COMMISSIONER OF INCOME-TAX, KARACHI VS MESSRS CIVIL AVIATION AUTHORITY
2002 P T D 388
[Karachi High Court]
Before Zahid Qurban Alavi and Muhammad Mujeebullah Siddiqui, JJ
COMMISSIONER OF INCOME-TAX, KARACHI
Versus
Messrs CIVIL AVIATION AUTHORITY
I.T.A. No. 891 of 2000, heard on 18/09/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.54---Payment of tax with return of income---"Tax payable on the basis of return" and "tax payable on the basis of assessment"-- Distinction---Clear distinction exists between the tax payable on the basis of return and the tax payable on the basis of assessment order; former denotes an admitted tax liability and the latter is based on the assessed tax liability---Admitted tax liability and the assessed tax liability other than tax liability can never be similar or same---Admitted tax liability and the assessed tax liability can be same in the cases where the declared version is accepted.
(b) Interpretation of statutes---
---- Plain words and patent meanings of law are to be applied and interpreted as they are and no latent meanings are to be attached to the patent words which convey the plain and obvious meaning.
(c) Interpretation of documents---
----Document is to be read as a whole and not in piece or in conjunction with any other material which is not the part of document.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.54---Words "tax payable on the basis of such return"--- Interpretation---Words, "tax payable on the basis of such return" are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes.
(e) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl. (88), Ss. 88 & 54---Exemption---Additional tax for failure to pay tax---Claim of exemption---Non-payment of tax with return---Assessment---Rejection of exemption---Levy of additional tax under S.88 of the Income Tax Ordinance, 1979 on account of default in payment of tax under S.54 of the Income Tax Ordinance, 1979---First Appellate Authority as well as the Appellate Tribunal found that no tax was payable under S:54 and additional tax under S.88 of the Income Tax Ordinance, 1979 in spite of the fact that exemption was rejected and confirmed by the Tribunal---Validity---Appellate Tribunal had rightly found that on account of exemption claimed by the assessee and notwithstanding, the rejection of claim by the Assessing Officer, First Appellate Authority and the Appellate Tribunal, there was no tax payable on the basis of return and consequently there was no failure on the part of the assessee to pay tax under S.54 of the Income Tax Ordinance, 1979 and that no additional tax was chargeable under S.88 of the Income Tax Ordinance, 1979.
(f) Income Tax Ordinance (XXXI of 1979)---
----S.111 & Second Sched.---Penalty---Concealment of income---Wrong claim of exemption,---Effect---Assessee, on the one hand had been allowed to claim exemption from tax in respect of any item of receipt ii it genuinely felt that exemption was available to him in law and even ii the exemption was disallowed, assessee had been provided protection from levy of penalty for concealment of income or furnishing of inaccurate particulars of income and on the other hand the Revenue had been allowed to levy penalty under S.111 of the Income Tax Ordinance, 1979, provided the burden was discharged by the Revenue by proving that an assessee had deliberately claimed exemption from tax in respect of any item of receipt which was not genuine.
(g) Income Tax Ordinance (XXXI of 1979)---
----S.88---Additional tax----Apprehension of the Department that if in the event of disallowance of claim of exemption, the Department was not allowed to have resort to the provisions contained in S.88 of the Income Tax Ordinance, 1979, it will tend to encourage the assessees to claim exemptions which were not genuine and some assessees shall take undue advantage, was totally misconceived and unfounded.
(h) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Ss. 88 & 111---Exemption---Additional tax---Penalty- Any assessee claiming exemption which was not genuine or which was deliberately claimed knowing that the same was not available, he shall always be liable to the imposition of penalty under S. 111 of the Income Tax Ordinance, 1979, which shall be much more than the imposition of additional tax under S.88 of the Income Tax Ordinance, 1979.
(i) Income Tax Ordinance (XXXI of 1979)---
----S.111---Penalty---Concealment of income---Burden of proof---Burden would always be on the Department to fulfil the requirement of law---For the purpose of imposing penalty under S.111 of the Income Tax Ordinance, 1979.
Jawed Farooqi for Appellant.
Miss Sofia Saeed for Respondent.
Date of hearing: 18th September, 2001.
JUDGMENT
MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In this appeal under section 136(1) of the Income Tax Ordinance, 1979 (as it stood between 1st of July, 1997 and 30th June, 2000), the following questions of law are said to arise out of the Income-tax Appellate Tribunal's order, dated 19-6-2000, in I.T.A. No. 380/KB of 1993-94 (Assessment year 1988-89):---
"(1) Whether on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in holding that assessee was not liable to additional tax under section 88 of Income Tax Ordinance, 1979, even if his claim for exemption is rejected and such rejection is confirmed by the Tribunal?
(2) Whether on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was justified in holding that no tax was payable under section 54 when the learned I.T.A.T. had already held that the assessee was not liable for exemption under clause (8) of the Second Schedule to the Income Tax Ordinance, 1979?"
The relevant facts giving rise to this appeal are that the respondent filed its return of income-tax, for the first time, pertaining to the Assessment year 1988-89 and claimed total exemption under clause (88) of the Second Schedule to the Income Tax Ordinance, 1979, claiming itself to be a Federal Government Authority/Local Authority, and no tax was paid under section 54 of the I.T.O. alongwith return. The plea of exemption was rejected and assessment order was passed determining the total income at Rs. 17,67,07,452, further holding the income earned by the respondent liable to tax. The Assessing Officer, by separate order initiated proceedings under section 156 and levied additional tax under section 88 of the Income Tax Ordinance, 1979 (hereafter referred as the Ordinance) on account of default in payment of tax under section 54. The tax liability under section 88 was created as Rs. 44,06,727.
The respondent filed first appeal before the Commissioner of Income-tax (Appeals), who held that no tax was payable on the basis of return and hence no additional tax would be charged. He, therefore, cancelled the order under section, 156, charging additional tax under section 88 on account of default in payment of income-tax under section 54.
The appellant filed second appeal before the Income-tax Appellate Tribunal, on the ground that C.I.T.(A) had no jurisdiction to entertain the appeal because the order under section 156 for charging additional tax under section 88 was passed after it was held by the I.T.A.T., that the assessed income-tax was not exempted and it was liable to charge of income-tax. It was contended that on account of judicial pronouncement the order became rectifiable and consequently it was rectified in accordance with law. It was pleaded on behalf of the respondent/assessee that there was no admitted tax liability and on the basis of return no tax was payable, therefore, there was no default envisaged under section 54 of the Ordinance and hence the provisions contained in section 88 of the Ordinance could be invoked.
A Division Bench of the Income-tax Appellate Tribunal held that a bare perusal of section 54 showed that under this section the tax was payable "on the basis of return" and the respondent having claimed exemption in respect of the income-tax under clause (88), Part I of Second Schedule, with the result that no tax was payable on the basis of such return and consequently there was no default as envisaged under section 54 of the Ordinance.
Being still dissatisfied the department has preferred this appeal before us, invoking our advisory jurisdiction.
Heard Mr. Jawed Farooqi, learned counsel for the appellant and Miss Sofia Saeed, learned counsel for the respondent. Mr. Farooqi, has submitted that the respondent had admittedly shown income of Rs. 17,67,07,452 but claimed exemption under clause (88) of the Second Schedule to Ordinance. The claim of exemption was rejected and the first and second appeals also failed with the result that up to the level of I.T.A.T., it was held that the exemption claimed was not available. He has, therefore, submitted that in the wake of rejection of exemption, the income declared became taxable and consequently the Income-tax Appellate Tribunal, was not justified to hold that no tax was payable on the basis of return. He has further contended that the I.T.A.T., came to the conclusion that, income of the respondent was taxable, it means the respondent wrongly claimed the exemption and, therefore, a settled principle of law has been ignored that no one can claim benefit of his own wrong. He has further submitted that it will set bad precedent and the other tax payers who are paying taxes alongwith the return to avoid charge of additional tax which is leviable in case of default shall be discriminated. He has further contended that the respondent had no genuine claim of exemption which has been rejected and if no action for default in payment of tax under section 54 is allowed to be taken against the respondent, it will give unfair advantage against the assessee who fairly declare their taxable income. He has urged that the respondent is liable to be penalized for wrong claim of exemption and, therefore, the levy of additional tax under section 88 was justified. He has further submitted that if the order of I.T.A.T., is not set aside it will become common practice of tax payers to wrongly claim exemption in order to avoid payment of tax alongwith return because if they are ultimately held liable to tax, no action could be possible against them under section 88 of the Income Tax Ordinance and if the assessees are allowed to adopt this course it would amount to grant licence to play fraud on a statute.
On the other hand Miss Sofia Saeed, learned counsel for the respondent has supported the findings of the I.T.A.T. and has submitted that the provisions contained in section 88, can be invoked if an, assessee fails to pay tax under section 54 or the tax so paid is less than the tax payable under that section and section 54 clearly provides that every person who is required under the Ordinance to furnish a return of total income shall pay the tax payable, on the basis of such return. She has submitted that the key words in section 54 are "the tax payable on the basis of such return". She has contended that since the respondent claimed exemption, therefore, no tax was payable on the basis of return and consequently there is no question of failure of respondent, envisaged under section 54 and as such no additional tax can be levied under section 88.
We have carefully considered the contentions raised by the learned Advocates for the parties. In view of the admitted facts as narrated in the earlier part of this judgment, it would be appropriate to reproduce section 54 and section 88 of the Income Tax Ordinance, 1979, which are as follows:---
"54. Payment of tax with return of income.---Every person who is required under this Ordinance to furnish a return of total income shall pay the tax payable, on the basis of such return, on or before the date on which he is so required to furnish such return:
[Provided that where such person has paid any sum under subsection (1) or subsection (2) of section 53, the Deputy Commissioner shall adjust the said sum against the tax payable under this section.]"
"88. Charge of additional tax for failure to nay tax with return.---Where any assessee fails to pay tax under section 54 or the tax so paid is less than the tax payable under that section, he shall be liable to pay additional tax at the rate of twenty-four per cent. per annum on the amount not paid or the amount by which the tax paid by him falls short of the tax payable under that section, as the case may be, and such additional tax shall be calculated from the first day of October or the date on which the tax was payable, whichever is the later, to the date on which the tax is paid or the date on which an order under subsection (1) of section 59, section 59A, section 62, section 63 or section 65, as the case may be, is made, whichever is the earlier."
A perusal of section 54 shows that every person furnishing return of total income under the Ordinance shall pay the tax payable on the basis of such return.
We are not persuaded. to agree with the submission of learned counsel for the Revenue that although no tax was payable on the basis of return filed by the respondent on account of exemption claimed, but on rejection of claim of exemption by the Assessing Officer, and upholding of the said finding by the First Appellate Authority and I.T.A.T., the tax became payable on the basis of such return. It appears that the learned counsel has lost sight of the fact that there is a marked distinction which is very obvious too, in the liability to pay tax on the basis of return filed by an assessee and in the payment of tax on the basis of assessment made by the Assessing Officer. Although, an Assessing Officer, makes an assessment order, initially on the basis of information contained in the return of income and in the Annexures appended with the return of income, as well as on the basis of material collected during the A assessment proceeatngs, but there is a clear cut distinction between the tax payable on the basis of return and the tax payable on the basis of assessment order. The former denotes an admitted tax liability and their latter is based on the assessed tax liability. Admitted tax liability and they assessed tax liability other than tax liability can never be similar or same. Though in certain cases the admitted tax liability and the assessed tax liability can be same, where the declared version is accepted. We, therefore, do not find any substance in the contention raised on behalf of department that with the rejection of 'exemption claimed and holding that the tax was payable on account of assessment order, the assessed tax liability takes colour of admitted tax liability on the basis of return. If the contention of the learned counsel for the department is accepted then every assessment based on rejection of an exemption shall become an admitted tax liability thereby depriving an assessee from filing an appeal under section 129 and further taking away right of second appeal before the I.T.A.T. and appeal/reference before High Court, an assessee cars file appeal under section 129, if he objects to an order made by the Deputy Commissioner and no appeal is provided in law against admitted tax liability or tax liability on the basis of return itself. The argument is fallacious and nude of any logic. It militates against the clear, provisions contained in section 54 and section 129 of the Income Tax Ordinance. It is devoid of all force and is against the very basic principles of the interpretation of statutes and the principles of taxation. which provide that the plain words and patent meanings of law are to be! applied and interpreted as they are and no latent meanings are to be attached tc the patent words which convey the plain and obvious meaning. The contention ignores another principle that in addition to the application of plain meanings of the words Used in a statute, a document is to be read as a whole and not in piece or in conjunction with any, other material which is not the part of a document. Thus the words, "tax payable on the basis of such return" are to be interpreted on a reading of return of total income as a whole including the claim of exemption if any, and the assessment order is not to be read as part of return of total income under any principle of the interpretation of statutes.
For the foregoing reasons, we are of the opinion that the Tribunal has very rightly held that on account of exemption claimed by the respondent and notwithstanding, the - rejection of claim, by the Assessing Officer, First Appellate Authority and the I.T.A.T., there was no tax payable on the basis of return and consequently there was no failure on the part of the respondent to pay tax under section 54 and that no additional tax was chargeable under section 88. The impugned findings of the Tribunal is based on proper appreciation of the law and sound principles pf the interpretation of statute and is not open to any exception.
After coming to the conclusion that the finding of learned Tribunal is not open to any exception and the provisions contained in sections 54 and 88 of the Income Tax Ordinance, have been rightly interpreted and applied, we would like to allay the apprehension of the appellant. A perusal of the grounds of appeal and the arguments addressed by the learned counsel for the appellant are indicative of the fact that the appeal has been filed more out of apprehension and unfounded anxiety on the part of Income-tax Department rather than the application of law as contained in sections 54 and 88 of the Income-tax Ordinance. The misapprehension and unfounded anxiety on the part of appellant/department is that if the impugned finding, of the Tribunal is upheld it will encourage some assessees to claim exemption which is not genuine with the intention to avoid payment of tax under section 54 alongwith return and to take undue advantage. The assertion on the part of department that the assessees wrongly claiming exemption shall go scot free, if they are not penalized under section 88 of the Income Tax Ordinance, is the result of ignorance about the law, on the part of learned Commissioner of Income-tax, the appellant. We, therefore, deem it fit to remove the apprehension and clarify the misconception by pointing out the relevant provision of law which takes care of such situation. The Legislature has provided for imposition of pqnalty under section 111 of the Income Tax Ordinance, 1979, in case an assessee deliberately claims exemption from tax in respect of any receipt. Subsection (2A) of section 111, reads as follows:---
"[(2A) Notwithstanding anything contained in subsection (1) or subsection (2), where any it of receipt declared by the assessee is claimed by him as exempt from tax or where any seduction in respect of any expenditure is claimed by him, mere disallowance of such claim shall not constitute concealment of income or the furnishing of inaccurate particulars of income, unless it is proved that the assessee deliberately claimed exemption from tax in respect of the aforesaid item of receipt or claimed deduction in respect of such expenditure not actually incurred by him.,"]
A perusal of the above provision of law is indicative of the wisdom on the part of Legislature.By inserting the above subsection, the Legislature has maintained a balance and equilibrium.On one hand the assesses have been allowed to claim exemption from tax in respect of any item of receipt of they genuinely feel that exemption is available to them in law and even if the exemption is disallowed an assesses has been provided protection from levy of penalty for concealment of income or furnishing of inaccurate particulars of income.On the other hand the Revenue has been allowed to levy penalty under section 111, provided the burden is discharged by the Revenue by proving that an assesses has deliberately claimed exemption from tax in respect of any item of receipt which was not genuine. Thus, the Legislature has not given a free hand or licence to the assessees to avoid payment of admitted liability of tax under section 54 alongwith return by deliberately claiming exemption which is not genuine, nor assessees have been deprived from claiming exemption which they genuinely feel to be available to them. The Revenue has been prevented from whittling down the claim of exemption which is not proved to be deliberate, even though it is ultimately disallowed but the hands of Revenue had not been tied totally and if the Revenue is able to prove that the assessee deliberately claimed exemption which was not genuine meaning thereby that no reasonable or prudent person can claim such an exemption or no exemption can be claimed by any stretch of imagination and the exemption has been claimed to avoid the payment of tax under section 54, the penalty can be imposed in such eventuality. At this juncture, we would like to observe that the penalty levied under section 111 of the Income Tax Ordinance is much harsher and stringent than the additional tax imposed under section 88 of the Income Tax Ordinance. The additional tax can be levied at 24 % per annum on the amount not paid or the amount by which tax paid falls short of the tax payable under section 54. (Previously the rate of additional tax was 15 % which was increased to 18 %). However; the penalty which can be imposed under section 111(1) of the Income Tax Ordinance, for furnishing inaccurate, particulars of income is equal to the amount of tax which an assessee sought to evade by concealment of his income or by furnishing inaccurate particulars of income. Thus the apprehension of the appellant that if in the event of disallowance of claim of exemption, the department is not allowed to have resort to the provisions contained in section 88, it will tend to encourage the assessees to claim exemptions which are not genuine and some assessees shall take undue advantage, is totally misconceived and unfounded. As explained above, any assessee claiming an exemption which is not genuine or which is deliberately claimed knowing that the same is not available, he shall always be liable to the imposition of penalty, under section 111, which shall be much more than the imposition of additional tax under section 88. However, we would hasten to add that for the purpose of imposing penalty under section 111, the burden would always be on the department to fulfil the requirement of law.
For the foregoing reasons, both the questions raised in the appeal are answered in affirmative.
A copy of this order be sent under the signature and seal of this Court to the Registrar, Income-tax Appellate Tribunal, who shall pass such orders as are necessary to dispose of the case conformably to this judgment.
C.M.A./M.A.K./C-36/KReference answered.