I.T.As. Nos. 2449/LB, 2450/LB, 2452/LB, 5522/LB of 2002 and 2189/LB of 2000, decided on 5th December, 2005. VS I.T.As. Nos. 2449/LB, 2450/LB, 2452/LB, 5522/LB of 2002 and 2189/LB of 2000, decided on 5th December, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1968 (2005)

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

----S. 80-D & Second Sched., Part-I, Cl. 102B---S.R.O. No.337(I)/93, dated 25-4-1993---S.R.O. 921(I)/94, dated 22-9-1994---S.R.O. 1189(I)/94, dated 11-12-1994---Protection of Economic Reforms Act (XII of 1992), Preamble---Minimum tax on income of certain persons---Exemption---Levy of minimum tax on the turnover whereas exemption had been admittedly allowed in respect of profit and gains---Validity---As per plain opening language of Part-I of the Second Schedule of the Income Tax Ordinance, 1979 the assessee company undisputedly was qualified for exemption under Cl. 102B of Part-I of the Second Schedule of the Income Tax Ordinance, 1979, and could not be burdened with S.80D of the Income Tax Ordinance, 1979, a liability which was in existence prior to Cl. 120B of Part-I of the Second Schedule of the Income Tax Ordinance, 1979---Controversy could also be resolved in favour of assessee even as per Cl. 102B of Part-I of the Second Schedule of the Income Tax Ordinance, 1979, language of S. 80D of the Income Tax Ordinance, 1979 and the opening para of Part-I of the Second Schedule of the Income Tax Ordinance, 1979.

Ellahi Cotton Mills's case 1997 PTD 1555 and Fecto Belarus Tractors Limited v. Federation of Pakistan 2001 PTD 1829 rel.

2001 PTD (Trib.) 865; 2000 SCMR 1012; 1999 SCMR 1072; 1999 SCMR 412 and 1989 CLC 776 ref.

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

----Second Sched., Part-I, Cl. 122-C---Protection of Economic Reforms Act (XII of 1992), Preamble---Exemption---Clause 122-C, Part-I, Second Schedule of the Income Tax Ordinance, 1979 having been introduced in 1987 so it was to be resolved as to whether it was covered under Protection of Economic Reforms Act, 1992.

Zaman Cotton Mill's case 2001 PTD 1203 distinguished.

(c) Income-tax---

----Exemption---Application of case-law---Case cited in respect of customs duty and sales tax had its applicability (on Income Tax) because both such laws were part of fiscal laws like income tax, so the principles as laid down while granting exemption would be available in the Income Tax proceedings.

(d) Protection of Economic Reforms Act (XII of 1992)---

----S. 6 & Sched.---Notification entitling concessions from duty, sales tax had specifically been made part of Protection of Economic Reforms Act, 1992.

Asim Zulfiqar ACA and Zulfiqar Ali Sheikh, ITP for the Assessee.

Ali Ashtar Naqvi and Shahid Jamil Khan. L.A for the Respondent.

Date of hearing: 3rd December, 2005.

JUDGMENT

NASEER AHMED (ACCOUNTANT MEMBER).---The instant appeals were originally decided by way of order passed by the ITAT, dated 24-4-2003. The said order was recalled vide order, dated 5-11-2003 passed in M.As. Nos. 354 to 358/LB of 2003. Now the appeals filed by the assessee are adjudicated through this order.

2. These five appeals have been filed by a private limited company engaged in the hatchery business. The appeals for assessment years 1994-95, 1996-97, 1998-99 and 1999-2000 arise out of two separate orders passed by the learned CIT(A) against first appeal filed by the appellant in respect of rejection order passed on rectification applications filed before the concerned Assessing Officer whereas the appeal for assessment year 1997-98 arises out of order framed by the IAC under section 66A of the repealed Income Tax Ordinance, 1979.

3. The issue involved in all the five appeals is the levy of minimum tax @ 0.5% on the turnover for the respective years under section 80D of the repealed Ordinance. It is the appellant's contention that the provisions of S.80D of the repealed Ordinance levying minimum tax @ 0.5% of the turnover do not apply in its case whereas the position of the department is that exemption levy of minimum tax under section 80D of the repealed Ordinance is not available to the appellant. Since the issue involved in all the appeals is common, therefore, all these appeals are being disposed off through this consolidated appellate order.

4. Briefly stated the facts of the case are that the exemption in terms of clause 102B of Part I of the Second Schedule to the repealed Ordinance had been admittedly allowed to the appellant in respect of its profit and gains for a period of 8 years with effect from commencement of its commercial production. After granting the exemption under the aforesaid clause in the Second Schedule, the concerned Assessing Officer imposed minimum tax @ 0.5% of the turnover under section 80D of the repealed Ordinance on the grounds that benefit of Protection of Economic Reforms Act, 1922 as interpreted by the Honourable Supreme Court of Pakistan in the famous Ellahi Cotton Mills case, now reported a 1997 PTD 1555, was not available to the appellant as the Schedule of the aforesaid legislation did not contain any reference to the S.R.O. 337(1)/93, dated 25-4-1993 through which the aforesaid exemption clause was introduced as part of the Second Schedule to the repealed Ordinance. On the other hand it is the contention of the appellant that the case being covered by the beneficial provisions of the Protection of Economic Reforms Act, 1992 does not warrant imposition of minimum tax under the provisions of section 80D of the repealed Ordinance.

5. Perusal of the orders passed by the Authorities below reveals that minimum tax @ 0.5% of the turnover under section 80D of the repealed Ordinance has been levied and confirmed on the strength of an earlier order of ITAT, now reported as (2001) 83 Tax 3 (Trib.), wherein the ITAT ruled that exemption from minimum tax, on the strength of Protection of Economic Reforms Act, 1992, is available only to those companies whose cases were covered by the Schedule to the Protection of Economic Reforms Act, 1992.

6. In the aforesaid order of the ITAT the learned Members after analyzing the provisions contained in the Preamble, section 6 and the Schedule finally concluded that exemption from levy of minimum tax is not available to the companies not covered by the S.R.Os. referred to in the Schedule. These provisions are reproduced hereunder for the case of reference:--

'?????????? "Preamble

??????????? ???..

And Whereas a number of economic reforms have been introduced and are in the process of being introduced to achieve the aforesaid objectives.

Section 6?????????

The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified continue in force for the terms specified therein and shall not be altered to the disadvantage of the investors.

The Schedule

Notification No.S.R.O. 1283(I)/90, dated 14th December, 1990, issued under subsection (2) of section 14 of the Income Tax Ordinance, 1979 (XXXI of 1979).

Notification No. S.R.O. 1284(I)/90, dated 13th December, 1990, issued under section 19 of the Customs, Act, 1969 (IV of 1969)."

7. In the context of the above provisions of the Protection of Economic Reforms Act, 1992, the learned ITAT in the aforesaid reported judgment, referred to by the authorities below in their respective orders, finally ruled as under:

"?.Economic Reforms Act, in clear and unambiguous terms says in its section 6 that only those exemptions shall qualify for protection which forms part in its own schedule. The word used "otherwise notified" cannot be expanded so as to include notified under the Income Tax, Sales Tax, Excise Duty or any other enactment. When the legislature itself has enacted a schedule for the protection of Economic Reforms in the said Act and has mentioned certain reforms therein, there was no bar in adding the provision impugned, i.e., clause 126(D) of the Second Schedule of the Income Tax Ordinance in the Schedule of the said Act itself. Section 6 of the Act speaks as follows:

"(6) Protection of fiscal incentive for setting up of industries.-The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified shall continue in force for the terms specified therein and shall not be altered to the disadvantage of investors."

Above section protects only those statutory orders, which are listed in the schedule shall be otherwise notified. The "otherwise notified" is not to be read in isolation. It is with reference to the protection of Economic Reforms Act, 1992 and would not extend the jurisdiction to notified in Schedule of some other fiscal law..."

8. In the backdrop of the orders passed by the learned authorities below, the learned AR of the appellant while arguing the case has submitted that the foregoing interpretation of the learned ITAT does not, any more, hold field in view of an order of Honourable Supreme Court of Pakistan reported as 2001 PTD 1829 delivered in the case of Fecto Belarus Tractors Limited v. Federation of Pakistan.

9. Summarizing the facts of the reported case involved in the order of the Honourable Supreme Court of Pakistan, the learned AR of the appellant, before us submitted that in the aforesaid case the Honourable Supreme Court categorically held that exemption / concession granted by the Government of Pakistan through S.R.O. 921(I)/94, dated 22-9-1994 and S.R.O. 1189(I)/94, dated 11-12-1994 were protected by the provisions contained in Protection of Economic Reforms Act, 1992 although these notifications were not listed in the Schedule to the Protection of Economic Reforms Act, 1992.

10. The facts involved in the case were that the government announced concession on leviable custom duty and sales tax under the aforesaid S.R.Os. which were later on modified through subsequent S.R.Os. Before the Supreme Court the standing counsel for the Appellant argued that withdrawal of concession notified through S.R.O. 921(I)/94, dated 22-9-1994 and S.R.O. 1189(I)/94, dated 11-12-1994 could not be withdrawn or altered to the disadvantage of the investors in view of provisions of section 6 of the Protection of Economic Reforms Act, 1992 as has ,also been reproduced by us somewhere above. The Honourable Supreme Court of Pakistan while appreciating the submission of the standing counsel endorsed the interpretation and finally. ruled that the aforesaid notifications being in the nature of "Economic Reforms" and "otherwise notified" were protected by the aforesaid legislation and hence benefits were fully available to the investors. Drawing parallel from the aforesaid order of the Supreme Court of Pakistan, the learned A.R. of the assessee argued that since the notification 337(1)/93, dated 25-4-1993, though not covered by the Schedule of the Protection of Economic Reforms Act. 1992, was a peace of legislation covered by the expression "otherwise notice", therefore, the authorities below clearly erred in not allowing exemption from minimum tax in terms of famous Ellahi Cotton Mills case. On the matter of judgment relied upon by the authorities below, the learned AR argued that in view of authoritative pronouncement of the Supreme Court of Pakistan the said judgment of ITAT does not hold field any more.

11. The learned DR while defending the orders of the authorities below mainly placed reliance on the order of the ITAT referred to above. It has been argued before us that in view of the aforesaid order of ITAT there does not remain any ambiguity and since the matter has already been dilated upon against the appellant therefore the appeals should be decided in favour of the Revenue. On our specific query relating to the order of the Supreme Court Pakistan, the learned DR, however, could not give any plausible explanations as to how the orders of ITAT shall hold the field.

12. During the course of appeal proceedings a write up was also submitted by the Legal Adviser of the Department Mr. Shahid Jamil Khan in which it has been stated that question of law involved in the cases precisely is:--

"Whether Protection of Economic Reforms Act, 1992 shall override the provisions of section 80D of the Income Tax Ordinance, 1979 or not?"

The learned L.A. has referred to the contents of this judgment passed by the Supreme Court to strengthen his point of view that only those could enjoy the exemption under the Economic Reforms Act which are covered in the schedule to this effect as envisaged in section 6. The learned L.A. has submitted that the main thrust of learned AR's arguments is on the words "otherwise notified" as per section 6, as this is not giving any benefit to the point of view expressed by the appellant because benefit of protection under the Economic Reforms Act, 1992 would be in respect of entries appearing in the schedule to this effect. The learned L.A. challenged the reliance placed by the learned A.R. on the case reported as (2002) 84 Tax 25 = 2001 PTD 1829 SC (Pak.). The learned L.A. referred to paras. 33 to 37 of this judgment. By referring these paras. the learned Legal Adviser has submitted that this judgment cited is in fact a review of an earlier judgment by the Supreme Court Pakistan reported as 2000 SCMR 1012, wherein, the withdrawal of exemption on import of tractors from custom duty and sales tax was challenged. In the review i.e. in the cited citation of Fecto Belarus the action of the Government was held as illegal. The learned L.A. for distinguishing the judgment cited by the learned AR has submitted that it is the doctrine of estoppel on the conduct of the government while withdrawing the exemption for custom duty and sales tax that the necessary relief was allowed thus the earlier judgment in Elahi Cotton Mills remains unaffected but only a review of the earlier judgment was made which is evident from the concluding paragraph. So when a judgment which has not been overruled i.e. of Elahi Cotton Mills, thus the principles of law as enunciated being directly relevant will remain applicable for section 80D vis-a-vis protection given under the Economic Reforms Act, 1992. The learned AR almost by reiterating the stance by referring to para 52 (Elahi Cotton Mills) has submitted that only those notification which are listed in schedule to section 6 of Act, 1992 would enjoy the protection. The learned AR has further submitted that such findings have been followed by the Honourable Supreme Court in the reported judgments as 1999 SCMR 1072, 1999 SCMR 412, which is clearly indicating that principles as set out have not been displayed by the subsequent judgments. And the judgment as cited (2002) 84 Tax 25 = 2001 PTD 1829 (SC Pak) i.e. Fecto Belarus has not overruled the judgment passed in Elahi Cotton Mills. The learned AR by referring to Article 189 of Constitution of Islamic Republic of Pakistan has submitted that such judgment has binding effect which has to be followed. In this respect, the learned L.A. has referred to provisions of Article 189 and also to famous judgment cited_ as 1989 CLC 776 i.e.. of Malik Muhammad alias Malkoo. The learned L.A. on the point of leviability under section 80D has argued that the Honourable Supreme Court has not changed principle position as given in Elahi Cotton Mills case because there is no change in the latest judgment i.e. Zaman Cotton Mills case reported as 2001 PTD 1203 delivered on 5-12-2000, whereas the judgment as cited by the learned AR was delivered on 26-8-2000. The learned AR by reading out the paras. 34 and the concluding portion from the Zaman Cotton Mills case has submitted that leave to appeal has been granted and had the apex Court followed the judgment as recorded in Fecto Belarus then the leave to appeal would have not been granted or if the principles enunciated in Elahi Cotton Mills would have already been overruled in Fecto Belarus case. With these submissions the learned L.A. has concluded that the findings as recorded in Elahi Cotton Mills are still binding.

13. We have heard the argument vis-a-vis the counter-arguments. We have perused the available record. We had the benefit of going through minutely the write up submitted by both and also the case-law referred before us. The first question as referred by the learned L.A. that as to whether the protection of Economic Reforms Act, 1992 shall override the provisions of section 6 i.e. "The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified shall continue in force for the term specified therein and shall not be altered to the disadvantage of the investors" is hardly a question of law which requires to be dilated upon because of its settled nature as per judgment referred by the learned L.A. in the case of Elahi Cotton Mills. Now precisely what we are to look into is the issue with particular reference to the facts of instant case that as to whether exemption under clause (102B) Part-I of the Second Schedule inserted by S.R.O. No.337(I)/93, dated 25-4-1993 allow the concession of exemption from section 80D or not. In this respect the learned AR has mainly relied on the preamble of the Economic Reforms Act by laying stress on the later part of the language of this preamble which for quick reference is reproduced as under:

"Preamble

????

And Whereas a number of economic reforms have been introduced and are in the process of being introduced to achieve the aforesaid objectives."

14. As expressed earlier that later part refers to such Economic Reforms which are in the process of being introduced to achieve the objectives of the Economic Reforms Act and secondly that such legal protection in the form of Economic Reforms Act is meant to create confidence in the establishment and continuation of the liberal economic environment created thereby. In this respect the learned AR has referred to the case of Fecto Belarus cited ibid wherein on question of imposition of custom duty and sales tax the Honourable Supreme Court has brought this notification thought not listed in the schedule to the Economic Reforms Act as steps covered under the Economic Reforms Act and allowed the necessary relief. In the instant case, before us, the notification by which the Clause (102B) ibid has been introduced has not been listed in the schedule to section 6 of the Act, 1992. So the learned AR by drawing a parallel has pleaded for a concession in the light of principles enunciated by the Honourable Supreme Court in reference to the preamble of the Act, 1992. The Honourable Supreme Court has already held that Economic Reforms Act, 1992 overrides the other provisions as per Customs, Sales Tax and Income Tax Ordinance. Now the leviability of tax under section 80D is taken up as per plain language of Ordinance and its Schedule. The clause (102B) ibid has been introduced vide S.R.O. No.337(I)/93, dated 25-4-1993 which is inserted after the promulgation of the Economic Reforms Act and importantly after the insertion of section 80D also. The findings as recorded in the case of Elahi Cotton Mills were in respect of (presently omitted) clauses (118C), (118D) and (118E) by Finance Act, 1995 earlier inserted by a Notification, dated December, 13, 1990, which were brought within the scope of Economic Reforms Act, 1992. In contrast the clause (102B) ibid has been inserted after the omitting of these Clauses (118C) to (118E). It was insertion of section 80D subsequent to insertion of clauses (118C) and (118D) that a situation arose on the implementation of non obstente language of section 80D by that holding the overriding effect of Economic Reforms Act, 1992, that exemption from leviability of section 80D was allowed. But before us the matter is quite distinct because as per the plain opening language of Part-I of the Second Schedule the assessee company undisputedly was qualifying for exemption under clause (102B), so could not be burdened with the B section 80D liability which was in existence prior to clause (102B), so the controversy put before us could also be resolved in favour of assessee even as per the historical order of insertion of clause (1025) and language of section 80D and opening paras. of Part I of the Second Schedule. The case-law as cited on the point of leave to appeal has entirely different background where a claim for exemption was a result C of clause (122C) of Part-I of the Second Schedule. As this clause was introduced in 1987 so it is to be resolved as to whether it is covered under Economic Reforms Act or not. The arguments advanced by the learned LA also lend support to the cause of assessee also. The case as cited by the learned AR though in respect of custom duty and sales tax has its applicability because both such laws are the part of fiscal laws like income tax, so the principles as laid down while granting exemption would be available in the Income Tax Proceedings. The learned L.A.'s contention is incorrect that it is by "Doctrine of Estoppel" that relief to the appellant has been allowed by Honourable Supreme Court of Pakistan in the case of Fecto Belarus cited by the learned A.R. as even a cursory look at concluding para. of this judgment would prove it that notification entitling concessions from Duty, Sales Tax has specifically been made part of Economic Reforms Act. To conclude this order in an unequivocal E manner we hereby declare by following the expressed legal provisions as explained supra regarding the dates of introduction of section 80D, the opening paras. of Part-I of the Second Schedule and the principles upheld by the Honourable Supreme Court in the reported case as Elahi Cotton Mills as well as Fecto Belarus that the section 80D is not levialbe in the instant case, thus the assessee's appeals succeed.

C.M.A./47/Tax (Trib.)????????????????????????????????????????????????????????????? Appeals accepted.