I. T. As. Nos. 2785/LB to 2787/LB of 2001, decided on 26th May, 2003. VS I. T. As. Nos. 2785/LB to 2787/LB of 2001, decided on 26th May, 2003.
2004 P T D (Trib.) 174
[Income-tax Appellate Tribunal Pakistan]
Before Khalid Waheed Ahmad, Judicial Member and Muhammad Sharif Chaudhry, Accountant Member
I. T. As. Nos. 2785/LB to 2787/LB of 2001, decided on /01/.
th
May, 2003. (a) General Clauses Act (X of 1897)---
----S. 3(28)---Income Tax Ordinance (XXXI of 1979), S.80-D--- Lahore Development Authority Act (XXX of 1975)---Local Authority---Lahore Development Authority is a local authority as defined in S.3(28) of General Clauses Act, 1897.
(b) Income Tax Ordinance (XXXI of 1979)-----
----S. 80-D---Minimum tax on income of certain persons---Determination of income---Liability to pay minimum tax is conditional and could not be compared with the tax payable or paid otherwise unless it is established that assessee was engaged in any business activity during the year the income from which is first to be determined.
(c) Income Tax Ordinance (XXXI of 1979)-----
----Ss. 80-D, 2(16), 54, 56, 63 & Second Sched., Part I, Cl. (88), Part IV, Cl. (23)---C.B.R. Circular No. 10 of 1996, dated 16-10-1996-- Lahore Development Authority Act (XXX of 1975), Ss.4(2), 6, 19, 27 & 28---General Clauses Act (X of 1897), S.3(28)---Companies Ordinance (XLVII of 1984), S. 2(4)---Minimum tax on income of certain persons-- Exemption---Charge of minimum tax on sales of Lahore Development Authority estimated while framing ex parte assessment under S.63 of the Income Tax Ordinance, 1979---Validity---Department failed to specify the source of income or even the nature of business activity carried by the assessee from which the earning of income was alleged---Department without first establishing that any business was carried on by Lahore Development Authority or income was earned by it through any source and without first determining as to whether any tax was payable or paid on such, income which was less than the 0.5 % of the turnover directly proceeded to charge tax under the provisions of S.80-D of the Income Tax Ordinance, 1979 which action of the Department was not maintainable in law---Even nature of turnover adopted by the Department, had not been specified---Orders of both the Authorities below were vacated by the Appellate Tribunal.
PLD 1977 Kar. 152; 1980 PTD 329 and PLD 1965 SC 201 rel.
PLD 1975 Kar. 128; Writ Petition No.6556 of 1989 and 1998 PTD 2716 ref.
(d) Income Tax Ordinance (XXXI of 1979)-----
----Ss. 80-D & 63---Minimum tax on income of certain persons-- Minimum tax was to be charged on the basis of aggregate of declared turnover and not on the one estimated by Assessing Officer ---Validity-- In the absence of declared turnover, the provision of S.80-D of the Income Tax Ordinance, 1979 were not attracted.
Dr. Ilyas Zafar for Appellant.
Shahid Tamil Khan, Legal Adviser and Ahmed Ali, Assistant Commissioner for Respondent.
Date of hearing : 20th May, 2003.
ORDER
KHALID WAHEED AHMAD (JUDICIAL MEMBER).---The above titled three appeals pertaining to assessment years 1991-92 to 1993-94 at the instance of assessee-appellant are directed against combined order, dated 30-4-2001 of Commissioner of Income/Wealth Tax (Appeals), Zone-1, Lahore. The f911owing issues have been raised through the grounds of appeal for all the three years under consideration:--
(i)that the learned CIT(A) is not justified to set aside the case for de novo assessment, as he could decide the issue himself because of the apparent legal position,
(ii)that the LDA is a Local Authority,, exempt from Income Tax and there is no justification to continue the assessment proceedings.
2. Dr. Ilyas Zafar, Advocate appeared on behalf of the assessee whereas Mr. Shahid Jamil Khan, Legal Advisor who was assisted by Mr. Ahmed Ali, the author of the assessment order being the Assessing Officer of the relevant time represented the Revenue.
3. Brief facts of the case are that Lahore Development Authority (Urban Development Wing) was required to file return of income through notices issued by the Assessing Officer under section 56 of the Income Tax Ordinance, 1979 (hereinafter called the Ordinance) which were not complied. Statutory notices under sections- 61 and 62 of the Ordinance statedly also remained un complied. The contention of the assessee-appellant that LDA being a Local Authority its income was not chargeable to tax in view of the provision of Clause 88 of Part-I of 2nd Schedule to the Ordinance Was not accepted by the Assessing Officer. The assessments for the assessment years 1991-1992 and 1992-93 in the case of assessee-appellant i.e. L.D.A. (Urban Development Wing), LDA Plaza, Lahore were finalized through ex parte assessments framed by the ACIT, Circle-06, Companies Zone-II, Lahore on 4-10-1995 under section 63 of the Ordinance and Tax demand under section 80D of the Ordinance was created in the following manner:--
"1991-92:
Sales181.671(Million)
Add fee fine and penalties36.552-
Add other income54.272-
272.495
Income-tax & 0.5 % under section 8.0D
Is calculated at .... Rs.1362,475
1992-93:
Since figures of the final accounts for the year ending 1992-93 are not available; the total turnover for this year is adopted at 10% above the turnover for the immediately preceding assessment year i.e. 1991-92 which works out to Rs. 299,745 (Million) subject to action under section 156/65.
Turnover as calculated above 2997 45000
Tax under section 80-D @ 0.5%1498725"
Assessment for the assessment year 1993-94 was also framed through an ex parte order under section 63 of the Ordinance on 6-6-1996 whereby tax under section 80D was charged on the basis of turnover adopted by the Assessing Officer at Rs.35.0 crores.
4. The action of the Assessing Officer to charge minimum tax under section 80D of the Ordinance was challenged by the assessee through appeals filed before the First Appellate Authority for the three years under consideration.
The main contention of the assessee before the First Appellate Authority was that Assessing Officer was not justified to charge tax under section 80D because being a. Local Authority it was exempt from income tax under Clause 88 of Part I of Second Schedule to the Ordinance. The framing of ex parte assessments and the estimation of turnover as well as imposition of additional tax were also challenged through the grounds of appeals filed before First Appellate Authority. The learned CIT(A) vide the impugned order; dated 30-4-2001 set aside the ex parte assessment orders in toto for the assessment year 1991-92 to 1993-94 with the direction to decide the issue in accordance with law as warranted by the facts of the case.
5. Mr. Ilyas Zafar, Advocate leaned AR of the assessee in his arguments contended that CIT(A) was not justified in remanding the case to the Assessing Officer because according to him CIT(A) should have decided the legal issue regarding claim of exemption of assessee, a local authority himself instead of remanding back the same to the Assessing Officer. Learned AR of the assessee repeated the same contention taken before the lower authorities that Lahore Development Authority being a Local Authority was exempt from tax under Clause 88 of Part I of ,Second Schedule to the Ordinance. Learned AR, submitted that LDA was constituted through LDA Act of 1975 of the Province of Punjab, as a Local Authority as defined in section 3(28) of General Clause Act, 1897. He argued that as defined in section 3(28) supra, the Local Authority means a Municipal Committee, District Board, body of Court Commissioner or other authority locally entitled to or entrusted by the Government to control or management of municipal or a local fund. Learned AR further submitted that under the provision of clause 88 supra the income of a Local Authority including the income from business carried out within its jurisdiction area was exempt from tax. Learned AR further submitted that under section 19 of LDA Act, 1975, the assessee was also required to perform municipal functions as a Municipal Committee or Municipal Corporation as the Government may specify through notification in the official Gazette. Learned AR submitted that by virtue of amendment made through LDA (amendment) Ordinance, 2002, now it is a local Government and its area of operation has been converted from Lahore Metropolitan Corporation to Lahore City District. Another argument of the learned AR is that LDA is a statutory body but not a company. According to learned. AR, it was not incorporated as a company under section 2(4) of Companies Ordinance, 1984. Learned AR. relying 'on. a judgment of Karachi High Court reported as PL,D 1975 Kar. 128 contended that although the LDA was body corporate, its income was immuned from taxation because it was performing the functions of a municipal body. Learned AR also referred to a judgment of Karachi High Court reported as PLD 1977 (Kar.) 152 whereby the Karachi Development Authority was held to be a Local Authority for the purpose of Workers, Children (Education) Ordinance, 1972 and was held to be entitled for exemption from payment of education cess levied thereunder. It is the contention of learned AR of the assessee that LDA fulfilled all the essential requirements of Local Authority as laid down by the Karachi High Court in the case of Karachi Development Authority v. Province of Sindh. Learned AR also cited the judgment of Hon'ble Supreme Court of Pakistan in the case reported as 1980 PTD 329 whereby the Thal Development Authority was held to be a Local Authority and immuned from taxation. It has been laid down by the Supreme Court in the above referred judgment that although the said Authority was body corporate but since it had been conferred with powers as those of any Local Authority, therefore, the said authority was a Local Authority and was not liable for income-tax. It is the contention of learned AR that LDA was not constituted to earn income but to perform certain municipal functions as defined in Para 6 and other provisions of LDA Act. Learned AR also produced a copy of judgment in Writ Petition No.6556 of 1989 and others dated 4-2-2003 in support of his contention that LDA is a Local Authority. Learned AR submitted that through toe above judgment, in the case against the imposition of property tax under the Province of Punjab Urban Immovable Property Tax Act, 1958 it was held that LDA was a Local Authority under section 3(28) of General Clauses Act, 1897. Learned AR further submitted that by virtue of Clause 23 of Part 4 of 2nd Schedule to the Ordinance, the provision of section 80D were not applicable to the Local Authorities. Learned AR further contended that Local Authority Government and semi-Government organizations (other than corporate bodies) like WAPDA, CDA etc, which were otherwise not liable to tax have been excluded from the application of section 8flD for the charge of minimum tax with effect from assessment year 1996-97 by the Central Board of Revenue through Circular No. 10 of 1996, dated 16-10-1996.
6. Learned Legal Advisor in his argument supported the contentions of the Department. According to learned Legal Advisor, the issue of Lahore Development Authority being a Local Authority was neither discussed nor established by the assessee before the Assessing Officer. According to him, the onus was upon the assessee to prove that LDA was a Local Authority, which fact is yet to be thrashed out of the assessment level. Another contention of learned Legal Adviser was that according to subsection (2) of section 4 of LDA Act, 1975, LDA was a body corporate. Learned Legal Adviser contended that L.D.A., a body \corporate formed under a statute was a company as defined in subsection (16) of section 2 of the Ordinance. According to him, it was not correct that a body corporate formed under the provisions of a law other than the Companies Ordinance, 1984 was not covered under the definition of company. Learned AR further submitted that even if it is accepted that LDA is a body corporate whose income is exempt under Clause 88 of Part-I of the 2nd Schedule to the Ordinance, it is not exempt from charge of minimum tax on the basis of turnover under section 80D of the Ordinance. Therefore, according to him, the Assessing Officer was justified in charging the tax under section 80D of the Ordinance. Learned Legal Advisor contended that the Assessing Officer was justified in adopting the declared turnover for purpose of charge of tax under section 80D for the assessment year 1991-1992 and also adopting the estimated figures of turnover for the assessment year 1992-93 and 1993-94 due to non-cooperative attitude of the assessee, as no return in response to notice under section 56 or details of receipts/income were filed despite issuance of notice by the Assessing Officer. It is the contention of learned Legal Advisor that assessee Lahore Development Authority -was bound to file the return in response to statutory notices issued for the year under consideration and to pay tax under section 54 as-required under section 80D of the Ordinance. In this context he referred to the decision of the Hon'ble Supreme Court of Pakistan reported as PLD 1965. SC 201. In the case titled National Bank of Pakistan v. Atta-ul-Haq wherein according to him the ingredients of a Local Authority were given. It is the contention of learned Legal Advisor that assessee-Lahore Development has not proved before the Assessing Officer that it fulfilled conditions precedent of a Local Authority. In this context, he referred the decision of the Supreme Court of India reported as 1998 PTD 2716. According to him it was held in the said decision that Local Authorities which are specifically mentioned in section 3(31) of the General Clause Act, 1897 clearly can be regarded on local bodies which are intended to carry on Self-Government. It is the contention of learned Legal Advisor that while supporting his contention regarding assessee being a Local Authority the provision relied upon by the learned AR of the statute through which the Lahore Development Authority was constituted i.e. Lahore Development Act of 1975 were riot discussed at the assessment or first appellate stage and even this issue had not been raised by the assessee through the grounds of appeal before the Tribunal. Learned Legal Advisor with regard to the decision of Karachi High Court reported as PLD 1977 Karachi 152 in the case of Karachi Development Authority relied upon by the learned AR contended that said decision was based on the discussion of provision of a different statute through which the Karachi Development Authority was created. In this context learned legal Advisor referred to para. 8 of the said judgment, wherein the provisions of various Articles of Karachi Development Authority Ordinance, 1957 were discussed. It is the contention of learned-Legal Advisor that this aspect of the case i.e. the provision of Lahore Development Act, 1975 had neither been discussed by any of the Authorities below nor it arises from the order of the First Appellate Authority. According to him the issues that whether LDA is a Local Authority or not has not cropped up for discussion before the Tribunal. Learned Legal Advisor further contended that regarding the admissibility of exemption under Clause 88 supra, the facts of the case are also needed to be probed. He further submitted that provision of Clause 23, Part-IV of 2nd Schedule to the Ordinance were not applicable for the years under consideration, since the said clause was inserted through Finance Act, 1996. It was contended by him that similarly the Circular No.10 of 1996 having been issued on 16-7-1996 was also not applicable for the years under consideration. Learned Legal Advisor further submitted that from the provision of said Circular, it is obvious that no exemption from charge of tax under section 80D was available in case of local authority prior to assessment year 1996-97 except debarring the refunds or recovery of outstanding demand relating to years prior to amendment. According to Legal Advisor, if any exemption was to be granted for the years prior to Assessment Year 1996-97 it could have been specifically mentioned in the said Circular. According to the learned Legal Advisor, since the case on the issues raised by learned AR of the assessee has not yet cropped up for discussion before the Tribunal as it needed further probe and ascertainment of certain facts regarding the applicability of the relevant provision of the Ordinance, the assessment framed according to him was rightly set aside Commissioner of Income/Wealth Tax (Appeals) with the direction to decide the issue in accordance with law as warranted by facts case.
7. Learned AR in his rejoinder contended that Lahore Development Authority was not constituted to earn income rather it was constituted to perform certain municipal functions for providing civic amenities which is obvious from the provisions of Lahore Development Act, 1975 through which it was created. Learned AR further contended that Assessing Officer failed to prove that any business was carried on by the assessee resulting in the earning of income during the years under consideration neither there was any information with the Assessing Officer that any project for earning the income was launched during the years under consideration. According to learned AR of the assessee, the provisions of Lahore Development Authority Act when considered as a whole in entirety it is obvious that Lahore Development Authority was constituted to perform municipal functions and not for earning the income.
8. Arguments of learned representatives of both the parties have been heard. Facts available from the orders of the Authorities below have also been considered and the case law cited by both the end, representatives of the parties have been perused. According to contention of learned AR of the assessee, the LDA was a Local Authority as defined in subsection (28) of section 3 of General Clauses Act which was not liable to charge of income tax. According to him it could not be established by the Assessing Officer that the assessee earned any income during the year under consideration and was further contended that income of the assessee-LDA being a Local Authority was exempt under the provision of Clause 88 of Part-I of Second Schedule to the Ordinance. On the other hand it had been contended by learned Legal Advisor on behalf of the Revenue that it was yet to be established by the assessee that LDA was a Local Authority. According to him for this purpose the probe of facts for the application of relevant provisions of law by the Assessing Officer was required. It, is the contention of learned Legal Advisor that in view of his above contention the assessments were rightly set aside by CIT(A). It is also contended by the learned Legal Adviser that even if the LDA was treated as a Local Authority and its income considered as exempt under Clause 88, Part-I of Second Schedule to the Ordinance, it was liable to pay tax on the basis of turnover under section SOD of the Ordinance.
9. In our considered opinion, the Lahore Development Authority is a Local Authority as defined in subsection (28) of section 3 of General Clauses Act, 1897. The Lahore Development Authority was constituted through the Province of the Punjab Act (XXX of 1978) called as Lahore Development Authority Act, 1975. As per section 4(2) of the Act, it was constituted as a body corporate however it was created to perform certain municipal and development functions and not incorporated for the purpose of carrying on business for earning of income. As provided in sections 6 and 19 and other provisions of the Act, the Lahore Development Authority was to perform certain municipal functions as; a Municipal Committee or Municipal Corporation under the Punjab Local Government Ordinance, 1979. Our this view point also find support from the decision of Karachi High Court, reported as PLD 1977 Kar. 152 in the case of Karachi Development Authority v. Province of the Sindh whereby the Karachi Development Authorit5- was declared as a Local Authority entitled to exempt from payment of education cess under Workers, Children (Education) Ordinance, 1972. The Lahore Development Authority under the Lahore Development Authority Act, 1975 has the powers to raise local fund through receipt of fees, rates and other charges as provided in sections 27 and 28 of the Act. This view point is further supported from the decision of the Supreme Court of Pakistan in the case reported as PLD 1965 SC 201 whereby the Local Authority was defined as an authority entrusted with administration of a local fund. In this context, the decision of Supreme Court of Pakistan reported as (1980) 42 Tax 179 is also referred whereby the Thal Development Authority was declared as a Local Authority immuned from taxation. The case of Karachi Development Authority is relevant to the extent that so far as .the requirements of a Local Authority are concerned have been defined therein although the issue relating to the taxability of income of a Local Authority under the provisions of Income Tax Ordinance, was not involved therein. Similarly though the case referred as 1980 PTD 329 is prior to introduction of Presumptive Tax Regime, through Finance Act, 1991 yet it is relevant to the extent that it provides the guidelines to determine the status of a corporate body as a Local Authority and exemption of its income from taxation. After giving due consideration to the facts, various provisions of law and in view of the case law as discussed above, we are inclined to agree with the contention of learned AR of the assessee that LDA is a Local Authority as defined in section 3(28) of General Clauses Act, 1897. However, before resolving the issue that whether in case of a Local Authority the income of which is exempt under Clause 88 of Second Schedule to the Ordinance if is still subject to charge of minimum tax under section 80D of the Ordinance. It is first to be seen that whether y income was earned by the assessee during the years under consideration on which tax could be charged under any provision of Income Tax Ordinance, 1979, in the case before us, the Assessing Officer has failed to establish that assessee has been engaged in any business activity during the year under, consideration or it earned income chargeable to tax under any provision of Income Tax Ordinance, 1979 irrespective of its being exempt under the Second Schedule to the Ordinance.
In the case before us, Assessing Officer has charged tax under the provisions of section 80D of the Ordinance which are reproduced as under;--
80D. Minimum tax on income of certain (persons)---(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable (or paid) by a company (or a registered firm), an individual, an association of persons, an unregistered firm or a Hindu undivided family, resident in Pakistan or the tax payable (of paid) is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company (or a registered firm), (an individual, an association of persons, an unregistered firm or a Hindu undivided family) and tax thereon shall be charged in the manner specified in subsection (2).
Explanation.---For the removal of doubt, it is declared that the expressions where no tax is payable or paid and or the tax payable or paid apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in force).
From the perusal of above provision, it is abundantly clear that it is first to be determined that some income has been earned by the assessee on which no tax is payable or paid or tax payable or paid on the basis of which is less than the half per cent. of total turnover declared from all sources. The liability to pay minimum tax is conditional and could not be compared with the tax payable or paid otherwise unless it is established that assessee was engaged in any business activity during the year the income from which is first to be determined. In the case before us the Assessing Officer has failed to specify the source of income or even the nature of business activity carried on by the assessee from which the earning of income was alleged. In the instant case, Assessing Officer without first establishing that any business was carried on by LDA or income was earned by it through any source and without first determining that whether any tax was payable or paid on which income which were less than the 0.5 % of the turnover directly proceeded to charged tax under the provision of section 80D of the Ordinance which action of the Assessing Officer is not maintainable in law. It is further pointed out that provision of section 80D, the minimum tax is to be charged on the basis of aggregate of declared. turnover and not the one estimated by the Assessing Officer. It is also pointed out that except for the assessment year 1991-1992 neither there are declared figures of turnover, nor the Assessing Officer has estimated the income of the assessee for the assessment years 1992-1993 and 1993-94. Even for the assessment year 1991-1992 the nature of turnover adopted by the Assessing Officer has not been specified. In our opinion, there being no declared turnover, the provisions of section 80D are not attracted. Since the Assessing Officer has failed to specify the source of income or earning of income from any other source and also failed to establish that any business activity resulting in the income was carried on by Lahore Development Authority, the assessment orders for all the three years under consideration are not maintainable. Since the assessments have been vacated on the above ground, we do not feel any need to adjudicate upon the remaining grounds.
10. As a result, the appeals of the assessee are accepted and the orders of both the Authorities below i.e. Commissioner of Income/Wealth Tax (Appeal) and the Assessing Officer for all the three years under consideration ate hereby, vacated.
C.M.A./962/Tax (Trib.)Appeals accepted.