R.As. Nos. 463/LB to 465/LB of 2003, decided on 4th November, 2003. VS R.As. Nos. 463/LB to 465/LB of 2003, decided on 4th November, 2003., 2004 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 892 (2003)

Income Tax Ordinance (XLIX of 2001)‑‑‑

‑‑‑‑S. 133(1)‑‑‑Income Tax Ordinance (XXXI of 1979), Ss. 136(1), 80D, 2(16) & Second Sched., Cl. (88)‑‑‑Reference to High Court‑‑‑Question of law‑‑‑Status of Lahore Development Authority was held as local authority by the Appellate Tribunal and income of the same was treated as exempt, under, Cl. (88) of the Second Sched. of the Income Tax Ordinance, 1979‑‑‑Application for reference to High Court‑‑‑Validity‑‑ Question of law had arisen‑‑‑Questions framed by the Revenue however were contused, overlapping and repetitive‑‑‑Questions framed by the Appellate Tribunal referred to High Court were that whether on the facts and in the circumstances of the case the Appellate Tribunal was justified to hold that Lahore Development Authority was a local authority and exempt from tax under cl. (88) of the Second Sched. to the Income Tax Ordinance, 1979 that whether on the facts and in the circumstances of the case the Appellate Tribunal was justified to hold that demand of minimum tax raised by the Assessing Officer under S.80D was illegal and that whether on the facts and in the circumstances of the case the Appellate Tribunal was justified to hold that demand of minimum tax under S.80D of the Income Tax Ordinance, 1979 could be created only when income/loss was determined and tax payable or paid was less than 0.5 % of the total turnover of the assessee?

Sheraz Mirza, D.R. for Applicants.

Dr. Ilyas Zafar for Respondents.

Date of hearing: 1st November, 2003.

STATEMENT OF THE CASE

MUHAMAMD SHARIF CHAUDHRY (ACCOUNTANT MEMBER).‑‑‑In the titled case reference applications for the years 1992‑93 to 1993‑94 have been submitted at the instance of Revenue under section 133(1) of the Income Tax Ordinance, 2001 urging this Tribunal to refer the following questions of law to the High Court for the opinion of their lordships, as the said questions are stated to have arisen from the appellate order of the ITAT, dated 26‑5‑2003 passed in ITA Nos. 2785 to 2787/LB/2001 relating to the above mentioned assessment years:‑‑

(i) Whether under the facts and in the circumstances of the case the learned ITAT was justified to agree with the contention of AR's of the assessee concerning status of LDA being local authority, when the issue of local authority was not sub judice before them?

(ii) Whether under the facts and in the circumstances of the case, the by passing remarks of the learned ITAT about status of LDA being local authority can be considered as final adjudication of the issue by Tribunal particularly when the Tribunal itself in the concluding line of the order, dated 26‑5‑2003 has held that we do not feel any need to adjudicate upon the remaining grounds?

(iii) Whether under the facts and in the circumstances of the case, the learned ITAT was justified to hold that the Assessing Officer was required to establish the turnover before invoking of provisions of section 80D, whereas the onus of establishing income/turnover for the purpose of levy tax primarily rests on the assessee/taxpayer?

(iv) Whether under the facts and in the circumstances of the case, the learned ITAT was justified to vacate the assessment order for the reason that the Assessing Officer did not establish `gave findings' that LDA was engaged in business activities whereas to cure this lacuna (if any) the case should have been remanded back to the Assessing Officer for giving its findings?

(v) Whether under the facts and in the circumstances of the case, the nature of receipts by the LDA falls under the definition of words "turnover" as used in section 80D of the income Tax Ordinance, 1979?

(vi) Whether under the facts and in the circumstances of the case, the relevant assessment year LDA was liable to pay minimum tax under section 80D of the Income Tax Ordinance, 1979?

2. Since the issues involved and the questions raised by Revenue in all the three years under consideration are identical, the applications filed by Revenue are disposed of by this consolidated order as under.

3. Facts of the case as briefly stated are that the DCIT issued notices under section 56 to LDA for filing of returns of income as LDA according to the Assessing Officer, is a company as defined under section 2(16) of the repealed Income Tax Ordinance, 1979 and hence it is chargeable to Income Tax. In response to these notices, however, the LDA did not submit the returns of income and took plea that its is a local authority and its income was not chargeable to Income Tax in. view of clause (88) of Second Schedule to the Income Tax Ordinance, 1979 during the years under question. The Assessing Officer rejected this plea of the respondent and proceeded to treat it as a company and passed ex parte assessment order under section 63. The assessee had submitted statement of accounts for the year 1991‑92 from which turnover of the assessee for this year was calculated and minimum demand of tax at .the rate of 0.5% under section 80D was levied. For the other two years no statement of accounts were submitted therefore, the Assessing Officer himself estimated turnover on which minimum tax was levied under section 80D. Against this treatment of the Assessing Officer appeals were filed by the assessee before the CIT Appeal Zone‑I, Lahore who in his appellate order, dated 30‑4‑2001 set aside the assessment for de novo action in accordance with law. Against this order of the learned Commissioner the assessee filed further appeals before the ITAT.

It was contended by the assessee that LDA is a local authority hence its income is exempt under clause (88) of the Second Schedule to the Income Tax Ordinance, 1979. In support of this contention learned AR of the assessee has produced before the ITAT notification issued by the Provincial Government as well as a lot of case‑law comprising of judgments of the High Court, etc. We heard both the parties, considered the contentions raised by the assessee in the grounds of appeal and appraised the arguments given by the authorized representatives of both the parties. After giving due consideration to the facts of the case, various provisions of law and in view of the case‑law discussed in the appellate order it was held by us that LDA is a local authority and hence its income is exempt from tax under clause (88) of Second Schedule to the Income Tax Ordinance. On the question whether LDA is chargeable to minimum tax under section 80D of Income Tax Ordinance, 1979, it was held by the Bench that the demand raised by Revenue under section 80D of the Income Tax Ordinance was not legally justified. In the impugned appellate order the ITAT reproduced section 80D and discussed and analyzed it. In nutshell, according to the ITAT, section 80D is not applicable unless it is first determined that some income has been earned by an assessee on which no tax is payable or paid or tax payable or paid is less than half percent of total turnover declared by such assessee from all sources. In the instant case since the Assessing Officer failed to specify the source of income or the nature of business activity carried on by the assessee from which the earning of income was alleged and since the Assessing Officer also failed to establish that tax payable or paid on income is less than half per cent of total turnover from all sources, it was held that the demand of minimum tax created by the ITO under section 80D was also not legally justified. Thus appeals of the assessee were accepted and the appellate order of the Commissioner and the DCIT were vacated.

It is against the above mentioned action of the ITAT that now the Revenue has come up in reference applications before us.

4. We have heard the authorized representative of both the parties and have perused the relevant facts. It has been submitted by the learned DR that LDA is a company within the definition of a company under section 2(16) of the Income Tax Ordinance, 1979 and hence it was rightly charged to tax by the DCIT. According to the learned DR, the ITAT has erred in treating the LDA as a local authority and in holding that its income as well as its turnover was not chargeable to tax. According to the learned D.R, questions of law as mentioned in the petitions arise from the order of the ITAT which should be referred under section 136(1) of the repealed Income Tax Ordinance, 1979 read with section 133(1) of the Income Tax Ordinance, 2001. On the other hand the learned AR of the assessee has submitted that LDA has rightly been assigned the status of a local authority by the ITAT in its impugned appellate order and its income has rightly been declared exempt. Therefore, according to the learned AR questions of law as stated by Revenue in its petitions need not be referred.

5. Having gone through the impugned appellate order of the ITAT and having considered the arguments of the authorized representatives of both the parties we are of the view that questions of law do arise in the Instant case although we do not agree with the 'Revenue regarding the questions which have been framed by it in its petitions. The questions are confused, overlapping and repetitive and in some cases the same are either not questions of law or they do not arise from the order of the ITAT. Hence it would meet the ends of justice if the questions framed as follows are referred:

(i) Whether on the facts and in the circumstances of the case the ITAT is justified to hold that LDA is a local authority and exempt from tax under clause (88) of the Second Schedule to the Income Tax Ordinance 1979?

(ii) Whether on the facts and in the circumstances of the case the ITAT is justified to hold that demand of minimum tax raised by the Assessing Officer under section 80D is illegal?

(iii) Whether on the facts and in the circumstances of the case the ITAT is justified to hold that demand of minimum tax under section 80D can be created only when income/loss is determined and tax payable or paid is less than 0.5 % of the total turnover of the assessee?

(The documents mentioned here‑in‑below in appendix shall form part of the Paper book).

C.M.A./1065/Tax (Trib.) Reference Applicable accepted.