I.T.As. Nos. 124/KB to 126/KB of 2005, decided on 4th March, 2006. VS I.T.As. Nos. 124/KB to 126/KB of 2005, decided on 4th March, 2006., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2348 (2006)

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

----Ss. 52, 86, 50 & 2 (16)(bb)---Income Tax Ordinance (XLIX of 2001), S.153(9)---C.B.R. Circular Letter C. No.1 (17) WHT/91-PT, dated 29-8-2002---Liability of persons failing to deduct or pay tax---Company--Trust---Proceedings under Ss. 52/86 of the Income Tax Ordinance, 1979 were initiated treating the assessee as a company in terms of provisions of S.2(16)(bb) of the Income Tax Ordinance, 1979---Assessee contended that both the authorities below had erred in holding the appellant as public company since it was not formed by or under any law for the time being in force as in the case of trust to be a company, the qualifying condition was that the same should have been formed by order under law---Validity---Assessee having neither been formed by a special Act of legislature nor under any law, fell outside the purview of definition and could not be termed as company---Orders of both the officers below, holding the assessee as an "assessee in default" were vacated by the Appellate Tribunal as the assessee was not required to deduct tax as provided under S.50 of the Income Tax Ordinance, 1979 being a trust and not a company.

2000 PTD 3388; 2003 PTD 1264; 1998 PTD (Trib.) 2017; 2003 PTD (Trib.) 436 and I.T.A. Nos. 456 and 689/KB of 2003 rel.

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

----Ss. 2(16)(b) & 2(16)(bb)---Company---Trust---Principle that cooperative societies registered under the provisions of Cooperative Societies Act, 1925 were not companies within the meaning of S.2(16)(b) of the Income Tax Ordinance, 1979 will also apply to trust as provided in clause (bb) of subsection (16) of S.2 of the Income Tax Ordinance, 1979.

(c) Document, registration of---

----Object---Object of registration of a document is firstly to give notice to' the world that such a document has been executed, secondly, to prevent fraud and forgery and thirdly to secure that every person dealing with the property, where such dealings require registration, may rely with confidence upon the statements contained in the register as a full and complete account of all transactions by which the title to the property may be affected.

(d) Income-tax---

----Trust---Kinds of---Trusts are of different kinds such as formed by or under special Act of legislature; formed under Trusts Act, 1882 and formed by an indenture of trust.

Tayyab Gee Adeeb, F.C.A. for Appellant.

Basharat Qureshi, D.R. for Respondent.

ORDER

Through these three appeals, the appellant has objected to the two separate impugned orders of the learned CIT(A), dated 18-9-2004 for the assessment years 1999-2000 and 1998-99 and order, dated 25-11-2004 for the assessment years 2002-2003 on the common ground for all the three years that "The learned Commissioner of Income Tax (Appeals), Zone-V, Karachi erred in confirming the action of learned Assessing Officer holding your appellant to be company within the meaning of section 2(16)(bb) of the repealed Income Tax Ordinance, 1979 and charge of tax under sections 52/86 holding the appellant as assessee in default".

Mr. Tayab Gee Adeeb, FCA has appeared on behalf of the appellant and has contended that both the Officers below have erred in holding the appellant as public company since it is not formed by or under any law for the time being in force. He has contended that the Taxation Officer has initiated proceedings under sections 52/86 treating the appellant as a company in terms of provisions of section 2(16)(bb) of the repealed Income Tax Ordinance, 1979. According, to the learned counsel, in the case of trust to be company, the qualifying condition is that the same should have been formed by or under any law. He has contended that this issue has already been decided by this Tribunal as well as by the Hon'ble High Courts and the Officers below have not considered the case-law referred before them. He has, in this respect, referred before us the decisions of the Hon'ble High Courts reported as 2000 PTD 3388, 2003 PTD 1264 and the decisions of this Tribunal reported as 1998 PTD (Trib.) 2017 and 2003 PTD (Trib.) 436. Learned counsel has also referred the order of this Tribunal, dated 31-1-2004 on the cross-appeals filed in the matter of Messrs Indus Dyeing and Manufacturing Company, Karachi vide I.T.A. No. 456 and 689/KB of 2003 (assessment year 2001-2002). In support of his contention, he has also referred the relevant provisions and commentary of the Registration

Act, 1908, the Trust Act, 1982, the C. B. R.'s Circular letter C.N. 1(17)WHT/91-PT, dated August 29, 2002 and has placed before us the Declaration of Trust registered with the Sub-Registrar of Trust registered with the Sub-Registrar, Karachi, dated 27-1-1958. Learned counsel, in this respect, has also referred para. (c) in subsection (9) of section 153 of the new Income Tax Ordinance, 2001.

On the other hand, learned' DR is supporting the impugned orders of the Officers below.

We have heard the learned representatives from both the sides, perused the impugned orders of the Officers below, the relevant provisions of law and the case and the case-law referred by the learned representative of the assessee and referred in the impugned orders.

We have found that according to the Taxation Officer, the assessee being a trust falls under the definition of Company as per sub-clause (bb) of clause (16) of section 2 of the late Income Tax Ordinance, 1979. He, in this regard, placed reliance on the decision of the Tribunal reported as 2003 PTD (Trib.) 436. Learned counsel for the assessee has submitted that the issue under hand was not subject-matter of the decision referred supra on which Assessing Officer has placed reliance, wherein it has been discussed that "all the trust formed by or under any law whether recognized or not for the purpose of section 47 of the Ordinance are to be treated as public company". According to the learned counsel for the assessee, this decision rather support the contention of the assessee as the assessee trust has not been formed by or under any law but is a private trust. We have found that the learned CIT(A) has upheld the treatment meted out by the Assessing Officer with the following observations:

"The perusal of record shows that the Assessing Officer has treated the appellant as company under section 2(16)(bb) being a trust. The AR has quoted number of cases in support of his contention. The AR has also filed copy of declaration of Trust. . The cases quoted by the AR are not relevant in the case of appellant. The one case is related to company in which decision is given regarding interpretation on section 107 of the I.T. Ordinance, 1979 which has no concern with the case of Trust. Another case is related to cooperative society registered under the Societies Act. This case has also no relevance with the case of Trust. Third case is related to charge of tax at 46%. In this case, it is interpreted that the said trust falls under the definition of public company, hence liable tax at the rate applicable to public companies. Nowhere it is decided that the Trust do not fall in the definition of company. Hence the cases quoted do not support to the appellant. Admittedly the appellant is Trust duly registered in the office of Sub-Registrar, Karachi. This clearly shows that the Trust is formed by law duly registered, hence the arguments of AR has no force that the Trust is not formed by any law for the time being in force. The Trusts are brought in the definition of company and the Assessing Officer has rightly assigned the status of company to the Trust under section 2(16)(bb) of the I.T. Ordinance, 1979. Since the appellant has not discharged his obligation of deducting the tax under section 50, hence the Assessing Officer has rightly treated the appellant as assessee in default and passed order under sections 62/86 of the I.T. Ordinance, 1979".

On the other hand, while going through the order of this Tribunal reported as 1998 PTD (Trib.) 2017 we have found that after the detailed discussion, this Tribunal in para-50 of the decision has held as under:--

"From the above discussion we are of the considered opinion that whenever the legislature has used the words, formed, established, or created by or under the law it refers to the body corporate formed, established or created directly by the legislature under the law enacted by it and, therefore, such expression shall not include a body corporate owing its existence to any instrument such as memorandum and articles of association and the registration thereof. In the case of societies registered under the Societies Registration Act they are formed under section 1, of the said Act with a memorandum of association and filing the same with the Registrar of joint stock companies and the registration thereof under section 3 of the said Act. It is, therefore, held that although a society registered under the Societies Registration Act is a body corporate but it is not a company as defined under section 2(16)(b) because such society is not formed by or under any law for the time being in force but is a body corporate which is constituted under an instrument and is registered in pursuance of the provisions contained in the Societies Registration Act, 1960."

Likewise, in the decision of the Hon'ble Lahore High Court reported' as 2000 PTD 3388 after a detailed discussion on the subject, the question i.e. "Whether the Cooperative Societies registered under the provisions of Cooperative Societies Act, 1925 are the companies within the meaning of section 2(16)(b) of the Income Tax Ordinance, 1979?" has been answered in the negative. We are of the view that the ratio of this decision will also apply regarding trust as provided in clause (bb) of subsection (16) of section 2 of the Ordinance.

In another case reported as 2003 PTD 1264, it has been held that "the societies, registered under the Societies Registration Act cannot be equated with the companies registered under the Companies Ordinance or incorporated under a statute, therefore, cannot be treated a company as defined in section 2(16)(b) of the Ordinance, 1979". We are further of the view that Registration Act, 1908 provides for the creation of the pre-appointed evidence of transactions by getting the same entered in a public record by a competent official whose duty is to attend the parties during the registration and see that the proper persons present are competent to act and are identified to his satisfaction. The object of registration of a document is firstly to give notice to the world that such a document has been executed, secondly, to prevent fraud and forgery and thirdly to secure that every person dealing with the property, where such dealings require registration, may rely with confidence upon the statements contained in the register as a full an complete account of all transactions by which the title to the property may be affected. We have further noted that the C.B.R. through Circular Letter C. No.1 (17) WHT/91-Pt, dated August 29, 2002 has clarified that "an ordinary AOP which is created by an agreement does not fall within the definition of the "prescribed person" given in subsection (9) of section 153 of the Income Tax Ordinance, 2001. Only those AOPs which are created by or under the law, which would be very few are liable to deduct tax as withholding agents under section 153 of the said Ordinance". It is to note that section 153 of the new Ordinance, 2001 is regarding deduction of tax on payments for goods and services as were under section 50(4) and 80C of the repealed Income Tax Ordinance, 1979 and in subsection (9) while giving the meanings of prescribed person under subsection (c), it has been given "an association of persons" constituted by or under law. We have further noted that in the preamble of the Trust Act, 1882, it has been provided that "whereas it is expedient to define and amend the law relating to private trusts and trustees; it is hereby enacted as follows-------". While perusal of the declaration of Trust made on 17th August, 1957, which is the subject-matter of the present case, we have found that the Trust has been created by Shia Ismaili Tyebi Bohra Community mentioning in the preamble as under:

"Whereas on the auspicious and sacred occasion of Fourteenth Century Celebration of the birthday of Amirul-Momineen Alimurtaza (Alehis-Salam) at the behest of His Holiness Sardar Sayedna Dr. Tahar Saifuddin Shahab the 51st Dail-Mutlaq hereinafter referred to a His Holiness (which expression shall mean and include the present Dail-Mutlaq and Vicegerent of the Imam on earth in seclusion and his successors in office in the members of the Shia Ismaili Tyebi Bohra Community (hereinafter referred to as the Community) of Karachi decided to celebrate and perpetuate the occasion in a befitting manner; by raising funds etc. for the benefit of the members of Dawoodi Bohra Community, the term "Dawoodi Bohra" shall mean and include only those members of the Dawoodi Bohra Community who are the followers of His Holiness the Dail-Mutlaq for the time being and who are recognized by the Dail-Mutlaq as such followers."

We have further noted that the Trust has been created as provided under sub-clause (3) of Clause 2 for the purposes, including:

"(3) For such other purposes generally 'connected with the welfare. ' and betterment of the Community and to maintain, run and look after Education Institutions, Maternity Homes, Dispensary, Industrial Homes, Library and Research Institute or Institutes of the Community."

After considering all the above facts of the case, we are of the view that the Trusts are of different kinds such as (i) Formed by or under special art of legislature (ii) Formed under Trust Act, 1882 (iii) Formed by an indenture of Trust. It thus follows that law has intended to treat only those companies as trusts as companies, which are formed by special act of legislature. If the law intended to treat all the trusts companies, than it would have declared its intention by using appropriate language. Instead of using the words "formed by or any law", it would have said `a trust howsoever formed'. By not using such words, the legislature has made it clear that only those trusts fall within the definition of company as are formed by or under any law. Appellant having neither been formed by a or under any law. Appellant having neither been formed by special act of legislature nor under any law, falls outside the purview of definition and hence cannot be termed as company. The impugned orders of both the Officers below holding the appellant an assessee in default are, therefore, vacated, as the appellant was not required to deduct tax as provided under section 50 of the repealed Income Tax Ordinance, 1979 being a trust and not a company.

All the three appeals filed by the assessee are allowed.

C.M.A./83/Tax (Trib.)Appeals accepted.