RIAZ GUL VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2002 P T D 2806
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
RIAZ GUL
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint ho. 375/L of 2002, decided on /01/.
st
July, 2002. Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑Second Sched., Part I, Cl. (78E)‑‑‑S.R.O 278(I)/2002, dated 20‑5‑2002‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Amount of special saving certificates purchased from conversion of foreign currency account were reinvested in the same certificates on the maturity and exemption was claimed on income made on such certificates under Cl. (78E) of Part I of the Second Sched. of the Income Tax Ordinance, 1979‑‑‑Exemption was denied by the Department on account of amendment made in Cl. (78E) of Part I of the Second Sched. of the Income Tax Ordinance, 1979 vide S.R.O. 278(I)/2002, dated 20‑5‑2002‑‑‑Validity Word "created" governs the entire Cl. (78E) of the Part I of Second Sched. of the Income Tax Ordinance, 1979 and "created" means to produce something‑‑‑Under Cl. (78E), Part I of the Second Sched. of the Income Tax Ordinance, 1979 the certificate should be created or produced by the conversion of the foreign currency accounts‑‑‑Word "created" thus limits the extent of protection‑‑‑Certificates were purchased from the funds realized on the maturity of the certificates‑‑‑Technically speaking the funds reinvested in certificates were not created out of the amount realized by conversion of a foreign currency account‑‑‑No doubt the reinvested certificates were purchased from the amount of conversion of foreign currency account but certificate obtained by reinvestment could not be said to have been created by conversion of foreign currency account‑‑‑Complainant was not entitled to the benefit of exemption‑‑‑Complaint was accordingly Closed by the Federal Tax Ombudsman.
Chamber 21st Century Dictionary Revised Edition and Excellent Legal words and Phrases ref.
FINDINGS/DECISION
The complainant is a regular income tax and wealth tax assessee under NTN 05‑14‑045342. He has various foreign currency accounts in banks, which were frozen under the government policy. The details of the banks and accounts frozen are given in para 2 of the complaint. The total amount is Rs.13, 825,314. The accounts in the banks were encashed by the complainant and Pak rupees amounts obtained out of tile encashment on 6‑7‑1998 and 6‑8-1998 were invested on 9‑7‑1998 and 6‑8‑1998 through Soneri Bank Limited for the purchase of Special Saving Certificates. These certificates matured in July, 2001 and were reinvested in the same certificates. The complainant's banker through which investments were made in purchase of Special Savings Certificates informed the complainant that unless he provides a certificate from the Income Tax authorities that his income from Special Savings Certificates is not liable to withholding tax, the same will be deducted.
2. On 19‑2‑2002 the complainant submitted an application to the Chairman, CBR for issuance of a certificate as required by the bank. But no reply was received from there in spite of pursuance and reminders through telephone. The complainant alleges that the CBR has deliberately committed maladministration while not replying the above said letter of the complainant and it has been prayed that the CBR be directed to attend to the application and issue exemption certificate to the complainant or in the alternative more clarification be given in respect of exemption sought by him.
3. In reply, the CBR stated that the complainant had submitted application dated 19‑2‑2000 to issue a certificate that his income made on the Special Savings Certificates is exempted under clause (78E) of Part‑I of the 2nd Schedule of the Income Tax Ordinance 1979 which was received on 17‑3‑2002. As similar clarifications were sought from different quarters involving major policy decision, it was referred to the Finance Minister by submitting a note on 23‑1‑2002. Since then remained under process and final decision of the Minister was received by the Board on 13‑4‑2002. Consequently, amendment was made in clause (78E) by issuing SRO No.278 dated 20‑5‑2002. Immediately on issuance of SRO, the complainant was informed that the profit on National Savings Certificates is not exempt under clause. (78E). It has been denied that reply was deliberately delayed. The delay, if any, was on account of time taken by the Office of the Finance Minister in processing the decision. The notification issued reads as follows:
?S.R.O. 278(I)/2002. In exercise of the powers conferred by subsection (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979), the Federal Government is pleased to direct that the following further amendment shall be made in the Second Schedule to the said Ordinance, namely:
In the aforesaid Schedule, in Part I, in clause (78E), in the proviso, after the brackets and figure "(78)" the word, brackets, figure and letter "and (78B) shall be inserted and shall be deemed to have been inserted from the 5th August, 1998".
4. There is no dispute about facts and it is clear that the certificates were purchased from the sale proceeds of the certificates purchased earlier from conversion of foreign currency account. According to the CBR, in view of SRO 278 dated 20th May, 2002, profit on reinvestment of Special Savings Certificates is not exempted under clause (78E). Therefore, the applicant is not entitled to exemption in respect of profit earned on reinvestment in Special Savings Certificates. Clause (78E) provides that any profit or interest derived from Pak rupees account or certificates or deposit which have been created by conversion of foreign currency account or deposit held on the 28th day of May, 1998 with a bank authorized under the Foreign Currency Accounts Scheme will be exempted from income tax. However, the proviso provides that nothing contained in this clause shall apply to such Pak rupees account or certificates which are created out of foreign currency deposits which are not exempted under clause (78) and (78E). The figures (78B) were added by SRO 278(I)/2002 dated 20th May, 2002 with effect from 5‑8‑1998.
5. The question arises whether profits on certificates purchased from the amount realized on maturity of the certificates which were purchased on conversion from foreign currency accounts or deposit held on 28th day of May, 1998 is entitled to exemption. The present case is covered by clause 78(E) of Second Schedule, Part‑I to the Income Tax Ordinance which provides that any profit or interest derived from Pak rupees account or certificates of deposit which have been created by conversion of a foreign currency account or deposit held on 28th day of May, 1998 shall be exempted. Admittedly the income derived from the certificates on which exemption is claimed was purchased from the amount realized on maturity of the certificates. The word `created' governs the entire clause. According to Chamber 21st Century Dictionary Revised Edition 'created' means to bring into existence, to introduce, to produce or to contrive. According to Excellent Legal Words and Phrases by Mian Muhibullah Kakakhel the word 'create'‑in legal terminology means to bring into being, to invest with a new title or to produce.
6. From the above meaning the word 'created' means to produce something. Under clause 78(E) the certificate should, be created or produced by the conversion of the foreign currency accounts. The word created thus limits the extent of protection. The certificates in this case were purchased from the funds realized on the maturity of the certificates. Technically speaking the funds reinvested in certificates were not created out of the amount realized by conversion of a foreign currency account. No doubt the reinvested certificates were purchased out of the funds realized from the certificates purchased from the amount of conversion of foreign currency account but certificates obtained by reinvestment cannot be said to have been created by conversion of foreign currency account.
7. In these circumstances the complainant is not entitled to the benefit of exemption. The case is accordingly closed.
C.M.A./M..A.K./434/FTO
Complaint rejected.