(a) Income-tax---

-----Assessing Officer is required to tax a receipt as it reaches the hands of assessee and not what the receipts ought to have been.

(b) Income-tax---

-----Collection of tax from State Enterprises---Assessing Officer in cases of State Enterprises are tempted to raise fabulous demands in order to satisfy their target requirements---State Cement Corporation being managed by public functionaries or Government servants usually accept their position as that of lame ducks---Obvious reason being that they labour under a gross misconception that State money goes from one pocket to another of the State---Such attitude cannot be condoned on legal premises---Collection of tax, from where the same is not due, is as detestable as its non-payment, when the same was due.

(d) Income Tax Ordinance (XXXI of 1979)---

----Ss.9, 23(1)(xii), 136(1) & 156---Managed Cement Establishments (Payment to Corporation) Ordinance (II of 1979), S.3---S.R.O. No.1218(I)/89, dated 19-12-1989--Cement Development Fund---Rate of Income-tax---Assessee being State Cement Corporation in its return for assessment year 1989-90 declared the amount it received as cement development fund from various managed units under S.3 of Managed Cement Establishments (Payment to Corporation) Ordinance, 1979-- Assessing Officer refused to accept such declared receipts under that head for the reason that S.R.O. 1218(1)/89, dated 19-12-1989, whereby liability of managed Units to pay such fund was determined by Federal Government under S.3 of Managed Cement Establishments (Payment to Corporation) Ordinance, 1979, had been published after six months of the close of income year---Assessing Officer applied the rates notified on 16-2-1988 before the close of income year, and after allowing the cost of subsidy, calculated the cement development fund, and then added the difference between the declared and determined fund towards the income of assessee---First Appellate Court upheld the order of Assessing Officer---Appellate Tribunal, instead of ruling upon the issue of cement development fund, entertained a rectification application under SA56 of Income Tax Ordinance, 1979 and relying on S.23(1)(xii) of Income Tax Ordinance, 1979 found that decision of officers below restricting allowances and deductions in respect of any expenditures laid out and expended and to treat the 'surplus of receipts over expenditure as income, was correct; and the rates for final payment by managed unit, though determined by Government on a subsequent date were to be applied in such a manner as to adopt the same figure in respect of each Unit -as represented, the final amount fixed by Federal Government---Validity-- Assessing Officer had unnecessarily stretched himself to adopt a higher figure of cement development fund with , reference, to a previous notification and his interpretation of S.3 of Management Cement Establishments (Payment to Corporation) Ordinance, 1979, was contrary to law---Assessing Officer was not concerned with actual receipts and was not required to proceed to determine what assessee ought to have received even if there was an attempt to avoid taxation---Question as framed did not arise out of the order of Tribunal, which by making reference to provisions of S.23(1)(xii) of Income Tax Ordinance, 1979 had maintained the treatment meted out to assessee-corporation, thus, department could not possibly take any exception thereto.

(e) Managed Cement Establishments (Payment to Corporation) Ordinance (II of 1979)---

----S.3---Income Tax Ordinance (XXXI of 1979), S.9---Cement Development Fund---Fixation of price by Federal Government as permitted under law could be made both prospectively as well as retrospectively.

(f) Notification---

----Principle that notification is always prospective in operation Applicability Scope---Such principle applies only against vested rights of a subject.

Muhammad Ilyas Khan for Appellant.

Syed Ibrar Hussain Naqvi for Respondent

Date of hearing: 28th November, 2001

JUDGMENT

NASEEM SIKANDAR; J----This is a case stated by the Lahore Bench of the Income-tax Appellate Tribunal under section 136(1) of the Income Tax Ordinance, 1979 (for short the Ordinance). The following questions of law are stated to have arisen out of an order of the Tribunal dated 20-10-1991 partly amended on an application decided on 14-3-1992: ---

`(1)Whether on the facts and in the circumstances of the case the learned Tribunal was justified to hold that it would be correct to restrict allowances and deductions in respect of `any expenditure laid out and expended and to treat the surplus of receipts over expenditure as income?

(2)Whether the learned Tribunal was justified to hold that on this threshold the dispensation by the Officers below is unexceptionable except that the rates for final payment by the managed units though determined by the Government on a subsequent date is to be applied in such a manner as to adopt the same figure in respect of such unit as represents the final amount fixed by the Federal Government?"

2. The assessee-respondent Messrs State Cement Corporation of Pakistan is a public limited company created for establishing and operating Cement Industrial Units in public sector. Since the time of its creation as also during the relevant assessment year 1989-90 the Corporation derived income from managerial services for supervision and management of such cement units. Besides income from business and dividend the Corporation disclosed a sum of Rs. 16,02,84,000 which was claimed to have been received as cement development fund from various managed units. The payment of that fund by managed units was a statutory obligation as provided for in section 3 of the Ordinance II of 1979 of the Managed Cement Establishments (Payment to Corporation) Ordinance, 1979. The Assessing Officer, however, refused to accept the declared receipts under that head mainly for the reason that Circular No.S.R.O. 1218(1)/89, dated 19-12-1989 whereby the liability of management units to pay the fund was determined by the Federal Government under the aforesaid provisions of the Ordinance II of 1979 was published almost six months of the close of income year. Therefore, in his view the circular could not have a retrospective application. While accepting the privilege of the Federal Government to fix the criteria as well as the rate for payment of fund* by the managed units to the Corporation, the Assessing Officer expressed the view that the law as well as the rules were to betaken into account with reference to the income/receipt accruing or expenditure incurred during that income year. Therefore, according to him the notification having been issued after the close of financial year had no effect on the payments already made by the units to the Corporation. It appears that the Assessing Officer had an impression that the Corporation had managed the levy of cement development fund at a lesser rate when in order to minimize its tax liability. In his view this happened after the Law and Justice Ministry, on a reference had found the Fund to be a taxable receipt in the hands of the Corporation. Accordingly he proceeded to issue .a notice to the assessee-Corporation as to why the cement development fund may not be adopted at the rates notified before the close of income year on 16-2-1988. That notification according to the Assessing Officer having been issued in the beginning of financial year no element of retrospectively was involved.

3. A number of submissions were made to object to the proposed application of the previous notification instead of the one dated 19-12-1989 under which the assessee claimed to have received various amounts of fund from various projects. The Assessing Officer, however, refused to take into consideration any of them. After tracing the history of the case and the amount of cement development fund paid by the units to the Corporation during the previous year he found himself fortified that the rate fixed by the Notification dated 19-12-1989 was nothing but an attempt by the Corporation to reduce its tax liability. He noted that cement development fund was fixed at Rs. 61,23,54,703 in the year 1987-88, at Rs. 63,32,76,049 in the year 1988-89 while as per Notification dated 12-1-1987 it was worked out at Rs.75,31,80,817.

Accordingly he proceeded to adopt the rates notified by the Federal Government through Notification dated 16-2-1988 at Rs. 56,28,82,615. After allowing the cost of subsidy at Rs. 15,63,08,491 the cement development fund for the year 1989-90 was calculated at Rs.40,65,74,124, and therefore, the difference between the declared and determined fund amounting to Rs.24,62,91,001 was added towards the income of the Corporation. Accordingly through the assessment order, dated 28-10-1991 the total income from business and other sources was adopted at Rs. 73,70,68,901.

4. Learned First Appellate Authority agreed not only with the estimation of the receipts -on the basis of previous notification but also the reasons which earlier weighed with the Assessing Officer. Learned First Appellate Authority also agreed with the Assessing Officer that after the opinion rendered by Law and Justice Division that the Fund was a taxable receipt, its rate was rendered by the Corporation. In that connection a reference was made to earlier notifications issued on 16-2-1988 and 24-4-1989. Therefore, it agreed with the Assessing Officer that the notifications issued subsequent to the aforesaid 6pinion of the Law and Justice Division were contrived determination of the fund which could not be' taken to be reasonably consistent with the operative circumstances. Also that section 3 of the aforesaid S.R.O. NoA218(I)/89, dated 19-12-1989 contemplated determination of fund which was consistent with the projected profit position. On a reading of section 3 of the said Ordinance learned First Appellate Authority concluded that "it is quite clear from the above that the criteria for determining the rate of the levy is the budgeted profit of each managed cement establishment. There is no other criteria laid down and any variation in the rate must therefore be consistent with the budgeted profit position of each unit." Accordingly finding the rate fixed by the notification relied upon by the assessee to be unfair, learned First Appellate Authority proceeded to agree, with the Assessing Officer. Earlier it was noted that the rate of Fund from the years 1984-85 to 1987-88 indicated 64% , 74% , 60% and 56% of the aggregate profits while after the aforesaid opinion in the years 1988-89 and 1989-90 these receipts were reduced to 30% and 34% of the aggregate profits of the Corporation.

5. On further appeal at the instance of the assessee-Corporation the learned Tribunal admittedly did not rule upon the issue of C.D.F. Therefore, they entertained a rectification application under section 156 of the Income Tax Ordinance, 1979 and finally disposed of the issue in the following words:---

"Therefore, relying on clause (xii) of subsection (1) of section 23 of the Ordinance, we adiuge that it would be correct to restrict allowances, and deductions in respect of any expenditure laid out and expended and to treat the surplus of receipts over expenditure as income. On this threshold the dispensation by the officers below is unexceptionable except that the rates for final payment by the managed units though determined by the Government on a subsequent date is to be applied in such a manner as to adopt the same figure in respect of each unit as represents the final amount fixed by the Federal Government. The appeal succeeds to this extent. "

6. Thereafter, at the instance of the Revenue the aforesaid questions were framed and referred for our opinion.

7. After hearing the learned counsel for the parties, we are of the view that the first question as framed and the first half of the second question do not arise at all out of the order of the Tribunal. Learned Members of the Tribunal by making reference to the aforesaid provisions A of the Income Tax Ordinance maintained the treatment meted out to the assessee, and therefore, the department cannot possibly take any exception to the same.

8. As far the second part of the second question is concerned, our answer to the same has to be in 'the affirmative. In our view the Assessing Officer stretched himself unnecessarily to adopt a higher figure of C.D.F. with reference to a previous notification. Also his interpretation of the provisions of section 3 of the Management Cement Establishments (Payment to Corporation) Ordinance, 1979 was clearly against law. What ever be the justification for reduction in C.D.F. amount the Assessing Officer had no business at all to rule upon the reasons or the motive of the Corporation to collect lesser sums of monies as C.D.F. from the managed units. The Assessing Officer is required to tax a receipt as it reaches the hands of the assessee and not what the (c receipt sought to have been. His opinion that in the two assessment years involved the Corporation deliberately managed to collect smaller sums as C.D.F. from the management units even if accepted as correct still he cannot be held to be competent to estimate these receipts with reference to a previous notification. All the more so when the levy of C.D.F. was properly governed by the aforesaid provisions of the Ordinance and the Assessing Officer could not find any difference between the amounts disclosed to the Revenue and those collected from the managed units. The maintenance of the estimation of C.D.F. by the First Appellate Authority on the ground of its being "reasonably consistent with the operative circumstances" is also wide away the mark. The competency of the Federal Government to issue a notification under section 3 of the said Ordinance on the basis of the, cement produced and sold by every managed units was never questioned by the Revenue. The Federal Government having exercised that privilege and having fixed different sums to be paid by managed units to the Corporation in accordance with the above criteria the Assessing Officer could not doubt the same on the basis of far-fetched interpretation of the rules framed under the aforesaid Ordinance: The Assessing Officer, as noted earlier, was concerned only with the actual receipts and was not required to proceed to determine what the. Corporation ought to have received even if there was an attempt to avoid-taxation. The Assessing Officer in the given situation was not competent to adopt figures and receipts against those declared by the Corporation. In fact the Assessing Officer was not competent to estimate the receipt of C.D.F. declared by the Corporation even if these were not in accordance with the notification inasmuch as for the purpose of levy of Income-tax he was concerned with the actual receipts and not those projected by himself or even contemplated in the notification to be issues ~r by the Federal Government. It will further be seen that under section 3 of the Ordinance since the amount of C.D.F. was finally to be determined on the basis of each metric ton of cement produced and sold by a unit a notification had to be issued after the close of the accounting period. Since the Federal Government was competent to fix different amounts for different periods, the issuance of a notification after the expiry of that period did 1' not mean to give it retrospective effect. The general principle that notification is always prospective in operation had no application in the case in hand. That principle applies only against vested rights of a subject. The notification in hand as wrongly opined by the Assessing Officer did not touch any vested right of any individual. The fixation of price by the Federal Government as permitted under the law could, be done both prospectively as well as retrospectively. The interpretation of various notifications by the Assessing Officer was accordingly totally irrelevant and against law.

9. It has been our impression that in cases State Enterprises like the one in hand the Assessing Officers are tempted to raise fabulous demands in order to satisfy their target requirements. The corporations being managed- by public functionaries or Government servants usually have accepted their position as that of lame ducks. The obvious reason being that they labour under a gross misconception that the State money goes from one pocket to another of the State. It is not so. At least on legal premises this attitude cannot be condoned. A collection of tax where it is not due is as detestable as its non-payment when it is due.

10. For the various reasons given is penaltimate para, our answer to second half of the second question is in the affirmative.

S.A.K./M.A.K./C-141/L

Reference answered.