BEFORE MUHAMMAD SHARIF CHAUDHRY, ACCOUNTANT MEMBER AND RASHEED AHMED SHEIKH, JUDICIAL MEMBER VS BEFORE MUHAMMAD SHARIF CHAUDHRY, ACCOUNTANT MEMBER AND RASHEED AHMED SHEIKH, JUDICIAL MEMBER
2002 P T D (Trib) 107
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Munir Qureshi, Accountant Member and Muhammad Tauqir Afzal Malik, Judicial Member
I.T.As. Nos. 240/LB and 304/LB of 1999, decided on 23/12/2000.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 23(1) & 30---Company---Deduction---Interest income---Interest income earned by the company did not constitute the company's business income and no expenses, therefore, were allowable under S.23(1) of the Income Tax Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 80-D & Second Sched., Cl. (118-D)---Minimum tax on income of certain persons---Exemption---Principles---Minimum tax under S.80-D on turnover of exempt unit under Cl. (118-D) Second Schedule of the Income Tax Ordinance, 1979---Validity---Exemption available to the company in terms of Cl. (118-D) of the Second Sched. of the Income Tax Ordinance, 1979 could not be allowed to be defeated by recourse to the provision of S.80-D of the Income Tax Ordinance, 1979---Turnover which S.80-D seeks to tax was the sale of its manufactured product-- Income of the enterprise was nothing but gross profit realized from sale of manufactured products, less all indirect expense and depreciation incidental to manufacturing activity---If sales were taxed that would in effect not be allowing exemption to the company's income in the manner envisaged under .Cl. (118-D) of Second Sched. of the Income Tax Ordinance, 1979---Turnover tax under S.80-D, thus was not leviable on the company's sales.
Elahi Cotton Mills Ltd. I.T.As. Nos. 2444 to 2450/1,13 of 1998 and I.T.As. Nos. 2295 to 2301/1,13 of 1998 ref.
1998 PTD (Trib) 1379 rel
I.T.As. Nos. 2942 and 2943/LB of 1997 distinguished
Nemo for Appellant/Assessee.
Mian Javed-ur-Rehman, D.R. for Respondent/Department
Date of hearing: 14th November, 2000.
ORDER
MUHAMMAD MUNIR QURESHI (ACCOUNTANT MEMBER).---The assessee, a private limited company and the department have filed appeals against the order of the CIT(A), Zone-1, Lahore, dated 4-11-1998.
2. Briefly stated, the relevant facts in this case are that the assessee/company is engaged in the manufacture and sale of ghee, enjoying statutory/exemption from levy of income-tax as envisaged in clause (118-D), Part-I, of the Second Schedule to the Ordinance Assessment for 1996-97 was completed under section 62 at Nil (Business) income and exemption allowed in terms of clause (118-D). However, Turnover Tax under section 80D was charged amounting to Rs. 28,96,667. Also, interest income earned by the company was brought to tax under section 30 of the Ordinance, and subjected to tax @ 45 %.
3. In appeal preferred before the CIT(A), the assessee argued against levy of tax under section 80-D on the ground that the provisions of section 80-D were not applicable in the case of exempt units. Further, as regards interest income earned by the company, it was argued that the provisions of section 80-B were applicable in the case of assessee as it was a company and hence tax at the reduced rate of. 10% should be charged rather than the 45 % rate applied by the Assessing Officer.
4. The CIT(A) has accepted assessee-Company's claim for non -levy of tax under section 80-D and he has referred to Supreme Court of Pakistan decision in the case of Elahi Cotton Mills Ltd. in this context. In the case of interest income-tax, however, the CIT(A) has held that the provisions of section 80-B were not applicable in the company's case and reference has been made to I.T.A.T. decision cited as 1998 PTD (Trib.) 1379.
5. In appeal filed against the orders of the First Appellate Authority, the assessee-Company has contested the CIT(A)'s ruling regarding non-applicability of the provisions of section 80-B in the case of interest income earned by the company. According to assessee the CIT(A) was misconceived in his view and 80B was applicable in assessee's case. Alternately, it is argued that if interest income earned by the company was to be brought to tax under section 30 at normal tax rates then expenditure statedly incurred by assessee amounting to Rs. 190,630 towards earning of said interest income must be set off against such income.
6. In appeal filed by the department, it is contended that the CIT(A) has wrongly allowed exemption from 80-D and reliance placed on Elahi Cotton decision .was misplaced as section 80-D was placed on the statute much before decision announced in Elahi Cotton v. C.B.R. etc.
7. According to A.R. of assessee-Company, the CIT(A) has referred to I.T.A.T. decision cited as 1998 PTD (Trib.) 1379, but he has conveniently ignored I.T.A.T. decision I.T.A. Nos. 2942-3/LB of 1997 (assessment years 1993-94 and 1994-95, dated 16-6-1998 in which the provisions of section 80-B have been held to be applicable to a company. Similarly, in I.T.As. Nos. 2444-50/LB of 1998 (assessment years 1988-89) to 1992-93 and 1994-95 and 1995-96) was (consolidated) order, dated 3-9-1998 and (cross-appeals) bearing-I.T.As. Nos. 2295 2301/LB of 1998 and 2597 to 2603/LB of 1998 (assessment years 1991-92 to 1997-98 (Consolidated) order, dated 31-5-1999, 31-5-1999, the provisions of section 80-B have been held to be applicable in the case of Cooperative Societies registered under the Societies Registration Act. As a cooperative society so registered is a body corporate/artificial juridical person, therefore, it is argued that if 80B is applicable to a cooperative society then it must also be held applicable to a company.
8. The D.R. has been heard.
9. After hearing both sides and examining the relevant record, we find that so far as interest income is concerned, while there is no cavil with the proposition that both `company' and `cooperative society' are artificial juridical persons, however, section 80-B of the Ordinance does not specifically cite `company's as an applicable entity in terms of charge of tax at reduced rate of 10% on interest income earned. Thus individual, unregistered firm. AOP, and HUF are specifically cited in section 80-B(1) but company is not so cited. Neither is local authority cited. Also, registered firm too finds no mention. To us these omissions are a clearly deliberate and. indicative of a conscious decision to exclude these entities from the purview of section 80-B in the context of interest income earned. This line of reasoning is consistent with ITAT (Peshawar D.B.) decision cited as 1998 PTD (Trib.) 1379, that authoritatively and comprehensively explains the rationale of section 80-B. No doubt I.T.A. No. 2942-3/LB of 1997, dated 16-6-1998 is at variance with aforesaid Peshawar D.B. decision. It is, however, noted that the Peshawar D.B. decision was announced earlier on 20-9-1997 and duly reported in the major tax journals and all I.T.A.T. Benches are required to follow the same. As no attempt has been made to distinguish the Peshawar D.B. decision from the matter under consideration before the Lahore D.B. of the I.T.A.T. that announced decision in I.T.A. No. 2942-3/LB of 1997, dated 16-6-1998. The ambient circumstances seem to suggest that the Lahore D.B. was unaware of the Peshawar D.B. decision when it announced its decision on 16-6-1998.
10. In our considered view, the Peshawar D.B. decision of 20-9-1997 correctly focuses on the construction of section 80-B (1), taking cognizance of the omission of entities like registered firm, local authority and company therefrom before reaching the conclusion that section 80-B is not applicable to a company and it is rightly pointed out that if it were the intention of Legislature to allow a company the benefit of concessionary tax rate of 10% as against the normal higher rate then section 80-B would have been so constructed as to clearly and unambiguously enable the same to be done. Contrariwise, as section 80B is not so constructed, then it must follow that this was not the intention of Legislature. A similar conclusion is also inevitable in the case of cooperative societies.
11. As for the alternate plea that expenses be allowed and set off against interest of income of the company, we find that expenses as claimed are not allowable under section 30 of the Ordinance/interest income earned by the company does not constitute the company's business income and no expenses therefore, are allowable under section 23(1). We accordingly hold that reliance placed by the First Appellate Authority on the (reported) Peshawar D.B. decision of 20-9-1997 is well-placed. The same is, therefore, maintained.
12. Coming now to the 80-D matter, we have given the same our anxious consideration and we find that the exemption available to the company in terms of section 118-D of the Ordinance cannot be allowed to be defeated by recourse to the provisions of section 80D. The turnover that section 80-D seeks to tax is the sale of its manufactured product viz. ghee. Income of the enterprise is nothing but gross profit realized from sale of manufactured product, i.e., ghee, less all indirect expenses and depreciation incidental to manufacturing activity. Thus, if we tax sales, we would in effect not be allowing exemption to the company's income in the matter envisaged under section 118-D.
13. In view of the discussion above, we hold that turnover tax under section 80-D is not leviable on the company's sales.
14. Resultantly, appeals filed by both the assessee and the department fail.
C.M.A./M.A.K./134/Tax.(Trib.)Appeals dismissed.