State, i.e., by the Federal Government or a Provincial Government. However, in recent years, there has been manifest a growing tendency on the part of Governments to create statutory corporations for undertaking many such functions, particularly in the industrial and commercial spheres, in the belief that free from the inhibiting effect of red-tapism, these semi-autonomous bodies may prove more effective, flexible and also, profitable. Inevitably, Government retains effective control over their functioning by appointing the heads and other senior officers of these corporations, by regulating their composition and procedures by appropriate statutes, and by finding funds for financing their activities."
It is evident from the observations made above that the branches of 8 the Banks established under the authority of Government of Pakistan, are neither acting in connection with the affairs of the State of Azad Jammu and Kashmir nor same are the 'authorities' under the control of the Azad Jammu and Kashmir Government or the Council. Thus, no writ can be issued against their management under section 44 of the Azad Jammu and Kashmir Interim Constitution Act.
8. 'The present appellants are adversely affected by the impugned judgment; the Azad Jammu and Kashmir Council and Salary Officer, Income Tax Department, were also patties in the High Court and a direction- was also issued to them that if the amount deducted had been remitted to them by the Bank Authorities, the same should be refunded to the respondents. Thus, the present appellants, being aggrieved, are competent to come up in appeal and show that in fact Circular No. 15 of 1997 issued by the Central Board of Revenue, which was duly adapted in Azad Jammu and Kashmir was not violative of the, provisions contained in the Income Tax Ordinance and that the income tax could be deducted from the lump sum amount paid to the respondents because that was a 'profit in lieu of salary'.
9. The moot question which needs resolution in the present appeals is as to whether the amount which was to be paid to the respondents-employees could be regarded as 'salary' within the meanings of section 16 of the Income Tax Ordinance and, as such, is taxable at source. For convenience, the relevant provisions contained in section 16 of the Income Tax Ordinance are reproduced as under:---
"16. Salary.----(1) The following incomes shall be chargeable under the head 'Salary', namely: --
(a) any salary due to the assessee from an employer in the income year, whether paid or not; and
(b) any salary (including arrears or advances of salary) paid to the assessee in the income year by an employer;
Provided that where any salary is included in the total income on the basis that it has become due to an assessee, it shall not be included again on the basis that it is paid.
(2) For the purposes of subsection (1).--
(a) 'salary' includes---
(i) any wages;
(ii) any annuity pension or gratuity;
(iii) any fees, commissions, allowances, perquisites or profits in lieu of or in addition to salary or wages;
(b) 'perquisite' includes--
(i) the value of rent-free accommodation;
(ii) the value of any concession in the matter of rent respecting any accommodation;
(iii) any sum payable by the employer, whether directly or indirectly, to effect an insurance on the life of, or to effect a contract for any annuity for the benefit of, the assessee, or his spouse or any dependent child;
(iv) the value of any benefit provided free of cost or at a concessional rate;
(v) any sum paid by an employer in respect of any obligation of an employee;
(c) profits in lieu of salary' includes--
(i) the amount of any compensation due to, or received by an assessee from his employer at, or in connection with, the termination of, or the modification of any terms or conditions relating to, his employment;
(ii) any payment due to or received by an assessee from a provident or other -fund to the extent to which it does not consist of contributions by the assessee and the interest on such contributions;
(d) 'employer' includes a former employer; and
(e) 'employee', in relation to a company, includes a managing director or any other director or other individual, who, irrespective of his designation, performs any duties or functions in connection with the management of the affairs of the company."
(underlining is ours)
9. It tray be observed that the validity of contention on behalf of , the appellants that the High Court has committed an error in holding that lump sum amount paid to the concerned employees cannot be regarded as salary is to be judged in view of the abovementioned provisions C which define the word 'salary' for the purpose of Income Tax Ordinance. It is evident from section 16(2)(a)(iii) that 'salary' includes 'profit in lieu of salary' and under section 16(2j(c)(i) 'profit in lieu of salary' includes any compensation due to, or received by an assessee from his employer for termination of, or modification of terms and conditions of his employment.
For convenience subsection (2)(c)(i) of section 16 is again reproduced as under:---
(c) 'profits in lieu of salary' includes---
(i) the amount of any compensation due to, or received. by an assessee from his employer at, or in. connection with, the termination of, or the modification of any terms or conditions relating to, his employment;
(Underlining is ours)
10. The perusal of the abovementioned provision clearly shows that any, compensation which is paid by an employer to his employee or for that matter an assessee in connection with the termination of his service or in connection with the modification. of any terms and conditions of his service, would be deemed to be 'profit in lieu of salary'. The contention of the learned counsel for the respondents that as the lump sum amount paid as compensation for the termination of service of the respondents or for that matter their premature retirement, is not a profit in lieu of salary, the same cannot be regarded to be a 'salary' is not tenable, because particular meanings may not be attributed to a word or phrase in view of its dictionary meanings but by fiction of Law, such meanings are attributable if the Legislature says so. The compensation in lieu of the termination of services of the respondents or for that matter the modification in terms and conditions of their service has been declared as 'profit in lieu of salary' by the Legislature and, thus, the said meanings are to be t0lowed by the Courts of law and not the dictionary meanings of the same. Therefore, even if it is assumed that lum sum amount paid to the employees cannot be regarded, as a 'profit in lieu of salary' in the general sense but as it has been declared by the Legislature as 'profit in lieu of salary' by legal fiction, the said meanings are to be followed. According to Black's Law Dictionary, Sixth Edition, the word 'fiction' has been defined as under:---
"An assumption or supposition of law that something which, is or, maybe false is true, or that a state of facts exists which has never really taken place. An assumption, for purposes of justice, of a fact that does not or may not exist. "
Similarly, the expression 'legal fiction' has been defined as under:--
"Assumption of fact made by Court as basis for deciding a legal question. A situation contrived by the law to permit a Court to dispose of a matter, though it need not be created improperly; e.g., fiction of lost grant as basis for title by adverse possession. "
In Corpus Juris Secundum, Volume 36A, the expression 'fiction of law' has been described as under:--
"A legal assumption that a thing is true which is either not true or which is as probably false as true; an assumption or supposition of law that something which is or may be false is true, or that a state of facts exists which has never really taken place; the assumption as true of something known to be false; the assumption, for the purposes of justice, of a fact which does not or may not exist; the legal assumption or invention that something is true, which is, or may be, false; an assumption of an innocent and beneficial character, made to advance the ends of justice."
11. It is evident from the above concept of words 'legal fiction' that the Legislature has laid down in section 16(2)(c)(i) of the Income Tax Ordinance that any lump sum amount which would be paid to an employee as compensation for the termination or the modification of the terms and conditions of his service would be deemed to be 'profit in lieu of salary', the meanings of the phrase attributed to it by the statute are to be followed. Needless to point out, the Courts of law are to interpret the law as it is and E not as it should be. Thus, the contention on behalf of the respondents that the lump sum amount paid to the respondents-employees not being, a profit 'inlieu of salary' is hereby repelled.
12. It may be stated here that while, interpreting a provision of law, the intention of the Legislature is to be gathered of course, in view of the phraseology employed in a particular statutory provision. We are of the opinion that in the instant case, there is hardly any ambiguity that by enacting section 16(2)(c)(i) of the Income Tax Ordinance, the Legislature clearly meant that any compensation which would be paid to an employee for the termination of his service or for variation of the terms and conditions of his service would be deemed to be 'salary' for the purpose of Income Tax Ordinance.
In the light of what, has been stated above, we accept the above entitled appeals, set aside the impugned judgments and hold that Circular No. 15 issued by the Central Board of Revenue was issued according to the provisions contained .in section 16 of the Income Tax Ordinance and the lump sum amount paid to the assessees being 'salary' within the meaning of section 16(2)(c)(i) of the Income Tax Ordinance was taxable at source. In the circumstances of the appeals, we make no order as to the costs.
H.B.T./166/SC(AJ&K)Appeals accepted.