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

‑‑‑‑S..2(24)‑‑‑Word "income" as used in Income Tax Ordinance, 1979 --Not confined to any specific kind of profits or gains.

Maharajkumar Gopal Saram Narain Singh v. Commissioner of Income‑tax, Bihar and Orissa 1935 ITR 237; Commissioner of Income -tax, Bengal v. Shaw Wallace & Company AIR 1932 PC 138; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income‑tax, Rawalpindi PLD 1981 SC 85 and Karachi Gymkhana Club Road, Karachi v. Commissioner of Income Tax 1986 PTD 43 ref.

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

‑‑‑‑Ss. .15, 16(2)(c), 50(1) & Second Sched., Cl. (17)‑‑‑Central Board of Revenue Circular No. 15 of 1997, dated 16‑I1‑1997‑‑‑Central Board of Revenue Circular No. l of 1965, dated 1‑7‑1965‑Constitution of Pakistan (1973), Art. 199‑‑‑Constitutional petition-‑‑Payments under Golden Handshake Scheme to employees‑‑‑Deduction of tax at source treating such payments as salaries‑‑‑Contention of employees was that such payments were ex gratia grants and not salaries, wherefrom no deduction under S.50(1) of the Ordinance could be made; and that such payments were compensation for loss of service paid to parting employees for their rehabilitation and thus, were not income ‑‑‑Validity‑‑ Every amount received by an employee from his employer on termination of employment or modification of contract of employment would be profits in lieu of salary as per definition of "salary" given in S.16(2)(c) of the Ordinance, which by using therein the word "include" had left a room for a wider interpretation‑‑‑Such provisions would bringinto tax net any amount of compensation due to an employee, but not paid by employer‑‑‑No difference existed between compensation in lieu of salary or compensation due to loss of employment‑‑‑Optional or mandatory Golden Handshake Scheme would not matter at all so far as payment by employer or receipt by employees of the sums in question was concerned‑‑‑Such payment would be deemed neither a compensation given for loss of employment nor a capital receipt under law‑‑‑Such payments were covered by definition of word "salary", which was one of the heads given in S.15 of the Ordinance under which such receipts were to be taxed‑‑‑Amount of, compensation which was only due to an employee and had not been paid by the employer would fall into tax net‑‑‑Employees and those placed in similar situation would be entitled to benefits of C.B.R. Circular No.1 of 1965‑‑‑Declaration made by High Court in various judgments against issuance of Circular No.15 of 1997 would operate only to the extent of advice given by Central Board of Revenue to Assessing Officer as to taxability of receipt and its later part extending the concession of C. B. R. Circular No. l of 1965 would remain intact and be available to all those who wished to avail the same‑‑‑High Court rejected Constitutional petitions with such observations as to extension of benefit of C.B.R. Circular No.1 of 1965, whenever requested by assessee.

Nasir Mehmood Dar and others v. Federation of Pakistan 1998 PTD 3497; Income‑tax Commissioner v. E.D. Sheppard, Bombay AIR 1963 SC 1343 and Commissioner of Income‑tax v. Altaf Ahmed Mir 2001 PTD 1538 ref.

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

‑‑‑‑Second Sched., Cl.(17)‑‑‑Central Board of Revenue Circular No.15 of 1997, dated 16‑11‑1997‑‑‑Payments made to employees under Golden Handshake Scheme‑‑‑ Deduction of tax at source treating such payments as salaries‑‑‑Contention of employees was that such amounts were not taxable under cl. (17) of Second Sched. of the Ordinance‑‑‑Validity‑‑ Benefits of such clause could not be availed by the employees for having been retired before attaining age of 60 years‑‑‑Exemption contemplated in cl. (17) was applicable only to pensions, which employees might receive after superannuation and not a lump sum payment in question.

(d) Interpretation of statutes‑‑‑

‑‑‑‑ Creation of legal fiction‑‑‑Legislature has power to create legal fictions one after the other or presume the existence of another fact, when a fact presumed has come into existence.

Khalid Naveed Dar for Petitioners.

Muhammad Ilyas Khan for Respondents Nos. l to 3.

Nadeem Afzal Lone for Respondents Nos.4 to 6.

Date of hearing: 4th October, 2001.

JUDGMENT

NASEEM SIKANDAR, J. ‑‑‑This Constitutional petition calls for an interpretation of section 16(2)(c) of the Income Tax Ordinance, 1979 (for short, the Ordinance). The precise issue being if various sums received by the petitioners are "profits in lieu of salary" as defined in the above provisions of the Ordinance.

2. The petitioners were employed with various financial institutions and limited companies. Their employers, allegedly in order to reduce the inflated size of the Organizations offered them to leave service under certain terms and conditions which were shown as "Golden Handshake Scheme". In some cases the employees/petitioners were not given any substantial choice and, therefore, their parting with the employers was ‑more in nature of pre‑nature retirement. It appears that different employees were offered different incentives to opt for early parting with the Organizations. These incentives which were normally based upon the years of service rendered by an employee are, however, not required to be gone into in any detail.

3. After the petitioners/employees had opted for "Golden Handshake Scheme" or were required to leave their employers by proceedings under section 50 of the Ordinance deducted tax at source from the payments so made. This was apparently done in view of Circular No.15 of 1997, dated 16th November, 1997 issued by the C.B.R. Through that Circular which was titled as "payments under Golden Handshake Scheme‑tax treatment" the C.B.R. expressed the view that compensation in connection with termination of employment was taxable under the head salary under section 16(2)(c) of the Income Tax Ordinance, 1979. Therefore, the Central Board of Revenue advised the Tax Collectors/Assessing Officers to proceed to tax the same as salary but after allowing the employees benefits o an earlier Circular No. l of 1965, dated 1st July, 1965. By way of that circular the terminated employees were granted concession of getting their compensations taxed as a separate block of income at three preceding years' average tax rate.

4. The circular was challenged through a number of Constitutional petitions. About 150.of them were disposed of by a learned Single Bench of this Court on 16‑4‑1998 through common order recorded in Writ Petition No. 282 of 1998 declaring the circular to be ultra vires of the powers of C.B.R. It was declared to be without lawful authority. However, the adjudicating officers were directed to decide independently of the circular as to whether the amounts received by the petitioners were tantamount to salaries. The amounts withheld by the Banks or disbursed to the Department under the impugned circular were also directed to be refunded to the petitioners.

5. That judgment was followed by other Benches sitting singly and directions were made to the Revenue. However, in all of them the issue if the amounts received by the petitioners were salaries, and therefore, taxable as income was left open to be decided by the Assessing Officer. On 13‑12‑1999 another single Bench of this Court at Rawalpindi Bench `in Writ Petition No.2086 of 1999, however, went a step further. While allowing identical petitions it was declared that payments due to or received by the petitioners from their employers we're not "compensation in lieu of salary but a compensation "for loss of employment". These were, therefore, held to be capital receipts which were not taxable as income.

6. The issue as to the taxability of these receipts was taken up by a Division Bench of this Court at the instance of the Revenue in I.C.A. No.241 of 2000 wherein the aforesaid direction of learned Single Judge in Writ Petition No.15296 of 1998 were assailed. After hearing the parties the order of the learned Judge in Chamber was set aside. As to the impugned direction to make refund it was held that the amounts should be invested in some profit bearing scheme so as to be paid to either of the parties which finally succeeds in the matter. Earlier the learned counsel for the parties had agreed that the declaration made with regard to non‑taxability of Golden Handshake amounts should be set aside and the matter be left open for adjudication by Assessing Officers independent of the said circular.

.7. Learned counsel for the Revenue Mr. Muhammad Ilyas Khan, Advocate at the outset has pressed for disposal of these Constitutional petitions in a similar manner. He prays that the matter of taxability of income should be left open to be decided by the Assessing Officer.

8. Learned counsel for the respondents, however, state that the matter is likely to come back to this Court again and the prevailing r‑confusion and uncertainty will only compound. Learned counsel for the respondents claim and we will partly agree with them that in the given situation, the judgment of the Revenue Officer can safely be guessed. Also in view of the aforesaid single Bench judgment of this Court, dated 3‑12‑1999 in Writ Petition No.2086 of 1999 we ate of the view that the ambiguity as to the taxability of such receipts needs to be resolved. Therefore, we proceed to do so: '

9. The word "Income" it is settled beyond any doubt is not confined to any specific kind of profits or gains. In view of their Lordships of the Privy Council in re: Maharajkumar Gopal Saram Naratn Singh v. Commissioner of Income Tax Bihar and Orissa (1935 ITR 237) anything which could properly be described as income is taxable under the Act unless expressly exempted. Since the judgment of the Privy Council in re: Commissioner of Income‑tax Bengal v. Shaw Wallace & Company (AIR 1932 PC 138) there is a great consensus that it is not possible to define the word "income" as a general phrase. According to the Hon'ble Supreme Court of Pakistan in re: Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income Tax, Rawalpindi PLD 1981 SC 85, the question whether a particular kind of receipt is income or not would depend for its answer on the peculiar facts and circumstances of 4ie case. A Division Bench of tote Karachi High Court in re: Karachi Gymkhana Club Road, Karachi v. Commissioner of Income Tax 1986 PTD 43, referred Oxford Dictionary Vol. V Page 162 to show that income means "a thing that comes in". With the passage of time the earlier concept that income generally connotes a periodical return coming in with some sort of regularity arid from a definite source has undergone substantial change. Whenever an attempt has been made to define income it has only been done in the context of a particular statute. The Income Tax is a charge on a person in relation to his income, natural or artificial, which is expressly taxible under the provisions of a charging statute. The burden of proof of the fact any receipt by a person amounts to income is on the Revenue and once it is so established then the burden changes hand and falls upon the assessee to prove that it is not so or that it stands exempted under any provision of the law.

10. According to the learned counsel for the petitioners the payments received by most of them are ex‑gratia grants and, therefore, are not salaries wherefrom any deduction under section 50(1) of the Income Tax Ordinance, 1979 could possibly be made. Also that these remunerations/payments were compensation for loss of service paid to the parting employees for their rehabilitation and, therefore, was not income. All the petitioners have supported their contentions by the aforesaid judgment of a Single Bench of this Court in re: Nasir Mehmood Dar etc. v. Federation of Pakistan (1998 PTD 3497).

11. Mr. Imtiaz Rashid Siddiqui, Advocate, learned counsel for the petitioners in support of his submissions that the amounts received by the petitioners were not taxable, has relied upon a judgment of the Hon'ble Supreme Court of India in re: I.T. Commissioner v. E.D. Sheppard, Bombay (AIR 1963 SC 1343) decided on 12‑12‑1962.

12. Learned counsel for the Revenue on the other hand relies upon a recent judgment of the Supreme Court of Azad Jammu & Kashmir in re: Commissioner of Income Tax v. Altaf Ahmed Mir 2001 PTD 1538. In that case decided on 12‑3‑2001 petitioners before their Lordships were also those who were paid amounts as compensation for premature retirement under Golden Handshake Schemes.

13. After hearing the learned counsel for the parties, we entertain no doubt that the various sums received by the petitioners are squarely hit by the mischief of the aforesaid provisions of section 16(2) (c) of the Ordinance which reads as under:‑‑‑

" 16(2)(c)

`Profits in lieu of salary' includes‑‑‑

(i) the amount of any compensation due to, or received by, an assessee from his employer at, or in connection with, the termination of or the modification of any terms or conditions relating to, his employment."

14. Section 16 gives salary as one of the various heads under which an income can possibly be taxed under the Ordinance. Subsection (2) of section 16 defines "salary" which inter alia includes "profits in lieu of or in addition to salary or wages." Then sub‑clause (c) of subsection (2) defines "profits in lieu of salary" and still leaves a room for a wider interpretation by using the words. "include". A glance at the definition makes it clear that every amount received by an employee from his employer in connection with the termination or modification of any terms and conditions relating to his employment will be "profits in. lieu oil salary". Their Lordships of the Supreme Court of Azad Jamu and Kashmir in re: CIT v. Altaf Ahmed Mir (Supra) rejected similar arguments as made before us that receipt of lump sum amounts when the employment also stood terminated could not be a salary. Their Lordships pointed out that legislature by fiction of law could assume one thing to be another for a specific purpose. Generally a salary means a sum of money which a person receives after having been in service of an employer for certain length of time divided into hours, days, weeks or months. The definition of salary as given in section 16 includes "profits in lieu of salary" as well. These profits are the amounts of compensation due, or received by an employee which have a nexus with the termination of that employment or modification of any terms and conditions relating thereto. The definition of the words "profits in lieu of" is so all embrassing that one cannot escape the conclusion that the amounts received by the petitioners fell right in the center of the net spread by the said definition clause. Also we are of the view that there is no difference between a compensation in lieu of salary or a compensation due to loss of employment. The contention put forth at the bar that a compensation given as loss of employment should be deemed to be a capital receipt under the law is also not readily acceptable. In such situation, a question will arise if right of a person under terms of agreement of employment to serve for a particular period amounts to a capital asset and its liquidation before the appointed time to be a capital receipt. A compensation as far the definition goes is certainly a "profit in lieu of salary" if received in connection with the termination or modification of the contract of employment. In this context whether the employee had the option to accept or reject a scheme or was obliged to part with the employment does not matter at all. The termination or modification of an employment covers the cases of optional and mandatory schemes which the employees availed or were required to avail. A choice or option in the given situation did not matter at all as far the payment by the employer or receipt by the employee of sums in question was concerned.

15. The argument that the payment for loss of employment cannot be taken as salary is of no avail at all. It is repeated that the law has created a legal fiction that amounts received as compensation on termination of employment or modification of a contract of employment will amount to salary and to that proposition the clear words of the statute bear witness. It is equally immaterial if subsection (2) of section 16 of the Ordinance first created a legal fiction of profits in lieu of salary and then proceeded to extend the same further. We are not aware of any rule of interpretation which restricts the power of legislature to create legal fictions one after the other or to presume the existence of another fact when a fact presumed has come into existence. Learned counsel for the Revenue is correct in pointing out the extreme situation as contemplated in the definition clause that the provision as framed will bring into tax net any amount of compensation which is only due to an employee and has not even been from the employer.

16. Some of the petitioners have claimed that these amounts are not taxable under clause 17 of the second schedule to the Income Tax Ordinance, 1979. All the petitioners before us having retired before attaining the age of 60 years cannot avail of the benefits of the said clause. Even otherwise the exemption contemplated in that clause is applicable only to pensions which the employees may receive after superannuation and not a lump sum payment as alleged by the petitioners.

17. Coming to the judgment relied upon by Mr. Imtiaz Rashid Siddiqui, Advocate, in re: Income‑tax Commissioner v. E.D. Sheppard (Suppra) we find the same to be clearly distinguishable. In that case the learned Full Bench of the Supreme Court of India was interpreting Explanation 2 to section 7(1) of the Income‑tax Act, 1922, before the main provision was re‑cost by Finance Act, 1955. The Explanation 2 to section 7 (1) before its re‑casting read as under:‑‑

"Explanation 2‑A payment due to or received by an assessee from an employer or former employer or from a provident or other fund, is to the extent to which it does not consist of contributions by the assessee or interest on such contributions a profit ‑received in lieu of salary for the purpose of this subsection unless the payment is made solely as compensation for loss of employment and not by way of remuneration for past services." (Emphasis supplies)

18. A reading of the above explanation leads one to the simple conclusion that at the relevant time profits received in lieu of salary for the purpose of subsection (1) of section 7 were taxable while the payments made solely as compensation for loss of employment were not liable to tax. It was in that context that their Lordships found for the assessee. The exception created in the latter part of the explanation "unless payment is made ;solely as compensation for loss of employment and not by way of remuneration of past service" clearly took out all sums paid and received as compensation for loss of employment from the ambit of definition of salary. On the enforcement of‑ the Ordinance compensation for loss of office were expressly included in salary through definition clause 16(2)(c). Even on the opening page of the said report it was clearly stated by majority Judges that prior to the amendment introduced by Finance Act, 1995, explanation 2 to section 7(1) made it clear that the payment which was made solely as compensation for loss of employment was not assessable while the payment which was made as remuneration for past service was taxable as income.

19. On the other hand, according to section 16(2) "salary" includes profits in lieu of or in addition to salary and the profits in lieu of salary include any amount of compensation, even due to or received by an assessee in connection with the termination or modification of any terms and conditions relating to his employment.

20. Therefore, we are of the considered view that payments received by the petitioners from their employers are covered by the definition of the word "salary" which is one of the heads given in section 15 under which such receipts are to be taxed. In the given situation, however, we are of the view, that C. B. R. Circular No. 15 of 1997, dated 16‑11‑1997 whereby amounts in hands of an employee were directed to be assessed in the, light of earlier Circular No. 1/65, dated July 1, 1965 was clearly beneficial. Accordingly all petitioners and those placed in' similar situation will be entitled to the benefits of Circular No. l of 1965. The declaration made by this Court in various judgments against issuance o Circular No. l of 1997 operates only the extent of the advice given by the C.B.R. to the Assessing Officers as to the taxability of the receipt. The later part of the Circular extending concession of Circular No. 1/65 shall however remain intact and be available to all those who wish to avail it.

21. The following petitions shall, therefore, be rejected with the observations for extension of benefits of the said Circular No. l of 19651 when ever requested by the assessee:‑‑

(1) W.P. 1973/2001; (2) W.P. No.13908/2001; (3); W.P. No.13972/2001; (4) W.P. No.17396/2001; (5) W.P. No.17397/200L; (6) W.P. No.1739/2001; (7) W.P No.11552/2001; (8) W.P No.11553/2001; (9) W.P. No.14965/2001; (10) W.P. No.13863/2001 (11) W.P. No.25079/2001; (12) W.P. No.8826/2001; (13) W.P No.11966/2001; (14) W.P. No.14549/2001; (15) W.P. No.13717/2002 (16) W.P. No.24448/2001; (17) W.P No.1086/2001; (18) W.P No24282./2001; (19) W.P. No.16000/2001; (20) W.P. No.14379/2001 :(21) W.P. No.19238/2001; _(22) W.P. No.19844/2001; (23) W.P No.23256/2001; (24) W.P. No.1985/2001, (25) W.P. No.7552/200Z (26) W.P. No.436/2001; (27) W.P. No.12979/2001; (28) W.P No.12978/2001; (29) W.P. No.14847/2001;(30) W.P. No.14848/2001 (31) W.P. No.13878/2001; (32) W.P, No.13877/2001; (33) W.P No.13879/2001;(34) W.P. No.14401/2001; (35) W.P. No.14402/2001 (363 W.P. No.13259/2001; (37) W.P, No.13261/2001; (38) W.P No.13262/2001; (39) W.P. No.13263/2001 (40) W.P. No.13265/2001 (41) W.P. No.13611/2001; (42)‑ W.P. No.13615/2001; (43) W.P No.13616/2001; (44) W.P. No.14881/2001; (45) W.P. No.13612/2001 (46) W. P. No. 13374/2001; (47) W. P. No. 11494/2001; (48) W.F. No. 14234/2001; (49) W. P No 15806/2001 and (50) W. P. No. 17379/2001.

S.A.K./I‑90/LOrder accordingly