Messrs PAKISTAN REFINERY LTD. VS COMMISSIONER OF INCOME TAX, COMPANIES-V KARACHI, 2005 PTD-KARACHI-HIGH-COURT-SINDH 2216 (2005)

Income Tax Ordinance (XXXI of 1979)---

----Ss. 2(11), 22, 30 & 80-D---Dividend income of company---Charging tax on dividend income under S.30 of Income Tax Ordinance, 1979 in addition to turnover tax charged under S.80-D thereof---Plea of assessee was that dividend income was also covered under S.80-D of Ordinance, 1979---Validity---Assessee had not initially claimed dividend income as part of their income from business---Such income of assessee was not part of their business income as defined in S.2(11) of Income Tax Ordinance, 1979---Provisions of S. 80-D of Ordinance, 1979 would be read in conjunction with other provisions thereof keeping in mind whole scheme of the enactment---Dividend income derived by assessee from other sources was explicitly covered by S'.30 of the Ordinance, thus, same could not be categorized as part of their income from business---High Court turned down such plea---Principles.

Muhammad Hussain Patel v. Habib Wall Muhammad PLD 1981 SC 1; S. Sundaram Pillai and others v. V.R. Pattabiraman AIR 1985 SC 582; Octavius Steel and Company Ltd. v. The Commissioner of Income Tax, Dacca PLD 1960 SC 371; Commissioner of income Tax v. Messrs National Bank of Pakistan PLD 1976 Kar. 1025; Ltd. Col. Muhammad Amin Khan and others v. Government of West Pakistan and others PLD 1966 Lah. 111 and Commissioner of Income Tax, Companies-II, Karachi v. Muhammad Usman Hajrabai Trust Imperial Courts, Karachi 2003 PTD 577 ref.

1996 PTD (Trib.) 286; Elahi Cotton Mills Ltd. and others v.' Federation of Pakistan PLD 1997 SC 582; 1997 PTD 1555 and Messrs Japan Sotrage Battery Ltd. v. Commissioner of Income Tax, Companies Zone-I, Karachi 2003 PTD 2849 fol.

Fateh Ali W. Vellani for Applicant.

Aqeel Ahmed Abbasi for Respondent.

Dates of hearing: 12^th, 13^th and 14^th January, 2005.

JUDGMENT

ANWAR ZAHEER JAMALI, J.---The above titled two reference applications under section 136(2) of the Income Tax Ordinance, 1979 (hereafter referred to as the Ordinance), emanating from similar set of facts and involving identical questions of law are being disposed of by this common order.

2. The applicant Messrs Pakistan Refinery Limited, a listed public limited company incorporated in Pakistan, aggrieved by the order, dated 27-3-2001 passed by Income Tax Appellate Tribunal Karachi (hereinafter referred to as "I.T.A.T.") in R. A. No.132/KB of 2000-2001, pertaining to the assessment case of the applicant for the year, 1998-99 and the other order, dated 26-4-2002 passed by I.T.A.T. in R.A. No.587/KB of 2001, pertaining to the assessment case of the applicant for the year 1997-98, have made these reference applications_, with the identical questions of law which read as under:--

"(i) Whether the Income Tax Appellate Tribunal was not justified in holding that the words `where no tax is payable or paid' and the words `or the tax payable or paid' occurring in section 80D(1) of the Income Tax Ordinance, 1979 as explained in the Explanation thereto are used in the context only of income profits and gains of the applicant under the head `income from business or profession' chargeable under section 22 of the Ordinance.

(ii) Whether the Income Tax Appellate Tribunal was not justified in holding that the expression `turnover from all sources' in section 80D means the applicant's gross receipts under the head `income from business or profession' chargeable under section 22 of the Ordinance and that the Explanation defining the word `turnover' supports this restricted meaning.

(iii) Whether the Income Tax Appellate Tribunal was not justified in holding that in addition to the tax chargeable under section 80D of the Income Tax Ordinance at 0.5 per cent. of the applicant's `turnover from all sources', tax is also chargeable on the applicant's income under every head of income other than the head `income from business or profession'.

(iv) Whether the applicant's deemed income under section 80D of .the Income Tax Ordinance, 1979 and the tax calculated in relation thereto supersedes supplants and substitutes for the computation of total income and the charge of tax in the normal manner under the preceding provisions of the Ordinance, including in particular sections 9 (charge of tax), 15 (heads of income) and 34 (set-off of loss under any head against income under any other head).

(v) Whether payment of the tax chargeable under section 80D of the Income Tax Ordinance, 1979 at one-half per cent of the amount representing the applicant's "turnover from all sources" discharges the tax liability of the applicant on its income computed under every head specified in section 15.

3. Relevant facts of the case are that in respect of assessment years 1997-98 and 1998-99, vide two assessment orders, dated 15-6-1999, the applicant company, besides being charged with the levy of turnover tax at 0.50% under section 80D of the Ordinance, was further charged with the levy of 5% tax under section 30 of the Ordinance on their dividend income. Such orders were challenged by the applicant through two separate appeals under section 132 of the Ordinance before the Commissioner of Income Tax (Appeals), Karachi, which were disposed of by the Commissioner Income Tax (Appeals) against the applicant vide his common order, dated 30-8-1999. The applicant thereafter moved misc. applications, dated 25-10-1999 before the Commissioner Income Tax (Appeals) for rectification of order passed by him earlier but such applications were also decided against them vide order, dated 24-12-1999, with the following observations:

"Since it is not the case of the appellant that the Dividend income received was a result of its business operations, therefore, levying tax on Dividend Income separately was justified which needs no interference. However, while working out the tax under section 80-D if the Dividend receipts have also been included in the business receipts as well for levying tax under section 80-D, then it is a mistake rectifiable under section 156, and the appellant is directed to approach the Assessing Officer for its correction accordingly but if not so included, then the treatment of the learned DCIT needs no interference, because tax under section 80-D is charged on business receipts alone. Subject to the above, the Misc. Application being without substance is filed."

4. The applicant having remained unsuccessful before the two lower forums under the hierarchy of the Ordinance then preferred I.T.A. No.703/KB of 1999-2000 and I.T.A. No.1499/KB of 1999-2000 before the ITAT, challenging both the orders passed by the Commissioner of Income Tax (Appeals) against them. In these appeals the moot point for consideration was noticed by the Tribunal with reference to two different judgments of the Tribunal regarding the same controversy. The later order, dated 20-5-1999 was passed in I.T.A. Nos. 1200/KB and 1201/KB of 1998-99 while the earlier order, dated 20-3-1999 was passed in I.T.A. No. 955/KB of 1998-99. Accordingly, a Full Bench was constituted by the Tribunal to re-examine the whole issue regarding interpretation and applicability of section 80D of the Ordinance.

5. In its detailed order, dated 5-9-2000, the controversy relating to the interpretation and true import of section 80D(1)(2) and the explanations provided .thereto was thoroughly examined by the Full A Bench of the Tribunal, which recorded its findings as under:

"(35) Construed on the principle of interpretation of statute, the word `tax' , as used in subsection (1) of section 80D as well as in the First Explanation appended to it, in the context and the subject-matter of the main section means the tax not payable or paid on the income from business or profession chargeable under section 22 of the Ordinance.

(36) We are persuaded to arrive at the conclusion supra firstly because we have already concluded that the income deemed under subsection (1) of section 80D is confined to turnover of business and profession and secondly the inclusions among the possible reasons for tax being not payable or paid supra refer without a singly exception to the computation of income, profits and gains from business or profession. Any other construction of the words `tax not payable or paid', in our considered view, would be contrary to the context_, and the subject-matter of section 80D of the Ordinance.

(37) Accordingly, we hold that the expression `the amount represent ing its turnover from all sources' as used in subsection (1) of A section 80D of the I.T. Ordinance 1979, refers to turnover of business or profession carried on by the companies and registered firms envisaged under the section; that the expressions `_.where no tax is payable or paid' and `or the tax payable and paid' as used in subsection supra are used in the context of income, profits and gains from business and profession as compared under the Ordinance and that tax on income of such companies and registered firms under any head other than the income under the head `income from business or profession' is payable in addition to the tax chargeable in the manner specified in subsection (2) of section 80D of the Ordinance.

(38) Consequently decision of the Division Bench of the Tribunal in I.T.As. Nos. 1220 and 1221/KB of 1998-99, dated 20-5-1999 is overruled and the decision in I.T.A. No. 955/KB of 1998-99, dated 20-3-1999 is approved. The reported decision in 1996 PTD (Trib.) 286 deals with the interpretation of the term `turnover' as used under section 80D but the other issue of chargeability of income from house property and interest on deposits in addition to tax charged under section 80D(2) was not before the Tribunal."

6. Being dissatisfied with the order of the Full Bench of ITAT Passed against the applicant, the applicant thereafter made reference applications under section 136(1) of the Ordinance, suggesting therein same questions as reproduced above, but these applications were dismissed by the I.T.A.T. inter alia, by placing its reliance on the case of Elahi Cotton Mills Ltd. and others v. Federation of Pakistan PLD 1997 SC 582 and 1997 PTD 1555. Relevant observations read as under:--

"(5) As is evident from the observation made by the Hon'ble Supreme Court, the entire provisions of section 80-D have been discussed in the context of business proceeds as otherwise the discussion relating to deduction of sales tax and excise duty has no relevant to the receipts of dividend, interest, profits, and other sources of non-business income. The issue having been resolved by the Tribunal being inconsonance with the elaboration as contained in the above para. of the Supreme Court's judgment there does not appear to be any ambiguity left calling for a reference to be made on the question, proposed by the assessee. The same is accordingly rejected."

7. Mr. Fateh Ali W. Vellani, learned counsel for the applicant in both the appeals has contended that the moot point for consideration on which the answer of all the questions proposed in these appeals would depend, is that what could be the correct interpretation of section 80D of the Ordinance. In this regard, he has read before us section 80D of the Ordinance along with explanations provided therein and contended that the true import of word "turn over" was not properly taken into consideration by the Tribunal with reference to the phrase "turn over from all sources" which included the dividend income of the applicant company also, thus, levy of further tax on the dividend income separately under section 30 of the Ordinance was not warranted by law. To amplify his view on the subject learned counsel also made reference to the definitions of word "Turn over" from various dictionaries which read as under:--

"(a) A new English Dictionary on Historical Principles, Volume X, Part 1, edited by Sir James A.H., Murray:

Turn over:

"The total amount of business done in a given time; also, the amount of goods produced and disposed of by a manufacturer; also, the `turning over' of the capital involved in a business; also, the net profit derived from a business in a given time."

(b) The New Oxford Dictionary of English, edited by Judy Pearsall:

Turn over:

"The amount of money taken by a business in a particular period."

(c) Webster's Third New International Dictionary of the English Language, Volume III:

Turn over:

"To receive and dispose of (a stock of merchandise) (turn over its inventory 18 times a year Time) b: to handle in business: do business to the amount of"

"The amount of business done: degree of business activity"

"Movement (as of goods animals, or people) into, through, and out of a place considered all as a single process"

8. Making reference to the case of Ellahi Cotton Mills Ltd. (supra) Mr. Vellani urged that indeed it is an exhaustive judgment with reference to the interpretation of various provisions of the Ordinance specially section 80D of the Ordinance but in the facts and circumstances of present case it has no applicability. Learned counsel further made reference to the cases of Muhammad Hussain Patel v. Habib Wali Muhammad (PLD 1981 SC page 1) and S. Sundaram Pillai etc. v. V.R. Pattabiraman (AIR 1985 SC 582) to lay emphasis on his submission that the explanation provided to a section does not either curtail or expand its general meaning but it can only be used for proper guidance and assistance for interpretation of the relevant section. He also contended that the dividend income fetched by the applicant,. which was separately shown in their Return of Income was also their income from business-relating to another associate company Messes Pak Greece Manufacturing Company (Pvt.) Ltd., therefore, it was part and parcel of the other income of the applicant company covered under section 22 of the Ordinance which was subjected to minimum tax under section 80D of the Ordinance. He emphasized that the word "turn over" in the light of various definitions /dictionary meanings of this word includes "gross income from all sources thus, the applicability of section 80D of the Ordinance could not have been restricted only to the income covered by section 22 of the Ordinance. During the course of his arguments learned counsel also placed on record re-framed question of law and candidly stated that the earlier questions proposed in the appeal do not explicitly cover the controversy, thus, the applicant has placed on record re-framed questions of law. In this context learned counsel also made reference to the cases of Octavius Steel and Company Ltd. v. The Commissioner of Income: Tax. Dacca (PLD 1960 SC 371) and Commissioner of Income Tax v. Messrs National Bank of Pakistan (PLD 1976 Karachi 1025) to add force to his submission that if the original questions proposed in the appeal are not comprehensive, the Court is not denuded of its power to re - frame or modify such question of law to foster the cause of justice. The reframed questions submitted by Mr. Vellani read as under:---

"(i) Whether the Income Tax Appellate Tribunal was not justified in holding that the words "where no tax is payable or paid" and the words "or the tax payable or paid" occurring in section 80D(1) of the Income ..Tax Ordinance, 1979 as explained in the Explanation thereto are used in the context only of income, profits and gains of the applicant under the head "income from .business or profession" chargeable under section 22 of the Ordinance and do not include income of the applicant's business comprising dividends computed under the head "income from other sources".

(ii) Whether the Income Tax Appellate Tribunal was not justified in holding that the expression "turnover from all sources" in section 80D means the applicant's income under the head "income from business or profession" chargeable under section 22 of the Ordinance and does not cover the applicant's income from business comprising dividends computed under the head "income from other sources".

(iii) Whether under section 80D of the Income Tax Ordinance, 1979 the income of the applicant's business comprising income computed under the head "income from business or profession" and dividends computed under the head "income from other sources" and the tax calculated in relation thereto supersedes, supplants and substitutes for the computation of total income and the charge of tax in the normal manner under the preceding provisions of the Ordinance.

(iv) Whether payment of the tax chargeable under section 80D of the Income Tax Ordinance, 1979 at one-half per cent. of the amount representing the income of the applicant's business computed under the head "income from business or profession" and ,dividends computed under the head "income from other sources" discharges the tax liability of the applicant in respect of that income "

9. In reply, Mr. Aqeel Ahmed Abbasi, learned counsel for respondent, strongly controverted the submissions of Mr. Vellani, as noted above. He contended that the scope and applicability of section 80D of the Ordinance, as is evident from its language and explanations provided thereto, is restricted only to the income of the applicants from their business and profession as envisaged/covered by section 22 of the Ordinance and not the dividend income which is separately covered by section 30 of the Ordinance. He contended that holding of shares of another company by the applicant and the dividend income drawn therefrom cannot be taken into account as applicant's income from business and profession but only as dividend income separately covered by section 30 of the Ordinance. Learned counsel labouriously made reference to the whole scheme of the Ordinance, particularly with reference to various charging provisions of the Ordinance to show that any other interpretation of section 80D, than the one made by the Full Bench of ITAT in its order, dated 5-9-2000 and again dilated in detail in the case of Ellahi Cotton Mills (supra) will not only be against the basic scheme of the Ordinance but it will frustrate the very object and spirit of section 80D of the Ordinance. Referring to the two orders in original and the Appellate Courts order, learned counsel urged that even as per applicant's own case their income from dividend was never part and parcel of their income from business as now urged by the applicant. Making reference to the two sets of questions of law, one incorporated in the memo. of applications and the other placed on record ^-by the learned counsel for applicant during the course of his arguments, he contended that the reference application under section 136(2) of the Ordinance is only confined to those questions of law, which were earlier referred to the Tribunal under section 136(1) of the Ordinance and rejected. Therefore, no other question of law could be proposed or taken into consideration for the first time by this Court on the pretext that it will be covered by mere process of re-framing of the questions of law. In this regard learned counsel made reference to the following cases:---

(1) Lt.-Col. Muhammad Amin Khan and others v. Government of West Pakistan and others (PLD 1966 Lahore 111).

(2) Commissioner of Income Tax, Companies-II, Karachi v. Muhammad Usman Hajrabai Trust Imperial Courts Karachi 2003 PTD 577.

10. In the end learned counsel contended that as the plea of the applicant that their income from dividend is also their income from business was not raised by them before the lower forums, therefore, there is no specific finding to that effect and in any event it will be purely a question of fact that whether such income in the given facts and circumstances of the case could be considered as income of the applicant from business or not. Learned counsel, therefore, urged that both these applications are liable to be dismissed.

11. In his reply submissions Mr. Vellani also made reference to various sections of the Ordinance and contended that the dividend income cannot be placed under any specific head as argued by Mr. Abbasi, specially in the present case when the applicant's plea is that they are also engaged in the business which drives dividend income. He urged that levy of 5% tax on dividend income under Schedule-1 Part IV (d) of the Ordinance is thus unjustified and the proposed questions of laws may be answered accordingly.

12. We have carefully considered the arguments, advanced by Mr. Vellani, learned counsel for applicant, reply thereto given by Mr. Aqeel Ahmed Abbasi, learned counsel for respondent, perused the material placed on record and also the case-law cited at the bar.

13. After going through the order of the Full Bench of the Tribunal, dated 5-9-2000 and the judgment of the Hon'ble apex Court in the case of Elahi Cotton Mills Ltd. (Supra) we are of the firm opinion that the arguments on interpretation of section 80D of the Ordinance, advanced by Mr. Vellani and his further contention that charging .of tax on the dividend income of the applicant under section 30 of the Ordinance is not justified as the dividend income of the applicant was also covered under section 80D of the Ordinance, are without force. The Full Bench of ITAT in its order, dated 5th September, 2000 has made detailed discussion on this aspect of 'the case, which is in conformity with the whole scheme of the Ordinance and in line with the exhaustive judgment of the Hon'ble apex Court in the case of Elahi Cotton Mills Ltd. (Supra), therefore, same is unexceptionable.

14.The other submission of Mr. Vellani with reference to various definitions of "turn over" and use of phrase "representing its turn over from all sources" in section 80D(1) of the Ordinance is also of no help to the case of applicant in the context of the controversy relating to the dividend income of the applicant; firstly, as earlier the applicant had not claimed dividend income as part of the their income from business, which fact is evident from the observations of the CIT (Appeals) contained in its order, dated 24-12-1999 (relevant para. reproduced above), secondly, on facts such income of applicant is not part of their business income as. defined under subsection (11) to section 2 of the Ordinance; and thirdly the provisions of section 80D of the Ordinance are to be read in conjunction to the other provisions of the Ordinance keeping in mind the whole scheme of the enactment, thus, in the facts and circumstances of the present case, from no stretch of imagination the dividend income drived by the applicant from other sources, which is explicitly covered by section 30 of the Ordinance, could be categorized as part of their income from business.

15. Besides, the Tribunal in its subsequent order, dated 27-3-2001 has rightly held that the questions of law proposed on behalf of the applicant were not fit to be referred to the High Court for its opinion within the ambit of section 136(1) of the Ordinance as the entire scheme of the Ordinance and the provisions of section 80D have been discussed by the Hon'ble Supreme Court (in the case of Elahi Cotton, Mills Ltd.) in the context of business proceeds, otherwise such discussion has no relevancy to the receipts of dividend, interest, profits and other sources of non-business income. Mr. Vellani has not been able to controvert that the questions of law proposed by the applicant in their application under section 136(1) of the Ordinance in the strict sense, were not the questions of law arising out of the order of ITAT. In our view even the re-framed/re-proposed questions of law submitted by Mr. Vellani, in the facts and circumstances of the case, when the applicant had initially not claimed dividend income as part of their income from business, do not fall within the ambit of question of law arising out of impugned order. If any case-law is needed to fortify this view reference may be made to the case of Messrs Japan Storage Battery Ltd. v. Commissioner of Income Tax, Companies Zone-I, Karachi 2003 PTD 2849.

16. For the foregoing reasons, we find no substance in these reference applications, which are accordingly dismissed.

S.A.K./P-39/KReference dismissed.