I.T.As. Nos.4206/LB and 4207/LB of 2004, decided on 26th November, 2004. VS I.T.As. Nos.4206/LB and 4207/LB of 2004, decided on 26th November, 2004.
2005 P T D (Trib.) 965
[Income-tax Appellate Tribunal Pakistan]
Before Rasheed Ahmed Sheikh, Judicial Member
I.T.As. Nos.4206/LB and 4207/LB of 2004, decided on /01/.
26th November, 2004. (a) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Income deemed to accrue or arise in Pakistan---Withdrawal of amounts on different dates from capital account to meet personal expenses and payment of taxes---Capital balance stood in negative---Withdrawal of such amount from capital account was treated to be loan advanced by the firm in terms of S.12(18) of the Income Tax Ordinance, 1979---Addition was deleted by the First Appellate Authority---Department contended that positive capital was to be considered to be the contribution of the members of Association of Persons towards the firm s capital account---Once withdrawal from the firm reaches to the level where the positive capital results into zero then any further withdrawal therefrom would tantamount to be loan obtained from the firm s capital account and amount over and above partner s own contribution certainly qualified the phrase used in S.12(18) of the Income Tax Ordinance, 1979 to be loan or advances ---Validity---By no stretch of imagination withdrawal of capital by a member/partner of the firm could be deemed to be the loan or advance ---Injection of additional capital or withdrawal of amount by the members of Association of Persons over and above their capital contribution was normal business activity to which the provisions of S.12(18) of the Income Tax Ordinance, 1979 were not attracted---No provision of law was available indicating that withdrawal of sum for personal expenses by the member(s)/partner(s) of the firm shallbe made through crossed cheque drawn on a bank or which prohibits charge of income tax paid by the firm from the partner s personal account---In no way personal drawings of the members partners could be treated to be the loan or advance obtained from the firm because such amounts were adjustable against their share of profit earned by the firm in the year in which the sum was drawn or against the profit in succeeding year---Legislature had bona fidely not catered this eventuality in S.12(18) of the Income Tax Ordinance, 1979---Assessing Officer had acted in flagrant violation of law in treating the drawings made by the member of the Assessing Officer to be the loan in terms of S.12(18) of the Income Tax Ordinance, 1979---First Appellate Authority s point of view was endorsed by the Appellate Tribunal and departmental appeal was dismissed being bereft of any merits.
Micro Pak. (Pvt.) Ltd. v. CIT 2002 PTD 877 rel.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Income deemed to accrue or arise in Pakistan---Loan or advance---Withdrawal of drawing from firm s capital account over and above the capital amount invested---Addition of being loan---Validity---Provision of S.12(18) of the Income Tax Ordinance, 1979 were not attracted in an eventuality where the amount was withdrawn by a member of the Association of Persons or by a partner of firm for his household expenses and payment of tax from the firm s account---Drawings of the members/partners of the firm did not fall within the definition of loan or advance ---Term loan had an inherent characteristics of repayment of money on specific conditions--- Advance means literally a payment before hand; in certain cases it may be a loan, but it could not be said that a sum of money paid by way of advance was necessarily a loan.
(c) Interpretation of statutes---
----While interpreting any provision of statute, plain meanings of the expression and the words used in statute, shall be adhered to and no othermeaningshallbededucedtherefromwhichisnotavailablefroma plain reading of the expression and the words used in the statute.
(d) Interpretation of statutes---
----Iftherearetwopossibleconstructionsofthewordsofthe statute, then the effect is to be given to the one that is in favour of the citizens and not to the one that enhances or increases the burden on them.
(e) Interpretation of statutes---
----Neither any tax nor higher rate of tax can be imposed by any interpretative process.
(f) Interpretation of statutes---
----No provision in fiscal statute can be extended on analogy.
(g) Interpretation of statutes---
----Straining the language in order to hold a subject liable to tax or to a higher rate of tax cannot be held justified when the clear words used by legislature indicate otherwise.
(h) Interpretation of statutes---
----Deeming provisions are to be applied strictly in accordance with law as such provisions are the fiction of law and all fictions of law are to be interpreted and applied strictly and the doubt, if any, is to be resolved in favour of assessee.
(i) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Income deemed to accrue or arise in Pakistan---Withdrawal of amount for household expenses from firm s capital account over and above the capital amount invested---Addition as being loan---Validity---Entire superstructure of the assessment had been built on presumption that withdrawal of money by the member/partner from the Firm s accounts, consequent upon which capital balance stood in negative, was a loan---In order to meet the household expenses and paymentoftaxes,eachoneofthemwasdrawingmoneyonhispersonal ledger account---Such was a running account of the members maintained with the firm which has inherent characteristic of being adjusted against future profit or losses---Firm had never lent any amount to its member(s) rather the drawings were made by the assessee for meeting his personal expenses and taxes from his capital account resulting in negative capital which did not fall within the four corners of the words used in S.12(18) of the Income Tax Ordinance, 1979 as loan or advance , as were interpreted by the appellate forums in their orders.
(j) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Drawings--Loan or advance---Neither the drawing made by the member(s)/ partner(s) of the firm nor the negative capital appearing in their personal ledger account, maintained by the firm, was covered by the definition of loan or advance .
(k) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Income deemed to accrue or arise in Pakistan---Amount subject to tax---Only the sum which had been claimed or shown to have been received as loan or advance otherwise than through a crossed cheque or banking channel could be subjected to tax under S.12(18), Income Tax Ordinance, 1979---Sum which had neither been claimed nor shown to have been received as loan could not be hit by mischief of S.12(18).
Mustafa Ashraf, D.R. for Appellant.
Sohail Mutee Babri for Respondent.
Date of hearing: 26th November, 2004.
ORDER
BythissingleorderIproceedtoadjudgethetwotitledappeals which are directed against the consolidated order passed by CIT(A) Zone-II, Lahore, dated 24-5-2004 in respect of assessment years 1999-2000 and 2000-2001.
2.The Revenue s common grievance for the two years under appeal pertains to deletion of addition, made under section 12(18) of the Repealed Income Tax Ordinance, 1979, by the first appellate authority. The divergent views expressed by the two parties in appeal, in this regard, have been considered.
3.On going through the facts available on record, a question has arisen as to whether withdrawal of amount by a member of the AOP or by a partner of the firm out f his capital account maintained with the firm, consequent upon which negative capital emerges at the close of the accounting year, constitutes loan or advance and whether the provisions of section 12(18) of the repealed Income Tax Ordinance are attracted in such eventuality.
4.Facts leading for disposal of the question in hand are that the assessee is a member of the AOP namely Messrs Atif Mushtaq and Co. who made withdrawal of amounts on different dates from his capital account, maintained with the firm, which in aggregate constituted at Rs.2,00,000 and Rs.2,20,000 respectively. This amount was withdrawn in order to meet personal expenses and payment of taxes. However, after making adjustment of the share of profit enjoyed from the said firm, capital balance stood in negative at the close of the accounting year i.e. on 30-6-1999 and 30-6-2000 which amounted to Rs.1,92,898 and Rs.5,13,993 respectively. These amounts were shown in the wealth statement under the head partners capital account . Withdrawal of such amount from the capital account was alleged by the Assessing Officer to have been obtained loan by the member from the firm s account. The explanation tendered by the assessee could not convince the Assessing Officer. Accordingly, the total sum withdrawn by the assessee at Rs.2,00,000 and Rs.2,20,000 in each year under appeal was treated to be the loan advanced by the firm in terms of section 12(18) of the repealed Ordinance and subjected them to tax.
5.When this issue came up for adjudication before the Appeal Commissioner, he after having taken regard to the arguments canvassed by the assessee deleted the impugned additions by holding to be not maintainable being the amounts withdrawn cannot be held to be a loan/advance. This has compelled the Revenue to come up appeal before the Tribunal.
6.The learned D.R. appearing on behalf of the Revenue vehemently objected to the learned Appeal Commissioner s action in deleting the addition. It was the learned D.R s point of view that positive capital is always considered to be the contribution of the members of AOP towards the firm s capital account. But once the withdrawals from the firm reaches to the level where the positive capital results into zero then any further withdrawal therefrom is tantamount to be the loan obtained from the firm s capital account. According to the learned D.R. the amount over and above the partner s own contribution certainly qualifies the phrase used in section 12(18) to be the loan or advances . Since, the loan has been taken out by the assessee for meeting his personal expenses without adopting banking channel, the Assessing Officer has rightly treated such amount a deemed income to be assessed under section 12(18) of the Ordinance. Conversely, the learned counsel appearing on behalf of the assessee-respondent supported the impugned appellate order for the reasons embolded therein.
7.After giving anxious thought to the divergent views expressed by the rival parties in appeal, I am of the considered opinion that the provisions of section 12(18) are not attracted in an eventuality where the amount is withdrawn by a member of the AOP or by a partner of the firm for his household expenses and payment of tax from the firm s account. Reason being drawings of the members/partners of the firm do not fall within the definition of loan or advance . The term loan has an inherent characteristics of repayment of money on specific conditions. While Advance means literally a payment before hand; in certain cases it may be a loan, but it cannot be said that a sum of money paid by way of advance is necessarily a loan.
8.Even plain reading of section 12(18) clearly spells out that only such sum which has been claimed or shown to have been received as loan or advance or gift by an assessee during any income year, commencing on or after first day of July, 1998 from any person otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax number, the said sum shall be deemed to be the income of the assessee for the said income year.
9.By this time this is a settled principle that while interpreting any provision of statute, plain meanings of the expression and the words used in a statute shall be adhered to and no other meaning shall be deduced therefrom which is not available from a plain reading of the expression and the words used in the statute.
10.And if there are two possible constructions of the words of the statute, then the effect is to be given to the one that is in favour of the citizen and not the one that enhances or increases the burden on him. Neither any tax nor higher rate of tax can be imposed by any interpretive process. No provision in fiscal statute can be extended on analogy. Thus, straining the language in order to hold a subject liable to tax or to a higher rate of tax cannot be held to be justified then by looking at the clear words used by the legislature.
11.I would also like to add here that deeming provisions are to be applied strictly in accordance with law as the deeming provisions are the fiction of law and all fiction of law are to be interpreted and applied strictly and the doubt, if any, is to be resolved in favour of assessee.
12.Reverting to the facts of the case, the entire superstructure of the assessment has been built on presumption that withdrawal of money by the member/partner from the Firm s accounts, consequent upon which capital balance stood in negative, is a loan. Factually the member of the firm have pooled their resources in order to execute business, under the name and style of Messrs Atif Musthaq and Co., and to share profit and losses on a specified percentage. For this purpose they have contributed their capital to the firm and in this manner their accounts were credited to the extent the capital was contributed by them. In order to meet the household expenses and payment of taxes, each one of them was drawing money from his personal ledger account. Meaning thereby this is a running account of the members maintained with the firm which has inherent characteristic of being adjusted against future profit or losses. In fact the firm has never lent any amount to its member(s) rather the drawings are made by the assessee-respondent for meeting his personal expenses and taxes from his capital account resulting in negative capital which do not fall within four corners of the words used in section 12(18) as loan or advance , as are interpreted by the higher appellate Courts in their orders.
13.In fact neither the drawing made by the member (s)/partner(s) of thefirmnorthenegativecapitalappearingintheirpersonalledgeraccount,maintainedbythefirm,iscoveredbythedefinitionof loan or advance . This contention is further supported bytheprescribedwealthstatementfiledundersection 58oftherepealed Ordinance wherein business liabilities and loans have separately been enumerated and whenever the negative amount is to be declaredthat falls within the heading partner(s) capital account and not the loan .
14.Evenotherwisethelawhasspecificallylaiddownthatonlythe sum which has been claimed or shown to have been received as loan or advance , otherwise than through a crossed cheque or banking channel, can be subjected to tax under section 12(18). Thus, in no way the sum which has neither been claimed nor shown to have been received as loan can be hit by mischief of section 12(18). I also remember that in one of the leading cases decided by the apex Court of Pakistan in the case of Micro Pak (Pvt.) Ltd. v. CIT [cited as 2002 PTD 877 (SC)] wherein, while taking cognizance to section 12(18), has observed that the provisions of this section are attracted only in a situationwhereanysumhaseitherbeenshownorclaimedtohavebeen received as loan but not otherwise. Also observed thatthe said two conditions are equally applicable in the case of advances and gifts .
15.In the given scenario, I have reached to an escapable conclusion that by no stretch of imagination withdrawal of capital by a member/partner of the firm can be deemed to be the loan or advance . Injection of additional capital or withdrawal of amount by the members of the AOP over and above their capital contribution is normal business activities to which the provisions of section 12(18) of the Repealed Ordinance are not attracted. There is no provision of law indicating that withdrawal of sum for personal expenses by the member(s)/partner(s) of the firm shall be made through crossed cheque drawn on a bank or which prohibits charge of income tax paid by the firm from the partner s personal account. In no way personaldrawings of the members/partners can be treated to be the loan or advance obtained from the firm because such amounts are adjustable against their share of profit earned by the firm in the year in which the sum is drawn or against the profit in the succeeding year. The legislature has bona fidedly not catered this eventually in section 12(18) of the Repealed Ordinance.
16.Upshot of the discussion is that the Assessing Officer had acted inflagrantviolationoflawintreatingthedrawingsmadebythemember of the AOP namely, Mr. Imtiaz Ahmad to be the loan in terms of section 12(18) of the Ordinance. This would result into endorsement of the Appeal Commissioner s point of view and dismissal of the departmental appeals being bereft of any merits.
C.M.A./339/Tax (Trib.)Appeal dismissed.