I.T.A. No.1363/KB of 2003, decided on 7th January, 2005. VS I.T.A. No.1363/KB of 2003, decided on 7th January, 2005., 2006 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 584 (2005)

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

----First Sched., Part-IV Cl. (2B)---Companies Act (VII of 1913), Preamble---Super tax--Assessee was a registered firm and derived income from consultancy as Architects---Assessee claimed exemption from super tax under Cl. (2B) of Part-IV to the First Schedule of the Income Tax Ordinance, 1979---Validity---Appellate Tribunal did not agree with the assessee that the condition precedent for allowing exemption 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 person or giving to other persons of advice of a commercial nature in making contracts---Sub-para. (2B) of para. A of Part-IV to the First Schedule of the Income Tax Ordinance, 1979 showed that mere involvement in such profession, would not absolve the assessee from charge of super tax unless there was legal restriction on the assessee debarring it from constituting into a corporate body with a limited liability, which could be registered as a company under the Companies Act, 1913---Such sort of restriction amongst others was independent in nature besides being mandatory' and nothing to do with remaining contents/conditions of sub-para. (2B) of Para. A of Part-IV of the First Schedule of the Income Tax Ordinance, 1979---Mere running such profession would not save the assessee from clutches of super tax as admittedly there was no bar on the assessee's firm to constitute themselves into a corporate body with a limited liability which could be registered as a company under the Companies Act, 1913.

I.T.A. No.632/KB of 1999 rel.

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

---First Sched., Part-IV, Cl. (2B)---Super tax---Exemption---Clause (2B) of First Schedule Part-IV of Income Tax Ordinance, (1979) pertaining to super tax shall give exemption only to such income of registered firm which depends wholly or mainly on the professional qualifications of its partners who were prevented by any law or by convention or rules or regulations of the professional association, society or similar body of which they were members to constitute themselves into a corporate body with a limited liability.

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

---S.134---Appeal to Appellate Tribunal---Where relief has been allowed due to misinterpretation of law, it should not debar, restrict or curtail the powers of the Appellate Tribunal from arriving at a proper legal conclusion at any time deviating from the previous orders of the officers below.

(d) Income Tax---

---History of a case---History, if created by violating clear provisions of law having no ambiguity, was to be discarded.

Chaman Lal Oadh, D.R. for Appellant.

Ali Rahim, A.R. for Respondent No. 4.

Date of hearing: 7th January, 2005.

ORDER

S. HASSAN IMAM (JUDICIAL MEMBER).---We would prefer to decide above appeal filed against the order of the learned CIT(A), dated 30-7-2003 on the following grounds:-

(i) That the assessee's income is not exempt from levy of Super Tax and the CIT(A) order is not correct.

(ii) The assessee is a professional R/F and not prevented by any law or convention, rules and regulations of the Pakistan Council of Architects and Town Planners and the Pakistan Engineering Council, hence clause (2B) of Part-IV, of the First Schedule to the Income Tax Ordinance, 1979 is not applicable.

(iii) The CIT(A) should have followed the ITAT, Karachi Bench order I.T.A. No.632/KB of 1999, dated 26-5-2000 passed in the case vide N.T. No.27-25-2122628.

2. The facts leading to the instant appeal are that the assessee is a registered firm and derives income from consultancy as Architects. A perusal of assessment order shows that the assessee claimed exemption from Super Tax under Clause (2B) of Part-IV to the First Schedule of the Income Tax Ordinance, 1979. It would be pertinent to reproduce clause (2B) as follows:

"(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 derived 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 person of advice of a commercial nature in connection with the making of contracts."

3. The DCIT while concluding his finding in his order has held as under:

"It is clear beyond any doubts that there is no law, or convention or rules or regulations of the Pakistan Council of Architects and Town Planners preventing the partners of the assessee firm to constitute themselves into a corporate body with limited liability.

Since the learned ITAT, Karachi Bench in ITA No.632/KB of 1999-2000, dated 26-5-2000, has given their judgment in the case which is of a similar nature, therefore, in view of the provisions of clause (2B) of the Part-IV to the Income Tax Ordinance, 1979 and the above cited judgment of the ITAT, Karachi, it is concluded that the income of the assessee registered firm is liable to the levy of super tax...."

4. The learned CIT(A) deciding the appeal concluded as follows:--

"In view of above, I find that nothing could be more appropriate than following the assessee's own history as higher legal forums have also held. In this regard case (1994) PTD 47 and (1969)-91 Tax 65 are also found parallel. Since the appellant's contentions are backed by documentary evidence therefore there is no jurisdiction for Assessing Officer to travel beyond his realm. Keeping in view the past history of the appellant's case and following the decisions quoted supra, it would be in all fairness to direct the Assessing Officer to dispose of the issue of chargeability of super tax in accordance with law in the light of directions given supra or follow the appellate history of the appellant's case."

5. Heard the learned Representatives of the two parties. The learned D.R. argued that assessee's income is not exempt from levy of super tax as assessee is a professional/R&F and not prevented by any law or Convention, Rules and Regulations of the Pakistan Council of Architects and Town Planners and the Pakistan Engineering Council to constitute corporate body, hence Clause (2B) of Part-IV of the First Schedule to the Income Tax Ordinance would not be attracted, besides the learned C.I.T.(A) should have followed the ITAT's order vide ITA No. 632/KB/99, dated 26-5-2000. Contrary to the arguments of the learned D.R., the counsel for the assessee argued that in order to interpret the provision of para. (2B) of Part-IV of the First Schedule, it would be necessary to read this provision of law by dividing it in three parts:

(i) 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 derived depend wholly or mainly on the professional qualifications of its partners.

(ii) Who are prevented by any law 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).

(iii) Unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other person of advice of a commercial nature in connection with the making of contracts."

6. The learned counsel further urged that first part of the provision related to super tax provides exemption, second part imposes restriction on the said exemption and third part provides an exception from application of the para. or restriction mentioned in Second Part. It is also argued that partners of the registered firm are qualified engineers and the income is derived from the exercise of profession, the income profit and gains of which depend wholly or mainly on their professional qualification, hence the assessee is exempt from super tax.

7. The learned counsel referring Pakistan Council of Architects and Town Planners Handbook argued that in order to practise Architecture or Town Planning in Pakistan, it is mandatory for individuals to obtain valid registration from the Pakistan Council of Architects and Town Planners (PCATP) as an Architect or Town Planner or both, as the case may be. Any violation of the registration provision of the law is penal offence and unless a person holds a valid registration from PCATP, he cannot call himself an Architect/Town Planner, besides they are also warned to conform their conduct in accordance with the PCATP Code of Professional Conduct.

8. We are however not in agreement with the learned counsel for the assessee' that the condition precedent for allowing exemption 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 person or giving to other persons of advice of a commercial nature in making contracts. Last three lines of sub para (2B) of para. A, Part-IV to First Schedule, referred at Para (2) 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 remaining contents/condition of sub-para. (2B). As such mere running of such profession would not safe the assessee from 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). Reliance is placed on I.T.A. No. 632/KB of 1999-2000.

9. In the circumstances, the Clause (2B) pertaining to super tax shall give exemption only to such income of a Registered Firm which depends wholly or mainly on the professional qualifications of its partners who are prevented by any law 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. It further specifies that in case the professionally qualified partners of the Registered Firm are engaged in the making or giving of commercial advice in respect of contracts, the super tax shall be charged on the total income of the registered firm even if the partners are prevented from forming into a corporate body. We are therefore of the view 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 of the professional association to constitute themselves into a corporate body, which should be registered as a company.

10. Lastly the learned counsel has relied upon the definition of "Architect" to argue that registration of the assessee as an Architect Council of Architects and Town Planners is mandatory, hence the assessee is debarred to constitute them into a Corporate Body with a limited liability, which can be registered as a company under Companies Act, 1913. However, perusal of the provision referred by the learned A.R. for the assessee shows that it is in no manner helpful to the assessee and there is nothing to debar or prevent the assessee to constitute them into a Corporate Body with a limited liability, which can be registered as a company under Companies Act, 1913.

11. It is worth-mentioning that in preceding years, the relief has been allowed to the assessee. However, we do not find any reason in the argument that assessee possess a history created in assessee's 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 should not debar, restrict or curtail the powers, of 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 if created by violating clear provisions of law having no ambiguity, is to be, discarded.

12. Appeal accordingly allowed and in consequence thereof the order of the learned CIT(A) is vacated consequently order of DCIT stands restored.

C.M.A./505/Tax (Trib.)Appeal allowed.