COMMISSIONER OF INCOME TAX VS SYED BHAI (PVT.) LTD., 2006 PTD-LAHORE-HIGH-COURT-LAHORE 2119 (2005)

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

----5. 22(c) & Second Sched., Cl. (65)---Receipt of cash reward earned by assessee on account of excellence in export---Taxability---To maintain excellence in manufacturing or other business activity though possible, but its recognition or approval by Government or private agency in future could never be certain---Such kind of receipts could not be anticipated with reasonable certainty, thus, same could not be taken to be recurring or a regular receipts---Such receipts though relatable to business undertaken by assessee, but same could not be said to have arisen from business or exercise of profession by assessee---Such receipts were casual and non-recurring, thus, were not taxable.

Ramanathan Chettiar v. CIT (1967) 63 ITR 458;. Malick (B) v. CIT (1986) 67 ITR 616 ; Messrs Mohd. Abbobacker Saheb v. Commissioner of Wealth Tax 2001 PTD 831; Punjab Small Industries Corporation, Lahore v. Commissioner of Income Tax Commpanies Zone, Lahore 2001 PTD 2282; Commissioner of Income Tax, Zone `B', Karachi v. Messrs Sandoz (Pak.) Ltd. 1989 PTD 607 and The Commissioner of Income Tax v. Messrs Smith Kline and French of Pakistan Ltd. and others 1991 PTD 999 rel.

(b) Income-tax---

----Receipt---Taxability and exemption from tax---Burden of proof---Burden to prove a receipt falling within taxing provision would lie on revenue---In case of a receipt evidently in nature of income, burden would lie on assessee to prove that it -was not taxable for falling within exemptions provided by law.

Muhammad Ilyas Khan for Appellant.

Ms. Saima Amin Khawaja for Respondent.

Date of hearing: 17th November, 2005.

JUDGMENT

NASIM SIKANDAR, J.---The respondent, a private limited company engaged in manufacture and sale of electric meters, returned net loss for the year 1989-90 at Rs.6,48,801. Instead an assessment was framed on 5-5-1990 at taxable income at Rs.30,11,137. In the process the Assessing Officer disallowed claimed exemption in respect of an amount of Rs.l million received by the respondent/assessee from Government of Pakistan as "highest Engineering Goods Export" award for the exports made during the year 1987-88. The claim was based upon clause 65 of the Second Schedule to the Income Tax Ordinance which at the relevant time read as under:--

"Casual receipts"

"(65) Any receipts (not being receipts chargeable under the head "Income from business or profession" or "Capital gains" or by way of addition to the remuneration of an employee) which are of a casual and non-recurring nature."

2. The Assessing Officer however, disagreed. According to him to export award receipt being directly connected and related to the business of the assessee was liable to tax as income from business or profession under sub-clause (c) of section 22 (Income from business or profession) which at that time read as under:

"(c) value of any benefit or pre-requisite, whether convertible into money or not, arising from business or the exercise of a profession."

3. The respondent/assessee failed in first appeal. Commissioner of Income Tax (Appeals) Zone-II, Lahore on 14-12-1991 observed that the receipt being incidental to the appellant's business was not covered by the above-stated exemption clause.

4. The assessee-respondent, however, succeeded before the Income Tax Appellate Tribunal, Lahore, a Division Bench whereof disapproved the findings of both the Assessing Officer as well as the CIT(Appeals). They agreed that at the relevant time the exemption clause (65) of the Second Schedule did not have any restriction and that the upper limit of casual receipts contemplated in the exemption clause at Rs.25,000 was added subsequent to the year in which the income was earned. Secondly, that provisions of subsection (c) of section 22 (Income from business or profession) did not cover a cash award.

5. According to the revenue the judgment of the Tribunal gives rise to the following questions of law:

(i) "Whether on the facts and circumstances of the case learned Income Tax Appellate Tribunal was justified to hold that the receipt of cash reward, on account of excellence in export, is not taxable under section 22(c) of Income Tax Ordinance, 1979."

(ii) "Whether on the facts and circumstances of the case learned Income Tax Appellate Tribunal was justified to hold that cash reward earned on account of excellence in export is covered under clause 65 of the Income Tax Ordinance, 1979 when such reward is not casual, rather incidental to business and it can also be re-occurring."

6. Learned counsel for the appellant/revenue contends that the provisions of sub-clause (c) of section 22 of the late Ordinance are clearly attracted in the case in hand inasmuch as the export reward was received by the assessee on account of excellence in business. Accordingly, primarily it was the business activity which enabled the assessee/respondent to earn that award. Therefore, it was not only incidental to business but could also be taken to be recurring if the assessee had maintained that excellence in business.

7. Learned counsel for the respondent on the other hand makes reference to dictionary meanings of the word "award" to bring home that it is something given or received in return or recompense for service, merit, hardship etc. Also relies upon a number of judgments to make her point that the amount received in the case in hand being causal and non-recurring was covered by the exemption clause as it existed not only during the year of receipt of income but also at the time of making of the assessment. Two cases from Indian jurisdiction re: Ramanathan Chettiar v. CIT (1967) 63 ITR 458) and re: Malick (B) v. CIT (1968) 67 ITR 616 are relied upon. In the first case re: Ramanthan Chettiar v. CIT (supra) the dictionary meanings of the words "causal and non-recurring" was discussed as ^"something which is subject to or its produced by chance, accidental, fortuitous; coming at uncertain times; not to be calculated on, unsettled stocks". In the second case re: Malick (B.) v. CIT (supra) their Lordships observed that "one test could be laid down in some cases if the receipt was one which was foreseen, known and anticipated". Also refers to re: Messrs Mohd. Abbobacker Saheb v. Commissioner of Wealth Tax (2001 PTD 831) in which the difference between the word reward and award was considered by the Madras High Court. A judgment of this Bench in re: Punjab Small Industries Corporation, Lahore v. Commissioner of Income Tax, Companies Zone, Lahore (2001 PTD 2282) is also relied upon wherein the grant-in-aid by the Government of Punjab to the assessee/Punjab Small Industries Corporation was considered and its taxability was ruled upon. A judgment of the Karachi High Court in re: Commissioner of Income Tax, Zone `B', Karachi v. Messrs Sandoz (Pak.) Ltd. (1989 PTD 607) is also referred wherein promotion allowance received by the local subsidiary of a multi national company was held to be not liable to income tax. A judgment of the Hon'ble Supreme Court of Pakistan in re: The Commissioner of Income Tax v. Messrs Smith, Kline and French of Pakistan Ltd. and others (1991 PTD 999) is also referred wherein their Lordships amongst other considered the meaning of "casual income."

8. After hearing the learned counsel for the parties we are in agreement with the findings of the learned members of the Tribunal that the receipt in question was, without any iota of doubt a causal and non-recurring receipt. The claim of the Revenue that the receipt could be taken to be regular and recurring if the assessee had maintained its excellence in business cannot be accepted on its face value. To maintain excellence in manufacturing or other business activity may very well be possible. However, its recognition or approval and such by a Government or private agency in the future can never be certain. The dictionary meanings of the word "award" as also the authoritative pronouncements referred to and relied upon at the bar support the contention that the receipt of the kind could not be considered to be a regular feature of incomings in all foreseeable times. Since a similar kindof receipt could not be anticipated or foreseen with reasonable certainty, it could not be taken to be recurring or a regular receipt. Legally speaking it is not the happening of actual receipt but the certainty and expected regularity involved which determines its nature for the purpose of levy of tax. The Hon'ble Supreme Court in re: The Commissioner of Income Tax v. Messrs Smith, Kline and French of Pakistan Ltd. and others (supra) held in clear terms that burden of proof of the fact that any receipt by a person was "income" laid on the revenue. In the same judgment their Lordships expressed the view that where payments were voluntary, without consideration and were not traceable to any source which a practical man may regard as real source of his income, would be a casual income and, therefore, exempt under section 4(3)(vii) of the late Income Tax Act, 1922.

9. It is admitted on the part of the Revenue that at the relevant time the exemption clause (65) of the late Income Tax Ordinance was not subject to any limit in terms of the amount of receipt. The maximum limit of Rs.25,000 added to the exemption clause, as rightly pointed out by the Tribunal happened by Finance Act, 1990 which was much later to the year of the receipt. Also it was not part of the statute book on 5-5-1990 when the assessment in question was framed and the claimed exemption was declined. The issue to that extent appears settled.

10. The other issue if the receipt in question was liable to be included under sub-clause (c) of section 22 (income from business or profession) is concerned, again we are of the view that the learned members made correct interpretation of the words "arising from" appearing in the said clause. The grant of an award for excellence was certainly relatable to the business activity being undertaken by theassessee yet it could not be said to have "arisen from" the business or the exercise of profession by the assessee. We are also of the view that in the given facts of the case when admittedly the assessee had donated that amount to a charitable institution the Revenue ought to have considered the issue all the more objectively. It is that if two equally possible interpretations of sub-clause (c) of section 22 were possible then the one in favour of the assessee sought to have been adopted. That principle known as olden rule of interpretation of tax statutes needed to be invoked instead of asking the assessee to pay tax from his own pocket on the money received as award and passed on to a charitable institution. Our reference to the factum of award money having been given in charity does not mean that the concept of accrual of income and its exemption had undergone any change only on that account. The burden lies on the department to, prove that a receipt falls within the taxing provision. However, in case of a receipt which is evidently in nature of income, the burden of proving that it was not taxable because it fell within the exemptions provided by law tests upon the assessee.

11. In the face of the aforesaid discussion and the findings of the learned members of the Tribunal in our view the assessee discharged the burden so placed upon it by law. Our answer to the two questions of law reproduced in para-5, therefore, is in the affirmative.

S.A.K./20/L???????????????????????????????????????????????????????????????????????????? Answer in affirmative.