Messrs MIAN SONS COTTON FACTORY (PVT.) LTD., RAHIM YAR KHAN VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2002 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1993 (2001)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.80D & Second Sched., Part I, cl. (118A)‑‑‑C.B.R. Letter C.No.2(98)IT‑JUD/94, dated 18‑1‑2001‑‑‑Protection of Economic Reforms Act (XII of 1992), S.6‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Turnover tax‑‑‑Refund‑‑ Claim of the refund of the tax paid under S.80D of the Income Tax Ordinance, 1979 being the income of complainant/assessee which was exempt under cl. (118A) of the Part‑I of the Second Schedule of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Since the provisions of Protection of Economic Reforms Act, 1992 were subsequent in time and having been introduced by a special statute, they would prevail over the provisions of S.80D of the Income Tax Ordinance, 1979, which was enacted through Finance Act, 1991, which was an earlier statute and part of a general statute ‑‑‑Assessees who fulfilled the conditions of the notifications referred to in the Sched. to S.6 of the Protection of Economic Reform Act, 1992, were entitled to the protection‑‑‑Since cl. (118A) was inserted much before the insertion of S.80D in the Income Tax Ordinance, 1979 and since it was not included in the notification referred to in the Sched. to S.6 of the Economic Reform Act, 1992, the ratio of the Supreme Court judgment in PLD 1997 SC 582 = 1997 PTD 1555 could not be considered as applicable in the complainant's case‑‑‑Complaint was dismissed by the Federal Tax Ombudsman.

PLD 1997 SC 582 = 1997 PTD 1555 rel.

Mirza Muhammad Waheed Baig for the Complainant.

Habib Ahmad, D.C.I.T. for Respondent.

FINDINGS/DECISION

This is a complaint by a private limited company which enjoyed exemption under the subsequently deleted clause (118A) of the Second Schedule, Part I to the Income Tax Ordinance. The matter pertains to refund of the tax paid under section 80D of the Income Tax Ordinance for the assessment years 1992‑93, 1993‑94 and 1994‑95. The man points in. the complaint are as under:

(i) The complainant's income was exempt under clause (118A).

(ii) For the assessment years 1991‑92 to 1996‑97 minimum tax under section 80D @ 0.5% of the turnover was wrongly charged in the complainant's case due to misinterpretation and misapplication of section 80D.

(iii) The Supreme Court of Pakistan vide its judgment reported as PLD 1997 SC 582 = 1997 PTD 1555 held that where income was exempt under clause (118C) no tax was chargeable under section 80D.

(iv) Subsequently the C.B.R. vide its Letter C. No.2(98)IT‑JUD/94, dated 18‑1‑2001 issued instructions that the benefit of the Supreme Court decision be given to all persons to whom the decision, on the basis of the facts and the law laid down b the Supreme Court, squarely applied.

(v) The provisions of clauses (118C) and (118A) are quite identical and the only difference is regarding the period of establishment/set‑up of the industrial undertaking. Therefore, the ratio of the Supreme Court judgment and subsequent C. B. R. circular letter, dated 18‑1‑2000 were fully applicable in the complaint's case.

(vi) The complainant Company had already applied to the Tax Department for issuance of refund vide its letter, dated 25‑8‑1997 and a reminder was sent on 3‑5‑2001 but no action has statedly been taken by the Tax Department.

(vii) Tax under section 80D has been levied in the complainant's case for the assessment years 1991‑92 to 1996‑97 but the present claim is restricted to the assessment years 1992‑93 to 1994‑95 as the assessments for the remaining three years are in appeal before various appellate forums. The refund claim pertaining to tax paid under section 80D for the assessment years 1992‑93 to 1994‑95 is Rs.385,626, Rs.603,928 and Rs.188,486 respectively. After calculating compensation under section 102 of the Income Tax Ordinance, the complainant's total claim is Rs.2,610,274.

It has been prayed that the amount of refund and compensation under section 102 be ordered to be paid to the complainant.

2. The respondent's reply has been received and the representatives of the complainant and the respondent have attended and have been heard. In the respondent's reply it is denied that any refund application, dated 25‑8‑1997 was filed with the tax department but it has been admitted that an application dated 3‑5‑2001 has been received. The main point in the respondent's reply is that the ratio of the judgment of the Hon'ble Supreme Court is not applicable in the complainant's case because exemption under clause (118A) is not covered by the Protection of Economic Reforms Act, 1992. It is stated by the respondent that since the judgment of the Supreme Court pertains only to those exemptions which were covered by the said Act, it was not applicable in the case of the complainant.

3. During the hearing, the complainant's representative referred to section 6 of the Protection of Economic Reforms Act, 1992 which together with the Schedule reads as under:

"6. Protection of fiscal incentives for setting up of industries.‑‑‑ The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified shall continue in force for the term specified therein and shall not be altered to the disadvantage of the investors."

"THE SCHEDULE

(See section 6)

1. Notification No. S.R.O. 1283(1)/90 dated the 13th December, 1990 issued under subsection (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979).

2. Notification No. S.R.O. 1284(1)/90, dated 13th December, 1990 under section 19 of the Customs Act, 1969 (IV of 1969)."

4. It was argued on behalf of the complainant that protection had been given in the Protection of Economic Reforms Act not only to the statutory orders listed in the Schedule but also to those which had been "otherwise notified". It was contended that clause (118A) was inserted through the Finance Act, 1988 and the words "otherwise notified" in section 6 of the Act were applicable to it. It was thus argued that the Act did not give protection only to clauses (118C), (118D) and (118E) which were inserted through S. R.O. 1283(1)/90, dated 13th December, 1990 mentioned in the Schedule to the Act but also to clause (118) of the Second Schedule, Part I to the Income Tax Ordinance. It was thus argued that the ratio of the Supreme Court judgment was applicable in the complainant's case also and therefore tax under section 80D was not leviable in the case during the relevant years.

5. The contentions of the two sides have been considered. It has already been noted that clause (118A) was inserted in the Second Schedule, Part I to the Income Tax Ordinance through Finance Act, 1988. It allowed an eight‑year tax exemption for certain industrial undertakings set up between 1st July, 1988 and 30th June, 1993 (later substituted by 30th November, 1990). It is thus an accepted fact that clause (118A) was inserted much before the insertion of section 80D in the Income Tax Ordinance in 1991. Now the Hon'ble Supreme Court gave particular importance to the fact that the Protection of Economic Reforms Act, 1992 (Act XXII of 1992) was subsequent in time to section 80D of the .Income Tax Ordinance, which was inserted through Finance Act, 1991, and would, therefore, prevail over the latter. The Hon'ble Supreme Court also specifically held that assessees who fulfilled the conditions in the notifications referred to in the Schedule to section 6 of the Protection of Economic Reforms Act (in the present context clauses (118C), (118D) and (118E) of the Second Schedule to the Income Tax Ordinance) are entitled to the protection and section 80D is not applicable in their cases. The relevant portion of the judgment of the Hon'ble Supreme Court is reproduced as under:

"53. It may further be observed that section 6 thereof lays down that fiscal incentives for investment provided by the Government to the statutory orders listed in the Schedule or otherwise notified shall continue in force for the terms specified therein and shall not be altered to the disadvantage of the investor. The above Schedule referred to in section 6 reads as follows:

THE SCHEDULE

(See section‑6)

1. Notification No. SRO 1283(I)/90, dated the 13th December, 1990 issued under subsection (2) of section 14 of the Income Tax Ordinance (XXXI of 1979).

2. Notification No. SRO 1284(1)/90, dated 13th December, 1990 under section 19 of the Customs Act, 1969 (IV of 1969).

54. In our view, since the provisions of Act XII of 1992 are subsequent in time and as they are contained in a special statute, they shall prevail over the provisions of section 80D of the Ordinance, which was enacted through Finance Act, 1991, which was an earlier statute and which was part of a general statute. In this view of the matter, assessees who fulfil the conditions of the notifications referred to in the Schedule to section 6 of the Act XII of 1992, are entitled to the protection'."

6. Since clause (118A) was inserted much before the insertion of section 80D and since it is not included in the notifications referred to in the Schedule to section 6 of Act XII of 1992, the ratio of the Supreme) Court judgment cannot be considered as applicable in the complainant's case. The complaint is accordingly dismissed.

C.M.A./M.A.K/301/FTO Complaint dismissed.