I.T.As. Nos.31/KB, 32/KB, 3382/KB of 2004, 803/KB and 804/KB of 2003, decided on 14th October, 2004. VS I.T.As. Nos.31/KB, 32/KB, 3382/KB of 2004, 803/KB and 804/KB of 2003, decided on 14th October, 2004., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1738 (2004)

(a) Income Tax Ordinance (XXXI of 1979)---

----First Sched., Part-IV, para. A, sub-para. (2B)---Super Tax---Exemption---Assessee being a professional firm, engaged exclusively in making of contract on behalf of other persons and giving them advice of commercial nature in connection with making of contracts, claimed exemption from charge of super tax---Department contended that contention of the assessee was not correct, as exemption from super tax was available, where registered firm was prohibited by any law or convention to form a company with limited liability---Validity---Super tax shall be payable by the assessee in respect of income, profits and gains derived by it from the exercise of a profession---Income of the assessee admittedly depended wholly on the professional qualification of its partners, who were not prevented by any law, convention, rules or regulations by the professional association to constitute themselves into a corporate body same should be registered as a company---Assessing Officer was justified to disallow the claim of exemption from payment of super tax---Conditions laid down to claim exemption from payment of super tax was not fulfilled by the assessee---Order of First Appellate Authority was vacated/annulled and that of Assessing Officer was maintained by the Appellate Tribunal.

(b) Income-tax---

----Prior history, bar of---Where relief has been allowed due to misinterpretation of law, it shall not debar the Appellate Tribunal from arriving at a proper legal conclusion at any time, deviating from the previous orders of the officers below---History created violating clear provisions of law, having no ambiguity was to be discarded.

(c) Income-tax---

----Disallowance of expenses---Assessee challenged setting aside order in respect of common disallowances made at the assessment stage---First Appellate Authority concluded that in spite of the fact that complete details had been furnished, the Assessing Officer made the additions without pointing out discrepancies or defects---Assessment orders revealed that general phrases had been used to disallow the claim, which was not proper besides being unjustified as admittedly complete details had been furnished by the assessee---Instead of scrutinizing the details, Appellate Tribunal directed the Assessing Officer to look into the matter afresh and to conclude the finding after confronting the assessee on each and every expense and also after going through the record maintained by the assessee.

Qazi Anwar Kamal, A.R. for Appellant (in I.T.As. Nos.31/KB, 32/KB and 3382/KB of 2004).

Ms. Shaista Kamal, D.R. for Respondent (in I.T.As. Nos.31/KB, 32/KB and 3382/KB of 2004).

Ms. Shaista Kamal, D.R. for Appellant (in I.T.As. Nos.803/KB and 804/KB of 2003).

Qazi Anwar Kamal, A.R. for Respondent (in I. T. As. Nos.803/KB and 804/KB of 2003).

ORDER

By this order, we would prefer to decide two appeals of the Department as against three appeals filed by the assessee. The Departmental appeals, pertaining to assessment years 1997-98 and 1999-2000, are arising from the consolidated order dated 31-3-2003, two appeals at the instance of assessee pertaining to assessment years 1998-99 and 2000-01, are arising from the consolidated impugned order dated 30-10-2003, whereas appeal pertaining to assessment year 2001-02 is outcome of order of the learned C.I.T.(A) dated 26-12-2003.

2. In all the five years, common objection has been taken to the setting aside order of the learned C.I.T.(A) on the issue of disallowance of exemption under sub-para. (2B) of para.A, Part-IV of the First Schedule to the Income Tax Ordinance, 1979.

3. Facts leading to present appeal are that the assessee a registered partnership firm of professionals, which continued to derive income from engineering consultancy, claimed exemption from the tax under sub-para. (2B) of para. A, Part-IV of the First Schedule to the Income Tax Ordinance, 1979. Initially the order for the assessment year 1998-99 was finalized by the DCIT, which was finally set aside in appeal for de novo proceedings.

4. In the assessment year 2001-02, the Department has challenged the setting aside of order in this context, whereas in the year 1997-98, the setting aside order involving similar issue has been challenged for the reason that the order of the ITAT bearing No.632/KB/99 dated 26-5-2000 was not followed by the DCIT and the learned C.I.T.(A) was, therefore, not justified to set aside the order, decided by the DCIT on 30-6-2001.

6(sic). As such the controversy involved in all the five appeals is regarding setting aside orders relevant to issue of exemption from levy of super tax under sub-para. (2B) of para. A, Part-IV, of the First Schedule to the Income Tax Ordinance, 1979.

7. It is submitted that the assessee is a professional firm, engaged exclusively in making of contract on behalf of the other persons and giving them advice of commercial nature in connection with making of contracts as such the income of firm is exempt from charge of tax under sub-para. (2B) of Para. A, Part IV of the First Schedule to the Income Tax Ordinance, 1979. It is, therefore, argued that in the assessment years in question, the order of DCIT is contrary to law and the Assessing Officer has erred in disallowing the exemption. Contrary to this, the learned D.R. opposing the arguments of the learned counsel for the assessee, argued that the contention of the learned A.R. is not correct, as exemption from super tax is available in cases where R/F is prohibited by any law or convention to form a company with limited liability as envisaged in para. (2B).

8. Before taking into consideration the arguments, we would prefer to reproduce the relevant law in this constext:---

"(2B) no super tax shall be payable by a registered firm in respect of the income, profits and gains derived by it from the exercise of a profession if such income profits and gains depend wholly or mainly on the professional qualifications of its partners who are prevented by any law for the time being in force or by convention or rules or regulations of the professional association, society or similar body of which they are members to constitute themselves into a corporate body with a limited liability which can be registered as a company under the Companies Act, 1913 (VII of 1913), unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts."

9. It is almost necessary to bifurcate the above provision regarding Super Tax, so as to arrive at a conclusion "in what circumstances Super Tax shall not be payable by the firm":---

(i) Income, profits and gains, derived from exercise of a profession.

(ii) Profits and gains taken wholly and mainly on the professional classifications of its partners.

In case

(i) Partners are prevented by any law for the time being in force or by convention or rules or regulations of the professional association to the society or similar body of which they are members, to constitute them into a corporate body with a limited liability, which can be registered as a company under Companies Act, 1913.

(ii) Such professional unless and consist wholly or mainly in making of contracts on behalf of other persons or the giving to. other persons of advice of a commercial nature in connection with making of contracts.

10. The learned counsel for the assessee, referring the above provision of law, admitted that the partners of the R/F are not prevented by any law for the time being in force or by convention or rules or regulations of the professional association to constitute themselves into a corporate body with a limited liability, however, vehemently stressed that in cases where the professional wholly or mainly in the making of ,contracts on behalf of other persons or to give other persons of advice of a commercial nature in connection with the making of contracts. The condition laid down above regarding restriction to constitute a corporate body shall not apply.

11. We are, however, not in agreement with the learned counsel for the assessee that the condition precedent for allowing exception viz. "partners are prevented to constitute a corporate body" shall not apply in case such profession consists wholly or mainly in the making of contracts on behalf of other persons or giving to other persons of advice of a commercial nature in making contracts. The issue of profession falling within the ambit of last three lines of sub-para. (2B) of para. A, Part-IV of the First Schedule referred at para. 7 above shows that mere involvement in such profession, would not absolve the assessee. from charge of super tax unless, there is legal restriction on the assessee debarring it from constituting themselves into a corporate body with a limited liability, which can be registered as a company under the Companies Act, 1913 (VII of 1913). This sort of restriction amongst other is independent in nature, besides being mandatory, and nothing to do with the remaining contents/condition of sub-para. (2B). As such mere running such profession would not save the assessee from the clutches of super tax, as .admittedly there is no bar on the assessee's firm to constitute themselves into a corporate body with a limited liability, which can be registered as a company under the Companies Act, 1913 (VII of 1913).

12. In the circumstances supra, we are of the considered opinion that super tax shall be payable by the assessee in respect of the income profits and gains derived by it from the exercise of a profession, as income of the assessee admittedly depending wholly on the professional qualification of its partners, who are not prevented by any law, convention, rules or regulations by the professional association to constitute themselves into a corporate body, which should be registered as a company. As a result of above discussion, we find that the Assessing Officer was justified to disallow the claim of exemption from payment of super tax, hence order below does not warrant interference.

13. We also find that conditions laid down to claim exemption from payment of super tax under sub-para. (2B) of para. A, Part-IV of the First Schedule to the Income Tax Ordinance, 1979 is not fulfilled by the assessee, hence setting aside orders passed by the learned C.I.T.(A) in all the years under appeal find no basis. Consequent, the orders of the learned C.I.T.(A) are vacated/annulled and the orders of the Assessing Officer in this context are maintained.

14. It is worth-mentioning that in the preceding years the relief has been allowed to the assessee. However, we do not find any reason in the argument that assessee possess history created in its own case which is to be followed to exempt it from payment of super tax. In case where relief has been allowed due to misinterpretation of law it shall not debar the Tribunal from arriving at a proper legal conclusion at any time, deviating from the previous orders of the officers below. On the contrary history created violating clear provisions of law, having no ambiguity, is to be discarded.

15. The next issue in the year 1997-98 relates to addition of Rs.5,00,000. The learned C.I.T.(A) set aside the issue regarding ad hoc addition of Rs,5,00,000 for the to (sic) of subsection (1) of section 62 of the Ordinance by not confronting the assessee with defects alleged in the order. We find that the learned C.I.T.(A) was justified in setting aside the order for de novo consideration affording an opportunity of hearing to the assessee. As such, no interference is called for in this context.

16. In the assessment year 1997-98, the Department has challenged the setting aside .order in respect of disallowances out of P&L expenses viz. conveyance, entertainment, petrol vehicle, telephone, boarding and lodging donation, rent, printing and stationery, repair and maintenance, salary and allowances, depreciation on car whereas in addition to above disallowances in the year 1999-2000, the Department has also challenged additions in the head Photostat and assessee in the year 1998-99 has challenged disallowances, in the head salaries, stating therein that the learned C.I.T.(A) was not justified in setting aside the issue instead of deleting the addition whereas in the year 2000-01 the assessee also challenged the setting aside order in respect of common disallowances made at the assessment stage. The learned C.I.T.(A) in almost all the orders concluded similar finding that in spite of the fact that complete details have been furnished, the Assessing Officer made the additions without pointing out discrepancies or defects. The assessment orders reveal that general phrases have been used to disallow the claim, which is not proper besides being unjustified as admittedly complete details have been furnished. However, instead of scrutinizing the details ourselves we find it reasonable to direct the Assessing Officer to look into the matter afresh and to conclude the finding after confronting the assessee on each and every expense and also after going through the record maintained by the assessee in this context.

17. The appeals are disposed of in the manner indicated above.

C.M.A./43/Tax(Trib.)?????????????????????????????????????????????????????????????????????????? Order accordingly.