I.T.As. Nos. 194, 195 and 196/KB of 2004, decided on 23rd June, 2005. VS I.T.As. Nos. 194, 195 and 196/KB of 2004, decided on 23rd June, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2036 (2005)

Income Tax Ordnance (XLIX of 2001)---

----S. 122---Income Tax Ordinance (XXXI of 1979), Second Sched., Part-I, Cl. (86)---Amendment of assessments---Exemption---Interest income-Income was returned as Nil being an exempt income including profit on investment of Profit and Loss Account---Assessing Officer taxed such profit---First Appellate Authority set aside the assessment for de novo examination on merits on the plea that the whole of the income of an educational institution was exempt being an education institution---Assessing Officer finalized the assessment at Nil---Inspecting Additional Commissioner re-opened the assessments under notice under S.122 of the Income Tax Ordinance, 2001 being erroneous and prejudicial to the interest of Revenue and taxed the profit of such bank account---Validity---Income of the trust for charitable or religious purposes was exempt from income tax under Cl. (93) of the Second Schedule to the . Income Tax Ordinance, 1979 and income from voluntary contributions to charitable or religious institutions was exempt under Cl. 94 of the Second Schedule of the Income Tax Ordinance, 1979---Income from other sources including an interest income, however, would not be exempt, such was an income from other sources wherein exemption clauses were not attracted---If it was presumed that the investment had been made in the scheduled bank, even then exemption on interest income derived from a scheduled bank would be allowed with effect from 1-7-2003 as amended provision had no retrospective effect---Order of First Appellate Authority was annulled and that of Inspecting Additional Commissioner was maintained by the Appellate Tribunal.

77 Tax 73 of 1997 ref.

1994 PTD (Trib.) 1924 and I.T.A. No.1322/KB of 2004 rel.

Ghulam Shabbir Memon, D.R. for Appellant.

Amjad Javed Hashmi for Respondent.

ORDER

S. HASAN IMAM, (JUDICIAL MEMBER).---By this order we would prefer to decide the appeals at the instance of the Department arising from a consolidated order, dated 4-9-2003 passed by the learned CIT(A). Common objections have been taken in all the three appeals cancelling the reassessment proceedings under section 122 of the Income Tax Ordinance, 2001 for the assessment years 1999-2000 to 2001-2002.

2. The assessee Trust namely "College of Physician and Surgeons of Pakistan Trust" was set-up as an educational institution in 1983, with the object to provide facility of "Qarz-e-Hasna" to the doctors pursuing postgraduate education in and outside Pakistan, and an educational trust over the last several years. The assessments were finalized as an exempt entity within the purview of clause (86) of Part-I of the Second Schedule to the Income Tax Ordinance, 1979. The revenues of the assessee trust comprise the profit on investments, donation, grants; and reimbursement of "Qarz-e-Hasna" from the doctors after they attain specialization and enter the active practice. The profit on such interest bearing deposit schemes was used as a revolving fund to support the funding needs of "doctors' higher learning (FCPS) in Pakistan or abroad). For the assessment years in question also, income was returned as Nil being an exempt income including profit on investment of PLS Account disclosed at Rs.1,892,086, Rs.1,402,752 and Rs.1,294,343 or the assessment years 1999-2000 to 2001-2002 respectively.

3. The then Assessing Officer questioned the said profit as an exempt source of income and taxed it. The C.I.T. (Revision) set aside the assessment for de novo examination on merits vide order, dated 28-8-1998 on the plea that the whole of the income of an educational institution was exempt being an educational institution. During the re-assessment proceedings, the Assessing Officer referring the original assessment for the assessment year 2001-2002 concluded that "the facts of the above mentioned case have been examined and facts of the assessee's case are identical of the case of relied upon", whereby finalized the assessment at Nil.

4. The controversy took another turn when the IAC Range-III, Zone-C, Karachi re-opened all the three assessments for the years under appeals vide notice under section 122 of the Income Tax Ordinance, 2001 questioning the orders of the Assessing Officer being erroneous and prejudicial to the interest of Revenue. The assessee trust lodged a written reply, dated 25-6-2003 which found no favour. Consequently the learned IAC finalized the amended assessments on 28-6-2003 by taxing profit of PLS Account for all the three years.

5. The learned CIT(A) cancelled the re-assessment proceedings under section 122 observing that (i) the Taxation Officer has erred in invoking the powers under section 122 of the Income Tax Ordinance, 2001 in a stereo typed and perfunctory manner, (ii) no "in-correction" in terms of material facts or the applicable law on such facts for the three impugned assessment years appear to have been shown in the notice, (iii) no material has been collected to show whether any prejudice has been caused to the Revenue, (iv) no reason has been, given to justify the correction by way of reversing the prejudice so asserted in the notice, (v) none of the issue raised in the rejoinder of the assessee Trust were either considered or discussed, (vi) the Taxation Officer did not state the original and discovered facts on the basis of which original assessments were framed and amended assessments were warranted, (vii) the case law (77 Tax 73 of 1997), the basis of the original assessment has been treated "no more relevant without mentioning anything in this context, and (vii) a short cut method has been adopted to reject the contention placing reliance on case-law reported as 1994 PTD (Trib.) 1294.

6. It is further observed by the learned CIT(A) that the assessee is an educational institution which is being run on non-profit basis and apparently there appears no disqualification in terms of clause (86) of the Second Schedule to the Ordinance to treat the income of assessee as taxable and that the C.B.R. Circular, dated 18-2-1996 contemplating disqualification contract to restrain the assessee from enjoying facility of exemption, does not attract.

7. The learned D.R. on behalf of department vehemently argued that assessee a charitable institution, a trust set up as an 'educational institution in 1983, with main object to provide "Qarz-e-Hasna" to Doctors pursuing Postgraduate Education in Pakistan and outside the country there appears no qualification in terms of Clause (86) of the Second Schedule, deposits in the bank towards interest income and not exempt under clauses (86) & (93) of the Second Schedule to the Income Tax Ordinance, 1979 and are not par' materia to clause 59 of the Income Tax Ordinance, 2001. The learned D.R. further emphasized that such income is exempt under the provisions of the said clause in case income is earned on investment in financial institutions till 30-6-2003and after that the words "Financial Institution" have been substituted for schedule bank" by Finance Act, 2003, whereas the years under appeal are 1999-2000, 2001-2002, as such exemption would not be available on the income earned on investment in Financial institution and banks till 30-6-2003 and 1-7-2003. For the convenience Clauses (86), (93) & (94) of the Second Schedule to the Income Tax Ordinance, 1979 are reproduced hereunder:---

"(86) Any income of any university or other educational institution established solely for educational purposes and not for purposes of profit.

(93) Any income which is derived from investments in securities of the Federal Government and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto:

Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan.

(94) Any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or - charitable purposes of the institution:

Provided that nothing contained in clause (93) or this clause shall apply to the income of a private religious trust which does not ensure for the benefit of the public."

8. The simple reading of the amended clause if read with clause (59) of the Second Schedule, we will find that exemption allowed to the Charitable Trust from investment of various types made in the bank possesses no retrospective effect.

9. Income of the trust for charitable of religious purposes is exempt from income tax under clause (93) of the Second Schedule to the Income Tax Ordinance, 1979 and income from voluntary contributions to charitable or religious institutions is exempt under clause (94) of the Second Schedule. However, income from other sources including an interest income would not be exempt as such it would be proper and safe to rely upon a Judgment reported as 1994 PTD (Trib.) 1294 (page 1302) "F" and an unreported Judgment of the Tribunal, dated 16-6-2005 in I.T.A. No.1322/KB of 2004 and others wherein it is held that:

"Second Sched., Cl. (93).---Charitable trust- Exemption---Trust running schools on no profit no loss basis---Income from other sources---Some open trust space of the house property of trust was rented out to some advertising company where they had fixed neon signs---Trust also deriving income from dividends---Receipts from neon signs and dividends though not distributed amongst trustees or other persons yet would be termed as "income from other sources" and were not exempted."

10. In the circumstances it is held that it is an income from other sources wherein exemption clauses are not attracted, in case it is presumed that the investment has been made in the schedule bank, even then exemption on interest income derived form a scheduled bank would be allowed with effect from 1-7-2003 as amended provision has no retrospective effect. As a result of above discussion, there appears sufficient reason to maintain the order of the IAC, dated 28-6-2003. Accordingly order of the learned CIT(A) challenged before us stands annulled.

C.M.A./69/Tax (Trib.)????????????????????????????????????????????????????????????? Order accordingly.