GENERTECH PAKISTAN LTD. VS INCOME TAX APPELLATE TRIBUNAL OF PAKISTAN, LAHORE
2004 P T D 2255
[Supreme Court of Pakistan]
Present: Iftikhar Muhammad Chaudhry, Rana Bhagwandas and Khalil‑ur‑Rehman Ramday, JJ
GENERTECH PAKISTAN LTD. and others
Versus
INCOME TAX APPELLATE TRIBUNAL OF PAKISTAN, LAHORE and others
Civil Appeal No. 1357 of 1999 alongwith Civil Appeals Nos.916‑918, 1069, 1070 of 2000 and Civil Appeal No. 1295 of 2001, decided on /01/.
th
May, 2004. (On appeal from the judgments/order, dated 14‑1‑1999, 11‑4‑2000, 26‑6‑2000, 7‑6‑2000 passed by Lahore High Court; Lahore in I.T.A. No.1 of 1999, Writ Petition No.4847 of 1998, 8907 of 1998, 12249 of 2000, 10727 of 2000, 10718 of 2000 and I.T.A. No.493 of 2000).
(a) Income Tax Ordinance (XXXIX of 1979)‑‑‑
‑‑‑‑Second Sched., Item 176 & S.80‑B(2)(b)‑‑‑Constitution of Pakistan (1973), Art. 185(3)‑‑‑Leave to appeal was granted by the Supreme Court to consider as to whether the High Court had not correctly construed the scope of Item 176, Second Schedule and S.80‑B(2)(b) of the Income Tax Ordinance, 1979 in accordance with the law laid down by Supreme Court in Messrs ‑Packages Ltd. v. Commissioner of Income‑tax 1993 SCMR 1224.
Messrs Packages Ltd. v. The Commissioner of Income Tax 1993 SCMR 1224 ref.
(b) Income Tax Ordinance (XXXIX of 1979)‑‑‑
‑‑‑‑Ss. 30, 80‑B & Second Sched., Item 176‑‑‑Income from other sources‑‑‑Electric Power Generation Project‑‑‑Exemption‑‑‑Interest earned by the assessee from the Share Capital deposited in the Banks whether fell within the scope of "income from other sources" under S.30, Income Tax Ordinance, 1979‑Principles.
Item 176 of Second Schedule of the Income Tax Ordinance 1979 provides in clear terms that "profits and gains derived by an assessee from Electric Power Generation Project, set up in Pakistan on or after 1st of July, 1998 shall be exempted from total income tax." Essentially, profits and gains from the Electric Power Generation Project is distinct and different from the interest being obtained by the Company on the deposit of share capital in the Banks, during the financial years for which the return of income under the relevant provision of Ordinance is filed and the exemption is claimed from the payment of income tax under 'Item 176 of second Schedule of the Ordinance. Electric Generating Plants of companies had started functioning in 1994‑95 but they instead of claiming exemption on the profits/gains from Power Generation, claimed it from the deposit of the share capital lying in the Banks. It is to be seen that as soon as a Company goes in production it cannot claim exemption of income tax on the interest of share capital` deposited in Banks because on commencement of the production, profits and gains are to be earned out of the income of Electric Generation independently.
The share capital deposits in the Banks by the assessees provide a separate income to them after post‑production stage of the Power Generating activity, therefore, on the income of interest no exemption can be claimed by under item 176 Second Schedule of the Ordinance as it is a different income from the profits/gains being earned from post production activity of power generation.
Under section 80‑B of the Ordinance such concession is not available to Public Limited Companies as its subsection (1) in categorical terms has extended its benefits to an individual, unregistered firm, association of persons, Hindu undivided family or artificial juridical person.
Messrs Packages Ltd. v. The Commissioner of Income Tax 1993 SCMR 1224 distinguished.
Raja Muhammad Akram, Senior Advocate Supreme Court, Ejaz Muhammad Khan Advocate‑on‑Record (absent) and M.A. Qureshi, Advocate‑on‑Record (absent) for Appellants (in Civil Appeals Nos. 1357, 916 of 1999, 9.17, 918, 1069, 1070 of 2000 and 1205 of 2001).
Muhammad Ilyas Khan, Senior Advocate Supreme Court, Mahmood‑ul‑Islam, Advocate‑on‑Record (absent) and Muhammad Aslam Chatha, Advocate‑on‑Record for Respondents (in Civil Appeals Nos. 1357, 916 of 1999, 917, 1069, 1070 of 2000 and 1295 of 2001).
Malik Muhammad Nawaz, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate‑on‑Record for Respondents (in Civil Appeal No.918 of 2000).
Dates of hearing: 17th and 18th May, 2004.
JUDGMENT
IFTIKHAR MUHAMMAD CHAUDHRY, J.‑‑‑ Above appeals are by leave of the Court against the judgments passed by Lahore High Court, Lahore in exercise of its appellate jurisdiction under Income Tax Ordinance, 1979 (hereinafter referred to as "the Ordinance") and under Constitutional jurisdiction under Article 199 of the Constitution of Islamic Republic of Pakistan. For convenience details of impugned judgments are as under:‑‑
| Sr.No | Order of Deputy Commissioner | Order of Appellate Tribunal | Order of the High Court | Date of leave granting order |
| 1 | 4‑9‑1996 15‑9‑1997 | I.T.A.No.7410/LB of1996 7‑11‑1998 | I.T.A. No.1 of 1999 14‑1‑1999 | 22‑1‑1999 |
| 2 | 11‑1‑1997 | 3‑3‑2000 | W.P.No.4847 of 1998 11‑4‑2000 | 28‑8‑2000 |
| 3 | 25‑4‑1998 | ‑‑ | W.P.No.8907 of 1998 11.4‑2000 | 28‑7‑2000. |
| 4 | 24‑4‑2000 | 20‑6‑2000 | W. P.No.12249 of 2000 26‑6‑2000 | 13‑7‑2000 |
| 5 | 20‑12‑1999 | 1‑4‑2000 | W.P.No.10727 of 2000 7‑6‑2000 | 10‑8‑2000 |
| 6 | --- | 27‑4‑2000 | W. P.No.10718 of 2000 7‑6‑2000 | 10‑8‑2000 |
| 7 | 1‑1‑1999 | 1‑3‑1999 | I.T.A.No.493 of 2000 7‑6‑2000 | 19‑6‑2001 |
2. Leave to appeal was granted to consider "whether the learned Division Bench of the Lahore High Court has not correctly construed the scope of Item 176 of Second Sched., and section 80‑B(2)(b) of the Income Tax Ordinance; 1979 in accordance with the law laid down by this Court in Messrs Packages Ltd. v. The Commissioner of Income tax 1993 SCMR 1224.
3. Precisely stating the facts of the case are that appellants assessees received share capital from various sharers for the purpose of setting up Electric Generating Project and deposited said amounts in the Banks. The amount, so deposited earned interest. They filed returns for assessment years 1994‑95 and 1995‑96 showing nil profit and also claiming exemptions under Item 176 of the Second Schedule of the Ordinance on, the interest earned from Banks. The Deputy Commissioner, Income‑tax instead of granting exemptions treated the interest earned by the appellants on the deposit of share capital to be the "income from other sources" and subjected it to tax. Feeling dissatisfied from the orders of the Deputy Commissioner, the appellants filed appeals before the Commissioner Income Tax (Appeals), which were dismissed. Later on, appellant‑Companies invoked the `jurisdiction of Income Tax Appellate Tribunal for redressal of their grievance but without any success as appeals filed by them were dismissed. Learned Division Bench of the Lahore High Court seized with the appeals under section 136 of the Ordinance preferred by appellants dismissed the same by means of impugned judgments.
4. Learned counsel for appellants contended that interest on the amount of share capital deposited in Banks is not covered under the scope of "income from other sources" in terms of section 30 of the Ordinance as the interest was spent on the projects being set up for generating electricity projects as such, appellants were entitled for exemption from Income‑tax under Item No.176 of the Second Schedule. To substantiate his plea, reliance was placed by him on Pakistan Tobacco Co. Ltd. v. Pakistan through Ministry of Finance 1991 PTD 359, Commissioner of Income Tax v. H.H Mahrani Prabha Rajyalaxmi 1999 PTD 2619, Commissioner of Income‑tax v. Tamil Nadu Dairy Development Corporation Ltd. 1995 (216) ITR 535. Sham Progetti S.P.A. v. Additional Commissioner of Income‑tax (1981) 132 ITR and Messrs Packages Ltd. v. The Commissioner of Income Tax 1993 SCMR 1224.
5. Learned counsel appearing for respondent‑Department in reply contended that interest on share squarely falls within the scope of "income from other sources" and the argument of appellants counsel for utilizing such income in the projects being set tip by them for generating electricity was not a question before the High Court who exercises limited jurisdiction concerning only law points under section 136 of the Ordinance, therefore, the argument being raised for the first time is not entertainable. To elaborate his argument, he contended that once a project had started generating electricity only then it can claim exemption of income‑tax out of its profits/gains in terms of Item 176 of the Second Schedule of the Ordinance.
6. We have heard parties counsel and have considered their arguments in view of the following question of law or which the order of the Appellate Tribunal was challenged in I.T.A. No.109 of 1999, and has been disposed of by the High Court vide judgment, dated 14th January, 1999‑‑‑
"(a) Whether on the facts and in the circumstances of the case the Income Tax Appellate Tribunal was not legally correct to treat the tax income shown as exempt income in Clause 176 of the Second Schedule from all sources a; taxable?
(b)Whether on the facts and in the circumstances of the case ITAT was justified in not allowing any allowance or deduction against the interest income and treating it as income from other sources under section 30 of the Income Tax Ordinance, 1979 and. not as income to be assessed as separate block of income under section 80B?
(c)Whether on the facts and in the circumstances of the case ITAT was legally correct to rely on the judgment passed on later date after finalization of the case on 27th February, 1998 without confronting the assessee or his A.R.?"
7. Learned High Court declined to grant relief to appellants for the following reasons:
(i)The profits and gains which the assessee have not attained from the project, but may it be ancillary or incidental, by no rule of interpretation can be construed to be within the purview of the said clause, therefore, no exception can be taken to the impugned order of the Tribunal.
(ii)The Public Limited Companies are excluded from the purview of section 80‑B of the Ordinance.
(iii)The Tribunal was not duty bound under the law to have confront the appellant with the judgment (passed on later date).
8. A perusal of the questions put up by the appellants before the Court for examination, arising out of the order of the Tribunal, and findings of the learned High Court abundantly makes it clear that the argument i.e. the share capital is invested in projects for their completion including purchase and installation of plants to generate electricity is not available to appellants as it was not raised before the learned High Court as well as before the Appellate Court Tribunal.
9. Now question for consideration is as to whether interest earned by the appellants from the share capital deposited in the Banks does fall within the scope of "income from other sources" under section 30 of toe Ordinance. To answer the proposition it is to be borne in mind that. Item 176 of Second Schedule of the Ordinance provides in clear terms that "profits and gains derived by an assessee from Electric Power Generation Project, set up in Pakistan on or after 1st of July, 1998 shall be exempted from total income tax." Essentially, profits and gains from the Electric Power Generation Project is distinct and different from the interest being obtained by the Company on the deposit of share capital in the Banks, during the financial years for which the return of income under the relevant provision of Ordinance is filed and the exemption is claimed from the payment of income tax under Item 176 of Second Schedule of the Ordinance. It is informed that Electric Generating Plants of appellants‑Companies had started functioning in 1994‑95 but they instead of claiming exemption on the profits/gains from Power Generation, claimed it from the deposit of the share capital lying in the Banks. It is to be seen that no sooner a Company goes in production it cannot claim exemption of income tax on the interest of share capital deposited in Banks because on commencement of the production, profits arid gains are to be earned out of the income of Electric Generation independently.
10. Learned counsel heavily relied upon the Judgment report to th e case of Messrs Packages Ltd. (ibid) but the question raised therein pertains to the claim of deduction on interest on loan borrowed by appellant for import of machinery. Income Tax Officer disallowed such claim on the ground that interest relating to pre‑production stage was being capitalized by him, he however, allowed depreciation at 10% as the machinery was installed and used during the year underassessment The Appellate Forums dismissed its appeals and this Court ultimate agreed with the contention of appellant to the effect that amount of interest paid by the purchaser of an Industrial concern to the vendee on the unpaid price was an integral part of the profit earning process relating to the carrying or conduct of business and satisfies the test laid down for bringing the case within the fold of section 10(2)(xvi).
11. But in instant case, position, is altogether different because the share capital deposits in the Banks by the assessees are providing a separate income to them after post‑production stage of the Power` Generating activity, therefore, on the income of interest no exemption can be claimed by the appellants under item 176 Second Schedule of the Ordinance as it is a different income from the profits/gains being earned from post‑production activity of power generation.
12. Learned counsel for appellants then contended that in terms of section 80‑B read with section 50(2)(a) of the Ordinance, the income‑tax has to be charged at the rate specified in the first Schedule.
13. In this behalf it may be noted that under section 80‑B such concession is not available to Public Limited Companies as its sub section (1) in categorical terms has extended its benefits to an individual, unregistered firm, association of persons, Hindu undivided family or artificial juridical person, therefore, the contention of learned counsel is, accordingly repelled.
14. No other point was argued by the learned counsel for the parties.
Thus, for the foregoing reasons, we see no force in instant appeals as such same are dismissed with no order as to costs.
M.B.A./G-16/SAppeals, dismissed