I.T.A. No.1641/KB of 2003, decided on 8th March, 2005. VS I.T.A. No.1641/KB of 2003, decided on 8th March, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 471 (2005)

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

----Ss. 80-D & 2(16)(b)---Societies Registration Act (XXI of 1860), Preamble---Finance Act (IV of 1999), Preamble---Minimum tax on income of certain persons---Cooperative society---Department contended that First Appellate Authority was not justified to delete the turn over tax charged under S.80-D of the Income Tax Ordinance, 1979 as S. 2(16)(b) of the Income Tax Ordinance, 1979 while defining the term "company" had included a body corporate formed by or under any law for the time being in force---Cooperative society was a body corporate .which was very well covered by the definition of "company"- Assessee contended that a society registered under the Societies Registration Act, 1860 was a body corporate, constituted under an instrument and registered in pursuance of the provisions contained in the Societies Registration Act, 1860 and the same was not chargeable to tax applicable for companies, but at the rates applicable for individual, association of persons, unregistered firm, Hindu undivided family and artificial juridical person---Validity---Amendment made by Finance Act, 1999 in S. 80-D of the Income Tax Ordinance, 1979 created charge against four categories only and status of artificial jurisdiction person had not been added in the said charge---By virtue of amendments, the words added were "an individual, an association of persons, an unregistered firm, or a Hindu undivided family"---Status of an artificial juridical person was not covered within the said language---Even in the amendment the artificial juridical person was not made part of the same, the charge of S.80-D was not applicable for the assessment years 2000-2001 and 2001-2002.

1998 PTD (Trib.) 2017 rel.

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

----S. 2(16)(b)---Societies Registration Act (XXI of 1860), Preamble---Company, a body corporate and cooperative society registered under Societies Registration Act, 1860 was a separate entity---Such society was not covered within the definition of the term `company' for the purpose of charge of tax under the Income Tax Ordinance, 1979.

1998 PTD (Trib.) 2017 rel.

(c) Income-tax---

----Co-operative societies--Status--Artificial juridical person--Societies, being creation of some group of persons through bye-law and rules were legal persons which can be sued or can sue in a Court of law---Societies were legal and juridical persons created artificially through registration with some authority under law and were legal persons against whom a case could be filed in a Court of law---Such legal persons can purchase and sell assets and can also hold the same in its registered name---Except for tax rates in income tax for which law had separated them their status was equal to companies---Such societies and organizations were not association of persons but .artificial juridical persons---Status had been made a part of the definition of the term `person' separately and could not be considered as without purpose.

(d) Income-tax---

----Artificial juridical person---Association of persons---Distinction---Basic difference between an artificial juridical person and association of persons is volition---Artificial juridical person is the one who has been artificially designated the status of a `person' as opposed to a natural person---Formation and status of such person in some cases may be by volition while it can also be without volition---Association of persons cannot be without volition; it was a combination of individuals having common interest in business with the object of earning income carried by one or more than one for the benefit of all of them---Such situation does not apply in the case of artificial juridical person except for the formation of a limited company in which the purpose of doing business together and getting benefit out of it can be similar, however, other juridical person may not have the same object---Object of other juridical persons can be any kind of social welfare or it can be cooperative body formed by or under law by Government for a particular purpose in which the individuals may be associated under legal obligation---Association of person may not always be a registered organization formed through some instrument but on the other hand an artificial juridical person has to be legally constituted body formed by or under some law of the land.

W.T.As. Nos. 1132, 1133/LB of 1995 and W.T.As. Nos. 443 and 444/LB of 2000 rel.

Mushtaq Hussain Qazi, D.R. for Appellant.

Nemo for Respondent.

Date of hearing: 8th March, 2005.

ORDER

This appeal has been filed by the Department on the ground that deletion of turn over tax charged under section 80D is not justified.

The learned DR said that section 2(16)(b) of the Income Tax Ordinance, 1979 while defining the term "company" has included a body corporate formed by or under any law for the time being in force. Since a cooperative society is also a body corporate, hence is very well covered in the definition of "company".

We are aware that this Tribunal has decided in a number of cases that a society registered under Societies Registration Act is a separate entity. Also, that it is not covered within the definition of the term `company' for the purpose of charge of tax under the Income Tax Ordinance. In this regard one is guided by the judgment of the ITAT referred as 1998 PTD (Trib.) 2017 which says:--

Before concluding our finding on the issue relating to status of the appellant we would like to observe that in the title of assessment order the status of "society/body corporate" has been assigned to the appellant which is hereby maintained. However, while working out the tax liability the tax has been calculated at the rate of 52% which is applicable to companies. This treatment is not upheld and is hereby vacated. The tax liability if any is to be calculated in accordance with para. A in Part I of the First Schedule which prescribes rate of Income-tax in the case of every individual, unregistered firm, association of persons, Hindu Undivided Family and artificial juridical person referred to in clause (32) of section .2 of the Income Tax Ordinance, 1979.

In this view of the matter we agree with the learned CIT(A) that it is not a limited company so as to attract the mischief of section 80D, however, the matter does not end here. The Assessing Officer assigned the status of the educational institution to this society and while charging 80D, he has held it as a company. Since to the said extent, this Tribunal has disagreed with the interpretation, obviously no exception can be made. However, as per law the charge under section 9 has been created against "person" and person includes.

"S.2(32) "persons" includes an individual, a firm, an association of persons, a Hindu undivided family, a company, a local authority and every other artificial juridical person".

The status, therefore, has to be assigned from the above description. After holding that it is not a company, the question arises as to what status can be assigned to a society registered under the Societies Registration Act. The question can be decided in the following manner.

The learned AR says that it is a case of a registered society while the Department insists that it is a body corporate hence a company. In fact this issue has exhaustively been discussed in the above judgment. The Tribunal has ultimately held that a Society registered under the Societies Registration Act is a body corporate constituted under an instrument and registered in pursuance of the provisions contained in the c Societies Registration Act, 1860. Further that the same is not chargeable to tax applicable for companies, but on the rates applicable for individual, association of persons, unregistered firm, Hindu undivided family and artificial juridical person.

Thus the learned Tribunal only decided that the tax applicable on company's is not applicable on the legal persons created by some memorandum and Articles of Association or other self-formed by laws and rules. However, while giving final verdict it was not mentioned as to what is the status of such registered society under income tax law. It was for the obvious reason. Since rate for all the five categories was the same. The distinction was not required. However, for the reason of amendment by Finance Act, 1999 in section 80-D it has become imperative. This amendment has created charge against four categories only. The status of artificial person has not been added in the said charge. By virtue of the amendments, the words added were "an individual, an association of persons, an unregistered firm, or a Hindu undivided family". The status of an artificial juridical person, therefore, was not covered within the said language. From the above discussion the outcome is, therefore, obvious and the assessee has rightly been held to be not company. However, for the reason of the contentions of the AR that is an AOP same further discussion is required.

Generally: an impression had developed that such societies which have not been formed or created by law are AOPs. This impression was never dislodged as AOPs were not subjected to any additional burden till the above insertion. However, after addition of the same in the charge created under section 80(D) it has been necessitated that the same should be clearly defined. In fact in our opinion the judgment referred above has taken care of this aspect also. It has held:---

"Before concluding our finding on the issue relating to status of the appellant we would like to observe that in the title of assessment order the status of society body corporate has been assigned to the appellant which is hereby maintained."

After holding as above the learned Tribunal has held that the tax rates of company i.e. 52% shall not be applicable but the rates applicable to individual, AOP, Hindu undivided family, unregistered firm and artificial juridical person shall be applicable.

While interpreting above-quoted para. subsequently the status of AOP was being claimed by some of the taxpayers. It was being ignored that the Tribunal has confirmed the status of body corporate/society for such formed organizations. Thus formed societies being creation of some group of persons through bye law and rules are legal persons which can be sued or can sue in a Court of law. They are legal and juridical persons created artificially through registration with some authority under law. They are legal persons against whom a case can be filed in a Court of law. Such legal persons can purchase and sell assets and can also hold the same in its registered name. Except for tax rates in income tax for which law has separated them, their status is equal to companies. Such societies and organizations, therefore, are not AOPs but artificial juridical person. This status has been made a part of the definition of the term `person' separately and cannot therefore, be considered as without purpose.

A basic difference between an artificial juridical person and association of person is volition an artificial juridical person is the one who has been artificially designated the status of a person as opposed to a natural person. The formation and status of this person in some cases may be by volition while it can also be without volition. However, an AOP cannot be without volition. It is a combination of individuals having common interest in business with the object of earning income carried by one or more than of them for the benefit of all of them. This situation does not apply in the case of artificial juridical person except for the formation of a limited company in which the purpose of doing business together and getting benefit out of it can be similar, however, other juridical person may not have the same object: Their object can be any kind of social welfare or it can be cooperation formed by or under law by Government for a particular purpose in which the individuals may be associated under legal obligations. Moreover, an association of person may not always be a registered organization formed through some instrument but on the other hand an artificial juridical person has to be legally constituted body formed by or under some law of the land. Reference for the above discussion can be made to W.T.As. Nos: 1132, F 1133/LB of 1995 and W.T.As. Nos. 443 and 444/LB of 2000 decided on 13-1-2004.

Coming to the issue in this case from the above discussion the matter has become simple. Since even in the amendment the Artificial Juridical Person was not made part of the same, the charge of section 80(D) is not applicable even for 2000-2001 and 2001-2002.

C.M.A./441/Tax (Trib.)??????????????????????????????????????????????????????????????????????? Appeal rejected.