I.T.As. Nos. 4316/LB to 4319/LB, 5957/LB, 5958/LB of 2004, 513/KB to 518/KB of 2003, decided on 19th July, 2005. VS I.T.As. Nos. 4316/LB to 4319/LB, 5957/LB, 5958/LB of 2004, 513/KB to 518/KB of 2003, decided on 19th July, 2005.

2007 P T D (Trib.) 676

[Income-tax Appellate Tribunal Pakistan]

Before Khawaja Farooq Saeed, Chairperson, Khalid Waheed Ahmed, Judicial Member and Shaheen Iqbal, Accountant Member

I.T.As. Nos. 4316/LB to 4319/LB, 5957/LB, 5958/LB of 2004, 513/KB to 518/KB of 2003, decided on 19/07/2005.

Per Khalid Waheed Ahmed, Judicial Member

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

---Ss. 65 & 56---Additional assessment---Where the assessment stood completed for the previous year a notice under S.65 of the Income Tax Ordinance, 1979 could be issued in case of escaped assessment or underassessment of income---When no assessment had been framed or deemed to have been framed in respect of any current or previous assessment year, notice under S.56 of the Income Tax Ordinance, 1979 was required to be issued to initiate assessment proceedings---No assessments were previously framed in the present case---Assessments framed for the year under consideration on the basis of notices issued under S.65 of the Income Tax Ordinance, 1979 were not maintainable in law---Assessment proceedings carried out by the Assessing Officer for the years without first acquiring the jurisdiction to initiate such proceedings through issuance of notice calling for the returns under the relevant provisions of law were void ab initio.

2001 PTD 1998 rel.

(b) Constitution of Pakistan, 1973---

----Arts. 165 & 165A---Power of Majlis-e-Shoora (Parliament) to impose taxes on the income of certain corporations etc.---Taxation or exemption---Manners of.

Chairman District Council Rahim Yar Khan v. U.B.L. Rahim Yar Khan 1989 CLC 1397 rel.

(c) Constitution of Pakistan, 1973---

----Arts. 165 & 165A---Power of Majlis-e-Shoora (Parliament) to impose taxes on the income of certain Corporations etc.---Provincial Employees Social Security Institution---Income of---Exemption---Exemption under Article 165 of the Constitution from the Federal Taxation was not available in respect of the income of Provincial Employees Social Security Institution even if it was working under the management and control of the respective Provincial Government because of its falling under Article 165A of the Constitution.

Chairman District Council Rahim Yar Khan v. U.B.L. Rahim Yar Khan 1989 CLC 1397 distinguished.

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

----Ss. 9, 11, 15, 2(14), 2(16)(b), 2(24), 62 & Second Sched., Cls. (56), (93) & (94)---Constitution of Pakistan (1973), Arts. 165 & 165A---Provincial Employees Social Security Ordinance, (X of 1965), Ss.3(2), 4, 20, 23, 59, 75, 80(1)---Employees Old-age Benefits Act, (XIV of 1976)---C.B.R. Letter C. No.14(2) WT/91-Pt, dated 25-4-1992---C.B.R. Circular No.11 of 1993, dated 11-7-1992---Charge of income tax---Provincial Employees Social Security Institution---Income from statutory contribution---Taxability--[Minority view].

Writ Petition No.10227 of 2002; Sessi v. Pakistan National Produce Co. Ltd. 1989 PLC 8; (1993) 67 Tax 400; Adamjuee Cotton Mills, Karachi v. SESSI 1974 PLC 213; Pattoki Sugar Mills and others dated 1-10-2001 in C.As. Nos.1558 to 1574 of 2000; 1995 PTD 431; (2001) 83 Tax (sic) 2001 PTD 1998; 1995 PTD 1100 (Trib.); 1990 PTD 389 (Trib); 1990 PTD 889; C.B.R. v. SITE Ltd. 53 Tax 47; Chairman District Council Rahim Yar Khan v. U.B.L. Rahim Yar Khan 1989 CLC 1397; 52 Tax 1; Blacks Law Dictionary; 64 Tax 163; 83 Tax 105; (2000) 81 Tax 78; (1998) 78 Tax 56 (S.C. India); 1983 PTD 1390 (S.C. India) and 37 Tax 211 (S.C. India) ref.

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

----Ss. 9, 11, 15, 2(14), 2(16)(b), 2(24), 62 & Second Sched.---Constitution of Pakistan (1973), Arts. 165 & 165A---Charge of income- tax---Employees Social Security Institution----Profit earned on investments---Taxability of---Income of Employees Social Security Institution from the profit earned on investments made by it could be subjected to tax as income of the Institution if otherwise not specifically exempted under the provisions of Second Schedule of the Income Tax Ordinance, 1979---Employees Social Security Institution being a body corporate under the control of Provincial Government was covered under Article 165 of the Constitution and was no more available to such bodies or institutions etc. after the addition of Article 165A to the Constitution---Profit earned on the investments being an activity carried on by the institution to earn such income was different from the amounts received by it on account of statutory contribution made by the employees towards Social Security Fund.

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

----Second Sched., Cl. (93)---C.B.R. Letter C. No.14(2) WT/91-Pt, dated 25-4-1992---Exemption---Employees Social Security Institution---Profit earned on investments in Federal Investment Bonds---Exemption from withholding tax on profit earned from Federal Investment Bonds had already been granted in the case of Punjab Employees Social Security Institution by the Central Board of Revenue---Claim of exemption of income earned from investments in Federal Securities under C1.(93) of Part-I of the Second Schedule of the Income Tax Ordinance, 1979 was remanded by the Tribunal to the Assessing Officer for verification of the facts and directed that exemption be allowed if the profits earned fell under the category of income mentioned in the said clause---Same issue in the case of Sindh Employees Social Security Institution in case of another province was also remanded with the same directions as given in the case of Punjab Employees Social Security Institution i.e. that exemption under this clause should be allowed after verification of facts relating to income earned from this source.

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

----S.9---Charge of income-tax---Employees' Social Security Institution---Income from statutory contribution---Profit earned on investments---Taxability of---Initiation of assessment proceedings through issuance of notice under S.65 of the Income Tax Ordinance, 1979---Summary of findings---[Minority view].

Per Shaheen Iqbal, Accountant Member

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

----Second Sched. & S.9---Exemption---Receipts---All the receipts of a person are chargeable to tax unless these receipts are exempted from the charge of tax either as per specific exemption made available under provisions of the Second Schedule to the Income Tax Ordinance, 1979 or specifically exempted from tax under the Act or the Ordinance through which an institution is created by the legislature.

Per Sahaeen Iqbal Accountant Member; Khawaja Farooq Saeed, Chairperson agreeing

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

----Ss. 9, 11, 15, 2(14), 2(16)(b), 2(24), 62 & Second Sched. Cl. (56), (93) & (94)---Constitution of Pakistan (1973), Art. 165 & 165A---Provincial Employees' Social Security Ordinance, (X of 1965), Ss.3(2), 4, 20, 23, 59, 75 & 80(1)---Employees' Old age Benefits Act (XIV of 1976)---C.B.R. Letter C. No.14(2) WT/91-Pt, dated 25-4-1992---C.B.R. Circular No.11 of 1993, dated 11-7-1992---Charge of income-tax---Punjab/Sindh Employees Social Security Institution---Income from statutory contribution---Taxability of---Validity---Neither an exemption from tax had been granted to Employees Social Security Institution in the related Act/Ordinance of the government through which it was created .nor its income stood exempted from tax under any provision of the Second Schedule to the Income Tax Ordinance, 1979---Statutory contribution received by the Social Security Institution for the employers were taxable in the hands of Institutions---Income of Punjab Employees Social Security Institution arising from the contributions, received by it was chargeable to tax---Chairman totally agreed with the Accountant Member that the contribution received by Sindh Employees of Social Security Institution and Punjab Employees Social Security Institution were chargeable to tax as income.

1995 PTD 493; 84 Tax 139; 31 Tax 23 (Trib.); (1940) 8 ITR 187 and 56 ITR 131 S.C. ref.

Per Khawaja Farooq Saeed; Chairperson

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

----S.9---Charge of income tax---Punjab/Sindh Employees Social Security Institution---Income from statutory contribution---Taxability---Method of---Amounts, which had been charged to tax, had been taken from the balance sheet in total disregard to the fact that once the receipt was to be charged as income it had to be after allowance of proper expenditure allowable under law---Once the Organizations were to be assessed to tax, the assessment should have been made adopting the correct methods/rules and admissible allowances---Institutions may not have provided necessary information with regard thereto for the reason of their understanding that they were not taxable being a limb of government---Equal duty was cast upon the Assessing Officer as well for determining the correct income liable to charge---Case for the purpose was set aside for de novo consideration by the Appellate Tribunal with the direction that Assessing Officer shall, after issuance of proper notices, call for the necessary record based upon annual statement of accounts and shall make the assessment giving all the benefits in terms of expenses under S.23 of the Income Tax Ordinance, 1979 including depreciation on fixed assets as well as movable assets---Assessment should not be of any problem for the concerned authorities as well as the taxpayers as this was not a case of a street business house---Concept of inadmissibility of un-verifiability of expenses or estimated add-backs would definitely not arise---Assessment should have been made under strict compliance of law and rules and appreciating the fact that the entire expenses were verifiable and subject to internal and external audit---Assessments were set aside for the purpose of determination of income only.

Haroon Mirza, Rana Hammad Aslam and Zia Haider Rizvi for Appellant (in I.T.As. Nos.4316/LB to 4319/LB, 5957/LB and 5958/LB of 2004).

Muhammad Ali Shah, D.R. and Shahid Jamil Khan, L.A. for Respondent (in I.T.As. Nos.4316/LB to 4319/L13, 5957/LB and 5958/LB of 2004).

Muhammad Ali Shah, D.R. and Jawaid Farooqi, L.A. for Appellants (in LT.As. Nos. 513/KB to 518/KB of 2003).

Khalid Majid, F.C.A., Kaleem Ashraf, A.C.A. and Sardar Rahat Azeem, A.C.M.A. for Respondents (in I.T.As. Nos. 513/KB to 518/KB of 2003).

ORDER

KHALID WAHEED AHMED (JUDICIAL MEMBER).---The orders, dated 30-6-2004 pertaining to assessment years 1996-97, 1997-98, 1998-99 and 1999-2000 and dated 13-9-2004 pertaining to assessment years 2000-2001 and 2001-2002 of CIT(A), Zone-II, Lahore have been assailed through the second appeals of the Punjab Employees Social Security Institution, Lahore on the following common grounds for all the years under consideration:--

(i) That the assessment order framed under section 62 by the Assessing Officer is bad in law and the relief awarded by the learned CIT(A) is not in accordance with law and facts of the case.

(ii) That the Assessing Officer and the CIT(A) have erred in law in not treating the appellant as government owned Welfare Institution and allowing exemption from tax accordingly.

(iii) That the appellant is a charitable Institution hence the Assessing Officer has erred in law in holding that it is not a charitable institution and action of upholding the same by the CIT(A) is unjustified.

(iv) That the Assessing Officer has erred in law in not allowing the exemption on profit under clause (93) and on contributions under clause (94) of the Part I to the Second Schedule of the Income Tax Ordinance, 1979 to the appellant and action of upholding the same by the CIT(A) is not in accordance with law.

(v) That the Assessing Officer has erred in law in not allowing the exemption to the Appellant on profit on investment under clause (93) of the Part I to the Second Schedule and action of upholding the said treatment by the CIT(A) is unjustified and not in accordance with the provisions of law.

(vi) That the Assessing Officer has erred in law in not allowing the exemption on profit on investment under clauses 77C, 77D and 77E of the Part II to the Second Schedule and action of setting aside the said treatment by the CIT(A) is unlawful and unjustified.

(vii) That the Assessing Officer and the CIT(A) have erred in law in not following the reported judgments submitted by the appellant.

The following common grounds have also been taken in the appeals of the Punjab Employees Social' Security Institution preferred against the order of CIT(A) pertaining to assessment years 1996-97 to 1999-2000:--

"That the Assessing Officer has erred in law by passing the assessment orders not in line with the directions of Hon'ble Lahore High Court, Lahore in Writ Petition No.10227 of 2002 and the learned CIT(A) was not justified to upheld the same."

Through the grounds of appeals relating to assessment years 2000-200.1 and 2001-2002 following issues have also been raised by the Punjab Employees Social Security Institution:--

(i) That the assessment framed under section 62 of the Income Tax Ordinance, 1979 without issuing the mandatory notice under subsection (1) of section 62 is unlawful.

(ii) That Sindh Social Security Institution has already been declared as non-profit organization in Circular Letter C. No.4(2)WT/91-Pt., dated April 25, 1992 hence the Assessing Officer has erred in law to declare the activity of the Punjab Social Security Institution as business activity liable for taxation and action of upholding the same by the CIT(A) is unlawful and unjustified.

2. In the second case it is the Department which is in appeals against the combined order passed on first appeals of Sindh Employees Social Security Institution relating to assessment years 1995-96, 1996-97, 1997-98, 1998-99, 1999-2000 and 2000-2001 by the CIT(A), Zone-II, Karachi. The following issues have been raised through the common grounds of departmental appeals preferred against the combined order, dated 29-1-2003:--

(i) That the appellant order of the CIT(A) is bad in law and facts of the case.

(ii) That the CIT(A) was not justified to cancel the order passed under section 63 without assigning any cogent reason in spite of the fact that the institution is included in the definition of company, as provided under section 2(16)(b) of the Income Tax Ordinance, 1979 and there is no specific exemption is available to this institution (assessee) in the Second Schedule to the Ordinance.

(iii) That the honourable Lahore High Court vide its order in Writ Petition No.10227 of 2002, dated 11-7-2002 in an identical case of Messrs Punjab Employees Social Security Institution on the point taxability of the institution held as under:--

"Having heard the parties I will allow the objection against the maintainability of the petition for two reasons Firstly, that as rightly pointed by the learned counsel for the respondent revenue the petitioner admittedly does not find mention in any of the clauses of Second Schedule to the Income Tax Ordinance, 1979 which details, kind nature and extent of exemption granted is stately pending before the Federal Government. Mere fact that Ministry of Labour has recommended the grant of concession hardly mean anything as long it is granted. The claim that the petitioner institution is covered by the provisions of Article 165 of the Constitution is also without any basis. The petitioner institution not being a Provincial Government cannot claim the Exemption contemplated in that Article."

(iv) Sindh Employees Social Security Institutions Act, vide section 3, contemplates the status of the organization as that of a corporate body whereas the CIT(A) has accepted the status as local authority which fact has not been mentioned in the grounds of appeal.

(v) The CIT(A) has held that provisions of clauses (93) and (94) are applicable to Sindh Employees Social Security Institutions whereas .this organization is neither trust nor charitable institution but gets fund from compulsory deductions and not donations and its benefits are restricted to the employees in particular not in general. This fact has also not been added to the grounds of appeal.

3. Since the issues involved in the two cases relating to taxability of income of a Provincial Employees Social Security Institution (hereinafter referred to as the institution) and its exemption from chargeability to tax under the provisions of Income Tax Ordinance, 1979 (hereinafter called the Repealed Ordinance) are common the appeals in both the cases are being disposed of through this combined order.

4. Relevant facts of both the cases under consideration are that the West Pakistan Employees Social Security Ordinance, 1965 was promulgated in May, 1965 which extended to the whole of West Pakistan The title of the Ordinance was substituted from the West Pakistan Employees Social Security Ordinance, 1965 to that of "Provincial Employees Social Security Ordinance, 1965 (hereinafter called "the Ordinance, 1965") by virtue of provisional Order No.4 of 1975, dated 1-8-1975 and was wade applicable and extended to the whole of Pakistan and all the provinces have made regulation separately in exercise of power conferred under section 80(1) of the said Ordinance, 1965. All the amendments ate made through Federal Labour Law Amendment) Act published in Gazette of Pakistan. Which are applicable to all the provinces. Section 3 of the Ordinance, 1965 deals with the establishment and incorporation of a Provincial Employees Social Security Institution. Under the provisions of subsection (2) of section 3 it is a body corporate empowered with the functions to acquire, hold and dispose of the movable and immovable property and which can sue and be sued. Subsection (3) of section 3 provides for its own funds to be named as the Employees Social Security Fund (hereinafter referred to as "the Fund") and all the necessary expenditure may be incurred out of this fund. Both the institutions i.e. Punjab Employees Social Security Institution as well as Sindh Employees Social Security Institution have been established under section 3 of the Ordinance, 1965.

5. In the case of Punjab Employees Social Security Institution (hereinafter referred to as `PESSI') proceedings were initiated through issuance of notice under section 56 of the Repealed Ordinance of 1979 for the assessment years 1996-97 to 1999-2000 since in the opinion of the Assessing Officer the appellant institution which was established as a body corporate under section 3(2) of the Ordinance, 1965 being a company in terms of section 2(16)(h) of the Repealed Ordinance, 1979 was under obligation to file returns under section 55 of the said Ordinance in respect of its income. The proposed taxation was objected to be unjustified by the institution although no returns were filed even in response to statutory notices issued under section 56 of the Repealed Ordinance. Assessments for the assessment years 1996-97 to 1999-2000 were however finalized on 14-6-2002 through an ex parse order passed under section 63 of the Repealed Ordinance by the Assessing Officer. The excess of receipts over the expenditure shown by the assessee as per audited account was assessed by the Assessing Officer as taxable, income of the institution. The ex parse orders passed by the Assessing Officer were set aside by the honourable Lahore High Court, Lahore on having been challenged by the assessee through the Writ Petition No.10227 of 2002. The honourable Lahore High Court vide order, dated 11-7-2002 in the above-mentioned writ petition set aside the assessments for the assessment years 1996-97 to 1999-2000 with the directions to the Assessing Officer to rule upon all factual and legal issues raised against taxability of receipts of the petitioner/institution. Returns were filed by the PESSI during the course of assessment proceedings declaring `Nil' taxable income for each of the assessment years 1996-97 to 1999-2000. Returns were also filed for the assessment years 2000-2001 and 2001-2002 in response to statutory notices issued under section 56 of Repealed Ordinance declaring `Nil taxable income for both the years. On the basis of audited account produced by the assessee for the assessment years 1996-97 to 1999-2000 the Assessing Officer finalized the assessment by adopting the excess of income over the expenditure as taxable income of the institution which was charged to tax in the following manner:

Head/Source of income

1996-97

1997-98

1998-99

1999-2000

Social Security Contribution

706635201

728919065

801950827

854891067

Profit on Investment

117378415

163401616

161078519

185959842

Interest on car, scooter Adv.

7,783

13,231

257,136

145,826

House Building Advance

8,055

25,341

1,749

44,140

Special Deposits

895,508

1,844,315

1,710,585

3767680

Other income

1,930,985

5,415,560

2,634,657

3050382

Total of Revenue

826861398

899613680

967633174

1047858946

Less expenditure all sorts

460861693

571623156

678961559

669798971

Excess of income over expend.

365999705

327990524

288671615

378129975

Tax @

36%

33%

33%

Tax levied

131758894

108236873

952616633

124782892

For the assessment years 2000-2001 and 2001-2002, the next income was assessed at Rs.39,38,66,273 and Rs.39,38,48,140 respectively against the receipts shown by the PESSI as per audited accounts which are reproduced as hereunder:--

Head/Source of income

2000-2001

2001-2002

Social Security Contributors

984,980,537

1,027,542,867

Profit on Investments.

71,403,519

289,494,406

Interests on account

111,224

210,483

Interest on car advances

460,410

441,474

Other income

3,196,269

2,689,542

Total of Revenue

1,060,153,958

1,320,380,771

It was the contended before the first appellate authority that the contributions from employers received by the PESSI being statutory in nature do not fall under the definition of income as provided in subsection (24) of section 2 of the Repealed Ordinance. According to contention of the PESSI put forth before the first appellate authority only the voluntarily made contributions constituted the income. As an alternate plea it was also contended that even otherwise, the exemption under clauses (93) and (94) of Part I of the Second Schedule to the Repealed Ordinance (hereinafter referred to as the Second Schedule) were available to the institution in respect of its income including the profits earned from investments made in Federal Government securities on the ground that the "purpose" of the institution was "charitable". The CIT(A), Zone-II, Lahore confirmed the action of the Assessing Officer and upheld the viewpoint of the Assessing Officer whereby the claim of exemption was rejected for the reason that neither the object for carrying out of which the institution was established falls under the definition of "charitable purposes" nor the receipts of institution comprising from the contributions made by the employers (hereinafter referred to as the contributions) falls outside the scope of income taxable under the provisions of Repealed Ordinance, 1979. The plea of the assessee claiming exemption on account of cover available to the institution under Article 165 of the Constitution of Islamic Republic of Pakistan, 1973 (hereinafter called the Constitution) was also rejected by the CIT(A), Zone-II, Lahore with the observation that institution created as body corporate was to be treated as a company in terms of the provisions of clause (b) of subsection (16) of section 2 of the Repealed Ordinance. With regard to chargeability of income from profit on investments, the issue was remanded back to the Assessing Officer with the direction that the claim of partial or full exemption in this regard should be examined by the Assessing Officer afresh after affording the appellant further opportunity of being heard in this regard. Both the orders of the CIT(A), dated 30-6-2004 pertaining to assessment years 1996-97 to 1999-2000 and dated 13-9-2004 for the assessment years 2000-2001 and 2001-2002 have been assailed by the appellant/PESSI on the grounds as reproduced above.

6. In the case of Sindh Employees Social Security Institution (hereinafter referred to as SESSI) also, no suo motu returns were filed. The assessments proceedings in this case were however initiated by issuing notices under section 65(1) of the Repealed Ordinance for the assessment years 1995-96 to 1999-2000 which were served upon the assessee on 5-5-2001. No returns were filed even in response to notices issued under section 65 for the assessment years 1995-96 to 1999-2000 or to the notice issued under section 56 of the Repealed Ordinance for the assessment year 2000-2001. However in response to statutory notice issued under section 61 of the Repealed Ordinance it was contended by the SESSI before the Assessing Officer through a written letter, that die income of the institution was not chargeable to tax since it was neither a commercial or industrial organization nor its activity to provide benefits to secure workers and their dependents in the event of sickness, maternity, injury, disablement, death and for matter ancillary thereto involve any motive of profit. However, this plea was not accepted by the Assessing Officer who proceed to assess the excess of income over the expenditure, as its taxable income because according to him the institution which has been established as a body corporate under section 3 of the Ordinance, 1965 fall under the definition of company provided in clause (b) of subsection (16) of section 2 of the Repealed Ordinance. The details of income assessed and tax charged thereon are given as hereunder:--

1995-96

1996-97

1997-98

1998-99

1999-2000

2000-2001

Excess of income over expenditure

51015830

15948168

48538694

18729711

34746431

41753750

Tax @

36%

36%

33%

33%

33%

33%

Total tax levied including Additional Tax u/s 88

44662864

12840467

31979366

28245823

17388548

18905484

The assessments framed for the assessment years 1995-96 to 2000-2001 were challenged by the SESSI before the first appellate authority. The CIT(A) Zone-II, Karachi cancelled the assessment for all the years under consideration with the following findings:--

(i) The information that the institution was engaged in collecting funds from employers and providing benefits to the employees or their dependents did not constitute any definite information for issuing notice under section 65 of the Repealed Ordinance.

(ii) The Article 165A of the Constitution of Islamic Republic of Pakistan does not override Article 165 which was an independent Article itself. Secondly, the mention of the word "institution" as appearing in Article 165A relate to those institutions which indulge in profit earning activities, whether they arc independent or under Provincial Government. The activities of the SESSI does not fall into any of the heads of income as defined under section 15 of the Repealed Ordinance. It was held by the CIT(A) that seeking of recourse through Article 165 of the Islamic Republic of Pakistan was therefore not proper.

(iii) The nature of Appellant's business qualify for exemption under clauses (93) and (94) of the Second Schedule to the Repealed Ordinance. The only activity/source of income which could have attracted charge of income tax would have been interest income which was specifically been exempted from tax by the C.B.R. vide Letter No. C. No.4(2) WT/91-Pt, dated April 2, 1992. The DCIT has failed to work out or bifurcate of surplus over the expenditure in detail.

(iv) The taxing of SESSI exclusively was against the principle of equally of citizens (persons) throughout the country vide Article 25 of the Constitution of Islamic Republic of Pakistan.

Cancellation of the assessment framed in the case of SESSI through combined order, dated 29-1-2003 have been assailed by the Department of through the common grounds of appeals for the assessment years 1995-96 to 2000-2001 as reproduced above.

7. Mr. Haroon Mirza, Advocate and Rana Hammad Aslam Advocate, A.Rs. appeared on behalf of the Punjab Employees Social Security Institution and Mr. Khalid Majid, F.C.A. Mr. Kaleem Ashraf, A.C.A. and Sardar Rahat Azeem A.C.M.A. A.Rs. appeared on behalf of the Sindh Employees Social Security Institution while Mr. Muhammad Ali Shah, D.R. Mr, Shahid Jamil Khan, Legal Adviser and Mr. Jawaid Farooqi, Legal Adviser appeared on behalf of the Department in both the cases. .

8. Learned A.Rs. appearing on behalf of PESSI, in their arguments, contended that the CIT(A) was not justified in upholding the assessment framed by the Assessing Officer, whereby the receipts of the institution were held to be in the income chargeable to tax under the Repealed Ordinance, 1979. According to learned A.Rs. of the institution the decision of honourable Lahore High Court, dated 11-7-2002 in Writ Petition No. 10227 of 2002 could not be made the basis for rejecting the appellant's claim of exemption. It was the contention of learned A.Rs. that the operative part of the above referred judgment, whereby the Assessing Officer was directed to rule upon all the factual and legal issues raised against taxability of receipts of the institution supported their above viewpoint. According to learned A.Rs. the Assessing Officer ignored the above directions of Lahore High Court by not looking afresh and ruling upon all the issues involved relating to taxability of the receipts of the institution but instead the said judgment was unjustifiably made the basis for the rejection of the claim of exemption. It was contented by learned ARs that the receipts of a Provincial Employees Social Security Institution on account of statutory contributions made by the employers for the benefit of their employees did not constitute `the income' chargeable to tax under the provisions of Repealed Ordinance'. Learned ARs of both the institutions vehemently contended that the institution had been established solely for the charitable purposes, which was evident from the preamble of the Employees Social Security Ordinance, 1965 (X of 1965). Learned ARs stated that the purpose of the establishment of a Provincial Employees Social Security Institution (hereinafter referred to as "the institution"), was to introduce a scheme of social security for providing medical benefits to certain employees and their dependent in the event of sickness, maternity, injury disablement, death and for matter ancillary thereto. Learned ARs also cited the case of SESSI v. Pakistan National Produce Co. Ltd. reported as 1989 PLC 8 (Kar. H.C.) and submitted that in the said judgment the 'purposes of `the institution', was held to he as welfare of workers by the Karachi High Court. In this context C.B.R.'s Letter C. No.14(2)WT/91-Pt, dated 25-4-1992 also referred by learned ARs of the institution by stating that exemption to SESSI from deduction of tax on interest from the Federal Investment Bonds was granted by the C.B.R. on the ground that the activities of the institution were not profit-oriented and also that it provides for the welfare and social benefit of employees. Learned ARs further submitted that the definition of "charitable purposes" 'provided in the Repealed Ordinance was not an exhaustive one but was an inclusive kind of definition. Learned ARs of the institution also cited the decision of High Court Karachi in the case reported as (1993) 67 Tax 400 (H.C. Kar.) in support of their above contention. In the quoted judgment in the case of Pakistan Seaman Contributory Welfare Fund Karachi v. ITAT and others, it was held by the honourable Karachi High Court that "mere fact that the object for which the petitioner has been contributed is not of public benefit cannot in any manner disentitle the petitioner to claim exemption under section 94 of "the Second Schedule". Learned ARs .of `the institution' further contended that the receipts on account of statutory contribution made by the employers towards the Employees Social Security Fund (hereinafter referred to as the Fund) could also not be treated as taxable income of the institution for the reason that there were not the part of wages or salaries of the employees but were Ex gratia payments. The judgment of the Karachi High Court in the case of Adamjee Cotton Mills, Karachi v. SESSI reported as 1974 PLC 213 was also relied upon by the learned ARs of the PESSI in support of their contention that the payments made by the management through contributions were Ex-gratia payment as having been made as an act of grace, which amounts according to them were different from payments made on account of wages becoming due to workman as a legal obligation. It was also the contention of learned ARs that the receipts of the Institution from `the contribution' did not fall under any of the heads of the income provided in section 15 of the Repealed Ordinance. Learned A.R. further submitted that the word "income" was defined in sub-section (24) of section 2 of the repealed Ordinance as being any income chargeable to tax under the provision of the imported Ordinance. Learned ARs contended that the receipt on account of statutory contributions made by the employers towards the Social Security Fund did not fall under any of the heads of income as defined in section 15 including the income from business or profession, therefore, the same were not chargeable to tax under the Repealed Ordinance. With regard to taxability of profit on investments it was the contention of learned A.Rs. of the institution that CIT(A) was not justified to set aside the assessment on this issue. According to learned ARs the income derived from investments made in the Securities of Federal Government was exempt under clause (93) of `the Second Schedule', to the Repealed Ordinance because in their opinion the institution was established for a charitable purpose and the receipts from all sources were actually being utilized for the said purpose or finally set apart for the application thereto. It was the contention of learned ARs that the CIT(A) should have declared the profit on investment as exempt from tax instead of remanding back the issue to the Assessing Officer.

9. Another line of argument adopted by learned ARs of PESSI was that even otherwise the income of the institution was not liable to taxation in view of cover available to it, under Article 165 of `the Constitution'. According to learned ARs an Employees Social Security Institution being a part or limb of the Provincial Government (hereinafter called the Government) was exempt from tax. It was the contention of learned ARs that although the institution was created as a statutory body under the law, yet since the ultimate control over its management as well as financial affairs vested with the respective Provincial Government as such it was to be considered as a department of the Government. In this context learned ARs submitted that under the provisions of section 4 of the Ordinance, 1965, the management of the institution was run by a governing body which was functioning under the guidance and instructions of the government. Learned ARs added that under the provisions of section 75 of the Ordinance, 1965 the employees of a Provincial ESSI were to be deemed as Public servants within the meanings of Pakistan Penal Code. Learned ARs contended that the issue with regard to status of the Institution in the light of provisions of Article 165 of the Constitution could easily be resolved in the light of the principle laid down by the honourable Supreme Court of Pakistan in its judgment, dated 1-10-2001 in C.As. Nos.1558 to 1574 of 2000 in case of the Pattoki Sugar Mills and others. However the quoted case is not found to be relevant to the issue under consideration, which in the instant case relates to the claim that the institution is a limb of the government. In the quoted case the dispute was with regard to the application of the rate of Super Tax treating the company as a private limited company or a Public company working under the control of the government. However, it was viewpoint of learned ARs that the ultimate management and control of `the Institution' lying with the respective provincial government a Provincial ESSI was a limb of government as such covered under Article 165 of the Constitution, therefore, its income could not be subjected to any taxation.

10. Learned L.A. Mr. Shahid Jamil Khan appearing on behalf of the department in the case of PESSI, in his arguments, defended the impugned order. Learned L.A. stated that the PESSI established under section 3 of the Ordinance, 1965 as a statutory body was a `company' in terms of the provisions of subsection (16) of section 2 of the Repealed Ordinance. According to learned L.A. the contention as per arguments put forth on behalf of the appellant institution before the CIT(A) as reproduced at pages 22 to 28 of his order, dated 13-9-2004, were rightly, rejected by him after having been duly considered and discussed in detail before the decision of first appeals. Learned L.A. further contended that the issue with regard to the status of the Institution with reference to the Article 165 of the Constitution finally stands settled with the decision of honourable Lahore High Court, dated 11-7-2002 in Writ Petition No.10227 of 2002 filed by PESSI learned L.A. stated that as per para. 3 of the said judgment, dated 11-7-2002 it was held by the honourable High Court that the Institution not being a provincial government could not claim the exemption contemplated in that Article. According to learned L.A. the assessments were set aside by the honourable High Court for fresh decision on factual and legal issues regarding the otherwise taxability of income or exemption available to the institution in respect thereof. Learned L.A. further added that the C.B.R. had already refused the request of the appellant institution for granting exemption from taxability under clause 56 of the Second Schedule, in respect of its income. It was the contention of learned L.A. that judgment of the Supreme Court delivered in the case of PIDC as quoted by learned ARs was not applicable in the case of appellant PESSI.' According to learned L.A. in the quoted case the issue involved related to the status of the PIDC as being that of a Public company or of a Private Limited company which he stated was different from that of the appellant's case, wherein, according to him it related to exemption claimed upon the basis that the institution being a limb of government was exempt from taxation under Article 165 of the Constitution. Learned L.A. contended that the employees of the institution' was deemed to be public servants under the provisions of section 75 of the Ordinance, 1965 for the purpose of Pakistan Penal Code only and further added that the said provisions could not be stretched to cover the other laws as well. In this context the Federal Service Tribunal Ordinance was cited by learned ARs as an example stating that in the said case the employees of certain institution not being any department of Government were also treated as Civil or public servant for the purposes of Civil Servant Act only. Learned L.A. submitted that under Article 165 of the Constitution the Federal or a Provincial government could not tax each other and according to him the Institution was not covered under the said, Article because it was not a department of any Government. Learned L. A. further contended that case of the Institution did not fall under any of the provisions of the Second Schedule to the Repealed Ordinance. According to learned L.A. the issue that whether the institution was a limb of Government already stood decided against the institution by honourable Lahore High Court with its judgment, dated 11-7-2002 in Writ Petition No.10227 of 2002 filed by the appellant/institution. Learned L.A. further contended that in view of the above judgment the claim of the exemption of the appellant institution on the ground of its being a charitable institution falling under clauses 93 and 94 of the Second Schedule was also not tenable. It was also the contention of learned L.A. that the existence of income in its hands of the institution was established by itself from its claim of exemption which according to hint could not be disputed at this stage: Learned L.A. contended that the appellant institution did not fulfill the requirement of a charitable institution as contemplated in clause (94) of the Second Schedule. Learned L.A. further stated that the `charitable purposes' is defined in subsection (14) of section 2 of the Repealed Ordinance as relief of proof, education, medical relief and advancement of any other object of general public utility. According to learned L.A. it was a settled principle of law that an Exemption clause is to be construed strictly and not to be stretched beyond meanings expressed therein. It was also contended by learned L.A. that the benefits under the Ordinance, 1965, are provided to a limited class of secured persons only and are not provided to general public. Learned L.A. added that the Ordinance, 1965 medical and other related facilities are provided to the employees of certain industrial and commercial organizations covered under the Ordinance only. According to learned L.A. the benefit being provided under 'the Ordinance, 1965 only to the qualified persons and not to the whole of the labour class, the purpose being carried by an ESSI was not a charitable one. Learned L.A. contended that an ESSI also did not fulfil other requirements as laid down in clause 94 of the `the Second Schedule' to qualify for exemption as of charitable institution. It was the contention of learned L.A. that voluntary making of the contributions was an important ingredient to qualify for exemption under clause 94 of Second Schedule' which was missing in the present case. According to learned L.A. the mandatory contributions made by the employers to the Employees Social Security Fund were not the contributions voluntarily made which condition was necessary to qualify for exemption under clause 94 supra. Learned L.A. contended that because of the penalties provided under Chapter III of the Ordinance, 1965 in the ease of failure to pay the contributions these could not be considered as voluntarily contributions. Learned LA further submitted that only the medical facilities were provided under the Ordinance, 1965 which did not cover all the requirements of a benefit of general public. It was the contention of learned L.A. that benefits provided only to the secured workers out of the amount contributed by the employers under the statutory provisions of the Ordinance, 1965, did not amount to any charity. It was also contended by learned L.A. that the benefits to secured persons were provided as a right because the remedy under the law against any grievance to such persons was also provided through the establishment of Court under section 59 of the Ordinance, 1965. According to learned L.A. there was no concept of right or Court in the case of charity. Learned L.A. stated that the object of the Employees Social Security Institution may be to provide certain medical benefits to certain specified persons of the workers class but since it was not for the class of workers as a whole, therefore, it could not be called a charitable purpose.

11. Mr. Jawaid Farooqi, learned L.A. appeared on behalf of the Revenue in the case of Sindh Employees Social Security Institution (hereinafter referred to as SEESI). In addition to arguments put forth by the learned LA for PESSI, it was further added by the learned L.A. of SESSI that the CIT(A), Zone-II, Karachi was not justified to cancel the assessments framed by the DCIT for the years under consideration. According to learned L.A., SESSI was a body corporate which was covered by the definition of company provided in sub-clause (b) of subsection (16) of section 2 of the Repealed Ordinance. Learned L.A. contended that SESSI was established under section 3 of the Ordinance, 1965 as a body corporate, therefore, it could not be called a limb government and thus not covered under Article 165 of the Constitution. Learned LA further contended that Article 165A of the Constitution empowered the Majlis-e-Shoora i.e. the Parliament to levy tax on the income of any corporation company or a corporate body established by or under any Federal or a Provincial law. According to learned AR the issue under consideration already stands settled with the decision of Lahore High Court in the case reported as (1995) PTD 431 (H.C. Lah.) whereby PIDC a government controlled corporation was held not to be a limb of government. It was the contention of learned LA that the case of SESSI was on all fours with that of PIDC as referred above. Learned L.A. further contended that even otherwise a Provincial Employees Social Security Institution could not be called a limb of `the government' in view of the manners in which it functions. According to learned L.A. the affairs of the Institution were controlled by a governing body constituted under section 4 of the Ordinance 1965. Learned L.A. further contended that the government body of 12 members was headed by the chairman being "a person who is or has been a Judge of High Court or a senior officer service of Pakistan" in addition to 4 persons to represent the government, 3 persons to represent the employers, 3 persons to represent the secured persons and a medical advisor being its ex officio member. It was the contention of learned L.A. that in view of the formation of the governing body constituted in the above manner which controls the management and other affairs of the Institution, it could not be called a part of the government. According to viewpoint expressed by learned L.A. the institution was not covered under Article 165 of the Constitution. Learned L.A. stated that if for the sake of argument it was presumed, that the income of the institution was exempt under the Second Schedule, even then it was liable in charge of minimum tax under section 80D of the Repealed Ordinance. Learned L.A. contended that the institution being a body corporate formed under the law i.e. Ordinance, 1965 was covered by the definition of company provided in clause (b) of subsection (16) of section 2 of the Repealed Ordinance. In this context the judgment of Lahore High Court reported as (2001) 83 Tax was also referred by learned L.A. in support of his contention. It was the contention of learned L.A. that for determination of the "charitable purpose" for grant of exemption under clauses (93) and (94) of the Second Schedule, a scrutiny of facts was required to be carried out on case to case basis. According to learned L.A. under section 20 of the Ordinance, 1965 it was mandatory upon the employers, as defined therein, to contribute towards the Fund created under the ESSI Ordinance. Learned L.A. contended that the provisions of above mentioned clause (94) of the Second schedule were not attracted in the case of an ESSI because the important ingredient to qualify for exemption under the said clause being the "voluntary contributions" was missing in this case. Learned L.A. contended that the mandatory contributions required to be made under the Ordinance, 1965 which are recoverable under section 23 as arrears of land revenue could not in any case be considered as contributions having been made voluntarily.

Learned ARs Mr. Khalid Majid, FCA, Mr. Kaleem Ashraf, ACA and Sardar Rahat Azeem ACMA defended the appeals of SESSI on the same line of arguments as adopted by the learned ARs in the case of the PESSI'. It was contended by learned ARs of SESSI that CIT(A) was fully justified to cancel the assessments framed by the Assessing Officer for all the years under consideration. Learned ARs appearing-on behalf of SESSI also contended that the proceedings initiated for the assessment years 1995-96 to 1999-2000 on the basis of notices issued under section 65 of the Repealed Ordinance, were without proper assumption of jurisdiction to initiate the proceedings of assessment for these years and thus were void ab initio. According to learned ARs, the assessment framed for these years on the basis of notices issued under section 65 of the Repealed Ordinance were not maintainable in law for the reason of being illegal and void ab initio. To substantiate their above contention learned ARs cited the decision of Lahore High Court reported as (2001) 84 Tax 155 (H.C. Lah) whereby it was held that in case of an assessment year, where no assessment had been framed, a notice under section 56 of the Repealed Ordinance was to be issued for the said year, while notice under section 65 could he issued in the case of an assessment year where the assessment for the said year had already been framed by the Assessing Officer or deemed to have been framed under the provisions of law. Learned ARs also cited the decisions of Tribunal reported as 1995 PTD 1100 (Trib.), 1990 PTD 380 (Trio.) in support of the above contention that the proceedings taken by the ITO in pursuance of an invalid notice were illegal and void in law. Learned ARs further contended that invoking of the provision of section 65 of the Repealed Ordinance in the absence of a definition information, was even otherwise not justified considering the facts of the instant case. Learned ARs also contended that the viewpoint of the Assessing Officer in this regard was merely based on the presumption that the institution and its earning were liable to charge of tax under the Repealed Ordinance which according to him by itself did not amount to a definite information. It was the contention of learned ARs that the interpretations of a provision of law in the manner that a different conclusion from a given set of facts was arrived at, was a case of difference of opinion and such opinion did not amount to definite information. In support of their above view point learned ARs relied upon the case law reported as 1990 PTD 389 (H.C. Sindh) and. 1990 PTD 889 (H.C. Sindh). Learned ARs further contended that the Assessing Officer held a contradictory viewpoint to that of the C.B.R. expressed vide its letter C. No.14(2)WT/91-Pt, dated 25-4-1992, whereby the exemption was granted to the SESSI from deduction of tax, on its interest income earned from Federal Investment Bonds, on the basis that the activities of the institution were not profit oriented and that it provided welfare and social benefits to the employees. In the opinion of learned ARs of SESSI the invoking of provisions of section 65 of the Repealed Ordinance without there being any definite information of concealment was unjustified therefore according to them the assessments framed under section 65 were not maintainable. Learned ARs of SESSI supported the viewpoint of Mr. Haroon Mirza, Advocate and Rana Hammad Aslam Advocate expressed by them while pleading the case of PESSI, that the institution being a limb of government was covered under Article 165 of the Constitution therefore its income was not liable to charge of any tax. In this context the same arguments were repeated as put forth by the learned ARs of PESSI i.e. that an ESSI was established under a law i.e. under section 3 of the Ordinance, 1965, the affairs and management of which were controlled by the governing body appointed by the provincial government and that which body was to function the guidance and instructions of such government and that the said government was also vested with the powers to supersede the decisions of governing body as provided under section 9 of the Ordinance, 1965. Learned ARs stated that the accounts of the ESSI are required to be maintained in the manner as prescribed by `the government' which were also required to be audited by the external auditor appointed by such government under section 32 of the Ordinance, 1965 and further added that the budget of the institution was required to be approved by `the government'. Learned ARs contended that though the SESSI was established as a body corporate under the provisions of subsection (2) of section 3 of the Ordinance, 1965 but because of the control of the government over its functions and management it was a part of the machinery of `the government' of Sindh for all practical purposes. In this context learned ARs cited the decision of honourable Supreme Court of Pakistan in the case of C.B.R, v. SITE Ltd. reported as 53 Tax 47. It was the contention of learned ARs that the SESSI was not liable to taxation by the Federal Government for the reason that its activities, were not profit oriented and that it was functioning like a department of the government irrespective of its having been established as a corporate body under the law. Learned ARs further contended that the case of a Provincial Employees. Social Security Institution fall under Article 165 and not under the Article 165A of the Constitution. According to learned ARs of SESSI Article 165A did not override the Article 165 which was an independent Article and further contended that the two Articles were trot conflicting with each other. Learned ARs of SESSI cited the judgment of Lahore High Court reported as (1989) CLC 1397 in support of their contention stating that it was held by the High Court through the above quoted judgment that professional tax imposed through the act of the Provincial Assembly could not be charged in the case of a nationalized hank because the ownership management and control of such banks vested in the Federal Government w.e.f. 1-1-1974. It was the contention of learned ARs that no specific exemption under the provisions of Second Schedule to the Repealed Ordinance was required in the case of on ESSI which according to them was exempt from taxation on account of availability of the cover under Article 165 of the Constitution. Learned ARs of SESSI also contended that even otherwise the exemption under clauses 93 and 94 of the Second Schedule were also available in the case of an ESSI. It was the contention of learned ARs that as SESSI was a charitable institution providing benefits in the form of free medical care to the workers and their dependents of certain organizations. According to learned ARs the object of a general public utility was not restricted to mean necessarily an object beneficial to the whole of mankind. Relying on the decision of Karachi High Court reported as 52 Tax 1 it was contended by learned ARs that an object beneficial to a section of the public was also an object of general public utility. According to learned ARs of SESSI words "voluntary contributions appearing in the clause (94) supra includes all kinds of donations and subscriptions as clarified by the C.B.R. through Circular No.11 of 1993, dated 11th July, 1992. Learned ARs further submitted that words "subscription" was defined in Blacks Law Dictionary as "to contribute a sum of money for a designated purpose either gratuitously, as in the case of subscribing to a charity, or in consideration of an equivalent to be rendered as a subscription to a periodical a forthcoming book, a series of entertainment or the like". It was contended by the learned ARs that income of every description including receipts from contribution made by Employers as well as profits or gains on investment or interest' income was exempt in the case of an ESSI under the provisions of clauses (93) & (94) of the Second Schedule. In this context learned ARs also quoted the decision of Tribunal reported as 64 Tax 163. Learned ARs stated that it was held by the Tribunal in the said case that investment in shares of the companies bank certificates etc. would not amount to their utilization for purposes other than charitable religious or of general public utility. It was further contended by learned ARs that according to the viewpoint held by the Tribunal in the said case the restriction was not with respect to the investment of the trust fund to venerate income but on the spending or application of the income earned, for which scope and purpose have strict criteria. Learned ARs quoting the decision of the Tribunal reported as 83 Tax 105 also contended that without first establishing that the income generated from bank profits or interest was an income from a venture separate from the main activity of the SESSI, it could not be charged to tax as a separate income from the main income of SESSI i.e. the receipts from the contributions made towards the Fund in the opinion of learned AR s whole of the income of the SESSI including interest income was covered by the exemptions provided under clauses (93) and (94) of the Second Schedule. Learned ARs further contended that doctrine of mutuality was also attracted in the case of an ESSI because the amount of the contributions made by the employers were to be spent towards common purpose being the benefits of their employees. It was the contention of learned ARs that receipt from the such contributions were not the "income from business or profession" as defined in section 22 of the Repealed Ordinance. Learned ARs cited the decision of the Income Tax Appellate Tribunal reported as (2000) 81 Tax 78 and also quoted a case of Indian jurisdiction reported as (1998) 78 Tax 56 (SC) India in support of contention that the receipts of the SESSI falling within the purview of doctrine of mutuality were not chargeable to tax. Relying on the Indian case-law it was contended by the learned ARs that it was not necessary for the concept of mutuality that the contributors the common fund should willingly distribute the surplus among themselves and added that it was enough to meet the requirement of mutual benefit if they gave the right of disposal over the surplus. Another argument of the learned ARs of the SESSI was that the income of a Provincial Employees Social Security Institution was also not liable for taxation in view of the doctrine of overriding title. According to learned ARs budget of the institution was approved by the respective provincial government. It was contended by learned ARs that receipts of an ESSI could only be utilized as per directions of `the government 'which under the legal obligation was required to be spent on the welfare of the employees of 'the institution' Learned AR contended that under the doctrine of overriding title the surplus of an ESSI not being its income could not be charged to tax in its hands which according to them was evident from the fact that these receipts could only be utilized under the directions of the respective provincial government. In this context learned ARs also cited the case-law from the Indian jurisdiction reported as 1983 PTD 1390 (SC India) and 37 Tax 211 (S.C. India) to support their contention that the receipts in the hands of an ESSI being in fact the income of the respective provincial government could not be charged to tax in the hands of "the institution".

13. It may amount to repetition but for the sake of convenience the viewpoints of the two sides are summarized in the following manner. On behalf of both the institutions it was contended:

(i) That irrespective of a Provincial Employees Social Security Institution having been established as a body corporate under section 3 of Employees Social Security Ordinance, 1965 it is a limb of government.

(ii) That in view of above the income of `the Institution' could not be charged to tax because of the same being covered under Article 165 of the Constitution of Pakistan.

(iii) That the receipts on account of "the contribution" made towards `the Fund' established under section 28 of the Ordinance, 1965 do not form the `income' of the institution taxable under the provisions of Repealed Ordinance of 1979.

(iv) Alternatively it is contended that the exemption from levy of income tax is available to an ESSI under clause (93) of "the Second Schedule" in respect of interest income earned from investments made in the securities of Federal Government and under clause (94) in respect of receipts from the contributions made by the Employers towards Social Security Fund for the reason of the institution having been established for the charitable purposes.

(v) It was also pleaded that the income of an Employees Social Security Institution even otherwise could not be charged to tax because the doctrine of mutuality was applicable in the case of "the Institution".

(vi) That the receipts from "the contributions" made towards "the Fund" created under section 28 of the Ordinance, 1965 which could only be utilized with the approval of "the government", is not the income of "the institution" under the doctrine of overriding title.

On the other hand on behalf of the department it was contended:

(i) That as ESSI established as a corporate body under section 3 of the Ordinance, 1965 is covered under the definition of company as provided in clause (b) of subsection (16) of section 2 of the Repealed Ordinance.

(ii) That under the Article 165-A of the Constitution of Pakistan the income of a Provincial ESSI could be charged to tax through an act of Majlis-e-Shoora.

(iii) That the receipts of the Institution from the mandatory contributions of Employers are not the contributions as voluntarily made, therefore, do not qualify for exemption under clause (94) of the Second Schedule.

(iv) That the exemption under clause 93 as well as 94 supra is also not available to a Provincial Employees Social Security Institution because the amount being utilized for the benefits of a specified class of secured persons only and not for the general public, the purpose was not charitable as required to qualify for such exemption.

14. The above discussions give rise to the following issues in both the cases:--

(i) Whether the cover under Article 165 of the Constitution is available in the case of a Provincial ESSI.

(ii) Whether the provisions of Article 165A of the Constitution of Pakistan are attracted in the case of a Provincial Employees Social Security Institution for the purpose of levy of tax on its income.

(iii) Whether the receipts from statutory contributions made by the employers under section 20 of the Ordinance, 1965 towards the Employees Social Security Fund constitute income chargeable to tax in the hands of an Employees Social Security Institution.

(iv) Whether the doctrine of overriding title is applicable in the case of a Provincial ESSI in respect of its receipts from the contributions made by the Employers towards the Employees Social Security Fund.

(v) Whether the object of the Employees Social Security Institution falls under the definition of "charitable purposes" required to qualify for claiming exemption under clauses (93) and (94) of the Second Schedule.

(vi) Whether the exemption under clause (94) of the Second Schedule is available to an Employees Social Security Institution in respect of its receipts on account of statutory contribution made by the employers towards the Employees Social Security Fund created under section 23 of the Ordinance, 1965.

(vii) Whether the profit earned from investment made in Federal Securities by an ESSI is exempt from Income Tax under clause (93) of "the Second Schedule."

(viii) Whether the doctrine of mutuality is applicable in the case of an Employees Social Security Institution.

15. In addition to the common issues as mentioned above the cancellation of the order of the CIT(A), Zone-II, Karachi in the case of SESSI pertaining to assessment years 1995-96 to 1999-2000 was also defended on the ground that the assessments framed on the basis of notices issued under section 65 of the Repealed Ordinance for these years were not legally maintainable. The proceedings of assessment for the assessment years 1995-96 to 1999-2000 were initiated through issuance of notices under section 65 of the Repealed Ordinance, which were served upon the assessee on 5-5-2001 which facts are not disputed by the parties. The issue that whether a notice under section 56 or 65 of the Repealed Ordinance was required to be issued to initiate assessment proceedings in the case of a previous year stands resolved by the Lahore High Court in its judgment in the case reported as (2001) 84 Tax 155 (H.C. Lah.). It has been held by the honourable Lahore High Court through the above-quoted judgment that where the assessment stands completed for the previous year a notice under section 65 could be issued in case of escaped assessment or underassessment of income. Whereas when no assessment has been framed or deemed to have been framed in respect of any current or previous assessment year, in such a case, notice under section 56 is required to be issued to initiate assessment proceedings for the said year. Admittedly no assessments were previously framed for the assessment years 1995-96 to 1999-2000 in case of the institution i.e. SESSI. Under the circumstances the assessments framed for these years on the basis of notices issued under section 65 of the Repealed Ordinance are not maintainable in law. The assessment proceedings carried out by the Assessing Officer for the years, without first acquiring the jurisdiction to initiate such proceedings through issuance of notice calling for the returns under the relevant provisions of law are void ab initio in our considered opinion the assessments framed were rightly cancelled by the CIT(A), Zone-II, Karachi. The order of the CIT(A) to cancel the assessments for the assessment year 1995-96 to 1999-2000 for this reason is therefore maintained.

16. Different interpretation of the judgment of Lahore High Court, dated 11-7-2002 delivered in Writ Petition No. 10227 of 2002 of PESSI were also put forth by the learned representatives of the parties of both sides. Brief facts of the case in the above referred judgment, dated 11-7-2002 of Lahore High Court are that original assessments for the assessment years 1995-96 to 1999-2000 framed through ex parte order passed under section 63 of the Repealed Ordinance were

challenged by the PESSI before the Lahore High Court through the writ petition on the ground that the petitioner institution was covered within the definition of charitable purposes as envisaged in section 2(14) of the Repealed Ordinance and was exempt from income tax. The entitlement of the institution for grant of exemption under clause 56 of Part-I of the Second Schedule to the Repealed Ordinance was also claimed by the PESSI on the ground that the same had already been granted by the C.B.R. in the case of similar institution established under the Employees Oldage Benefits Act, 1976. It was also pleaded on behalf of PESSI before the Lahore High Court that the institution was covered under Article 165 of the Constitution and thus was not liable to pay any tax on its income or receipts. As per viewpoint expressed by learned L.As. on behalf of the Department the issues relating to exemptions under Article 165 of the Constitution as well as under the provisions of Second Schedule to the Repealed Ordinance stood decided in favour of the Department. Para.3 of the said judgment, dated 11-7-2002 of the honourable Lahore High Court relied upon by the learned L.As. in this context is reproduced as hereunder:--

"Having heard the parties I will allow the objection against the maintainability of the petition for two reasons. Firstly that as rightly pointed out by the learned counsel for the respondent-revenue, the petitioner admittedly does not find mention in any of the clauses of Second Schedule to the Income Tax Ordinance, 1979 which details kind nature and extent of exemption granted to different clauses of assessee. The request for grant of exemption is statedly pending before the Federal Government. Mere fact that Ministry of Labour has recommended the grant of concession hardly means anything a long it is not granted. The claim that the petitioner-Institution is covered by the provisions of Article 165 of the Constitution is also without any basis. The petitioner-Institution not being a Provincial Government cannot claim the exemption contemplated in that Article."

On the other hand according to the learned ARs of the two institutions the interpretation put forth by learned LAs was not plausible because according to them if their plea was accepted then the writ petition should have been dismissed by the Lahore High Court instead of remanding back the case to the Assessing Officer for fresh decision on all legal and factual issues. Concluding part i.e. 5 of the said judgment, on which the leaned ARs based their interpretation the issues relating to claims of exemption as- mentioned above were not finally decided by the Lahore High Court, is also reproduced here which is as under:--

"That being so the aforesaid assessment order shall be set at naught. The petitioner-Institution will be served with a notice afresh and the Assessing Officer will rule upon all factual and legal issues raised against taxability of receipts of the petitioner before proceedings any further."

However, we shall first proceed to resolve the issues as specified in para.14 above. The above mentioned controversy with regard to different interpretations of the judgment of the Lahore High Court, dated 11-7-2002 shall be taken up later on, if required.

17. First of all we shall take up the issue relating to claim of the institutions regarding availability of cover under Article 165 of the Constitution by considering an ESSI as a limb of `the Government'. For the sake of convenience, the Article 165 of the Constitution is reproduced as hereunder:-

"165. Exemption of certain public property from taxation.---(1) The Federal Government shall not, in respect of its property or income be liable to taxation under any Act of Provincial. Assembly and, subject to clause (2), a Provincial Government shall not in respect of its property or income, be liable to taxation under Act of (Majlis-e-Shoora (Parliament)) or under Act of the Provincial Assembly of any other Province.

(2) If a trade or business of any kind is carried on by or on behalf of the Government of a province outside that Province that Government may, in respect of any property used in connection with that trade or business, or any income arising from that trade or business be taxed under Act of (Majlis-e-Shoora (Parliament)) or under Act of the Provincial Assembly of the Province in which that trade or business is carried on.

(3) Nothing in this Article shall prevent the imposition of fees for services rendered."

In support of their viewpoint that an "Employees Social Security Institutions despite of its having been established as a body corporate under section 3(2) of the Ordinance, 1965 is a limb of government covered under Article 165 of the Constitution following reasons have been given by learned ARs of both the institutions:---

(i) That the institution is established by the respective government of the Province by issuing notification under section 3 of the Provincial Employees Social Security Ordinance, 1965.

(ii) That the institution provides various medical benefits to certain workers which is primarily a function/obligation of the government as laid down in Article 38(c) of the Constitution.

(iii) That the affairs of the institution are controlled by a Government body which is appointed by the respective Provincial Government under section 5 of the Ordinance, 1965.

(iv) That the overall control of management and financial affairs of the institution vests with "the Government" which may by notification supersede the governing body as empowered under section 9 of the Ordinance, 1965.

(v) That the budget of the institution has to be approved by `the government' as provided in section 31 of the Ordinance.

(vi) That the accounts of `the institution' are to be maintained in the manner prescribed by `the government' which are required to be audited by the external auditors which too are to be appointed by such government under section 32 of the Ordinance, 1965.

(vii) That under section 75 of the Ordinance, 1965 all the employees of `the institution' are public servants within the meanings of Pakistan Penal Code.

On the other hand the case of the department on the above-mentioned issues is pleaded mainly on the following grounds:

(i) That the Provincial Employees Social Institution established as a body corporate under subsection (2) of section 3 of the Ordinance, 1965 is covered by the meanings of company provided in section 2(16) of the Repealed Ordinance.

(ii) That in view of the judgment of honourable High Court in Writ Petition No.10227 of 2002 decided on 11-7-2002 in the case of PESSI an ESSI is not a limb of the respective Government, thus cover under Article 165 of the Constitution is not available to it.

(iii) That Article 165-A is attracted in the case of an ESSI whereby the Parliament is empowered to levy tax on the income of a corporation, company or other body or institution established by or under a Federal or Provincial law.

In support of their contention the judgment of the honourable Supreme Court of Pakistan in the case of C.B.R. v. SITE Ltd. reported as 53 Tax 47 (S.C. Pak) was quoted by learned ARs of the two institutions. It will be relevant to reproduce para 10 of the above referred judgment which is as hereunder:--

"This brings us to the next question whether the respondents Company's income is the income of the Provincial Government. The facts and circumstances in which it came into being (together with the combined reading of' the Sind Resolution of 1947 and its Memorandum and Article of Association) earlier narrated give rise to the following conclusions:

(i) It is the admitted position that the Sindh Industrial Trading Estate Ltd. is a company limited by guarantee and a non-profit making association.

(ii) The company was formed and incorporated under the Sindh Government's Resolution, dated 16th May, 1947.

(iii) The whole of working capital of-the company came from Sindh Government grants, as also the area of land on which the Trading Estate has been developed by this Company.

(iv) The Managing Director as well as the majority of Directors of the Company are nominees of the Provincial Government.

(v) Any resolution of the Board of Directors of the Company is liable to be suspended on a reference to the Provincial Government by the Managing Director or any of the other Ex officio Directors, and, on such reference, the Provincial Government may order that the resolution shall have no effect or that the resolution shall have effect with such modifications as the Provincial Government may approve of.

(vi) Under the memorandum of association of the company, the income and property of the Company is required to be applied solely towards the promotion of the objects of' the Company, and no portion thereof can be paid or transferred directly or indirectly by way of dividend, or bonus or otherwise by way of profits to the members of the Company.

(vii) And upon winding up or dissolution of the Company any' property which remains after satisfaction of debts and liabilities is transferable to the Provincial Government or its nominee only or is to be applied in such manner as the Provincial Government may direct."

The perusal of the above para reveal that so far as facts relating to affairs regarding the management and functions are concerned, there appears to be some similarities between those of the instant case as compared to the case of C.B.R. v. SITE Ltd. mentioned as above. The SITE Ltd. was incorporated under the resolution of Sindh Government and registered under the Companies Act, 1913 which is limited by guarantee whereas a Provincial ESSI is established as a body corporate under the law i.e. under the provisions of ESS Ordinance, 1965. Both are covered under the definition of company provided in subsection (16) of section 2 of the Repealed Ordinance. The purpose in both the cases is to provide benefits to certain classes of persons although its nature is different in the two cases. The SITE Ltd. was created with the object to promote industrial establishment of the Province of Sindh which were to be obtained by providing facilities to industrial and traders. An ESSI is established to provide benefits of medical care etc. to workers of certain industrial and trading organization. The financial and management affairs in the case of SITE Ltd. are controlled by a Board of Directors while in case of an . ESSI these are controlled by the Governing body, the members of which in both the cases are appointed by the respective provincial governments. The overall control over the management and financial affair also lies with the respective provincial government in both the cases. The scope of functions and of the sources of funds in the case of ESSI are rather restricted as compared to those in the case of SITE Ltd. In the case of SITE Ltd. it could charge rent for the facilities provided to the Industrialists and Traders whereas no charges of any kind could be recovered by an ESSI from its beneficiaries. Similarly SITE Ltd., could issue debentures to raise additional capital while an ESSI has no such power to raise such further funds, except to accept the grants, donations and gifts from Government, a local authority or other body. In the case of SITE Ltd. the funds i.e. capital required for carrying on the object of the company was provided by the Government of Sindh whereas in the case of an ESSI the availability of funds to carry on the object of `the institution' has been arranged by the legislature through the provisions of the Ordinance, 1965, whereby it has been made obligatory upon the employers to contribute towards Social Security Fund. In our opinion this arrangement of funds goes to reveal that, these are, in fact, the receipts of the respective provincial government which issue we shall be discussing in the coming paras. We shall like to reproduce here the findings on the issues under consideration as per para. 12 of above referred judgment of the honourable Supreme Court in the case reported as 53 Tax 47 (S.C. Pak) which is as hereunder:

"But as stated earlier the facts found by the High Court and its conclusions on the question raised by learned counsel are unexceptionable. The respondent-Company was carrying on the function of Industrial Development and the trade and business connected therewith for and on behalf of the Government. The truth is that the lifting of veil has revealed that for the relevant purposes in this case it was doing so just like a department of the Government, notwithstanding the incorporation, which was explained earlier will not make any different regarding the relevant constitutional provision on exemption from Federal Taxation"

18. We have taken into consideration the different viewpoints expressed on the issue by learned representatives of both the sides. The ease-law referred by them in support of their contentions as well as the relevant provisions of law have also been perused. We have also gone through the Articles 165 and 165A of the Constitution. In our considered opinion despite similarities in the two cases mentioned as above the judgment, dated 29-8-1984 of honourable Supreme Court of Pakistan delivered in the case of C.B.R. v. SITE Ltd. relied upon by learned ARs is no more applicable to the instant case of the E.S.S. Institutions in view of the addition of Article I65A made subsequently through Constitution (Amendment) Order, 1985 to the Constitution of Pakistan. Through the addition of Article 165-A Majlis-Shoora has been vested with the powers to impose tax on the income of the corporation company or other body or institution established by or under a Federal or Provincial law or a corporation, company or other body are institution owned or controlled directly or indirectly by the Federal or Provincial Government regardless of the ultimate destination of such income. It is important to point out here that the Majlis-e-Shoora was not specifically vested with such powers prior to the addition of Article I65A of the Constitution. The Article I65A is not conflicting with the Article 165 of the Constitution. In our opinion by virus of the clarification made through Article 165A the scope of exemption provided under Article 165 has been narrowed to exclude the income of a corporation company or other body or institution established by or Under a Federal or Provincial law or owned or controlled directly or indirectly by the Federal Government or a Provincial Government irrespective of the ultimate destination of such income. It will be relevant to reproduce here the Article 165 of the Constitution which is as hereunder:

"[165A. Power of Majlis-e-Shoora (Parliament) to impose taxes on the income of certain corporations etc.---(1) For the removal of doubt, it is hereby declared that (Majlis-e-Shoora (Parliament) has and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or other body or institution established by or under a Federal Law or a Provincial Law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly by the Federal Government or a Provincial Government regardless of the ultimate destination of such income.

(2) All orders made proceedings taken and acts done by any authority or person, which were made, taken or done or purported to have been made, taken or done, before the commencement of the Constitution (Amendment) Order, 1985, in exercise of the powers derived from any law referred to in clause (1), or in execution of any orders made by any authority in the exercise of purported exercise or power as aforesaid, shall, notwithstanding any judgment of any Court or Tribunal including the Supreme Court and a High Court be deemed to be and always to .have been validly made, taken or done and shall not be called in question in any Court,' including the Supreme Court and a High Court on any ground whatsoever.

(3) Every judgment or order of ally Court or Tribunal, including the Supreme Court and a High Court which is repugnant to the provisions of clause (1) or clause (2) shall be and shall be deemed always to have been void and of no effect whatsoever."

19. The perusal of Articles 165 and 165A of the Constitution reveal that the Taxation or Exemption as the case may be, in respect of the property or income of the Federal Government or a Provincial Government or income of a corporation, company or other body or institution created by or under the Federal or Provincial law or of a corporation, company or other body or institution owned or controlled by the Federal or a Provincial Government has been provided in the following manner:--

(i) Under Article 165 of the Constitution the property or income of the Federal Government is not liable to taxation under any Act of Provincial Assembly.

(ii) Under Article 165 of the Constitution, the income of any corporation, company or other body or institution working under the control and management of Federal Government is not liable to taxation by an Act of any Provincial Assembly.

(iii) Under Article 165 of the Constitution, the property or income of a Provincial Government is not liable to taxation under any act of Majlis-e-Shoora or the Provincial Assembly of any other province.

(iv) Under Article 165 of the Constitution, income from trade' or business of any kind carried on by or on behalf or a Provincial Government outside its province can be subjected to tax by the Federal Government or the Provincial Assembly or the province in which the said trade or business is carried on.

(v) Under Article 165A of the Constitution tax can be imposed by the Majlis-e-Shoora on the income of a corporation company or other body or institution established by or under any Federal law or a provincial law or owned or controlled by the Federal Government or a Provincial Government.

Our above conclusion also finds support from the decision of Lahore High Court in the case of Chairman District Council Rahim Yar Khan V. UBL Rahim Yar Khan reported as 1989 CLC 1397 (Lahore). The issue raised before the Lahore High Court in the said case arise from the levy of professional tax by the District Council Rahim Yar Khan under the Punjab Local Government Ordinance, 1979. The applicability of Article I65A relating to chargeability of tax by an act of Provincial Assembly on the income of a nationalized bank owned and controled by the Federal Government was decided by the honourable Lahore High Court in the following manner:----

"The Article was added by the Constitutional (Amendment) Order II, 1985. It clearly declared the powers of the Parliament to legislate law for the recovery of tax even from the institutions owned or controlled, either directly or indirectly, by the Federal Government or a Provincial Government Article 165-A has not come in conflict with Article 165 of the Constitution because exemption has been granted from the liability of taxes to the Federal Government when the tax imposed by the Provincial Government. In this manner, the exemption to be contained in Article 165 has safely been extended to the instant case and the learned lower Courts have not committed any illegality or material irregularity in exercise of their jurisdiction.

I, therefore, sec no merit in this revision petition and dismiss the same in line."

The above quoted decision, dated 3-10-1987 of the Lahore High Court i; however not of any help to the cases in hands or the Employees Social Security Institutions so far as the claim of exemption under Article 165 of the Constitution is concerned because the facts of the two cases are distinguishable. The issues in the case under consideration relates to the taxability of the income of a corporation or a body working under the control of a Provincial Government, which case falls under Article 165A. hi the quoted case tax was levied by an Act of Provincial Assembly on the income of a company corporation working under the control of Federal Government, which was exempt being availability or cover under Article 165 Article 165A empowers the Majlis-e-Shoora to levy tax on the income of the corporation, company or other body or institution established by or under Federal law or Provincial law or on the income of corporation, company or other body or institution owned or controlled by Federal or a Provincial Government but no such powers to levy tax on the income of any corporation, company or other body or institution owned or controlled by the Federal Government is vested with a Provincial Assembly under the Constitution.

20. As a result of above discussion in our considered opinion the exemption under Article 165 of the Constitution from the Federal Taxation is not available in respect of the income of a Provincial ESSI even if it is working under the management and control of the respective Provincial Government; because of its falling under Article 165A of the Constitution.

21. Now we come to the next question relating to the nature of income with regard to its taxability under the provisions of Repealed Ordinance. In the cases before us the receipts are of the following two kinds:

(i) Receipts front statutory contribution made by the Employers under section 20 towards the Social Security Funds created under section 28 of the ESSI Ordinance, 1965.

(ii) Profits earned on investments made by the institution under section 30 of the Ordinance, 1965.

`The object' of establishing a Provincial Employees Social Security Institution as defined in the preamble of the Ordinance, 1965 is, "to introduce a scheme of social security of providing benefits, to certain employees or their dependents in the event of sickness, maternity, injury, disablement, death and for matter ancillary thereto". For the purpose of implementation of scheme the establishment of the institution of Provincial ESSI was provided under section 3 of the Ordinance, 1965, which perform its functions under the guidance and instructions of the Provincial Government. The availability of funds for the above purpose has also been arranged through the said legislation i.e. Ordinance, 1965, by which the institution is created. Under the provisions of the Ordinance, 1965 it is mandatory upon the Employers to contribute towards the ESS Fund the records or which is required to be maintained and returns are also required to be submitted under section 21 of the said Ordinance, 1965. An Employer is also liable to pay additional amount in the form of `increased amount, under section 23 of the Ordinance, 1965 in case of delayed payments of contributions. The amount of contributions, along with the increase as mentioned above, can be recovered as arrears of land revenue. From the above mentioned, provisions of the Ordinance, 1965 relating to the contributions to be made by the Employers it is obvious that the recovery of the contributions has been provided by the legislature in the manner, like that of a government charge or lax, to ensure the availability of Funds for implementation of the scheme envisaged through the said Ordinance, 1965. In this background the receipts from the contributions are in fact not the income of the institutions but is an arrangement made for the availability of Funds by the legislature for the implementation of its scheme. It is also obvious from the preamble as well as the provisions of the Ordinance, 1963 that the object to establish the Provincial ESSI is to implement a scheme for providing medical benefits to certain Employees without there being any kind of income earning activity on the part of the institution. In our considered opinion the purpose to establish the institution is to implement the above mentioned scheme or the Government i.e. providing of medical benefits to certain employees in an organized manner and not to earn any income through the activities of the institution. To carry out the said purpose the Funds required have been arranged in the manner as discussed above. As provided in the Ordinance, 1965 these funds can be utilized only for the purposes specified therein which is to be made under the guidance and with the approval of the respective Provincial Government as discussed above. Thus, the receipts from the contributions made by the employers towards Social Security Fund is not the income of the institution liable for taxation under the provisions of Repealed Ordinance. Although the definition of income as provided in section 2(24) is not exhaustive but is an inclusive one, meaning thereby that receipts of various kinds are included therein, however the exact nature of such receipts is required to be ascertained first so that these could be charged to tax under the relevant head of income specified in section 15 of the Repealed Ordinance. Under the circumstances and in view of facts relating to nature and source of the amounts received by the institution from the contributions made by the Employees as well as the purpose and manner provided in law for the collection and utilization thereof, in our opinion these receipts under the concept of real income, are not to be considered as income of "the institution". Such receipts without there being any kind of income earning activity on its part could not be the income earned by an ESSI. There is no control of the institution so far as the framing of policies and decisions regarding the making of such contribution by the Employers is concerned. The job of an ESSI in this regard is only confined to the extent of monitoring of the collection of the contributions, which cannot be equated to a venture for earning of income by it. It is also pointed out here that the amounts of the contributions are recoverable like a government charge or tax in case of any default on the part of the employers which provisions of law brings the said contributions at par, with the other receipts of the Government. Such receipts from contributions of the employers are utilized under the control of the Government for the purpose of implementing that scheme envisaged through Ordinance, 1965. Thus these receipts in respect of which the institution has no independent control over the earning as well as disposal thereof could not be its income liable for taxation in its hands. In view of the facts and circumstances as discussed above the doctrine of overriding title is also applicable in the case of an ESSI in respect of its receipts from `the contributions'. As such the receipts from contribution made by 'the employers towards the Employees-Social Security Fund, not being income of an ESSI for the above-mentioned reasons is not taxable in its hands under the Repealed Ordinance.

22. So far as the taxability of the income or an ESSI from the profit earned on investments made by it, is concerned in our opinion these could be subjected to tax as income of the institution it otherwise not specifically exempted under the provisions of Second Schedule. It has already been held by us that an ESSI being a body corporate under the control of Provincial Government the cover under Article 165 is no more available to such bodies or institutions etc., after the addition of Article 165A to the Constitution. The profit earned en the investments being an activity carried on by the institution to earn such income is different from the amounts received by it on account of statutory contributions made by the Employers towards Social Security Fund.

23. The next question relates to the availability of exemption in respect of income earned as profit on investments. So far as claim of exemption of income earned from investments in Federal securities under clause (93) of Part-I of the Second Schedule is concerned, the claim already stands accepted by the C.B.R. whereby the exemption from withholding tax on profit earned from Federal Investment Bonds was granted in the case of SESSI vide its Letter C. No. 4(2)WT/91-Pt, dated F 25-4-1992. In the case of PESSI the issue under consideration was remanded back to the Assessing Officer for verification of the facts which order of CIT(A) being justified in hereby maintained. The exemption under the clause (93) supra, be allowed if the profits earned falls under the category of income mentioned in the said clause. Since in the case of SESSI the facts relating to this issue were not discussed in view of the appeals having been decided in favour of the institutions on the other grounds, therefore, it is deemed fair to also remand back the issue in the case of SESSI with the same directions is given in the case of PESSI i.e. that exemption under this clause should be allowed after verification of facts relating to income earned from this source.

24. Since the issue relating to claim of exemption under clause (94) of Part-I of the Second Schedule to the Repealed Ordinance have become irrelevant in view of the issue or taxability of receipts from "the contributions" having been decided in favour or the Provincial Employees Social Security Institution we arc not inclined to adjudicate upon this issue as well a the remaining issues also for the same reasons.

25. Our findings in the two cases in hands before us are summarized as hereunder:--

(i) In the case of SESSI the assessments framed for the assessment years 1995-96 to 1999-2000 are held to be legally not maintainable for the reason of having been framed without assumption of jurisdiction by the Assessing Officer to initiate the assessment proceedings for these years through issuance of notice under section 56 of the Repealed Ordinance, 1979. The order of the CIT(A) on this issue in the case of SESSI whereby the assessments for the assessment years 1995-96 to 1999-2000 were annulled, is hereby maintained.

(ii) Since the receipts from mandatory contributions made by the Employers towards the Social Security Fund have been held not to be the income taxable in the hands of a Provincial ESSI under the provisions of Repealed Ordinance, 1979, therefore, the appeals of Department in the case of SESSI on this issue for all the, years under consideration stands rejected.

(iii) The appeals of PESSI for all the assessment years i.e. 1996-97 to 2001-2002 succeed in the manner that the income assessed in the hands of the appellant, on account of receipts from constitutions made by the Employers towards Social Security Fund, is hereby deleted for all the years under consideration.

(iv) The order of the CIT(A) to set aside the assessment for decision on merits on the issue of assessment of' income on account of profit earned from- the investments made by the PESSI is hereby maintained which is to be decided on the merits or the case directed above.

(v) The appeals of the Department in the case of SESSI for the assessment years 2000-2001 on the issue relating to charge or tax on the profit earned from investment is disposed of in the manner that issue is remanded back to the Assessing Officer for decision on merits as per directions as mentioned above.

26. The all the above appeals stand disposed of in the manner as' indicated above.

Sd/-

(KHAWAJA FAROOQ SAEED)(KHALID WAHEED AHMED)

CHAIRPERSONJUDICIAL MEMBER

(SHAHEEN IQBAL)

ACCOUNTANT MEMBER

SHAHEEN IQBAL (ACCOUNTANT MEMBER).---The judgment recorded by my learned brother Judicial Member in the captioned appeals has been perused by inc carefully.

2. My learned brother Judicial Member has summarized the issues requiring adjudication in these appeals in Paras. 14 and 15 of his judgment and his findings on the issues framed in the aforesaid paras stand summarized in para. 25 of his judgment.

3. My brother Judicial Member has very ably framed the issues involved in these appeals and has also recorded the related arguments of the two sides very lucidly in his order. However, while agreeing with the findings summarized by him in para. 25(i), (iv) and (v), I find myself in disagreement with his views as recorded in Para. 25(ii) and (iii) of his judgment through which he has held that statutory contributions received by P.E.S.S.I. are not chargeable to tax under any of the heads of income specified in section 15 of the Repealed Income 'Fax Ordinance, 1979. My reasons for disagreement with his related findings are as follows:

(a) My brother Judicial Member has held that the receipts from contributions made by the employers towards social security funds of the institution (P.E.S.S.I.) are not the income of the appellant-Institution and, therefore, not liable for taxation under the provisions of the Repealed Ordinance of 1979. In his view, the receipts from the statutory contributions received by it from employers arc not income of the institution as these do not fall under any of the heads of income specified under section 15 of the Income Tax Ordinance, 1979. His view is apparently based on the conclusion drawn by him to the effect that the funds are provided under an arrangement by the legislature for the implementation of schemes of the institution. While arriving at this finding, he has held that as per the preamble of the provisions of Ordinance of 1965, the object of establishing the institution i.e. P.E.S.S.I. was to implement a scheme for providing medical benefits to certain employees without there being any kind of income earning activity on part of the institution. He has further held that the purpose to establish the institution was to implement the abovementioned scheme of the government in an organized manner and was not meant to earn any income through the activities of the institution.

(b) My brother Judicial Member has held that the contributions received by the assessee social security institution do not fall under any of the heads of income specified in section 15 and, therefore, these are not chargeable to income tax.

4. In order to understand the issue requiring adjudication, it is essential to take a look at the various provisions of the Income Tax Ordinance, 1979 which deal with the chargeability of income under the provisions of the Repealed, 1979 Ordinance, which are the following:

(i) Section 2(24) of the Income Tax Ordinance, 1979 defines `income' in the following manner:--

2(24) "income" includes---

(a) any income, profits or gains, from whatever source derived, chargeable to tax under any provision of this Ordinance under any head specified in section 15;

(b) any loss of such income, profits or gains;

(c) any sum deemed to be income, or income accruing or arising or received in Pakistan under any provision of this Ordinance (but does not include, in case of a shareholder of a domestic company, the amount representing the face value of any bonus share or the amount of any bonus declared, issued or paid by the company to its shareholder with a view to increasing its paid up share capital.

(ii) Section 9 of the Income Tax Ordinance, 1979 places a charge of income tax in respect of total income of a person and the related provision reads as follows:--

(9) Charge of income tax.---(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979, income tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule.

(iii) Thereafter, section 11 of the Income Tax Ordinance, 1979 deals with the scope of total income and in respect of the resident assessees, the scope of income has been detailed to be as follows:

(11) Scope of total income.---(1) Subject to the provisions of this Ordinance, the total income, in relation to any assessment year, of a person:

(a) who is a resident, includes all the income from whatever source derived, which--

(i) is received, or is deemed to be received, in Pakistan in the income year by, or on behalf of, such person; or

(ii) accrues or arises, or is deemed to accrue or arise, to him in Pakistan during such year; or

(iii) accrues or arises to him outside Pakistan during such year;

(iv) provisions of sections 12 and 13 of the Income Tax Ordinance, 1979 deal with incomes which are deemed to accrue or arise in Pakistan (section 12) and unexplained investment deemed to be income (section 13).

(v) section 14 of the Income Tax Ordinance, 1979 is in respect of exemptions from tax provided to income or classes of incomes or persons or classes of person as specified in the Second Schedule to the Income Tax Ordinance, 1979;

(vi) section 15 of the Income Tax Ordinance, 1979 classifies incomes under six heads for the purposes of charge of tax and the respective manner of computation of total income under these heads.

5. The plain reading of the above provisions clearly shows that:

(i) The definition of `income' as given in section 2(24) of the Income Tax Ordinance, 1979 is inclusive in nature and thus has to be construed as largely as possible. This view finds support from the case reported as 1995 PTD 493 where it was held that the word "income" embodied in section 2(24) of the Income Tax Ordinance, 1979 is not of exhaustive import but inclusive in nature like the one in Entry No.47 of the 4th Schedule of the Constitution of the Islamic Republic of Pakistan, 1973 and thus has to be construed as largely as possible.

(ii) Similarly, the provision of sections 9 and 11 of the Income Tax Ordinance, 1979 again are very vast in their scope.

(iii) As far as section 15 of the Income Tax Ordinance, 1979 is concerned, this section has classified income under six heads namely; salary, interest on securities, income from house property, income from business or profession. income from capital gains and income from other sources. The purpose of the classification is clearly stated to be for purposes of computation of income under separate heads. It is evident while five heads of income deal with specified incomes, the income from other sources as per the related provisions contained in section 30 of the Income Tax Ordinance, 1979 states that income of every kind which may be included in the total income of the assessee under this Ordinance shall be chargeable under the head "Income from other sources" if it is not included in his total income under any other head of section 15. Thus, the scope of section 30 of the Income Tax Ordinance, 1979 is again very large.

6. In my humble view, all the receipts of a person are chargeable to tax unless receipts are exempted from the charge of tax either as per specific exemption made available under provisions of the Second H Schedule to the Income Tax Ordinance, 1979 or specifically exempted from tax under the Act or the Ordinance through which an institution is created by the legislature.

7. During the course of the appeal proceedings, the main thrust of the appellant in support of the argument regarding the claim of exemption of income from tax was mainly on the ground that Article 165(A) of the Constitution of the Islamic Republic of Pakistan, 1973, was attracted in the case of the institution, and, therefore, its income enjoyed exemption from tax. The other alternate ground was to the effect that the appellant's income qualified for exemption under clauses (93) and (94) of the Second Schedule to the Income Tax Ordinance, 1979.

My brother Judicial Member has validly held that the related argument seeking exemption by placing reliance on provisions of Article 165 of the Constitution of Pakistan, does not have merit. He has further held that the provisions of clause (94) of the Second Schedule to the Income Tax Ordinance, 1979 are also not applicable to the appellant institution whereas the issue of exemption of income under clause (93) of the Second Schedule from investments derived by PESSI has been directed by him to be decided on merits after maintaining the C's.I.T.(A) action of setting aside the issue for fresh adjudication.

8. My view that the statutory contributions from employers received by PESSI are income chargeable to tax is based on the following reasons:--

(a) A plain reading of clause (93) shows that it deals with income derived from investments and securities of the Federal Government and house property held under trust or legal obligations wholly or in part only for religious and charitable purposes and is actually applied of finally set apart for application thereof.

Whereas clause (94) deals with voluntary contributions received by a religious or charitable institution which have been exempted in the hands of such religious or charitable institutions subject to the condition that the said contributions are applied solely for the religious or charitable purposes of the institution. This clause reads as follows:--

"(94) Any income of a religious or charitable institution derived from voluntary contributions applicable solely to religious or charitable purposes of the institution:

Provided that nothing contained in clause (93) or this clause shall apply to the income of a private religious trust which does not entire for the benefit of the public."

It is evident from clause (94) of the Second Schedule to the Income Tax Ordinance, 1979 that an exemption to voluntary contributions has been granted through this clause. However, such voluntary contributions enjoy exemption only in the hands of religious or charitable institutions for purposes specified in this clause. The very fact that an exemption has been granted to voluntary contribution clearly shows that contributions received by an assessee otherwise are in the nature of income and are chargeable to tax under the provisions of Income Tax Ordinance, 1979 as contained in sections 9, 11 and 15 of the said Ordinance.

My brother Judicial Member's view on the issue was clearly influenced by the fact that the funds made available to the PESSI by the legislature were meant for fulfillment of the specific purposes of the institution and, therefore, not income. However, the provisions of clause (94) of the Second Schedule to the Ordinance, 1979 show that the purpose for which voluntary contribution was received by the religious trust was also similar. However, if these voluntary contributions had not been provided exemption under the above clause, these would be chargeable to tax. Thus, the purpose for which contributions are received by a person is not the deciding factor in respect of chargeability to tax of the said contributions.

9. The following facts also remained undisputed before us during the course of hearing of the captioned appeals:-

(i) Statutory contributions were received by PESSI from the employers and these contributions were not voluntary.

(ii) The assessee had claimed exemption in respect of these receipts under clause (94) of the Second Schedule to the Income Tax Ordinance, 1979 and it was primarily not their case that the contributions received by them did not constitute their income.

10. Scope of the provisions of section 30 of the Income Tax Ordinance, 1979 is very vast as evident from a plain reading of this section:

"(30) Income from other sources.--(1) Income of every kind which may be included in the total income of an assessee under this Ordinance shall be chargeable under the head "Income from other sources", if it is not included in his total income under any other head.

(2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following incomes shall, save as otherwise provided in this Ordinance, be chargeable under the head "income from other sources", namely:

(a) dividend;

(b) interest, royalties and fees for technical services;

(c) ground rent;

(d) income from the hire of machinery, plant or furniture belonging to the assessee and also of buildings belonging to him if the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture;

(e) any income to which subsection (12) of section 12 or section 13 applies."

The contribution received by PESSI would stand covered under the provisions of this section.

11. Thus, in my view, contributions are in the nature of income and since the provisions of clause (94) of the Second Schedule to the Income Tax Ordinance, 1979 only grant exemption to voluntary contributions and that too in the hands of religious and charitable institutions subject to the fulfillment of conditions laid down in the said clause, it is evident that other contributions which are either not voluntary or are received by persons who do have the status of a religious or charitable institution, do not enjoy exemption from tax.

12. I may further observe here that the assessee-Institution was created through legislation and the related Act/Ordinance did not provide for any tax exemption to the institution whereas in the cases of certain other institutions, exemption from tax has been provided under the Act or Ordinance through which these were created. The legislature's failure to grant this exemption was, therefore, clearly deliberate. Regarding exemption from tax available to an institution created by the legislature by way of illustration, the position of State Bank of Pakistan is being cited below.

In the case of State Bank of Pakistan created through State Bank of Pakistan, 1956, section 49 of the said Act exempts the State Bank of Pakistan from taxation and the related section reads as follows:--

"(49). Exemption from business profit-tax, gift tax, wealth-tax, income-tax, and super-tax.---Notwithstanding anything contained in the Business Profits Tax Act, 1947 (XXI of 1947), the Gift-tax, Ordinance, 1979 (XXXI of 1979), or any other law for the time being in force in Pakistan relating to business profits-tax, gift-tax, wealth-tax, income-tax, or super-tax, the Bank shall not be liable to pay business profits tax, gift-tax, wealth-tax, income-tax, super-tax, or any of its profits, gains, wealth or income or any gift made by it."

However, as stated above, the legislature while creating the assessee-Institution has not provided any tax exemption to, the appellant institution in respect of its income.

13. Furthermore, from perusal of the provisions of the Second Schedule to the income Tax Ordinance, 1979, it is evident that exemption from tax to various institutions created through an act of legislature have been granted therein. The relevant clauses briefly are as follows:

(i) Clause 55A:

Exempts income of a text book board of a province created under any law for the time being in force accruing or arising from the date of its establishment.

(ii) Clause 90:

Grants exemption to boards or other organization established by the Government in Pakistan for the purposes of controlling, regulating or encouraging major games or sports recognized by the Government.

(iii) Clause 102F:

Grants exemption to the income of National Investment Trust for assessment years 1999-2000 and 2000-2001.

(iv) Clause 115A:

Provided exemption to income of WAPDA

(v) Similarly, clause 148A and 148E of the Second Schedule to the Income Tax Ordinance, 1979 grant exemption to Pakistan Telecommunication Corporation and Pakistan Telecommuni cation Company (Pvt.) Limited.

(vi) Whereas clause (154) of the Second Schedule to the Income Tax Ordinance, 1979 exempts income of PCSIR.

It is evident that neither an exemption from tax has been granted' to' Social Security Institution (P.E.S.S.I.) in the related Act/Ordinance of the Government through which it was created nor its income stands exempted from tax under any provision of the Second Schedule to the Income Tax Ordinance, 1979.

14. In view of the above stated position, I am of the considered view that the statutory contributions received by the Social Security Institution from the employers are taxable in the hands of these institutions. Thus, the income of P.E.S.S.I. arising from the contributions, received by it is chargeable to tax.

(Sd.)

(SHAHEEN IQBAL)

ACCOUNTANT MEMBER

KHAWAJA FAROOQ SAEED (CHAIRPERSON).---I have gone through in depth the findings of my two learned brothers. Since it is a Full Bench Judgment, obviously I have to give an independent view on the basis of arguments as well as facts and discussion made by my two learned brothers. Why I have added these words are that when there is a case of two different opinions, the role of the third member, if appointed, as a Referee Member is restricted only to the extent of a question framed by the two members. It is a case in which both the learned members have given their independent views after properly dilating the facts etc. but it is not a case where referee members role is restricted to the extent of the question framed on account of difference of opinion.

2. My colleague learned Accountant Member has shown his agreement on the findings of learned Judicial Member given by him in Para. 25(i), (iv) and (v) in his order. These paras speak as follows:

(i) In the case of SESSI the assessments framed for the assessment years 1995-96 to 1999-2000 are held to be legally not maintainable for the reason of having been framed without assumption of jurisdiction by the Assessing Officer to initiate the assessment proceedings for these years through issuance of notice under section 56 of the Repealed Ordinance, 1979. The order of the CIT(A) on this, in the case of SESSI whereby the assessments for the assessment years 1995-96 to 1999-2000 were annulled, is hereby maintained.

(iv) The order of the CIT(A) to set aside the assessment for decision on merits on the issue of assessment of income on account of profit earned from the investment made by the PESSI is hereby maintained which is to be decided on the merits of the case as directed above.

(v) The appeals of the Department in the case of SESSI for the assessment years, 2000-2001 on the issue relating to charge tax on the profit earned from investment is disposed of in the manner that issue is remanded back to the Assessing Officer for decision on merits as per directions as mentioned above.

3. Before proceeding further I add than I also agree with my two brothers, in respect of above findings in consequence to the discussion and dilation of the relevant issues by learned brother Judicial Member.

4. The reservation and disagreement with the views and findings of learned Judicial Members by learned Accountant Member are recorded in para-25(ii) and (iii) of his judgment, which are as follows:--

(ii) Since the receipts from mandatory contributions made by the Employees towards the Social Security Fund have been held not to be the income taxable in the hands of a Provincial ESSI under the provisions of Repealed Ordinance, 1979, therefore, the appeals of Department in the case of SESSI on this issue for all the years under consideration stands rejected.

(iii) The appeals of PESSI for all the assessment years i.e. 1996-97 to 2001-2002 succeed in the manner that the income assessed in the hands of the appellant, on account of receipts from contributions made by the Employers towards Social Security Fund, is hereby deleted for all the years under consideration.

5. Having agreed to the extent of the three issues on which there is no difference of opinion amongst my other two learned brothers either, now the dilation is required in respect of whether the PESSI and SESSI both are earning income liable to charge under Income Tax Ordinance, 1979 and what treatment should therefore, be given to the said funds. The argument which has been appreciated by the learned Judicial Member is that the fund being a contribution by the employer for providing medical facility to their employees is a mutually exclusive receipt. It is paid by and on behalf of the beneficiary hence the payment do not become an income of these two Organizations which are only playing the role of a welfare institution. The organizations have been created by their respective Provincial Governments through a statute to provide medical facilities to the employees of various private organizations without any profit motive or distribution of any sum to any person out of surplus. This, therefore, is a beneficial institution which is providing medical facilities to those employees who otherwise were not secured and such facilities were far from their expectations and dreams. Speaking about the procedure it has been noticed that the fund is generated after notifying an Organization as liable to charge (Social Security Fund) created by this limb of the Government. Said fund is in the shape of a levy a compulsory contribution and for this purpose the said Firm, Organization or Company is formally notified under the relevant provisions of law. The contributor organization neither have an access to the fund or have any right to know as to how the said amount has been spent or utilized. The beneficiaries however, are his workers who are so notified and they continue getting the said facility even if the employer defaults in making payment. However, the Department has proper legal sanctity and force for recovering its amount. The circumstances in the opinion of Judicial Member therefore does not lead to the conclusion that this is a case of some business wherein a perpetuity exists. Neither any purchase sale is made nor any services are rendered to the employer, hence receipt by no means makes it a commercial transaction covered within the charge created by the Income Tax Ordinance, 197 (Now Repealed). A lot of case-law has been discussed by him. However, in view of the discussion in detail repetition will be unnecessary. The term "income" has an inclusive definition as given in section 2(24) of Income Tax Ordinance, 1979. It is of very wide implication and no where in the world consensus could be developed to agree on one meanings. Similarly section 9 creates charge on the total income of the income year or years of every person. The term total income defined under section 11 applies on all income from whatever source. In this regard actual receipt, accrual or even deemed accrual or receipt all are covered. This again is of a very wide implication.

7. Where the assessee claims that his receipts is not covered within the heads specified under section 15 the Honourable High Court Lahore in 84 Tax (139) says it is not enough to say that the receipt disclosed by the assessee is a revenue receipt. It cannot be declared as chargeable under the presumption that the assessee could not prove that is not covered under some provisions. The criteria, therefore, is to determine as to whether the receipt is of permanent nature and that it is a part of the regular transactions through an inbuilt system. Similar observations have been given for determining as to whether a particular set of circumstances is covered within the term business. The business generally is an active occupation of profession continuously kept on and it is a matter of fact that the word used in the Income Tax Law is in the same sense. The term business has quite elaborately been defined in 31 Tax (Trib.) (sic) which speaks as follows:---

"Business has number of connotations one of which means an active occupation or profession continuously kept on and it is as a matter of fact in this sense that the word is used in the I.T. Act. In (1940) 8 ITR 187 Iqbal J. as he then was, has elaborately dealt with various terms including business, profession, vacation etc. And after citing a number of authorities from the Privy Council etc. has clearly observed that under section 10 of the Income Tax Act, the tax is to be payable by an assessee under the head `business' in respect of the profits or gains of business carried on by him. The essential constituent of his activity is that it should produce taxable income that is profit must be earned by a process of production. The word `business' on the basis of certain English decision has been held to be a word of large and indefinite import and connotes something, which occupies attention and labour of a person for the purposes of profit-At page 204 of the judgment it has been observed that it would appear from judicial pronouncements that the work business has been used in the Act to denote the continuous and systematic exercise of' an occupation or profession with the object of making income or profit. In a nutshell, therefore, if an activity, in whatsoever manner, is continuous and is carried on with the object of earning money it would constitute as business.

8. Now it will be more appropriate if the relevant part of the order of the learned (CIT-Appeal-II), Karachi is also discussed as his conclusions have been confirmed by learned Judicial Members. The same are on pages 38, 39 and 40 of his order. It has been held by him that:--

"In taxing the receipts of the appellant, the Assessing Officer has sought recourse of Article 165-A of the Constitution of the Islamic Republic of Pakistan, 1973. There is a need to understand as to why this Article was inserted and how it factually differs from Article 165.

Firstly it has to be noted that Article 165-A does not override Article 165 which is an independent Article in itself. Secondly the mention of the word `institutions' as appearing in Article 165-A relates to those institutions which indulge in profit-earning activities, whether they are independent or under Provincial Government. SESSI incidentally is a non-profit organization as provided in the Ordinance; which gave birth to this organization. The activities of SESSI also does not fall into any of the heads of income as defined under section 15 of the Income Tax Ordinance, 1979. The legal position and the decisions of the higher appellate forums as quoted by appellant's A.R. also prove this point. Seeking of recourse of Article 165-A of' the Constitution of Islamic Republic of Pakistan is therefore not proper. The A.R. of the appellant also very ably explained the fact that the activities of SESSI fall within the ambit of charitable purposes and that the sources of' SESSI's receipts are from voluntary contributions. The only activity/ source of income which could have attracted charge of income tax would have been interest income which has specifically been exempted from tax by the C.B.R. vide letter No. C. No. 4(2) WT/91-PI, dated April 25, 1992.

The nature of appellant's business therefore also qualify for exemption under clauses (93) & (94) of the Second Schedule to the Income Tax Ordinance, 1979. The distinguishing features between SESSI and Custom Common Pool Fund and its taxability have also been very ably highlighted by appellant's A.R. and are correct.

The perusal of record and assessment order further reveals the facts, that even if for a moment it is assumed that SESSI was a taxable entity even then the DCIT has failed to work out or provide the bifurcation of surplus over the expenditure in detail.

During the course of appeal proceedings it was also mentioned by the A.R. of the appellant that none of the Social Security Institutions working a similar pattern in other provinces of Pakistan have been taxed under the Income Tax Ordinance, 1979 either. The taxing of SESSI exclusively, therefore, is also against the spirit of Article 25 of the Constitution of the Islamic Republic of Pakistan which lays down the principle of equality of citizens (Persons) throughout the country. In view of all the above findings and the case-law quoted by the appellant's A.R. in his arguments, the assessment orders framed by the DCIT for all the assessment years under appeal are treated as not sustainable under law. The assessment orders for all the years are therefore cancelled."

9. In his part of the discussion which is mentioned above firstly the learned CIT(A) has held that Article 165-A of the Constitution of Islamic Republic of Pakistan relates to those institutions which indulge in profit-earning activities. He then says that the activities of SESSI do not fall in any of the heads of income under section 15 of the Income Tax Ordinance, 1979. He further says that the receipts of the said transaction are voluntary contribution, hence provisions of the Second Schedule in terms of Clause (93) and (94) also declare the same as exempt. Above discussion made by me and the paras reproduced from the order of the learned CIT-(A-II), Karachi, are totally disharmonious. If the amount is not covered under any of the provisions of section 15 there is no question of claiming its exemption under the Second Schedule as the same applies only on those sources or classes of income, which first come within the charging provisions. The argument in itself being self-contradictory obviously cannot help the assessee. Action of going to the C.B.R., asking for exemption which at first instance, was allowed, but later was rejected in itself makes it clear that the charge of tax was well recognized. Obviously one can claim an exemption if is satisfied that his income is chargeable to tax. Further argument that Article 165-A of the Constitution of Pakistan does not apply on non-profit organization, also does not convince as the said provisions of law does not give any such impression. The provision is reproduced again for clarity of the issue:-

"165A. Power of (Majlis-e-Shoora (Parliament)) to impose tax on the income of certain corporations etc. (1) For the removal of doubt, it is hereby declared that (Mjlis-e-Shoora (Parliament)) has, and shall be deemed always to have had the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income.

(2) All orders made, proceedings taken and acts done by any authority or person, which were made, taken or done, or purported to have been made, taken or done, before the commencement of the Constitution (Amendment) Order, 1985, in exercise of the powers derived from any law referred to in clause (1) or in executing of any orders made by any authority in the exercise or purported exercise of powers as aforesaid, shall, notwithstanding any judgment of any Court or tribunal, including the Supreme Court and a High Court, be deemed to be and always to have been validly made, taken or done and shall not be called in question in any Court, including the Supreme Court and High Court, on any ground whatsoever.

(3) Every judgment or order of any Court, Tribunal, including the Supreme Court and a High Court, which is repugnant to the provisions of clause (I) or clause (2) shall be, and shall be deemed always to have been, void and of no effect whatsoever.

10. The CIT(A) therefore, does not appear to be correct in saying that the said provision is only for profit-making organizations. The provisions has allowed for creation of' charge on institutions established by or under a Federal law or a Provincial law and that the said institutions may have either direct or indirect control of Federal Government or Provincial Government regardless of the ultimate destination of such income. Here even if, I agree that the purposes of SESSI or PESSI is a charitable purpose to which intact I have no doubt of its being so, there is still no escape from the above provisions. The destination of the income to the Labour classes in terms of medical facilities etc does not entitle our assessecs to escape from the above provisions as the sentence, which says "regardless of the ultimate destination of such income" covers the said situation. The assessee being a limb of Government or its purpose being a `charitable purpose' is of no help.

11. I am not convinced that the contribution is voluntary. It is a levy which is collected from the various business houses after notifying them as chargeable of the said fund. This is a compulsory liability which once imposed cannot be revoked unless the said business house otherwise discontinues his business or the protected persons are removed from service. A voluntary contribution is the one which is paid by somebody out of his free will, being not otherwise obliged or bound under any legal obligation. There is no concept of free will in this contribution by the business houses. They are so made to pay under law by issuance of an order and after approval by the concerned competent authority. The concept of voluntary contributions therefore, is not obtaining. This is where the assessee is ousted from the purview of clause (94) of the Second Schedule also. The necessary ingredient of the said clause is that the contribution is voluntary and it is used for charitable purpose. My agreement in respect of it's being a charitable purpose therefore also is of no help as the contribution by no means can be called as "voluntary".

12. So far as the meaning of the term "income" and total income is concerned, the comparative objections and reply of the assessee have already decided this issue. The A.Rs. from both sides have undoubtedly done their best and have tried to give us the best assistance, however, the request made to the C.B.R. makes the things very clear that the exemption sought means that charge was accepted. This is where I feel convinced that the comments of my learned brother Accountant Member, that the receipts from the statutory contributions received by the assessee from employees are very well its income chargeable to tax by virtue of Article 165-A of the Constitution of Pakistan are correct. The learned Accountant Member has discussed all the relevant Sections separately. I have also made mention of the same where and when required. I agree with him that the classified section 15 fully covers this receipt, which is chargeable under section 22 of the Income Tax Ordinance, 1979 being a regular and perpetual nature. I also feel myself convinced that the arguments of learned brother Accountant Member which he gave at Para-8(a) are correct appreciation of the law and that clause (93) does not apply on this particular receipt. Furthermore, the arguments given by him at Para-13 of this part of the order to say that wherever the Government felt it necessary, exemptions were allowed under various clauses of the Second Schedule in terms of clauses (165A), clause (90), clause (102F), clause (115A) etc. This is where it becomes necessary to mention that in case of exemption clause the burden to prove that he is covered within the said facility shifts to the claimant out. The doubt in such situation goes to the favour of the respondent, which in this case is the department and not the Tax Payer. This rule of interpretation of fiscal statutes being against the normal rule applicable on the charging provisions has not that frequently been used. However, there is no doubt about the same and one may refer 56 ITR 136 S.C. in his favour:--

"In 56 ITR 31 the S.C. of India were considering the nature of receipt which was claimed by the assessee to be a gift, there Lordship observed that by sections 3 and 4, the Indian Income Tax Act, 1922, imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision. Where, however, a receipt is of the nature of income the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee."

13. There was, therefore, no question of considering the receipt of the SESSI as well as PESSI to be as not chargeable or otherwise exempt. I, therefore, totally agree with the learned Accountant Member that the contributions received by SESSI and PESSI are chargeable to tax as income.

14. There, however, is a very important issue, which has not been adjudicated by two brothers regarding calculation of total income. Since the learned Judicial Member felt convinced that the income is not chargeable to tax he has not given his opinion in respect this aspect of the case. The issue very well arises from the order of the learned CIT(A), Karachi and was also argued during the hearing by both the counsel. I have checked the assessment orders. The amounts which have been charged to tax have been taken from the balance sheet in total disregard to the fact that once the receipt is to be charged as income it has to be after allowance of proper expenditure allowable under law. Once these two organizations are to be assessed to tax, the assessments should have been made adopting the correct methods, rules and admissible allowances. It may be true that the institutions did not provide necessary information with regard thereto for the reason of their understanding that they are not taxable being a limb of' Government. However equal duty was casted upon the Assessing Officer as well for determining the correct income liable to charge. Since we cannot at this stage go into these details, the case for this purpose is set aside for de novo consideration by the Assessing Officer. The Assessing Officer shall after issuance of proper Notices call for the necessary record based upon annual statement of account and shall make the assessment giving all the benefits in terms of expenses under section 23 including depreciation on fixed assets as well as moveable assets. In this regard the assessment should not be of any problem for the concerned authorities as well as the Tax Payers as this is not a case of a street business house. The concept of inadmissibility or unverifiability of expenses or estimated add backs would definitely not arise. The assessment therefore, should be made under strict compliance of law and rules and appreciating the fact that the entire expenses are verifiable and subject to internal and external audit.

15. The assessments, therefore, are set aside for the purpose of determination of income only.

16. The appeals are accordingly decided.

17. Since last para of my findings above needs reappraisal by the two learned brothers the order may be placed before them for their opinion.

(Sd.)

KHAWAJA FAROOQ SAEED,

CHAIRPERSON

I.T.AS. NOS44316 TO 4319, 5957 AND 5958/LB OF 2004

AND I.T.AS. NOS. 513 TO 518/KB OF 2003.

27(sic). I have already given my findings on various issues raised through grounds of instant appeals including the one relating to taxability of different kinds of receipts in the hands of a provincial ESSI as per para. 25 of my order. Since in my opinion the receipts of an ESSI from statutory contributions did not constitute its income taxable under the Repealed Ordinance as such according to my view point no question of allowability of expense against such receipts for the purpose of calculation of taxable income arises.

(Sd.)

KHALID WAHEED AHMED

JUDICIAL MEMBER

I have perused the findings recorded by the Chairperson as incorporated in paras. 14 and 15 of his note recorded at pages 726, 727 of the order and I agree with the view that the assessments are required to be set aside for the purposes of determination of income.

(Sd.)

SHAHEEN IQBAL

ACCOUNTANT MEMBER

C.M.A./101/Tax (Trib.)Order accordingly.