COMMISSIONER OF INCOME-TAX, LAHORE ZONE-B, LAHORE VS LAHORE CANTONMENT COOPERATIVE HOUSING SOCIETY, LAHORE
2002 P T D 354
[Lahore High Court]
Before Nasim Sikandar and Mansoor Ahmad, JJ
COMMISSIONER OF INCOME-TAX, LAHORE ZONE-B, LAHORE
Versus
LAHORE CANTONMENT COOPERATIVE HOUSING SOCIETY, LAHORE
C.T.R. No. 4 of 1999, decided on 22/10/2001.
(a) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl. (103(a)), Explanation ---Interpretation and scope. From the language of the Explanation to clause (103(a)) of Second Schedule of the Income Tax Ordinance, 1979 it is clear that dealing with the member for the purpose of clause (a) was defined and categorized for the purpose of determining the exemption. The explanation not only spells out the meaning of "dealing with the members" but also discloses the intention of the law-maker. If the intention of law was to provide a blanket exemption to any gains arising out of every kind of dealing with the member, then it would have been so provided but the categorization of various kinds of dealing discloses that the intention of the law was not to provide blanket exemption in respect of every kind of dealing. It, therefore, follows that the gains arising out from the sale of goods, lending of money or lease of building or land were the kind of gains which were exempted and other kind of gains which the society might make were not exempted.
(b) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl. (103(a)), Explanation---Exemption---Cooperative Housing Society---Gains made under the heads admission fee, associate membership fee, sub-division fee, construction violation charges were not exempt except the head of transfer fee as these charges were not the gains through the sales of goods or lease of building or land---Only transfer fee falls within the ambit of sales of goods.
(c) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl.(103(a)), Explanation---Explanation to Cl.(103(a)), Second Sched. is a clarificatory in nature.
Mian Yousaf Umar for Petitioner.
Zia Haider Rizvi for Respondent.
ORDER
NASIM SIKANDAR, J.---At the instance of the Commissioner of Income-tax, Lahore Zone B, Lahore, the Income-tax Appellate Tribunal has referred a question of law which is said to have arisen out of an order of the Lahore Bench of Income-tax Appellate Tribunal, dated 22-12-1991 which is as under:
Whether on the facts and circumstances of the case, the learned income-tax Appellate Tribunal was justified to hold that receipts of the assessee society from its members under the heads Admission fee, Associate membership fee, transfer fee, sub division fee and construction violation charges fall within the purview of explanation to clause (103) of the Second Schedule to the Income Tax Ordinance, 1979 and hence exempt from tax?
According to the statement of facts the assessee is a Cooperative Society and derives income from development of a housing scheme. The assessee claimed exemption of income under various heads by invoking clause (103) of the Second Schedule to the Income Tax Ordinance. The Assessing Officer while making the assessment refused exemption under the heads, Admission fee, Associate membership fee, transfer fee, sub-division fee and charges for violation of construction rules. On appeal the Commissioner of Income-tax Appeal held that the exemption was available to the society, on further appeal Income-tax Appellate Tribunal upheld the order of the Commissioner. Thereafter, on the request of the Revenue for reference of a question of law under section 136 the Tribunal vide its order, dated 12-10-1992 referred the aforementioned question.
2. We have heard the learned counsel for the parties. The question being of the interpretation of clause (.103) of Second Schedule of Income Tax Ordinance, 1979, it will be relevant to point out that clause (103) of the Second Schedule was deleted by Notification No. S.R.O. 1081(1)/93, dated 1-11-1993. Before deletion clause (103) was substituted by Finance Act of 1990. However, before substitution clause (103), which is relevant in the present case was as under:
3. "(103) In the case of Cooperative Society (including a Cooperative Society carrying on the business of banking),
(a) so much of its income profits and gains as is derived by it as a result of its dealings with its members.
Explanation. ---In this clause, dealings with a member means any dealing involving sale of goods, the lending of money or the lease of buildings or land which is for the personal use of such member;
(b) the entire amount of its profits and gains of business carried on by it, if it is engaged in-
(i) agricultural or rural credit; or
(ii) a cottage industry; or
(iii) the marketing or agricultural produce of its members; or
(iv) the purchase of agricultural implements, seeds, livestock or other articles intended for agriculture or for the purpose of supplying them to its members; or ,
(v) the processing of the agricultural produce of its members to the extent to which such process is ordinarily employed by a cultivator to render the agricultural produce raised by him fit to be taken to the market, and is not a society engaged in the performance of any manufacturing operations with the aid of power;
(c) interest and dividends derived from its investments with any other cooperative society; and
(d) any income derived from the letting of godowns or warehouses for the purpose of storage, processing or facilitating the marketing of commodities belonging or meant for sale, to its members:
Provided that nothing contained in this clause shall apply to a cooperative society carrying on the business of insurance in respect of its profits and gains to which rule 6 of the Fourth Schedule applies."
4. The assessee sought support from sub-clause (a) on the reasoning that all profits and gains derived by it as a result of its dealing with its member are exempt. The assessee claimed exemption of tax in respect of every kind of receipt including Admission fee, Associate membership fee, Transfer fee, Sub-division fee and construction violation charges as these resulted from dealing with its members. Sub- clause (a) had an explanation which specifically described the meaning of dealing with a member. It provided that dealing with a member meant any dealing involving sale of goods, lending of money or lease of building or land which was for the personal use of such member. From the language of the Explanation it is clear that dealing with the member for the purpose of clause (a) was defined and categorized for the purpose of determining the exemption. The explanation not only spells out the meaning of "dealing with the members" but also discloses the intention of the law maker. If the intention of law was to provide a blanket exemption to any gains arising out of every kind of dealing with the q member, then it would have been so provided but the categorization of various kinds of dealing discloses that the intention of the law was not to provide blanket exemption in respect of every kind of dealing. It, therefore, follows that the gains arising out from the sale of goods, lending of money or lease of building or land were the kind of gains which were exempted and other kind of gains which the society might make were not exempted. This leads us to examine gains of the society accruing to it from Admission fee, Associate membership fee, Sub division fee, construction violation charges. Gains made under all these heads by the society were not exempt because except the head of H Transfer fee, the Admission fee, Associate membership fee, Sub-division fee, construction violation charges are not the gains through the sales of goods or lease of building or land. Only Transfer fee falls within the ambit of sales of goods. We do not agree with the learned counsel for the respondent that explanation to sub-clause (a) is destructive of the provision of sub-clause itself. It is by now settled principle that the explanation is clarificatory in nature. In the instant case it provides al definition to the expression "dealing with the member" which is used in sub-clause (a). Therefore, the argument of the learned counsel is of no avail.
5. Accordingly we hold that the Commissioner of Income-tax (A) as well as Income-tax Appellate Tribunal have not correctly interpretated the provision of clause (103).
That being so our answer to question is in negative. This order will dispose of C.T.R. No. 4 of 1999.
C.M.A./M.A.K./C-128/LReference answered.