Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 26(a), First Sched., Part II, para. A(2)(a) & Fourth Sched., R.5‑‑ Insurance company‑‑‑General insurance business‑‑‑Income from dividend and ‑NIT Units in assessment year 1992‑93‑‑‑Changeability to tax‑‑ Special provisions existed in R. 5 of Fourth Sched. to the Ordinance regarding computation of income from general insurance business, but there was no provision at all in the said, rule for computation of tax on such income‑‑‑General provisions contained in First Sched. would apply for taxing such income, and if any benefit in the rate of tax was provided on any kind of income, general insurance companies could not be deprived of such benefits‑‑‑Benefit of a lower tax rate could not be denied to the assessee, general insurance companies in absence of any provision that such benefit would not be extended to their income ‑‑‑Assessee‑company was entitled to concessional rate of tax on dividends derived from listed companies and NIT Units.

Adamjee Insurance Co. Ltd. and others v Income‑tax Officer and others 1995 PTD 761; Central Insurance Company v. C.B.R. 1993 SCMR 1232 and American Life Insurance Co.'s case 1967 PTD 427 ref.

Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others PLD 1997 SC 700 rel.

Maqsood Hassan for Petitioner.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 26th November, 2001.

JUDGMENT

NASEEM SIKANDAR, J.‑‑‑The petitioner is a listed company and derives income from General Insurance Business. For the assessment year, 1992‑93 as against returned income of Rs.30,75,486 an assessment was framed under section 62 of the Income Tax Ordinance, 1979 (for short the Ordinance) at Rs.1,35,72,950. In the process inter alia the Assessing Officer noted that the assessee‑company had reduced its income from dividends from listed companies and offered for taxation at a rate of 5% with reference to the provisions contained in para. A(2)(a) of Part 11 of the 1st Schedule of the Income Tax Ordinance, 1979. The Assessing Officer, however, was of the view that profits and gains of the assessee‑company were to be computed in accordance with the provisions of section 26(a) and the rules contained in Fourth Sched. to the Income Tax Ordinance, 1979. Particularly rules 5 and 8 of the said Schedule. In his view tire company was not entitled to any concession of reduced rate on dividend from listed companies as allowed in the said provisions of Second Schedule or even else where given in the Ordinance.

2. Ira first appeal the assessee failed as the learned first appellate authority maintained the levy of tax and super tax at rate of 44 % on the aforesaid dividend income by holding that the petitioner‑assessee being an Insurance Company was not entitled to the concession contemplated in the aforesaid para. A(2)(a) of Part II of the 1st Schedule of the Ordinance, 1979.

3. On further appeal the learned Tribunal also maintained the treatment meted out to the assessee. To support their conclusions they relied upon a judgment of the Karachi High Court reported as re: Adamjee Insurance Co. Ltd. and others v income Tax Officer and others 1995 PTD 761. In that case a Division Bench of the Hon'ble Court while disposing of a number of identical petitions concluded that the entire income of petitioner‑company engaged in Insurance business, including dividend was liable to be assessed as a single unit by virtue of special provisions contained in section 26 of the Ordinance and the Fourth Schedule thereto. Accordingly it was found that the Insurance Companies were not entitled to any concession claimed in respect of income consisting of dividends.

4. Thereafter, at the instance of the company a Division Bench of the Tribunal framed following questions for our consideration and reply:‑‑‑

"Whether in the facts and circumstances of the case the learned I.T.A.T. erred in holding that income from dividend of Companies doing business of General Insurance was not chargeable to tax under the general provisions contained in para. A(2)(a) Part‑II of the First Schedule of the Income Tax Ordinance, 1979 but under the special provisions contained in section 26 (or) and Fourth Schedule of the Income Tax Ordinance, 1979."

5. Heard the learned counsel for the parties. The reliance of the learned counsel for the assessee‑company on re: Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others (PLD l997 SC 700) is quite pertinent. Although the learned counsel for the Revenue has attempted to distinguish the case in hand yet we are of the view that the ratio settled in that judgment applies on all fours to the facts in hand. The contention of the learned counsel that the rule settled by the Supreme Court in re: Central Insurance Company v. C.B.R. (1993 SCMR 1232) is attracted in the case in hand cannot be accepted as correct. The fact of the matter is that Hon'ble Supreme Court while deciding the case cited at tile bar by the learned counsel for the petitioner expressly referred to their judgment in re: Central Insurance Company (Supra). According to the Hon'ble Court in the facts in hand the view taken by the Karachi High Court in the case re: American Life Insurance Co. (1967 PTD 427) was attracted and having never been overruled by the Supreme Court including the case of Central Insurance Co. (Supra), that view continued to hold the field.

6. The issue in hand has two facets. Firstly if the dividend income' or for that matter any other income derived by an Insurance Company is to be computed under the special provision as provided for in section 26 of the Ordinance read with the Fourth Schedule thereto. Secondly, it while computing the income an Insurance Company it is entitled to any concessional rate of taxation as provided for in the Second Schedule to the Income Tax Ordinance, 1979. In re: Central Insurance Company (Supra), their Lordships of the Supreme Court maintained the view the income from interest on Khas Deposit Certificate/Defence Saving Certificates earned by an Insurance Company being part of the, profit and gains of insurance business were liable to tax. That view was reaffirmed by their Lordships in the case of Messrs E.F.U. (Supra). However, the second question was never an issue before the Hon'ble Supreme Court in the case of Central Insurance Company (Supra). Accordingly their Lordships in the course of their judgment in re: Messrs E.F.U. (Supra) observed that there being no provision in the Ordinance or the Schedule that any one part of the First Schedule shall not apply in the case of General Insurance Companies the beneficial rate of tax available under the First Schedule could not be denied except by suitably amending the law. Their Lordships while interpreting the provisions of section 26(a) of the Ordinance read with the provision of Fourth Schedule expressed that the rules in the Fourth Schedule contain special provisions for computation of income from General Insurance business but there was no provision at all in them for computation of tax on such income. Their Lordships while interpreting all the relevant provisions including those contained in the First Schedule providing for. computation of tax on income from business came to the conclusion that: if any benefit in the rate of tax was provided on any kind of income the insurance companies could not be deprived of such benefits. According to the Hon'ble Judges, in absence of any provision that such benefit shall not be extended to income of General Insurance Companies, the benefit of a lower tax rate could not be denied to them.

7. That being so in view of the judgment of the Hon'ble Supreme Court in re: E.F.U. (supra) our answer to the aforesaid question is in the affirmative that the learned Tribunal erred in law in holding that the assessee‑company was not entitled to the concessional rate of tax on dividends derived from listed companies and NIT Units.

8. Answered accordingly.

S.A.K./M‑966/L Reference answered.