Messrs COLIBRATIVE HEAVY INDUSTRIES (PVT.) LTD., LAHORE VS C.I.T./W.T., COYS ZONE-II, LAHORE
2005 P T D 2525
[Lahore High Court]
Before Nasim Sikandar and Jawwad S. Khawaja, JJ
Messrs COLIBRATIVE HEAVY INDUSTRIES (PVT.) LTD., LAHORE
Versus
C.I.T./W.T., COYS ZONE-II, LAHORE
C.T.R. No.20 of 2003, decided on /01/.
rd
May, 2005. (a) Income Tax Ordinance (XXXI of 1979)---
---S. 12(18) [as substituted by Finance Act (III of 1998)]---Amendment in S. 12(18) of Income Tax Ordinance, 1979 bringing in words "advance or gift"---Applicability---Such amendment had not clarified existing law, but had brought a change therein---Such amendment, thus, would not apply to assessments of earlier years finalized before its coming into force.
(b) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18) [before amendment] ---C.B.R. Circular No. 6 of 87, dated 5-7-1987---Share deposit money shown in balance sheet/books of accounts of assessee-company---Treating such money as loan and deemed income---Scope---Purpose of S. 12(18) of Income Tax Ordinance, 1979 was to curb only fictitious loan---Share deposit money could never be or amount to a "loan" for being a sum returnable after a certain or uncertain period with or without interest---Assessing Officer could probe, look into and judge exact nature of a receipt or an entry in books of accounts---Revenue would have no business to pick-up faults with intention and motive of a company to. increase or decrease its capital and reasons therefor---Entries in books of accounts of a company would not be determinative of question, whether such amount had been paid as capital asset or a stock-in-trade---Issuance of share deposit certificates to existing share-holders would not be necessary---Express mention of word "loan" in such provision would exclude all other similar or equivalent terms, transactions or nature of receipt---Such provision would become applicable on fulfillment of two conditions; firstly that there was a loan received by assessee; and secondly that same was so claimed or shown---Neither such addition could be made nor defence taken by assessee could be rejected without recording a finding of fact regarding injection of such sums in business and its use as capital---Principles.
6th Edition of Balck's Law Dictionary page 936; Gurcharan Das and another v. Rain Rakha Mal AIR 1937 Lah. 81; Chairman Evacuee Trust Property West Pakistan, Lahore v. Muhammad Din and another PLD 1971 Lah. 217; CIT North Zone (W.P.), Lahore v. Crescent Textile Mills Ltd 1973 PTD 375; Duggal & Co. v. CIT (1996) 220 ITR 4567; K.A. Ramaswamy Chettiar and another v. CIT 1996 220 ITR 657; Commissioner of Wealth Tax v. Abid Hussain 1999 PTD 2895 and Prime Commercial Bank and others v. Assistant Commissioner of Income Tax 1997 PTD 605 ref.
(c) Interpretation of statutes---
----Fiscal statutes---Letter of law in taxing statute would be interpreted in the sense it had been used and expressed.
(d) Interpretation of statues---
----Fiscal statutes---Provision creating a legal fiction would be interpreted in such a manner as it would not cause injustice to a party.
CIT Kanpur v. Nathunal Gaya Lai (1973) 89 ITR 190 fol.
(e) Administration of justice---
----When Court steps into the world of legal fantasy, then principle of equity and justice cannot be lost sight of.
CIT Kanpur v. Nathimal Gaya Lai (1973) 89 ITR 190 fol.
(f) Words and phrases---
----"Loan"---Meaning---Loan is a sum returnable after a certain or uncertain period with or without interest.
6th Edition of Balck's Law Dictionary Page 936; Shorter Oxford English Dictionary page 1227 Volume-I; Chambers 20th Century Dictionary page 739; Gurcharan Das and another v. Ram Rakha Mal AIR 1937 Lah. 81 and Commissioner of Wealth Tax v. Abid Hussain (1999 PTD 2895 rel.
(g) Interpretation of statutes---
----When a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative viz that thing shall not be done otherwise.
Chairman Evacuee Trust Property West Pakistan, Lahore v. Muhammad Din and another PLD 1971 Lah. 217 fol.
(h) Interpretation of statues---
----Amendment in law---Amendment. brings change in existing state of law, unless same was of clarificatory/declaratory nature--- Retrospec tivity---Normally clarificatory or declaratory amendments would be retrospective in effect---Amendment bringing change in existing state of law, if not given retrospective effect, would be prospective in effect.
K.G. Old Principal Christian Technical Training Centre, Gurjanwala v. Presiding Officer, Punjab Labour Court Northern Zone and 6 others PLD 1976 Lah. 1097 fol.
(i) Interpretation of statutes---
----Fiscal statute---Two interpretations equally possible---Effect---Choice---Interpretation favourable to subject would be adopted---Such principle could be extended to factual situations warranting application of deeming provisions---Principles.
The settled principle of taxing statutes is that where two interpretations are equally possible, then the one favourable to the subject is to be adopted. Such principle can also be extended to factual situations warranting application of deeming provisions. It means that where the transaction equally be placed within or outside the dividing taxing line, then the one falling outside the line should be preferred against the one falling inside.
Mian Ashiq Hussain for Petitioner.
Safdar Mehmood and M. Ilyas Khan for Respondent.
Date of hearing: 3rd May, 2005.
JUDGMENT
NASIM SIKANDAR, J.---In this Tax Reference under section 136(1) of the late Income Tax Ordinance, 1979 the assessee claims that following questions of law have arisen out of the impugned order, dated 4-12-2000 of the Income Tax Appellate Tribunal, Lahore Bench, Lahore:---
"(a) Whether on the facts and in the circumstances, the deeming provision of section. 12(18) can be stretched by fiction of law to treat the share deposit money as loan which has been claimed or shown as share deposit money and accepted by the Assessing Officer as such?
(b) Whether on the facts and in the circumstances, the judgment of the Appellate Tribunal of subsequent, dated 30-10-1999 could rightly be considered as Record of Proceedings within the meaning of section 66-A and whether the assessment, dated 13-6-1996 has rightly been treated as erroneous and prejudicial to the interest of Revenue in view of the said judgment of subsequent date?
(c) Whether on the facts and in the circumstances the share deposit money collected by the appellant company more than its authorized capital could be treated as loan within the meaning of deeming provision of section 12(18) of the Income Tax Ordinance, 1979?
(d) Whether on the facts and in the circumstances, the learned Tribunal is justified in ignoring the fact of investment incentive and exemption allowed to the appellant company from probing into the investment protected by statute and it was right of taking "U" turn to bring the said protected investment into the ambit of tax under the general provisions of the Income Tax Ordinance, 1979?
(e) Whether on the facts and in the circumstances, a commonly known and widely used term "Share Deposit Money" could be deemed part of section 12(18) of the Income Tax Ordinance, 1979, when it has not been expressly provided by the legislature?"
2. After hearing the learned counsel for the parties we will agree that the issue raised in the questions of law as framed already stands resolved against the Revenue in our judgment recorded on 6-2-2001 in ITA No. 491 of 2000 in re: Messrs Mr. Fabrics (Pvt.) Limited v. Income Tax Appellate Tribunal, Lahore. The facts in hand are strikingly similar to those which were considered by us in the aforesaid judgment. Our reasons to hold against the Revenue as contained in paras 4 to 13 read as under:--
"(4) In ITR No.321 of 2000 the assessee is again a private limited company. For the assessment year 1994-95 no income was returned on the ground that no business activity had been undertaken. However, the IAC after issuance of show-cause notice and on rejecting defence taken up before him proceeded to treat the share deposit money at Rs. 1,87,98,138 as its income under the said deeming provisions of the Ordinance. The reason assigned again being that the aforesaid sum shown as share deposit money was in excess of the authorized capital of the company which had already been fully subscribed. According to the IAC the company was not competent to call for deposit of money in excess of the authorized capital. Accordingly, as in the other two cases, it was taken to be a loan under the garb of share deposit money and added towards income.
(5) It is the case of the appellants that neither the original assessments were prejudicial to the interest of the Revenue nor the amounts received as advances could be treated as deemed income. In this regard it is pointed out that in all the assessment years involved these provisions were attracted only to sums "claimed or shown to have been received" as "loan" while neither these sums were "claimed" nor shown to be "loan". By relying upon Dictionary meaning of the word "loan" as given in 6th Edition of Black's Law Dictionary page 936, the Shorter Oxford English Dictionary page 1227 volume-I and Chambers 20th Century Dictionary page 739, it is asserted that share deposit money could never be taken to mean a "loan". To explain the term, reliance has further been placed on a reported judgment cited as Gurcharan Das and another v. Ram Rakha Mal (AIR 1937 Lah. 81). Reference is also made to re: Venkatakrishna Rice Company v. CIT (1987) 163 ITR 129, re: CIT v. Nathimal Gayalal (1973) 89 ITR 190, re: CWT Southern Region, Karachi v. Abid Husain (1999 PTD 2895), re: CIT Patiala v. Piara Singh (1972) 83 ITR 678, re: Chairman Evacuee Trust Property West Pakistan, Lahore v. Muhammad Din and another (PLD 1971 Lah. 217) re: Abdul Hameed Sahib and others v. Rehmat Bi (AIR 1965 Madras 427 (V 52 C 151) and re: Mian Abdul Hameed Puri and 5 others v. Federation of Pakistan (PLD 1979 Lah. 252) to claim that the share deposit money did not answer the requirement of law to be added as deemed income. Reference is also made to Circular No.6 of 1987, dated July 5, 1987 wherein these provisions were explained by C.B.R. on their introduction in the statute books through Finance Act, 1987. Reference is also made to re: CIT North Zone (W.P.) Lahore v. Crescent Textile Mills Ltd. 1973 PTD 375.
(6) The Revenue on the other hand justifies the action of the IAC in canceling the assessment and treating the aforesaid sums as deemed income. The revising of the assessments is supported by placing reliance upon re: Duggal and Co. v. CIT (1996) 220 ITR 4567, re: K.A. Ramaswamy Chettiar and another v. CIT 1996 220 ITR 657.
(7) Before proceeding to consider the submissions made from both sides it appears relevant to reproduce the provision of section 12(18) as inserted by Finance Act, 1987:--
"Where any sum, or the aggregate of sums, claimed or shown to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank, exceeds (fifty) thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance:
Provided that, where the said loan is claimed or shown by way of the explanation, referred to in subsection (1) of section 13, in a case to which the first proviso to the said subsection applies the income under this subsection shall relate to the assessment year referred to in the said proviso."
It was by Finance Act, 1998 effective on 1-7-1998 that the words `advance' or `gift' were also added to expand the operation of the provision. Admittedly that amendment in law is not attracted to any of the assessees inasmuch as their case pertained to earlier assessment year's and finalized before the aforesaid amendment in 1998 bringing in the words `advance' and `gift' to attract the mischief the provision was made. It is, therefore, clear that at the relevant time in these cases no addition of the kind could be made before the amount received by the company was held to be a `loan'. In our view the share advance money indicated in the books of accounts/balance sheet of the companies could by no imagination be treated as a loan. The concerned ICAs canceling the assessment and deeming these amounts as incomes did not elaborate as to how they treated the share advance money as `loan'. It was their personal view that the aforesaid sums had been introduced in the books of accounts as share deposit money but factually they were loans. However, nothing was brought on record to support that B in the given facts the share deposit money was in fact loan. In one of the orders under section 66-A the concerned ICA relied upon a judgment of the Income Tax Appellate Tribunal to drive home that these amounts were loan simpliciter and therefore, could be deemed as income under the said provisions of the Ordinance. In that judgment the Tribunal expressed the view that similar sums shown as share deposit money were only to defeat the purpose of the legislation. However, we do not subscribe the view of the Tribunal which was based upon the so-called purposive approach in interpreting the provisions. Even if that approach was justified, it was only fictitious loans which were intended to be curbed and that too which had so been `claimed' or `shown'.
(8)Irrespective of the factual position as to the extent of the authorized capitals of assessee/companies the Revenue had no business to pick-up faults with the intention and motive of a company to increase its capital and the reasons therefore. A joint stock company is at liberty to increase and subject to certain conditions prescribed by law, to decrease its paid up capital. As far the increase in the authorized capital is concerned, for a private limited company, as all the assessees before us are, there is hardly any difficulty and in fact it is almost a declaration C made to the Registrar of Companies subject to payment of certain fees. It is correct that an Assessing Officer can always probe, look into and judge the exact nature of a receipt or an entry in the books of accounts. The reliance of the learned counsel in this regard on the aforesaid judgment of Delhi High Court in re: Duggal and Co. (supra) and K.A. Ramaswamy Chettiar (supra) is certainly pertinent and relevant. The ratio settled in re: Chairman Evacuee Trust Property (supra) decided by the Bombay High Court also supports the contention of the Revenue that entries made by an assessee in books of accounts are not determinative of the question whether the amount was paid as capital asset or a stock-in trade. However, it is equally correct that letter of law in taxing statute has to be interpreted in the sense it had been used and expressed. The provisions of section 12(18) at the relevant time did not attract unless two conditions were answered. First that there was a "loan" received by an assessee and secondly that it was so claimed or shown by him. Where any of the two requirements were not answered, the E provisions were not attracted. Subsequent amendment in the year, 1998 rather supports the case of the assessee/appellants that at the relevant time an advance irrespective of its nature could not be deemed as income of the assessee. Mr. Ibrar Hussain Naqvi, Advocate, learned counsel for one of the assessees had relied upon a Full Bench judgment of the Allah Abad High Court in re: CIT Kanpur v. Nathimal Gaya Lal (1973) 89 ITR 190. In that case it was inter ilia held that the provisions creating a legal fiction had to be interpreted in such a F manner as it did not cause injustice to a party. According to the learned Judges even when the Court steps into the world of legal lG fantasy the principle of equity and justice cannot be lost sight of. For a strict and narrow interpretation of the word "loan" learned counsel has also relied upon as re: Commissioner of Wealth Tax v. Abid Hussain (1999 PTD 2895). The meaning of the word "loan" in the aforesaid three dictionaries as also the view of this Court in re: Gurcharan Das (Supra) makes it absolutely certain that share deposit money can never be or amount to a "loan" which is necessarily a sum to be returned after a certain or uncertain period with or without interest.
(9)It will be seen that in all the cases before us ultimately not only the authorized capital of the appellants were increased but also shares were issued against the deposits to the respective applicants. The findings of this Court in re: CIT v. Crescent I Textile Mills Ltd. (supra) support the claim of the applicants that the amounts deposited by share-holders were proper share-capital and that issuance of share certificates to existing share-holders was not necessary.
(10)We are also in agreement with the contentions of the appellants that at the relevant time the express mention of the word `loan' excluded all other similar or equivalent terms, transactions, or nature of the receipts. According to the findings of this Court in re: Chairman Evacuee Property v. Muhammad Din and another (supra) no maxim of law was of more general and uniform application then "expressio unius est exclusive alterius". According to their Lordships whenever a statute limits a thing to be done in a particular form, it necessarily includes in itself a negative, viz. that the thing shall not be done otherwise. K Therefore, in our view both the IAC's stretched their powers under section 66-A unnecessarily to hook the appellants before us. They even acted in disregard of the Circular No.6/87, dated July 5, 1987, which explained the provisions of section 12(18) when these were introduced. That being the first reaction of the Revenue and its interpretation of the provisions, it had to be given serious thought at least by the revenue officers.
(11)Learned counsel for the appellants also appear correct in suggesting that the purpose of introduction of the provisions of section 12(18) at the relevant time-was to check fictitious loans and it was after quite some time that it was realized that the scope of the provisions needed to be expanded. It is also our opinion that no addition of the kind could possibly be made nor M the defence taken by the appellants rejected without recording a finding of fact that these sums were injected in the business and were used as capital, circulating or otherwise. In other words the defence of the appellants/assessees could have been demolished only by recording a finding of fact that the alleged share deposit monies were factually used in the business and therefore, could be taken as "loan" taken for catering the capital needs of the companies. Such an exercise is absent in the cases of the appellant before us. Therefore, the findings of this Court is re: Prime Commercial Bank and others v. Assistant Commissioner of Income Tax 1997 PTD 605 Lahore are relevant. In that case a single Bench of this Court on the authority of an earlier view held in K.G. Old Principal Christian Technical Training Centre, Gujranwala v. Presiding Officer, Punjab Labour Court Northern Zone and 6 others (PLD 1976 Lah. 1097) found it to be a settled proposition that generally an amendment is brought to bring out a change in that State law unless the amendment was clarificatory or declaratory in nature. In the present case there is nothing to show that the amendment in section 12(18) by Finance Act, 1998 was brought about to O clarify the earlier provision and not bring a change in it. All the moreso when the amendment was not given retrospective effect as normally clarificatory or declaratory amendments are given.
(12)Lastly we will also agree that the settled principle of taxing statutes that where two interpretation are equally possible then the one favourable to the subject is to be adopted is attracted in this case. The principle can also at times be extended to factual situations warranting application of deeming provisions. It means where the transaction can equally be placed within or outside the dividing taxing line, the one falling outside should be preferred against the one falling inside.
(13)Since we have found that the provisions of section 12(18) at the relevant time were not applicable to similar facts earlier found by the Tribunal. The exercise of revisional jurisdiction as a consequence thereof is also found to be illegal as the original assessments were neither erroneous nor prejudicial to the interest of revenue. "
3. Accordingly our answer to the first three questions viz. (a), (b) and (c) is in the negative. The other two questions namely (d) and (e) do not need to be answered.
S.A.K./C-127/LOrder accordingly.