Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Second Sched., Part I,, Cl. (118‑A)‑‑‑Industrial unit set up in specified area during particular time‑‑Leasing out such unit to another person‑‑‑Income derived by owner from lease‑‑‑Exemption from levy of tax‑‑‑Entitlement‑‑‑Mere such leasing would neither be relevant for purpose of the exemption nor would derogate from basic object and purpose of exemption clause‑‑‑Principles.

(b) Taxation‑‑‑

‑‑‑‑Exemption‑‑‑Revenue representing the State, after holding out a promise of exemption, should honour the same‑‑‑Practice of Revenue to pick up faults and insignificant factors to deny exemption, deprecated‑‑ Not just and fair to refuse exemption on far fetched ideas and narrow interpretation of clauses allowing them.

(c) Taxation‑‑‑

‑‑‑.No one could hold a brief for a defaulter or tax‑evader.

Mirza Muhammad Waheed Baig for Appellant.

Muhammad Ilyas Khan for Respondent.

Date of hearing: 12th May, 2004.

JUDGMENT

NASIM SIKADNAR, J. ‑‑‑The appellant in this further appeal under section 136 of the late Income Tax Ordinance, 1979 is a Private Limited Company and in the relevant assessment year, 1991‑1992 derived income from leasing out a cotton factory. The declared income for the assessment year at Rs.2,01,680.50 was claimed exempt from levy of tax on the authority of clause (118-A) of the Second Schedule to the late Income Tax Ordinance, 1979 which at .the relevant time read as under:‑‑

(118A) Profits and. gains derived by an assessee from an industrial undertaking set up between the first day of July, 1988, and the thirtieth day of November, 1990, both days inclusive, for a period of eight years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever is the later. The exemption under this clause shall apply to an industrial undertaking which is‑

(a) set up in the Province of Baluchistan (Excluding Hub Chowki area), the North‑West Frontier Province; the Federally Administered Tribal Areas, the Northern Areas and Azad Kashmir;

(aa) set up in the divisions of Dera Ghazi Khan and Bahawalpur in the Province of the Punjab and the divisions of Sukkur and Larkana in the Province of Sindh;

(b) not formed by the splitting‑ up, or the reconstruction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business;

(c) owned and managed by a company formed exclusively for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;

(d) engaged in the manufacture of goods or materials or, the subjection of goods or materials to such process; and

(e) an undertaking the income, profits and gains of which are not liable to be computed in accordance with the rules contained in the Fifth Schedule."

2. The Assessing Officer in the first place allowed the claimed exemption on‑ 8‑3‑1992. However, subsequently on 20‑5‑1992 the concerned IAC by invoking provisions of section 66‑A cancelled that assessment and made a direction for framing of fresh assessment. It was accordingly framed on 19‑5‑1993 at Rs.2,22,587 by refusing the claimed exemption. The assessment order so framed on 19‑5‑1993 was successfully challenged. Learned first appellate authority, CIT (Appeals) Multan on 3‑11‑1993 directed acceptance of the claimed exemption under the aforesaid clause of the late Ordinance.

3. The departmental appeal against allowing of exemption was however, accepted on 2‑8‑1997.by a Division Bench of the Income Tax Appellate Tribunal. Learned Tribunal while disagreeing with the findings of the first appellate authority maintained that:‑‑

"The assessee' admits and acknowledges the facts that income is derived from lease and as such there is no question of being "engaged in the manufacture of goods or materials... "The assessee is not deriving profits and gains in fact it is lease gains. The first appellate authority has probably not noted the opening sentence of the clause (118‑A) "profits and gains derived by an assessee..."Here the source of income is from lease and not profit and gains."

4. According to the appellant following question of law arises out of the impugned order of the Tribunal:‑‑‑

"Whether on the facts and in the circumstances of the case, the Profits and Gains of an Assessee earned through Leasing an industrial undertaking which is engaged in the manufacture of goods or materials or the subjection of goods or materials to such process are exempt vide Clause (118A) of Part I of the IInd Schedule of the Income Tax Ordinance, 197.9?"

5. We have heard the learned counsel for the parties. The submissions made at the Bar for the appellant appear more rational and closer to the objects for which the aforesaid exemption class was provided. He is also correct in pointing out that the learned Tribunal failed to appreciate the use of word "gains" as stated in the opening part of the exemption clause. It needs to be noted that the purpose of the exemption clause was to encourage establishing industrial undertakings in the backward areas of the country. The establishment of such undertaking having not been disputed on mere fact that the owner instead of running the unit himself leased if out to an other party does not in any manner derogate from the basic object and purpose of the exemption clause. We have also put a specific question to the Revenue as to which of the two, the owner as lessor or the lessee is entitled to exemption in the given situation. The reply that none of them would be entitled to claim exemption in this situation does not appeal to reason. Once an industrial unit was set up in the specified are thereby answering purpose and requirement for, providing of exemption, it would be naive and totally unjust to refuse the promised exemption only for the reason that the owner did not run the unit himself. Learned counsel for the Revenue admitted that in (sic) entitled to exemption. He has, however not been able to convince us of the resultant change which could be taken as a factor to defeat the object of the exemption clause. The observation of the learned Tribunal that it was lease money and not profits and gains from the industrial unit is too pedantic an interpretation.

6. It is established law that no assessee is entitled to exemption from tax. However once the Revenue representing the State holds out a promise of exemption then in. all fairness that promise should be honoured, in letter and spirit. It is awfully distressing to note that the Revenue is .always out to pick up flea faults and insignificant factors to deny an exemption. No one can hold a brief for a defaulter or a tax) evader. It is, however equally unjust and. unfair that an exemption is refused on far fetched ideas and narrow interpretation of the, clauses allowing them. To us the claim of exemption made by the assessee was more than evident and ' invocation' of the provisions of section 66‑A by the IAC appearing improper. Exercising of that jurisdiction to recall the claimed exemption betrayed the typical mind set of a Tax Collector. The learned Tribunal also failed to consider objectively the relief allowed by CIT(Appeals) and in the process rejected the strong argument of history of the case.

7. This appeal is accordingly allowed by holding that in absence of any objection to the setting up of the industrial undertaking in the particular area during the particular time for the particular, purpose of engagement in the manufacture of goods and materials it was entitled to exemption and the mere fact that the factory was leased out to another person was totally irrelevant for the purpose of the exemption clause as reproduced above..

8. Appeal allowed.

S.A.K./M‑858/L Appeal accepted.