(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80‑B(1) & 80‑B(2)(bb)‑‑‑Income from encashment of Foreign Exchange Bearer Certificates‑‑‑Taxability in the hands of company or registered firm‑‑‑Validity‑‑‑Amount received ‑on encashment of FEBCs was deemed to bean income under S.80‑B(1) read with S.80‑B(2)(bb) of the Income Tax Ordinance, 1979 in the hands of an individual, URF, AOP, HUF /or an artificial juridical person but not in the hands of a company or a registered firm.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80‑B(2)(bb), 143‑B, 50(5B), 13, 62, Second Sched., Part I, cl. (171) and Part IV, cl. (6D)‑‑‑Assessee a company‑‑‑Income from encashment of Foreign Exchange Bearer Certificates ‑‑‑Taxability‑‑ Principles.

Provisions of section 80‑B of the Income Tax Ordinance, 1979 were not applicable to the assessee, being a company, in respect of the amount received on encashment of FEBCs on which tax was deductible under section 50(5B) of the Income Tax Ordinance, 1979.

Amount invested in FEBCs could not be probed in the hands of the assessee in view of clause (6‑D) of Part IV of the Second Schedule to the Income Tax Ordinance, 1979.

In the case of a company it was only the profit, if any, on encashment of FEBCs which was taxable at normal rates in the hands of the assessee.

Principal amount on FEBC received on encashment was from a source originating from the purchase of FEBCs to which the provisions of section 13 were inapplicable. In this view of the matter no tax could be levied on the principal amount received on encashment of FEBCs.

Salman Pasha and‑Nadeem Dawoodi for Appellant.

Bakhat Zaman, D.R. for Respondent.

Date of hearing: 18th October, 2001.

ORDER

MUHAMMAD AKHTAR NAZAR MIAN (ACCOUNTANT MEMBER).‑‑‑For the assessment .year 1998‑99 the appellant‑company filed return of income alongwith a statement under section 143‑B of the Income Tax Ordinance, 1979. In 'the statement under section 143‑B deemed income was declared pertaining to supplies, imports and encashment of Foreign Exchange Bearer Certificate (FEBCs). Whereas normal assessment was made on income from sources not coveted under presumptive tax regime, the statement under section 143‑B was accepted and in the order under section 62, rates prescribed under section 80‑C were applied to supplies and commercial imports for determining tax thereon. The order under section 62, however, contains no mentioning of the deemed income declared under section 80‑B in the statement under section 143‑B filed by the assessee.

2. The records were subsequently examined by the JAC she was of the opinion that in the circumstances of the case action of the Assessing Officer in accepting the income declared under section 80B in the statement under section 143‑B was erroneous insofar as it was prejudicial to the interest of Revenue. The IAC issued notice for revising the assessment. In response to the notice of the IAC it was submitted before her that in fact there was no profit on encashment of FEBCs which could be taxed in the hands of the Company under any provision of law and that is why the amount received on encashment was declared under section 143‑B and the tax was construed to be the final discharge under section 80‑B. It was further submitted to her that if she was of the view that provisions of section 80‑B were not applicable to the companies, then it was only the profit on encashment of FEBCs which could be taxed in the hands of the company and not the total amount received on encashment of FEBCs.. This argument did not find favour with the IAC who modified the order under section 62 by charging tax at normal rate on the total amount received on encashment of FEBCs i.e. Rs.6.5 million. In this way after giving credit of tax deducted at Rs.65,000 a demand of Rs.2.730 million was raised against the Company. This is subject‑matter of appeal now.

3. Before us the learned A.R. has repeated the arguments as given before the JAC. Briefly it may be stated that the arguments center around the point that in the case of companies only the profit on encashment of FEBCs is taxable as explained by the RCIT Corporate Region vide his Letter No.RCCR/J‑1/62(1)/1996‑97/2158, dated 2p‑3‑1997 a copy of which is now on our records. It is submitted that since there was no profit in the case of the appellant; there was no justification to revise the assessment under section 66‑A because even the declaration of the deemed income under section 80‑B in the statement under section 143‑B was incorrect and, therefore, in fact a tax of Rs.65,000 had been paid which was not due from the company. He had, however, conceded before the IAC that in fact they should have filed appeal before the CIT(A) against the order of the Assessing Officer, notwithstanding their declaration of income under section 80B in the statement under section 143‑B.

4. The learned D.R. on his turn has supported the order of the JAC, mainly relying upon clause (171) of Part‑I of the Second Schedule to the Income Tax Ordinance, 1979. It is submitted by him that as per clause (171) any amount received on encashment of any certificate issued in pursuance of the. Foreign Exchange Bearer Certificates Rules, 1985 was exempt from tax and since this clause had been omitted in 1995 the total amount received on encashment of FEBCs has become taxable after 1995. To this the learned A.R. has responded by referring to clause (6D) of Part‑IV of the Second Schedule to the Income Tax Ordinance, 1979 to contend that the provisions of section 13 were not applicable to the amounts invested in acquisition of FEBCs and, therefore, there was no question of taxing that amount on encashment.

5. We have examined the arguments of both the learned representatives and we are of the considered opinion that even before 1995 the clause (171) of Part‑I of the Second Schedule to the Income Tax Ordinance, 1979 exempted the amount of income which arose on encashment of FEBCs. This is so because Part‑I exempts incomes, or classes of income, or persons, or classes of persons, as enumerated in Part‑I. In this view of the matter the amount referred to in the said clause (171) meant the amount of income received at the time of encashment of FEBCs and this income was exempted under clause (171) upto 1995. The principal amount received on encashment not being income or deemed income could hot be construed to have been exempted in Part‑I. However, if this investment in FEBCs was from undisclosed sources, action under the law could have been taken for its taxation under section 13 but for .the provisions of clause (6D) of Part‑IV of the Second Schedule to the Income Tax Ordinance, 1979 which is still on statute even after amendments in 1995. Meanwhile, in order to tax the income on encashment of FEBCs in the hands of individual, URF, AOP, HUF or an artificial juridical person, a simplified procedure has been prescribed since 1995 under section 80B that the amount received on encashment is deemed as income and, the tax deductable under section 50(5B) will be the final discharge of tax on this deemed income.

6. This view of ours is further supported from the scheme of charging tax as contained in the Income Tax Ordinance, 1979. Income Tax is charged on total income and section 11 gives scope of total income; in case of all assessees it includes all income from whatever source derived which is received or is deemed to be received in Pakistan or accrues or arises or is deemed to accrue or arise to him in Pakistan. As per section 2(24) income particularly includes any income profits or gains from whatever source derived, chargeable to tax under any provisions of this Ordinance under any head specified in section 15 and any sum deemed to be income or income accruing or arising or received in Pakistan under any provision of this Ordinance. This means that the total income liable to charge of tax is to be computed under any head of income provided in the Ordinance and if it is sum other than income then the Ordinance should specifically deemed that sum to be income. With this legal position in view we can now analyse the transaction of the amount received on encashment of FEBCs.

7. FEBCs if not stock‑in‑trade, is an asset of a person and normally the amount received on disposal of an asset is not income chargeable to tax (as it is not a Revenue receipt) unless the receipt 'is deemed to be income under any provision of the Ordinance. So far as the amount received on encashment of FEBCs is concerned this has been deemed to be an income under section 80‑B(1) read with section 80‑B(2)(bb) in the hands of an individual URF, AOP, HUF or an artificial juridical person but not in the hands of a company or a RF. This position is even by the IAC. Now the question arises that in the hands of this company was there any income or profit chargeable to tax in this transaction of encashment of FEBCs. The answer is in the negative because admittedly the amount received on encashment was the same as invested in the purchase of FEBCs. This admitted position is narrated in detail in the order of the IAC as well. This means that no income is computable under any heads of income and, therefore, there is no question of .any chargeability of income pertaining to this transaction. There could have been a possibility of charging of the investment in the purchase of the FEBC as deemed income under section 13 but the clause (6D) of Part‑IV of the Second Schedule, to the Income Tax Ordinance, 1979 does not allow to make use of that section;

8. In view of the discussion as above, we conclude that;

(i) Provisions of section 80‑B of the Income Tax Ordinance, 1979 are not applicable to the appellant, being a company, in respect of the amount received on encashment of FEBCs on which tax was deductible under subsection (5B) of section 50.

(ii) The amount invested in FEBCs cannot be probed in the hands of the appellant due to the existence of clause (6‑B) of Part‑M, of the Second Schedule to the Income Tax Ordinance, 1979.

(iii) In the case of the Company it is only the profit, ‑if any', on encashment of FEBCs which is taxable at normal rates in the hands of the appellant, being a company.

(iv) The principal amount on FEBC received on encashment is from a source originating from the purchase of FEBCs to which the provision of section 13 are inapplicable. In this view of the matter no tax can be levied on the principal amount received on encashment of FEBCs.

9. As a consequence of our findings in para.8 (supra), it is clear that the order made 6y the DCIT under section 62 was not prejudicial to the interest of Revenue and, therefore, the IAC had not rightfully assumed jurisdiction under section 66‑A for revising the said order. In this view of the matter the order of the IAC under section 66‑A impugned before us is hereby cancelled and that of the DCIT automatically stands restored.

C.B.A./M,.A.K./190/Tax (Trio.)Appeal accepted.