Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 80‑D & 62‑‑‑Pakistan Telecommunication Employees Trust (Re organization) Act (XVII of 1996), CI. 44(9)‑‑‑Pakistan Telecommunica tion Employees Trust (Investment) Rules, 1997‑‑‑C.B.R. Circular No. 10 of 1991, dated 30‑6‑1991‑‑‑S.R.O. 946(I)/1997, dated 6‑10‑1997‑‑ Income from making investment of pension fund ‑‑‑Chargeability of tax under S. 80‑D of the Income Tax Ordinance, 1979‑‑First Appellate Authority deleted such tax on the ground that provisions of S‑80‑D of the Income Tax Ordinance, 1979 were not applicable on income from investment in Government securities, interest on late payment of contributions and profit and loss sharing account because gross receipts from these sources were not received under the head "business" and profession‑‑‑Department pleaded that Investment rules of the trust showed that the business of the trust was to make investment in Government : approved interest bearing securities and shares of listed companies and such earnings of the trust from investments were business income chargeable to tax under the provision of S.80‑D of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Pakistan Telecommunication Employees Trust was managed by a Board of .Trustees‑‑‑Purpose of the establishment of the trust was the maintenance of pension fund‑‑‑Pension fund consists of amounts received from the employee's pension fund contribution, donations and investments and profits, gains and other returns accrued on such investments‑‑‑Legal status and scheme given in accounts showed that trust was established to provide gratuity, superannuation, retirement, family and invalid pension. and commutation to the employees‑‑‑Department failed to show that assessee was engaged in any business or industrial undertaking‑‑‑Provisions of S.80‑D of the Income Tax Ordinance, 1979 were applicable on "gross receipts" from "business or profession" profits and gains which were ordinarily chargeable under S.22 of the Income Tax Ordinance, 1979‑‑‑Since income of the assessee fell under the head of "income from other sources" the provisions of S.80‑D of the Income Tax Ordinance, 1979 were not attracted‑‑‑Order of the First Appellate Authority was maintained by the Appellate Tribunal and appeal of the Department was rejected.

I.T.A. No.548(IB) of 1998‑99; I.T.As. Nos. 110, 111(IB) of 1997‑98; I.T.A. No.1143(IB) of 1999‑2000; 1998 PTD (Trib.) 1099; 1980 PTD 322; 1993 PTD (Trib.) 739 and 1994 PTD 1171 (203 ITR 881) irrelevant/distinguished.

1999 PTD (Trib.) 708 and 2000 PTD (Trib.) 3776 ref,

Naushad Ali Khan, D.R. for Appellant.

Khalid Mehmood, ACA for Respondent.

Date of hearing: 7th March, 2003.

ORDER

This is the case of a trust set‑up under the Pakistan Telecommunication (re‑orgranisation) Act 1996. The income generated from making investment of the pension fund was subjected to the provisions of section 80D and tax was charged in an order passed under section 62 for the three years under appeal as under:‑‑

2. The assessee being aggrieved, filed appeal before the First Appellate Authority who agreed with the arguments given before him on the assessee's behalf stating that the receipts were not liable to be taxed under section 80D. The arguments given on behalf of the assessee before the First Appellate Authority were that the provisions of section 80D were not applicable on the income of the assessee from investments in Government securities, interest on late payment of contributions by PTCL and profit and loss sharing account because gross receipts from these sources are not received under the head "business and profession". The learned CIT(A) accordingly deleted the tax charged under section 80D.

3. The department being aggrieved has filed the appeals on the following grounds:‑‑

"(2) That the trust has been established by Notification under the name and style of Messrs Pakistan Telecommunication Employees Trust vide Act No. XVII of 1996. According to the Chapter VII of the Gazette, dated October 17, 1996 in clause 14. sub‑clause (9) of following has been statuted.

"(9) The Board of Trustees may, with the approval of the Federal Government and by notification in the official Gazette make rule for the management and conduct of business of the Trust."

According to the approved rules vide S.R.O. 946(1)/1997, dated 6‑10‑1997 the trust is permitted to make investment for business purposes in the institution enumerated in the assessment order from the sub‑clause (9) of clause 44 of the Act under which the trust came into being the business of the trust is to deposit money in the institution given therein. As such the receipts represent business receipts. The worthy CIT(A) while deleting the charge of section 80‑D has not appreciated the facts.

(3)The learned ITAT in other parallel case such organizations such as Army Welfare Trust and Fauji Foundation has held that money invested in such institutions and interest income accrued thereon is business receipts, therefore, charge of section 80‑D has rightly been made."

4. The learned Assessing Officer has observed that according to the Pakistan Telecommunications Employees Trust (Investment) Rules, 1997 the Trust could invest the moneys which were not immediately required for expenses in the following:‑‑

"(a)Government securities:

(b)Government guaranteed securities.

(c)Loan to bodies or persons holding Government securities or Government guaranteed securities of the reliable value of which exceeds the amount of loan and accrued interest and other charges thereon by not less than twenty per cent (20 per cent) and such securities are pledged hypothecated with first charges and assigned to the Trust,

(d)interest bearing deposits in guaranteed banks:

(e)debentures or other securities or interest bearing deposits of any authority corporation or company provided dividends of not less than ten per cent (10 per cent) per annum has been paid on such debentures, securities or deposits for three consecutive accounting years preceding to the year in which such investment is made and have not defaulted in the repayment of principal thereof during thirty six months, immediately preceding the day on which investment is made:

(f)ordinary shares of any such authority, corporation or company listed with stock exchange to Pakistan as has paid dividends of not less than sixteen per cent (16 per cent) per annum on its ordinary share capital for three accounting years immediately preceding the year in which investment is made;

(g)ordinary shares or debentures or other securities or loans to a controlled company;

(h)immovable property; and

(i)such other investments as the Trust may think fit with prior approval of the Board.

The learned DCIT held that a perusal of the investment rules as reproduced above would show that this was the business of the trust to make investments in Government approved interest bearing, securities and shares of listed companies and therefore, the earning of the trust from the investments were business income which were liable to tax under the provisions of section 80D. The learned Assessing Officer has referred to the case‑law and submitted that in these cases it has been held that interest income in respect, of the organizations established for welfare purposes is to be regarded as income from business or profession. The case‑law relied upon is as under:‑‑

(1)I.T.A. No.548(1B) of 1998‑99, dated 30‑6‑2000.

(2)I.T.A. Nos. 110 and 111 (IB) of 1997‑98 and I.T.A. No.1143(IB) of 1999‑2000, dated 3‑10‑2000 (date of order wrongly given as 1‑10‑2000 in the order of the learned ACIT).

(3)1998 PTD (Trib.) 1099

(4)1980 PTD 322.

(5)1993 PTD (Trib.) 739.

(6).(1994) PTD 1171 (203 ITR 881) Supreme Court of India.

Accordingly the learned Assessing Officer subjected the gross turnover of the respondent‑company to the provisions of section 80D.

5. The AR of the assessee submitted before the learned CIT(A) that the cases referred to in the assessed order are not relevant to the facts of the case. It was stated that the interest income earned in the case in I.T.A. Nos. 548(IB) to 553(IB) was held to be business income because main object of the assessee was to invest its fund in undertakings of other organizations whereas in case of the respondent the main object was to invest the pension fund of PTCL in specified securities etc. for the purpose of payment of pension to the ex‑employees. It was not the purpose of the respondent to carry out any business as such to make profits.

6. The learned CIT(A) observed that the provisions of section 80D were not applicable on the income of the assessee from investments in Government securities interest on late payments of contributions by PTCL and profit and loss sharing account. The learned CIT(A) further observed that in pursuance of the orders of this Tribunal reported as (1996) PTD (Trib.) 286) (1999) PTD (Trib.) 708, and I.T.A, No.548 to 553(IB) the provisions of section 80D were to be applied on account of gross receipts derived from sale of goods or from rendering giving or supplying services or benefits from execution of contracts. He held that since the receipts of the assessee trust were not derived from such activities the provisions of section 80D were not applicable.

7. The learned DR reiterated the arguments given in the assessment order and stated that this was the business of the assessee‑trust to make investments in the Government approved institutions and limited companies and therefore the provisions of section 80D were applicable. The learned AR on his part submitted that the main purpose of the assessee‑trust was to maintain pension 1;und of employees and that pension fund as such was not liable to tax under the Second Schedule of the Income Tax Ordinance. 1979. He submitted that the Full Bench of this Tribunal had held in the case reported as 2000 PTD (Trib.) 3776 and in the case reported as (1999) 79 Tax 1 (Trib.) = 1999 PTD (Trib.) 708 that income from interest was to be charged under the provisions of section 30 unless this was the income of a bank or an investment company and the amount invested was the stock‑in‑trade of an assessee. He submitted that the basic purpose of the Trust was to maintain pension fund and to disburse the amount of pension to the ex‑employees and that no business activity was involved and therefore, the provisions of section 80D were not applicable.

8. The learned AR also referred to the C.B.R.'s Circular No. 10 of 1991, dated 30‑6‑1991 wherein it had been stated that the minimum tax is payable under section 80D on the deemed income representing the total amount of the declared turnover from all sources falling under the head "income from business or profession". In these circumstances he submitted that the order of the First Appellate Authority did not suffer from any infirmity and should be maintained.

9. We have perused the orders of the authorities below and have given consideration to the arguments of both the parties. The case‑law referred to at the bar has been perused. The arguments of the learned AR carry substantial weight. The functions of the trust have been given in the Pakistan Telecommunication Employees Trust (Re‑organisation) Act, 1996 and include assumption of pension fund including contributions of the company to the pension fund and to make provisions for payment of pension to the Pakistan Telecommunication Employees to the extent of their entitlement. The Rules provide for investment of the moneys which are not immediately required for expenses in Government securities. Government guaranteed securities, interest bearing deposits etc. We have not been referred to any evidence to show that the assessee was entitled to undertake any business activities.

10. The learned ACIT has referred to case‑law but neither the facts of these cases have been discussed nor the findings given therein have been indicated. We have gone through the case‑law and find it to be distinguishable. The Tribunal held in order, dated 30‑6‑2000 in ITA Nos. 548 to 553 (IB) of 1998‑99 in case of a Foundation that its income from interest was chargeable to tax as business income under section 27 because the Foundation was deriving income from industrial undertakings and the income was utilized for welfare purposes. Same is the case with regard to the order, dated 3‑11‑2000 in the other unreported decision of this Tribunal relied upon by the learned ALIT In this case, the Trust was allowed by its Memorandum to invest its money in any business or trade for increasing its assets for the purposes of welfare activities. The respondent in the case before us was not shown to have indulged in any such business activity.

11. The case‑law referred to as 1998 PTD (Trib.) 1099. pertained to applicability of clause (86) of Part I of the Second Schedule of the Income Tax Ordinance, 1979. This clause relates to income of universities and educational institutions. We fail to understand as to why this case has been referred to by the Assessing Officer. The Karachi High Court observed in the case reported as 1980 PTD 322 that dealings in shares will become a business venture if the shares are held as stock- in‑trade. It was further held that it is the circumstances in each case that will determine the head of income and that if facts are equivocal, the benefit must go to the assessee. So this case‑law is of no benefit to the Revenue because the learned Assessing Officer has not shown that the shares were held as stock‑in‑trade.

12. The learned ACIT has also referred to the Indian Supreme Court's decision reported as 1994 PTD 1171. In this case the respondent was a contractor. Apart from the receipts on account of contracts he also received certain amount under the awards of an arbitration and the amount so awarded included interest for delay in payment of the amount due. The Indian Supreme Court held that the amount of interest was incidental to the contract business of the assessee and therefore, it partook the same character as the receipts for the payment of which the assessee was otherwise entitled. So the facts of this case are also different and therefore, this case is also of no help to the department.

13. The case‑law referred to as 1993 PTD (Trib.) 739 deals with the provisions of section 22 read with section 80AA and Avoidance of Double Taxation Agreement with Switzerland. The subject‑matter dealt with has no relevance with the facts of the case before us.

14. The respondent has established the Pakistan Telecommunica tions Employees Trust which is managed by a Board of consisting of three trustees appointed by the Federal Government and three by the Pakistan Telecommunications Corporation. The purpose of the establishment of the Trust is the maintenance of pension fund. The pension fund consists of amounts received from the PTCL employees pension fund, contributions by PTCL, donations and investments and the profits, gains and other returns accrued on such investments. Functions and powers of the Trust have been enumerated above. The legal status and the scheme given in the accounts for the year under consideration shows that the Trust is established to provide the following benefits to the employees of PTCL:

1.Gratuity.

2.Superannuation.

3.Retirement.

4.Family and invalid pension.

5.Commutation.

The purposes for which the fund has been established and the benefits that are covered by the scheme as well as the investment made as per Pakistan Telecommunication Employees Trust (Investment) Rules, 1997 show that the company is not involved in any business activity. It was held by a Full Bench of this Tribunal in the case reported as 1999 PTD (Trib.) 708 as under:‑‑

"Thus in our considered opinion income earned by way of interest without engaging in an activity falling under the meaning of business or say where money is not utilized as stock- in‑trade is income from other sources under section 30 of the Income Tax Ordinance. Neither the assessee's personal status nor the nature of business, profession or occupation, one is engaged in would change the nature of such income. Similarly, neither the source of the funds generating such interest income nor the purpose for which such funds are obtained by the depositor would have any bearing on the nature of such income. "

The department has failed to show that the respondent was engaged in any business or industrial undertaking and therefore, the case‑law referred to from the departmental side is not relevant. Circular No. 10 of 1991, dated 30‑6‑1991 explains that the provisions of section 80D are applicable on total amount of declared turnover from all sources falling under the head "income from business or profession". This Tribunal held in the case reported as 2000 PTD (Trib.) 3776 that the provisions of section 80D are applicable on "gross receipts" from "business or profession" profits and gains which were ordinarily chargeable under section 22 of the Income Tax Ordinance, 1979. Since the income of the respondent falls under the head of "income from other sources", the provisions of section 80D were not attracted. In these circumstances the order of the First Appellate Authority does not suffer from any infirmity and is accordingly maintained.

15. The appeals accordingly fail.

C.M.A./848/Tax (Trib)Appeal rejected.