COMMISSIONER OF INCOME-TAX VS Messrs AGRO GENERAL INSURANCE CO., LTD.
2005 P T D 1047
[Karachi High Court]
Before Anwar Zaheer Jamali and Muhammad Mujeebullah Siddiqui, JJ
COMMISSIONER OF INCOME-TAX
versus
Messrs AGRO GENERAL INSURANCE CO., LTD.
IncomeTaxCaseNo. 505of2004,decidedon18thFebruary,2005.
Income Tax Ordinance (XLIX of 2001)---
----Ss. 20 & 133---Income Tax Ordinance (XXXI of 1979), Fourth Schedule, R. 5(a)---Zakat and Ushr Ordinance (XVIII of 1980), S. 25---Deduction---Insurance Company---Khas Deposit Certificates---Asset---Payment of Zakat, at source on Khas Deposit Certificates by Insurance Company---Allowable deduction under R. 5(a), Fourth Schedule, Income Tax Ordinance, 1979.
Commissioner of Income-tax v. Azlak Enterprises 2003 PTD 1309 fol.
1989 PTD (Trib.) 1263; 1989 PTD (Trib.) 1263 and 1991 PTD (Trib.) 804ref.
Muhammad Altaf Mun for Appellant.
Nemo for the Respondent.
Date of hearing: 18th February, 2005.
JUDGMENT
MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---After rejection of application under section 133(1) of the Income Tax Ordinance, 2001, by the ITAT, the Commissioner of Income Tax Companies-III, Karachi has submitted this reference application under section 133(4) of Income Tax Ordinance, 2001, invoking advisory jurisdiction of this Court on the following question of law:--
(1)Whether on the facts and circumstancesofthecasetheclaimofZakatdeductionatsourceisadmissibledeductionunderrule 5(a) of the Fourth Schedule to the Income Tax Ordinance, 1979?
Briefly stated the relevant facts are that respondent/assessee is a company carrying on business of general insurance. During the assessment year 1996-97, the assessee disclosed income from interest and profit earned from Khas Deposit Certificates. The assessee claimed deduction on account of Zakat paid at Rs.13,601. The Assessing Officer, disallowed the claim for the reason that the Zakat is not admissible expense under Rule 5(a) of the IVth Schedule to the Income Tax Ordinance, 1979. It was contended before the Assessing Officer that similar disallowance was made in the assessment year 1993-94 which was deleted in appeal. The Assessing Officer observed that he has gone through the appeal order, dated 12-7-1993 passed by the learned Commissioner of Income Tax (Appeals) placing reliance on the decision of ITAT in the case reported as 1989 PTD (Trib.) 1263. The Assessing Officer further observed that the Zakat deducted at source is not an admissible deduction for working out total income under the Income Tax Ordinance, 1979. However, Zakat paid could be deducted in computing income liable to tax under the provisions of section 25 of Zakat and Ushr Ordinance, 1980, provided such computationwas made under any of the heads of income categorized under section 15 of the Income Tax Ordinance, 1979. He further observed that under order 26(a) (sic) of the Income Tax Ordinance, 1979, profit and gains of any business of insurance and tax payable thereon is to be computed in accordance with the rules contained in the IVth Schedule to the Income Tax Ordinance. He further held that Rule 8 of the IVth Schedule lays down that the provisions of IVth Scheduleshall apply notwithstanding, anything contained in the Ordinance or any law for the time being in force. He also held that under Rule 5(a) of the IVth Schedule, Zakat being not admissible expenditure in computing total income from business or profession is to be adjusted back. It was observed by the Assessing Officer that the only point to be taken into consideration was whether or not provisions of section 25 of Zakat and Ushr Ordinance, 1980, will prevail over the provisionsof Rule 8 of IVth Schedule to the Income Tax Ordinance, 1979. According to him, it has yet not been decided by any Court of law. The Assessing Officer, came to the conclusion that section 25 of Zakat and Ushr Ordinance, 1980, is a general law whereas IVth Schedule to the Income Tax Ordinance, 1979 and Rule 8 thereof is a special law. According to the principles of interpretation of statutes the special law is to prevail over the general law and consequently, the deduction on account of payment of Zakat at Rs.13,601 charged to the Profit and Loss account was disallowed and added back to the total income of assessee.
The assessee being aggrieved preferred first appeal and the Commissioner of Income-Tax (Appeals)-III Karachi, held that Zakat is an allowable deduction and directed that, the same be allowed after necessary verification.
Being dissatisfied the Assessing Officer, preferred second appeal before the ITAT, contending that the assessee being an insurance company whose assessment is finalized under IVth Schedule to the Income Tax Ordinance, 1979, isnot entitled to the deduction on account of Zakat and therefore, the CIT(A) was not justified in deleting the addition.
Learned members of the Tribunal held that deduction onaccount ofZakatisadmissibleclaimastheprovisionscontainedinIVthScheduletotheIncomeTaxOrdinance,1979donotcontainany bar against allowance of Zakat. It was further held thatsection 25 of the Zakat and Ushr Ordinance, 1980, being a special provision providingforreducingoftaxableincometotheextentofZakatpaid, shall prevail upon all the provisions of Income Tax Ordinance, 1979. The appeal at the instance of department was dismissed accordingly.
Being still dissatisfied the Commissioner of Income Tax, submitted reference application before the learned ITAT, praying to refer the question of law reproduced in earlier part of this order to the High Court. The reference application was rejected for the reason that no substantial question of law raises out of the order of Tribunal.
The department has thereafter submitted this reference application before this Court.
We have heard Mr. Muhammad Altaf Mun, Advocate for the applicant. He has submitted that the profits and gains of a general insurance business if computed under Rule 5 of the IVth Schedule to the Income Tax Ordinance, 1979, clause (a) whereof is relevant, which reads as under:--
(5)General Insurance. ---The profits and gains of any business of insurance other than life Insurance shall be taken to be the balance of the profits disclosed by the annual accounts required under the Insurance Act, 1938 (IV of 1938), to be furnished to the Controller of Insurance, subject to the following adjustments, namely:--
(a)Any expenditure or allowance of any reserve or provision for any expenditure, or the amount of any expenditure, or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head Income from business or profession shall be excluded:
He has submitted that a perusal of the above provisions shows that any expenditure or allowance or the amount of any tax deducted at source from any dividends or interest received which is not deductible in computing the income chargeable under the head, income from business or profession shall be excluded. He has further submitted that section 23 of the Income Tax Ordinance, 1979 provides that in computing the income under the head income from business or profession the allowances and deductions specified therein shall be made. He has maintained that deduction on account of payment of Zakat is not specified in section 23 and therefore, Zakat is not an allowance or deduction for computing income from business or profession and as such by virtue of the provisions contained in Rule 5(a) of the IVth Schedule to the Income Tax Ordinance, 1979, the Assessing Officer rightly disallowed the deduction on account of payment of Zakat andadded backthesametothetotalincome.Hehasfurthersupportedtheview taken by the AssessingOfficer,thatbyvirtueofRule 8totheIVthSchedule of the Income Tax Ordinance, 1979, the provisions ofthe said schedule shallapply notwithstanding anything contained in Income Tax Ordinance, 1979 or any law for the time being in force. He has further supported the finding of the Assessing Officer, that the provisions contained in IVth Schedule to the Income Tax Ordinance, 1979 being in the nature of special provisions shall prevail over the provisions contained in section 25 of the Zakat and Ushr Ordinance, 1980.
We have carefully considered the contentions raised by the learned counsel for the appellant before us and the order passed by the forums below. We find that the Assessing Officer, has referred to the decision of ITAT reported as 1989 PTD (Trib.) 1263 and has thereafter expressed his opinion that the claim was not admissible with further observation that the point has not been decided as yet by any Court of law. It appears that the Assessing Officer, could not lay his hands on the judgment of Tribunal in respect of the issue under consideration reported as 1991 PTD (Trib.) 804. We further find that although a reported Division Bench decision, of the Tribunal was available but the CIT(A) and the learned members of the Tribunal also failed to advert to the said decision. While dealing with the issue under consideration a Division Bench of the ITAT referred to the provisions contained in section 25 of the Zakat and Ushr Ordinance, 1980 and observed as follows, in the judgment cited above:--
From perusal of Clause (a) ofsubsection (1) to this section it appears, that the legislature has allowed special concession regarding deduction of Zakat from taxable income while determining the tax liability of assessee. The expression notwithstanding anything contained in any other law for the time being in force clearly indicates that this is a special tax concession.
The learned ITAT, in the cited judgment further observed that it is clear from perusal of section 25 that the Zakat Ordinance, has laid down special provisions and they have to prevail on the provisions of Income Tax Ordinance and principles of tax laws including the alleged principle relied upon by both the officers below.
The above judgment of the Tribunal came for consideration before a Division Bench of this Court in the case of Commissioner of IncomeTaxv.AzlakEnterprises2003PTD1309andthefindingoftheITAT,wasupheld.Thus,thequestionpertainingtodeductionofZakatfromtaxableincomewhiledeterminingtheliability of an assessee already stands decided. As the point of law requiring consideration already stands decided by this Court in the Division Bench judgment referred to above therefore no fresh finding is required.
For the foregoing reasons, reference application stands dismissed in limine.
Afterhearingthelearnedcounselfortheapplicanton18-2-2005, the reference application was dismissed by short order. These are the detailed reasons in support thereof.
M.B.A./C-23/KApplication dismissed.