Messrs PROSPERITY WEAVING MILLS LTD. through Director VS FEDERATION OF PAKISTAN through Secretary, Finance Division, Islamabad
2006 P T D 402
[Lahore High Court]
Before Nasim Siknadar, J
Messrs PROSPERITY WEAVING MILLS LTD. through Director
Versus
FEDERATION OF PAKISTAN through Secretary, Finance Division, Islamabad
Writ Petitions Nos. 1803, 5511, 5486, 6483 and 4993 of 2004, heard on /01/.
th
September, 2005. Income Tax Ordinance (XXXI of 1979)---
----Second Schedule, Part-I, Cl. 77-C [as amended vide S.R.O.1135(I)/91, dated 7-11-1991 & S.R.O. 1012(I)/99, dated 3-9-1999], C1.77-C(a) [as inserted by S.R.O. 1343(I)/99, dated 16-12-1999] & C1.78-E---Income Tax Ordinance (XLIX of 2001), Ss.151, 159 & 239 (14) [as amended by Finance Act (I of 2003)] & Second Sched. Part-I, C1.(83)---S.R.O. No.100(I)/93, dated 2-2-1993---Profit/interest accrued on National Saving Schemes---Investment made in such Schemes on or before 1st July, 2001---Deduction of income tax from such profit/ interest---Validity---Such profit would 'enjoy continuous exemption from levy of income tax under Income Tax Ordinance, 1979 and Income Tax Ordinance, 2001---Such exemption would be available in case of "Mahana Amdani Account", where monthly instalment does not exceed Rs. 1000---Any person paying such profit/interest would not be obliged to deduct tax at source nor recipient thereof would be required to produce exemption certificate under S. 159 of Income Tax Ordinance, 2001---Principles.
Siraj-ud-Din Khalid, Dr. Ikram-ul-Haq, Ch. Ishtiaq Ahmed and Qamar Riaz Hussain Basra for Petitioners.
Dr. Danishwar Malik, D.A.-G., Tariq Shamim, Standing Counsel and Muhammad Ilyas Khan for Respondent.
Date of hearing: 26th September, 2005.
JUDGMENT
NASIM SIKANDAR, J.---By this judgment I intend to dispose of Constitutional Petitions Nos. 1803, 5511, 5486, 6483 and 4993 of 2004.
2. The petitioners have invested in various schemes of the National Savings Organization. They are aggrieved of deduction of withholding tax from the profits paid under these schemes at the rate of 10% with reference to rule 9 of Finance Division Notification S.R.O. 100(I)/93 dated 2nd February, 1993. It appears that earlier some of them approached the Organization against the said deduction without any success.
3. According to the petitioners the profit/interest accrued on National Savings Schemes has all along been exempt from levy of income tax. Therefore, the Organization could not deduct withholding tax with reference to the aforesaid S.R.O. which is patently against the' statutory exemptions granted to these schemes. Learned counsel for the petitioners while tracing the history of exemption from levy of income tax on the yield of National Savings Schemes and Certificates states that on the enforcement of Income Tax Ordinance, 1979 the exemption was granted to the profits earned on these schemes under Clause (77-C) of Part-I of the Second Schedule to the late Ordinance. It is stated that clause (77-C) was substituted on 7-11-1991 vide Notification No. S.R.O. 1135(I)/91 restricting the exemption of profit receipt on the reinvestment of Khaas Deposit Certificates made on or after 10th day of November, 1991. Clause (72) was further amended by Finance Act, 1995 adding another proviso excluding Bearer Certificates purchased on or after 15th June, 1995. That clause was amended altogether on 3-9-1999 through S.R.O. 1012(I)/99. However, the exemption from levy of income tax continued under a new clause namely 77-C(A) inserted in Part-I, Second Schedule to the late Ordinance by way of S.R.O. 1343(1)/99 dated 16-12-1999 w.e.f. 3-9-1999. At the time of enforcement of Income Tax Ordinance 2001 on 1-7-2002 sub-clause (14) of section 239 provided for continuation of exemption in the following words:
"(14) Clause (77-C) of Part I of the First Schedule of the repeated Ordinance shall continue to apply to the yield on National Savings Deposit Certificates issued before 1st July, 2001, and a person paying yield on such a Certificate shall not deduct tax under section 151 from the payment, and the holder of such Certificate shall not be required to acquire an exemption certificate under section 159 to given effect to the said exemption."
Subsequently by way of Finance Act, 2003 sub-clause (14) of section 239 was re-modeled as under:--
"(14) Any yield from National Savings Schemes of Directorate of National Savings where investment was made on or before 30th June, 2001 and any income derived from Mahana Amdani Account where monthly instalment does not exceed one thousand rupees shall continue to remain exempt and any person paying such yield or income shall not deduct tax under section 151 therefrom and the recipient of such yield or income shall not be required to produce an exemption certificate under section 159 in support of the said exemption."
4. In Constitutional Petition No.5511 of 2004 the petitioner claims exemption from levy of income tax on investment made through conversion of foreign remittance by referring to clause (78-E) of the Second Schedule to the late Income Tax Ordinance, 1979. It is claimed that the exemption allowed under clause (78-E) has continued through clause 83 of the Second Schedule to the Income Tax Ordinance, 2001.
5. Learned counsel appearing for the Revenue as well as the National Savings Organization, however, support the deduction of 10% withholding tax, which according to them the Organization is obliged under law to collect as an agent of the Revenue.
6. After hearing the learned counsel for the parties I am of the view that the deduction of withholding tax on the profits earned by the petitioners on various National Savings Schemes by reference to rule 9 of the aforesaid notification is not justified on the face of it. A collective reading of the exemption clauses as contained in the late Income Tax Ordinance, 1979 as well as the Ordinance 2001 as amended by Finance Act, 2003 supports the case of the petitioners. A yield from National Savings Schemes of respondents/Directorate of National Savings enjoys exemption where investment was made on or before 30th June, 2001. In case of Mahana Amdani Account the exemption as accordingly available where monthly instalment does not exceed one thousand rupees. In terms of section 151 of the Income Tax Ordinance, 2001 any person paying such profit or interest is not obliged to deduct tax at source nor the recipients of such yield or income is required to produce the exemption certificate under section 159 of that Ordinance. The exemption clauses contained in the Second Schedule to the late Income Tax Ordinance, 1979 as also the similar clauses in the schedule to the Income Tax Ordinance, 2001 make it clear that a continuous exemption from levy of income tax is available to the recipients of the profit/interest/income to various schemes of the National Savings Organization. In case of Mahana Amdani Account, however, the latest provisions of sub?section.(14) of section 239 provide for a rider in the form of restriction of exemption where monthly instalment does not exceed one thousand rupees.
7. The respondents, National Savings Organization as well the Revenue have not been able to bring home that the petitioners are not entitled to exemption from levy of income tax or that they are required to produce any exemption certificate. It is also not disputed that all of them have made investments in the various schemes on or before 30th June, 2001. Also in the same way since the petitioner in Constitutional Petition No.5511 of 2004 enjoys exemption from levy of income tax, no withholding tax from the profits distributed to him can legally be made by the Organization.
8. Therefore, the National Saving Organization as a collecting agent of the Revenue cannot withhold any tax on the profits distributed with reference to the aforesaid rule which cannot take away the concession given by law i.e. the aforesaid provisions of the Income Tax Ordinance, 1979 as well as 2001. Accordingly, all amounts deducted as withholding tax from the accounts of the petitioners as investors shall, at their option either be repaid in cash or wherever the concerned scheme so permits be considered to have been a part of the re-investment made by the depositors/petitioners. The petitioner in Writ Petition No.5511 of 2004 shall also be entitled to same relief.
9. Petitions allowed.
S.A.K./P-93/L???????????????????????????????????????????????????????????????????????????????????? Petition accepted.