I.T.As. Nos. 1857/KB of 2001, 2024/KB to 2026/KB and 2091/KB of 2002, decided on 15th April, 2005. VS I.T.As. Nos. 1857/KB of 2001, 2024/KB to 2026/KB and 2091/KB of 2002, decided on 15th April, 2005.
2006 P T D (Trib.) 1377
[Income-tax Appellate Tribunal Pakistan]
Before S. Hasan Imam, Judicial Member and Agha Kafeel Barik, Accountant Member
I.T.As. Nos. 1857/KB of 2001, 2024/KB to 2026/KB and 2091/KB of 2002, decided on 15/04/2005.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 14(2), 62 & Second Sched., Part-I, Cls. (79A) & (79B)---Finance Act (II of 1994), Preamble---Income Tax (Amendment) Ordinance (VII of 1995), Preamble---Income Tax (Fourth Amendment) Ordinance (XLVIII of 1995), Preamble---S.R.O. 796(I)/87, dated 4-10-1987---S.R.O. 603(I)/89, dated 6-6-1989---S.R.O. 745(I)/89, dated 11-7-1989---C.B.R. Letter C. No.1 (33) E&IC/97, dated 15-5-1999---Exemption---Income from WAPDA Bonds---Assessee, a banking company---First Appellate Authority upheld the treatment of Assessing Officer on the issues of not exempting the income earned from WAPDA Bonds--- Validity---In absence of any amendment in S. 14 of the Income Tax Ordinance, 1979 in terms of S.R.O. 745(I)/89, dated 11-7-1989 and because of intact provision of clauses (79A) and (79B) of Part-I of the Second Schedule of the Income Tax Ordinance, 1979, S.R.O. 745(I)/89, dated 11-7-1989 lost its legal veracity, as such the clarification from the Central Board of Revenue "that the income from WAPDA Bonds were exempt under clauses (79A) and (79B) of Part-I of the Second Schedule of the Income Tax Ordinance, 1979 only if such bonds were held by individuals and companies other than banks and insurance companies" held the field besides being absolute and legal---Assessing authority rightly assessed the income of the assessee being a Banking Company following clarification and provisions of S.14(2) of the Income Tax Ordinance, 1979 and clauses (79A) and (79B) of Part-I of the Second Schedule of the Income Tax Ordinance, 1979.
I.T.A. No. 193/KB of 1998-99 dated 19-7-1999 rel.
AIR 1979 SC 621 distinguished.
AIR 1986 SC 806; AIR 1978 SC 621; NLR 2000 Tax 126 and PLD 1991 SC 546 ref.
1997 PTD (Trib.) 13 irrelevant.
(b) Income-tax---
----Promissory estoppel---No promissory estoppel against the legislature in the exercise of its legislative functions nor can be Government or public authority debarred by promissory estoppel from enforcing statutory prohibition.
AIR 1978 SC 621 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.14(2)---S. R.0.745(I)/89, dated 11-7-1989---Exemption--Promissory estoppel--Promise brought up through S.R.O.745(1)/89, dated 11-7-1989, is contrary to existing law and outside the authority and power of the Government and as such promissory estoppel by the Government or public authority would not override and defeat the statutory provisions.
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 14(2) & Second Sched., Part-I, Cls. (79A)(79B)---S.R.O. 745(I)/89, dated 11-7-1989---Exemption---S.R.O. 745(I)/89, dated 11-7-1989 is not only contrary to law, but the amendments have also not been brought up in clauses (79A) & (79B) of Part-I of the Second Schedule of the Income Tax Ordinance, 1979 referring exception to Banking Companies in terms of the said S.R.O. as such the exemption already granted to individual and corporate bodies excluding Banking Companies remained intact, having overall binding effect.
(e) Income Tax Ordinance (XXXI of 1979)---
----S. 14(2) & Second Sched., Part-I, Cls. (79A) & (79B)---S.R.O. 745(I)/89, dated 11-7-1989---Exemption---S.R.O. 745(I)/89, dated 11-7-1989 is contrary to statutory law and as such promissory estoppel against provisions of any legislation, even if under the authority of the Government, to impose new obligations or to withdraw existing concession, will lose its veracity.
(f) Income-tax---
----Promissory estoppel---Doctrine of promissory estoppel cannot be invoked in favour of the assessee being contrary to legislative obligation and if allowed, it would nullify the effect of legislative provision.
PLD 1991 SC 546 rel.
Khaliqur Rehman, FCA and Fateh Ali Vellani for Appellant.
Dr. Farrukh Ansari, D.R. (LTU), Dr. M. Ali Khan, D.R. (LTU) and Muhammad Farid for Respondent.
Date of hearing :5th March, 2005.
ORDER
By this order, the appeals directed against the impugned orders, dated 26-6-2001 and 3-9-2002 for the assessment years 1990-91 and 1996-97 respectively and consolidated impugned order, dated 20-8-2002 pertaining to assessment years 1991-92, 1992-93 and 1993-94 passed by the learned CIT(A), are being disposed of as under:--
2. The assessee-National Batik of Pakistan agitated the orders of the learned CIT(A) upholding the impugned treatment on the issues, of not exempting the income earned from Wapda Bonds, in all the years except assessment year 1996-97, wherein issues raised have not been pressed during the course of arguments.
3. Original assessments were finalized under section 62 wherein claim of exemption of profit from Wapda Bonds were disallowed by the Chairman, Panel-1, Cos. I, Karachi (hereinafter referred to as the "assessing authority"). The learned CIT(A) maintained the treatment confirming the disallowance of claim of exemption, whereas while deciding cross appeals, the ITAT passed the combined order for several years and set aside the order with the direction to seek clarification from C.B.R. regarding contradiction in terms in S.R.O. 603(I)/89, dated 6-6-1989 and S.R.O. 745(I)/89, dated 11-7-1989.
4. In pursuance of the directions of the ITAT, a clarification was sought from C.B.R. vide office letter, dated 31-5-2000 followed by reminders. The clarification sought in consequence of the order of the Tribunal from C.B.R. was still awaited, however, a similar situation arose in another case bearing NTN No.13-01-0912780 wherein the similar issue of contradictory S. R.Os. was referred to and the C.B.R. clarified the preposition vide letter C. No. 1(33) E&IC/97, dated 15-5-1999 in the following terms and directions:--
"Subject: Exemption on return (interest) 'on Civil Aviation Authority Bonds and Wapda Bonds
The undersigned is directed to refer to your D.O. letter No. Nil, dated 8-2-1999 on the subject addressed to Secretary, Ministry of Industries and Production, Government of Pakistan, Islamabad, and to state that the matter has been examined by the Board.
(2) The legal position is that under clause (79A) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 only the income from Wapda bearer Bonds was exempt if such bonds were held by individuals and companies etc. (other than banks and insurance companies etc.) The bearer bonds issued after 30-6-1991 are not entitled to exemption under this clause.
(3) Another exemption, which was granted only to individuals was allowed vide clause (79B) w.e.f. 6-6-1989 in respect of return on WAPDA second issue (1989) bearer or registered bonds. This exemption was also restricted to bonds issued upto 30th June, 1991.
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(4) ?????? ???????????"
(5) ?????? ???????????"
In view of the directive nature of order of the CIT(A), the assessing authority had no other option except to follow the directions of the ITAT to seek clarification from the C.B.R. The assessing authority based on clarification of C. B. R. in case bearing NTN No.13-01-0912780 in the similar situation wherein issue of contradiction in the S.R.Os. as mentioned above, was brought to the notice of the C.B.R., "that the income from WAPDA Bonds was exempt under clause (79A) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 only if such bonds are held by the individual or companies other than banks and insurance companies". The assessing authority, in the circumstances, was justified to act accordingly. In view of clarification and directions of ITAT, the scope was limited for the two officers below, there was no alternate except to go by clarification of the C.B.R. as directed by the ITAT, the learned CIT(A), in the circumstances, was also justified to confine itself to the directions issued by the ITAT, and to pass setting aside order.
5. However, the learned counsel for the assessee Mr. Fateh Ali Vellani, vehemently argued on other relevant issues initially referring S.R.O. 745(I)/89 of the Finance Division, Budget Wing, constituting following WAPDA "second issue Regulation 1989" deemed to have taken on 27th March, 1989 and whereas clause (6) of the regulations reads as under:
"(6) The Bonds shall carry a minimum return of 13.5 per cent per annum payable half-yearly from the date of issue. In case the return on capital employed by Wapda exceeds 13.5 per cent in any year, Wapda shall also pay the same to the holders of the Bonds. The return shall cease to accrued after the date of maturity. The return on Wapda Bonds held by individuals and bodies corporate shall be exempt from income-ax. The return on Bonds purchased by Development Finance Institutions and Insurance Companies shall, however, be subject to income-tax."
Learned counsel referring above S.R.O. stressed that the return on WAPDA bonds held by the individuals and body corporate are exempt in view of section 14(2) of the Income Tax Ordinance, 1979 which empowers the Federal Government to make such amendments in Second Schedule pertaining to exemption, by (a) adding any clause or condition therein; (b) omitting any clause or condition therein; and (c) making any change in any clause or condition therein.
The learned counsel further argued that the assessee earned income from Bonds issued by Wapda and claimed exemption from levy of tax in view of S.R.O. 745(I)/89, dated 11-7-1989, which has been deemed as C.B.R. clarified the situation in view of S.R.O. 603(I)/89 and S.R.O. 796(I)/87 referring clauses (79A) and (79B) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 (total income) ignoring S.R.O. 745(I)/89.
6. Perused the record keeping in view the situation arising due to contradictions in terms of S.R.O. 603(I)/89 and S.R.O. 796(I)/87 pertaining to clauses (79A) and (79B) of Part-I of the Second Schedule read with section 14(2) of the Income Tax Ordinance, 1979 at one hand and S.R.O. 745(I)/89 on the other hand.
7. Section 14 deals with various exemptions to incomes or classes of incomes or persons or classes of person specified in Second Schedule, whereas subsection (2) of section 14 empowers the Federal Government to issue Notification from time to time in the official Gazette, and to make such amendment in the Second Schedule by (a) adding any clause or condition therein; (b) omitting any clause or condition therein; and (c) making any change in any clause or condition therein. Section 14(2) of the Income Tax Ordinance, 1979 possesses its own history, this provision of law was omitted by Finance Act, 1994, and reinserted by Third Amendment, dated September 13, 1994 and kept intact through third Amendment Income Tax (Amendment) Ordinance, 1995, dated January 5, 1994 and Income Tax (Fourth Amendment) Ordinance, 1995, dated April 18, 1995, and since the amendment was not placed before the National Assembly during the financial year, it lost its veracity, as such on 11-7-1989 when S.R.O. 745(I)/89 was issued to exempt the Wapda Bonds, the Federal Government had no power to exempt income-tax on the return on Wapda Bonds, besides having no sanction of section 14(2) of the Income Tax Ordinance, 1979. Contrary to this, clauses (79A) and (79B) inserted through S.R.O. 796(I)/87 and S.R.O. 603(I)/89, dated October 4, 1987 and June 6, 1989 respectively, are duly covered by section 14(2) of the Income Tax Ordinance, 1979 which provide special powers to the Federal Government to make Notification in the official Gazette making amendment in the Second Schedule related to exception. Clauses (79A) and (79B) remained unamended and intact by all means. Causing effect of the situation would, therefore, be. that at the relevant time, vide clause (79A) the exemption was available to a person not being a bank or a banking company and vide clause (79B) to an individual only.
8. It is worth-mentioning that (i) S.R.Os. 796(I)/87 and (ii) 603(I)/89, dated October 4, 1987 and June 6, 1989 respectively provide hereunder: --
(i) Clause (79A): Any income derived by any person, not being a bank, a banking company, a financial institution, a development financing institution or a company engaged in the business of insurance, by way of return on bearer bonds issued by the Pakistan Water and Power Development Authority, established under the Pakistan Water and Power Development Authority Act, 1958 (West Pakistan Act No. (XXXI of 1958).
(ii) Clause (79B): Any income derived by any person, being an individual, by way of return on bearer or registered bonds (Second issue, 1989), issued by the Pakistan Water and Power Development Authority, established under the Pakistan Water and Power Development Authority Act, 1958 (West Pakistan Act No. (XXXI of 1958).
In the circumstances supra, in the absence of any amendment in section 14 in terms of S.R.O. 745(I)/89 and because of intact provision of clauses (79A) and (79B), the S.R.O. 745(I)/89 lost its legal veracity, as such the clarification from the C.B.R. "that the income from Wapda Bonds were exempt under clauses (79A) and (79B) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 only if such bonds B were held by individuals and companies other than banks and insurance companies" holds the field besides being absolute and legal. We are, therefore, of the considered opinion that the assessing authority rightly assessed the income of the assessee being a Banking Company .following clarification above and provisions of section 14(2) and clauses (79A) and (79B) of Part-I of Second Schedule to the Income Tax Ordinance, 1979.
9. In this context, we find further support from an unreported order of ITAT bearing ITA No.193/KB of 1998-99 (Assessment year 1997-98), dated 19-7-1999 in case of Messrs Habib' Bank Ltd. wherein after taking into consideration all the above issues, the Tribunal decided the Wapda Bonds exemption issue in favour of the Department observing hereunder: --
"Under S.R.O. 745(I)/89, dated 11th July, 1989. The assessing authority had disallowed the claim in view of the clear and unambiguous provisions of clauses (79A) and (79B) of the Part-I of the Second Schedule to the Income Tax Ordinance, 1979. As per clause (79A) incomes of persons other than a bank, a banking company, a financial institution, a development finance institution or a company engaged in the business of insurance by way of return on bearer Bonds issued by Wapda are exempt from tax. Similarly under clause (79B) of this Schedule the exemption to return of Wapda bonds (second issue 1989) is restricted to individuals only. In either case, no exemption is available to returns on bonds issued on or after 1st July, 1991. Mr. Ikramul Haque argued that exemption was not claimed under these clauses, but under section 17(2)(a) and under S.R.O. 745(I)/89, dated 11th July, 1989. He, however, could not put, any plausible arguments in support of his claim. If exemption was available to these returns under section 17(2)(a), there was obviously no need to insert clauses in the Second Schedule specifying the persons in whose hands only such income was to be exempt. Clauses (79A) and (79B) of the Second Schedule cannot be deemed to have been inserted without any purpose in case the income of these bonds was already exempt under section 17(2)(a). Dr. Tariq Masood argued that S.R.O. referred to by the assessees A.R could not possibly have overriding effect over specific and unambiguous wording of the statute. If the assessee-bank had bought the bonds under a bona fide belief in view of the S.R.O. 745(I)/89, dated 11th July, 1989 that such income is exempt from tax in its hands, it should have taken up the matter with concerned authorities for proper clarification of the matter which it has not obviously done. Moreover, clause (79B) was inserted vide S.R.O. 603(1)/89, dated June 6, 1989 which clearly laid down that exemption of return on Wapda Bonds will be restricted to individuals only. In these circumstances, we find no reason to interfere with the orders of the officers below which are accordingly confirmed."
10. The learned counsel for the assessee however further contested the matter relying upon various orders of Pakistan and Indian Superior Courts, arguing that the Doctrine of Promissory Estoppel is applicable in this case whereby stressing that the Promissory Estoppel is applicable by all means on the Government in the exercise of its governmental, public or its executive functions. The learned counsel for the assessee relied upon the discussion made in paragraphs 2, 3, 7, 10, 22 to 24 and 32 to 37 of the judgment reported as AIR .1979 SC P.621, in case of Motilal Pedampat Sugar Mills Co. Ltd. The case-law as discussed therein, in respect of Doctrine of Promissory Estoppel relates to a news items appeared in the National Herald on 10th October, 1968, stating that State of Uttar "Pradesh has decided to give exemption from Sales Tax for a period of three years under section 4A of the U.P. Sales Tax Act to all the new industrial units. It is finally held that since Stat Government went back upon this assurance, the Government is bound to exempt the appellant from payment of sales for a period of three years. However, we find that the reported judgment gives no support to the case of the assessee, because in this judgment it is also held "we must therefore proceed on the basis that this representation made by the fourth respondent was a representation within the scope of his authority and was binding on the Government and that there can be no doubt that this representation was made by the Government knowing or intending that it would be acted owned by the appellant". Contrary to this finding, in the present case, the Notification bearing S.R.O. 745(1)/89, dated 1.1-7-1989 appears to have been passed giving impression that it has overriding effect on section 14(2) of the Income Tax Ordinance, 1979 empowering the Government to make amendment in the exemption clause, whereas this notification has no connection at all, with the powers envisaged to Government under section 14(2) of the Income Tax Ordinance, 1979, two amendments have already been made vide clauses (79A) & 79B) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979 exercising powers under section 14(2), wherein exemption has been accorded only to individuals and companies excluding the banking and insurance companies. Besides our view further finds support from the judgment reported as AIR 1986 SC 806 wherein the case of Motilal Sugar Mills AIR 1978 SC 621 has been discussed with the reference that incase of Motital Sugar Mills, it is further held "that there can be no promissory estoppel against the legislature in the exercise of its legislative functions nor can be Government of Public authority be debarred by promissory estoppel from enforcing statutory prohibition". In the circumstances supra, promise brought up through S.R.O. 745(I)/89, dated 11-7-1989, is contrary to existing law and outside the authority or power of the Government, as such promissory estoppel by the Government or public authority contrary to law and outside the authority would not override and defeat the statutory provisions.
11. In case of Union of India, the relief was allowed to the assessee for the only reason that Central Government had power to issue a notification and the Government exercised its powers under legislation, whereas in case of assessee, the supporting S.R.O. 745(I)/89, dated 11-7-1989 is not only contrary to law, but the amendments have also not been brought up in clauses (79A) & (79B) referring exception to banking companies in terms of the above S.R.O. as such the exemption already granted to individual and corporate bodies excluding banking companies remained intact, having overall binding effect.
12. At this stage it would not be unaccustomed to refer another judgment of the Hon'ble Supreme Court of Pakistan in case of Government of Pakistan v. Fecto Belarus Ltd. reported as 2000 SCMR 112, wherein it is specifically held that promissory estoppel cannot be invoked against the provision of legislature. The Hon'ble Supreme Court of Pakistan allowed the appeal setting aside.the judgment of the High Court which had allowed benefit of exemption to importer of tractors on principles of promissory estoppels. The ratio of the judgment is reproduced as under:
"(c) Promissory estoppel-
Doctrine of promissory estoppel is available against government or its functionaries. However, it is not available against legislature. Although no executive action can operate retrospectively so as to impair vested rights or impose new obligations but the same principle cannot be applied in case of a legislative provision."
This judgment if read in the light of facts of the present appeal, would lead us to conclude that S.R.O. 745(1)/89 is contrary to statutory law, as such promissory estoppel against provisions of any legislation even if under the authority of the Government to impose new obligations or to withdraw existing concession, will lose its veracity. Unfortunately the Government neither derived benefit from section 14(2) nor replaced clause (79A) but also added clause (79B) to exclude corporate body also restricting benefit to individuals only.
15.(sic) We, in the circumstances supra, find that the doctrine of promissory estoppel cannot be invoked in the present case in favour of G the assessee being contrary to legislative obligation and if allowed it would nullify the effect of legislative provision. The case-law on promissory estoppel reported in PLD 1991 SC 546, also hold that the doctrine of promissory estoppel is subject to various limitation including given below:
"(i) The doctrine of promissory estoppel cannot be invoked against the legislature or the laws framed by it because the legislature cannot make a representation.
(ii) Promissory estoppel cannot be invoked for directing the doing of the thing which was against the law when the representation was made or the promised held out.
(iii) No agency or authority can be held bound by promise or representation not lawfully extended or given."
16. The other case-law reported as 1997 PTD (Trib.) 13, is also irrelevant by all means for the reason that the Promissory Estoppel has been considered in view of the agreement for avoidance of double taxation between Pakistan and Federal Republic of Germany. With reference to avoidance of double taxation and prevention of fiscal evasion it is held that mutual agreement in pursuance of Article XVII(2) of the Agreement covers the assessment under consideration as well and that the Government of Pakistan is further obliged to honour its commitment with the Government of Germany in obedience to the various provisions contained in the Constitution of the Islamic Republic of Pakistan, 1973 including the Islamic provisions. This nature of legal coverage is not available to corporate bodies within countries and restricted to countries under contract for avoidance of double taxation and prevention of fiscal evasion and thus differ from those which would be made between independent assessee's within country, reflecting no overriding effect.
17. We are, therefore, of the considered opinion and find that the two officers below have rightly declined the claim of exemption, as such order does not warrant interference. Consequently the appeals for the assessment years 1990-91, 1992-93, 1993-94 and 1994-95 stand dismissed, whereas the Appeal bearing I.T.A. No.2091/KB of 2002 pertaining assessment year 1996-97 is separately dismissed being not pressed.
C.M.A./511/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal dismissed.