R.A. No.258/IB of 2003, decided on 14th April, 2004. VS R.A. No.258/IB of 2003, decided on 14th April, 2004.
2004 P T D (Trib.) 2019
[Income‑tax Appellate Tribunal Pakistan]
Before Inam Ellahi Sheikh, Chairman and Muhammad Jahandar, Judicial Member
R.A. No.258/IB of 2003, decided on /01/.
th
April, 2004. (a) Income Tax Ordinance (XXXI of 1979)‑‑‑
‑‑‑‑S.136 & Second Sched., Part I, Cl. (86)‑‑‑Reference to High Court---Assessee, a company limited by guarantee, was running flying club‑‑ Income from subscriptions and entrance fee to such club‑‑‑Exemption claimed by the assessee under Cl. (86) of Part 1 of the Second Schedule of the Income Tax Ordinance, 1979, being an educational institution, was allowed by the Appellate Tribunal‑‑‑Question of law put by the Department that "whether Appellate Tribunal was justified to treat the assessee company as an educational institution for the purpose of clause (86) Part I of the Second Schedule to the Income Tax Ordinance, 1979 was referred to High Court by the Appellate Tribunal.
(b) Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑Ss. 136 & 80‑C‑‑‑Reference to High Court‑‑‑Appellate Tribunal held that spare parts imported for use in the repair and maintenance of own aircraft of Flying Club was exempt from the provisions of S.80‑C of the Income Tax Ordinance, 1979 being not marketed onward‑‑‑Section 80‑C of the Income Tax Ordinance, 1979 provided for the exclusion of raw material imported by an industrial undertaking for own consumption from the purview of said section but no specific mention had been made of spare parts‑‑‑Question of law put by the Department that "Whether Appellate Tribunal was justified to hold that the provisions of section 80C are not applicable to imports of spare parts made by the assessee was referred to High Court by the Appellate Tribunal in circumstances.
(2001) 83 Tax 63; PLD 1962 (W.P.) Kar. 635; 1996 PTD 1192; 2003 PTD 589 and 76 Tax 118 ref.
Khalid Javed, DR for Appellant.
Khalid Majeed, FCA for Respondent.
Date of hearing: 13th April, 2004.
ORDER
INAM ELLAHI SHEIKH (CHAIRMAN).--------This reference application has been filed by the Commissioner of Income/Wealth Tax, Companies Zone, Islamabad, requiring us to refer to the Hon'ble High Court, the following questions said to be questions of law arising out of the Tribunal's order, dated 5‑8‑2003 recorded in I.T.A. No. 813/IB of 2003 in the case of a, Flying Club which is run by a company limited by guarantee:
(i)"Whether on the facts and in the circumstances of the case the ITAT was justified to treat the assessee company as an educational institution for the purpose of clause 86 Part‑I of the Second Schedule to the Income Tax Ordinance, 1979?"
(ii)"Whether on the facts and in the circumstances of the case the ITAT was justified to hold that the provisions of section 80C are not applicable to imports of spare parts when the assessee does not own any industrial undertaking for consumption of these parts in self manufacturing activity?"
2. The relevant facts in brief are that the assessee derived income from subscriptions and entrance fee to the club and also from providing flight services on private charter basis. The assessee filed a return to declare the loss at Rs.98,803 but claimed the exemption from tax under A clause (86) of Part I of Second Schedule to the repealed Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) which was refused by the Assessing Officer. The assessee had also imported some spare parts during the year to be used in the repair and maintenance of aircraft owned by the assessee company. The Assessing Officer considered that such imports were covered by the provisions of section 80C of the repealed Ordinance and tax was computed on such imports at Rs.17,085 plus additional tax of Rs.2,033. The assessee was also subjected to minimum tax under section 80D of the repealed Ordinance amounting to Rs.18,973 and net liability of Rs.2,350 after considering the payment made. Further additional taxes were also levied. The First Appellate Authority vide the order, dated 10‑7‑2002 allowed the claim of exemption in view of the Tribunal's orders in I.T.A. No.943/113 of 1998‑99 and I.T.A. No. 122/113 of 1999‑2000. In the end, the learned CIT(A) passed the following order to dispose of the assessee's appeal:‑‑
"In view of the finding given in the preceding paragraphs in which the appellant's claim regarding exemption was accepted, charging of tax under sections 80‑D and 80C should be settled under the relevant provisions of law after allowing the appellant reasonable opportunity to explain its position in this regard.
Regarding charging of additional tax under section 88 the Assessing Officer is directed to verify the contention of the appellant and delete the additional tax charged under section 88."
The department filed an appeal before the Tribunal which was decided vide the impugned order under consideration before us. While deciding such order, the Tribunal observed that the provisions of section 80C were also not applicable because spare parts imported were to be used in aircraft and it was not being marketed onwards.
3. At the time of hearing of the reference application, this Bench of the Tribunal initially formed a view that the observation of the Tribunal as already mentioned above was in the nature of a relief to the assessee who had not filed any appeal and the parties were put on notice to explain as to why a suo motu rectification may not be made in the Tribunal's order so as to withdraw such relief allowed to the assessee.
4. The learned AR of the assessee has strongly objected to such proposal of the Bench to withdraw the remarks or relief with the main contention that the relief had rightly been allowed as the Tribunal was fully competent to make the order on any basis deemed fit under the relevant provisions of law. The learned AR relied on the following decisions to support his contention:
(1) (2001) 83 Tax 63; (2) PLD 1962 (W . P.) Kar. 635 and (3) 1996 PTD 1192.
The learned DR on the other hand strongly opposed the arguments of the learned AR of the assessee pressing for the rectification of the Tribunal's order since the assessee had not filed any appeal. It was also the case of the learned DR that the question whether the spare parts had been consumed by the assessee itself was a question of fact which had not been probed.
5. On the issue of the questions as proposed by the Revenue, the learned DR strongly urged the Bench to refer these two questions as both the questions arise out of the Tribunal's order. The learned AR however, opposed such applications with the submissions that the first question as proposed by the Revenue had already been considered by the Tribunal in the earlier years and that the Tribunal had refused to allow such reference. With regard to the second question, the main contention of the learned AR was that the tax has to be levied on income of tire assessee and the import of spare parts cannot be considered to be income of the assessee as this is just a point of expenditure. Another plea of the learned AR of the assessee before us is that every question should not be referred to the High Court unless it is a substantial question of law. Reliance was placed on the decisions reported as 2003 PTD 589 and 76 Tax 118. The learned AR also disputed that the second question as proposed by the Revenue does not arise out of the Tribunal's order as nowhere it has been held that the assessee was running an industrial undertaking. Alternatively, the plea of the learned AR of the assessee is that the business carried on by the assessee could be treated as an industrial undertaking in view of the provisions of Workers' Welfare Fund law and the provisions of section 48 of the repealed Ordinance. The learned AR specifically referred to the use of term `navigation' in section 48 of the repealed Ordinance to point out that this assessee was also engaged in transport business which could be considered as navigation.
6. We have considered the submissions of both the parties and have also perused the relevant orders. On the matter of making suo motu rectification in the order of the Tribunal, we propose to drop the proceedings as it is not a mistake apparent from the record. At least, it is arguable whether the Tribunal can allow a relief to an assessee who has not filed an appeal. Only such mistakes could be rectified which are floating on the surface‑of the record. Hence we do not propose to alter our order, dated 5‑8‑2003.
7. With regard to the reference application of the Revenue, we find that the first question as proposed by the Revenue has already been considered by the Tribunal in the earlier years and application was refused. However, in this year, the situation has changed and the assessee has imported some spare parts on which a dispute has arisen with regard to the chargeability of tax under section 80C of the repealed Ordinance. On the one hand, the assessee claims to be an educational institution and has claimed exemption under clause (86) supra which had been allowed by the Tribunal. On the other hand, the assessee claims to be an industrial undertaking within the meaning of WWF law and the repealed Ordinance. Although the Tribunal has not held in its order that the assessee is or is not an industrial undertaking, the Tribunal has held that the spare parts had been imported for use in aircrafts and not being marketed onwards. An important question does arise as to whether the spare parts imported by a taxpayer for use in the repair and maintenance C of its own aircraft would be exempt from provisions of section 80C of the repealed Ordinance. Section 80C of the repealed Ordinance provided for the exclusion of raw material imported by an industrial undertaking for own consumption from the purview of such section but no specific mention has been made of spare parts.
8. In view of these facts and circumstances, we are inclined to refer the following two questions, the first question as proposed by the Revenue whereas the second question is modified for reference to the Hon'ble High Court.
(i)"Whether on the facts and in the circumstances of the case the ITAT was justified to treat the assessee company as an educational institution for the purpose of clause 86 Part‑I of the Second Schedule to the Income Tax Ordinance, 1979?"
(ii)Whether on the facts and in the circumstances of the case, the Tribunal was justified to hold that the provisions of section 80C are not applicable to imports of spare parts made by the assessee/respondent in the present case?
9. As a result of the above discussion, the application filed by the Revenue is allowed in the manner indicated above.
C.M.A./129/Tax (Trib.)Order accordingly.