I.T.A. No. 3932/LB of 2005, decided on 18th April, 2007. VS I.T.A. No. 3932/LB of 2005, decided on 18th April, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2029 (2007)

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

----First Sched., Part-IV, para. 2-B---Companies Ordinance (XLVII of 1984), S.14(3)(d)---Pakistan Council of Architects and Town Planners Ordinance (IX of 1983), S.2(a)---Exemption of supper tax for the firms of architects---Department pleaded that since the Pakistan Council of Architects and Town Planners Ordinance, 1983 did not put an embargo on formation of a limited company, by the Architects, this shall not be covered within the exemption provided under para.2B of Part-IV of the First Schedule of the Income Tax Ordinance, 1979---Validity---Architect in its status and professional duties held the same position as a Chartered Accountant or a lawyer and was barred to form a limited company---Firm formed by such an architect fully qualified within the provisions of para.(2-B) of Part-IV of the First Schedule of the Income Tax Ordinance, 1979---Assessee having enjoyed exemption for a pretty long time under the same language anal circumstances could not now be debarred from the vested right in his favour---Interpretation followed by the department in the past could not be departed by way of introducing a new interpretation in any case---Since limited company could not be registered as an architect though was a legal person there was an obvious prohibition of its incorporation---Finding of the First Appellate Authority was confirmed by the Appellate Tribunal being justified.

2004, PTD (Trib.) 583 and Black's Law Dictionary Seventh Edition ref.

1989 SCMR 353 rel.

(b) Interpretation of statutes---

----The language of law is to be reed in its natural meanings and not to add anything beyond intendments.

(c) Income-tax---

----Exemption---In respect of exemption clause the doubt is resolved in Favour of the department as against the assessee.

(d) Income-tax---

----Exemption---Exemption is a special concession and the same increases the burden of the other taxpayers.

(e) Companies Ordinance (XLVII of 1984)---

----S.14(3)(d)---Obligation to register certain associations, partnerships, etc., as companies---Provisions of S.14(3)(d) of the Companies Ordinance, 1984 indicate in unequivocal terms two professions, lawyers and accountants but at the same time it also adds other professions; such was an inclusive definition which was not restricted to the two professions mentioned therein.

Muhammad Aslam Bhatti, D.R. for Appellant.

Tanveer Aslam for Respondent.

ORDER

KHAWAJA FAROOQ SAEED (CHAIRPERSON).---This appeal on behalf of the department is on the basis of following grounds:---

"(1) C.I.T.(A) was not justified in directing to allow exemption under para.2B of Part-IV of First Schedule to Income Tax Ordinance, 1979 to the assessee.

(2) The assessee (AOP), a firm of architects, does not qualify for his exemption because it has failed to establish that it is prevented by a law or convention from forming a company.

(3) C.I.T.(A) was not justified to delete the addition of Rs.198,000 made under section 24(ff) under the head `work done' on contract basis' without requiring the assessee to provide evidence that these payments were made by crossed cheque.

(4) SCIT(A) was not justified to delete the addition of Rs.35,000 made under the head `car insurance'. This amount was disallowed because it was attributable to the personal use of car."

So far as the issues on the basis of grounds Nos.3 and 4 are concerned I shall take up the same first. The A.R. has produced before me documentary evidence to prove that the two additions were made ignoring the facts of the case and that the same were not legally and factually admissible expenses. When confronted the D.R. commented that the same should have been produced before the Assessing Officer. The A.R. stated at bar that the documents were produced and are a part of the record. Even otherwise the record supports assessee's contention that the tax wherever required was deducted and that the payments made were mostly by cross cheques. In view of unequivocal position like this obviously interference would be unnecessary.

Coming to the main issue which is in respect of exemption of the super tax for the firms of architects, the departmental view which is quite vehemently supported by the learned D.R. before me is that architects are not entitled to this benefit. The argument in support of the claim is that the section 14 of the Companies Act covers only Advocates and Accountants and those persons who are prohibited to form a limited company by statute. Since the Pakistan Council of Architects and Town Planners Ordinance, 1983 does not put an embargo on formation of a limited company by the Architects, they shall not be covered within the exemption provided under para.2B of Part-IV of the First Schedule of Income Tax Ordinance, 1979. The learned A.R.'s reliance was mostly on the argument that the Architects have always been equated with Accountants and Lawyers being professionals of equal rank, status and responsibilities. The practice since having .been continued right from 1983 and onwards has become a `convention', thus has the force of law. He admitted that the statute of 1983 does not provide for any specific clause restraining the Architects from forming of a company. However, since their assignments are of a kind in which human beings are to utilize their know-how, responsibilities of their well being and to be specific human security is the most important factor therein. Such a responsibility, he added, can only be shouldered by a natural person and not by a legal person. It is for the reason of this obvious state of circumstances that the individuals like Lawyers, Accountants, Doctors and Architects are prohibited to form a limited company. Reverting back to his earlier argument that the practice makes convention and the convention is the major source of law he referred 2004 PTD (Trib.) 583. The judgment states that since the claim of exemption has all along in the past never been denied by the department, the practice has created a vested right in favour of the assessee; hence it cannot now be withdrawn. Further referring Supreme Court of Pakistan in 1989 SCMR 353 he repeated that the interpretation that has consistently been followed by the department which had become a long standing practice, has now the force of law. Such a practice could not lightly be departed. Defining convention he referred Black's Law Dictionary Seventh Edition which explains the same as follows:--

"Convention (1)"

"Convention is a word much used both in Ancient and Modern Law-pleadings, for an Agreement or Covenant. " Thomas Blount, Nomo-lexicon. A Law-Dictionary (1670).

Convention. 1. An agreement or compact, esp. one among nations; a multilateral treaty the Geneva Convention> See TREATY. 2, An assembly or meeting of members belonging to an organization or having a common objective < an ABA convention> 3. A generally accepted rule or practice; usage or custom < the Court dispensed with the convention of having counsel approach the bench>

Conventional adj. 1. Customary; orthodox; traditional conventional motion practice > : 2. Depending on, or arising from, the agreement of the parties, as distinguished from something arising by law conventional subrogation>.

Moving ahead he said that a practice followed for years would obviously make it a binding convention which cannot be ignored now.

The learned D.R. reiterated departmental claim again. Arguing that illegalities cannot create a legal right, he commented that if the department under a misunderstanding of law had been allowing exemption to Architects by presuming that their statute prevented them from creation of a limited company, can always change their stance. The exemption is not a vested right. It can only be allowed if it is specifically provided in law. He, however, admitted that generally the department is still adopting the same practice in respect of other architects with special reference to the case of Messrs Nayyer Ali Dada Associates which again is a registered firm enjoying the said exemption. The order in respect of said parallel case has been provided by learned A. R. as a proof that the practice is still being adopted in the case of other architects. The only exception was in respect of this assessee which has been rejected by the learned C.I.T.(A). He, .therefore, urged maintenance of the order.

So far as the issue of exemption is concerned one is guided by .various principles of interpretation with regard thereto. The golden principle of interpretation is to read the language of law in its natural meanings and not to add anything beyond intendments. The law is very clear and in fact in respect of exemption clause the doubt is resolved in favour of the department as against the assessee. It is for the obvious reason that exemption is a special concession and the same increases the burden of the other taxpayers. The subject has to be very clear and it is he who has to prove that he is covered within the language of the exemption provided by the law.

Before we discuss the status of Article vis-a-vis the provision under discussion it will be proper if the swine are re-produced:---

"[(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 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 persons of advice of a commercial nature in connection with the making of contracts;]"

The above provision speaks of prevention by any law for the time being in force or by convention or rules or regulations of the professional associations to form a company. The above description is very wide in its application. The restriction should be by any law, a rule or even through a convention. One thing is obvious about which there cannot be any cavil. The Architects are as good and as qualified professionals as lawyers or accountants can be. They have always been treated as such and never earlier this objection has been raised either on their being a professional or on their practical working on the basis of their qualifications is concerned. Their membership with their parent body through Pakistan Council of Architects and Town Planners Ordinance, 1983 gives them the same rights and authority which are available to Accountants after being a member of the Institute of Chartered Accountants and Advocates on their enrollment with Bar Council. Their responsibility being in respect of construction makes them of more accountable than some of the like professionals. They are connected with the construction projects the security of which is directly attached with the security of human life, An Auditor deals with the financial i.e. money matters while a lawyer with the legal matters, the importance of which obviously cannot be undermined. However, no one can say that their job can have by leverage of superiority over security of the human life. Thus, the very first qualification regarding exercise of a profession for earning income depending wholly and mainly on the professional qualifications of its partner's stands completely met with. The doubt arises when one goes to the provision of section 14 of the Companies Law which while dealing with this situation speaks as follows:---

14(3)[(d) a partnership formed to carry on practice as lawyers, accountants or' any other profession where practice as a limited liability company is not permitted under the relevant laws or regulations for such practice.]

Above provision does indicate in unequivocal terms two professions, lawyers and accountants but at the same time it also adds other professions. It is an inclusive definition which is not restricted to the two professions mentioned therein. However, since it speaks of the law and rules for the time being in force looking into the language of Pakistan Council of Architects and Town Planners Ordinance, 1983 shall be of relevance. A plain reading of the above Ordinance of the Council makes it clear that it can only register an individual, a natural person and that a limited company cannot get a registration under the same. The Architect is defined in section 2(a) which speaks as follows:---

(a) "architect" means a person who holds any of the architectural qualifications specified in the First Schedule or the Second Schedule and is registered as vi architect with the Council.

Above definition obviously cannot apply on a limited company. A company cannot hold the architectural qualification. By implication, therefore, this would mean that Architects also cannot be registered as a limited company under the Companies Ordinance. The conclusion, therefore, is obvious. Since a limited company cannot be an Architect it automatically creates an embargo on its registration as a Company. Forming of a registered fine by the individual architects, however, does not have any prohibition for the obvious reason that the registered firm or for that matter an unregistered firm does not have any legal status. It is not a legal person and it acquires its recognition by virtue of the professional qualifications of its members. Specific mentioning in the law, therefore, also is not otherwise required. When by the operation of law it is only an individual who can be an architect and if he enters into a partnership on the basis of his professional qualifications, where again the others, shall also have similar or matching degrees for becoming responsible for individual actions, the Firm stands covered within the provision that provides for exemption.

Thee out-come of the discussion, therefore, is obvious. An architect in its status and professional duties hold the same position as of a Chartered Accountant or a lawyer; hence is barred to forma limited company. Consequently, the firm formed by such an architect fully qualifies within the provisions of para. (213) of the Part-IV of the First Schedule.

The case also merits acceptance on the argument of learned A.R. that the assessee having enjoyed exemption for a pretty long time under the same, language and circumstances cannot now be debarred from the vested right created in his favour. The judgment of the Supreme Court referred by him in terms of 1989 SCMR 353 will also apply on the circumstances of this case. The department has followed the interpretation of clause 2-H Part-IV of the First Schedule in favour of the registered firms formed by architects for decades. The language of the above provision as well as section 14 of the Companies Ordinance as well as of the Companies Act (Repealed) 1913 also was the same. No change has been made in the language of law of the council or architects. The interpretation Followed by the department in the past therefore cannot be departed by way of introducing a new interpretation iii any case. However, since we have also noted that a Limited Company cannot be registered as an architect though is a legal person there is an obvious prohibition of its incorporation. 'The order of the C.I.T., therefore, needs support for the reason of this argument as well.

The findings of the C.I.T.(A), therefore, are fully justified and the same are hereby confirmed.

C.M.A./73/Tax(Trib.)Appeal rejected.