COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI VS Messrs ORIX LEASING PAKISTAN LTD., KARACHI, 2007 PTD-KARACHI-HIGH-COURT-SINDH 1151 (2007)

Income Tax Ordnance (XXXIX of 1979)---

----S. 50(7D)---Interpretation of S.50(7D), Income Tax Ordinance, 1979-Words "or instrument of any kind" occurring in S.50(7D) are to be read in conjunction to the category of financial instruments particularly referred in S.50(7D)---Word 'issued' is also significant for proper understanding of the spirit, aim and objective of S.50(7D)---Loan agreement executed between the' Bank and the assessee, a Leasing Company, as evident from its terms and conditions, is not a negotiable instrument, therefore cannot be said to be a 'financial' instrument issued by the Leasing Company in favour of Bank on which advance tax is to be deducted by the Leasing Company in terms of S.50(7D)---Provision of S.50(7D), Income Tax Ordinance, 1979 refers only to the income generated from the negotiable instruments of like nature as required by it, and not on the instruments of any other kind, having no nexus with the financial instruments referred in the section---For ascertaining the intention of legislature as to the category of instruments on which the assessee has to deduct tax in terms of S. 50(7D), the doctrine of ejusdem generis is squarely applicable---Principles.

Noor Alam Khah v. Sohbat Khan and others 1991 SCMR 661; National Insurance Corporation and others v. Pakistan National Shipping Corporation and others (2006 CLD 85); Zamiruddin Ahmed v. Havas Khan (PLD 1969 SC 57) and The Commissioner of Income Tax Karachi v. Mst. Khatija Begum, Partner, Shakil Impex, Karachi (1965 PTD 540) and Jamat-I-Islami Pakistan v. Federation of Pakistan PLD 2000 SC 111 ref.

(b) Ejusdem generis, doctrine of---

----Scope and applicability---Conditions.

Jamat-I-Islami Pakistan v. Federation of Pakistan PLD 2000 SC 111 quoted.

(c) Interpretation of statutes---

----No redundency can be attributed to the use of any word or phrase, incorporated in any particular provision of law by the legislature.

Jawaid Farooqui for Appellant.

Arshad Siraj for Respondent.

ORDER

ANWAR ZAHEER JAMALI, J.---In this reference application under section 136(1) of the Income Tax Ordinance, 1979, re-framed question of law reads as under:--

"Whether in the facts and circumstances of the case the learned Income-tax Appellate Tribunal was justified in holding that the agreement, through which loan was obtained by the respondent, was not an instrument within the meaning of section 50(7D) of the Income Tax Ordinance, 1979."

2. The crucial point for consideration emanating from the proposed question is about the interpretation of section 50(7D) of the Income Tax Ordinance, 1979, which reads as under:

"50(7D): Any person responsible for making any payment by way of profit or interest on , bonds, certificates, debentures, securities or instruments of any kind issued by any banking company, or any company referred to in sub-clause (a) or sub-clause (b) of clause (16) of section 2, or any local authority, or any finance society, not being a payment to which subsection (2) of section 50 applies, shall deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule."

3. The relevant facts giving rise to the re-framed question of law, arising out of the impugned order of the Income Tax Appellate Tribunal, dated 9-3-1999, are that respondent/assessee, a public limited company, is engaged in the business of leasing, being an approved company for the said purpose. During the assessment proceedings for the year, 1996-97 they claimed sum of Rs.31,768,091 towards financial charges, which were disallowed by the Assessing Officer on the ground that advance tax on such amount was not deducted under section 50(7D) at the time of making such payment, at the rate specified in the First Schedule. According to the respondent, the said charges were in relation to the long term loan which they had obtained from Banker's Equity Ltd. under mark-up arrangement against the hypothecation of assets and corresponding recoverables and deposit of title documents shown as redeemable capital in the balance sheet. The Assessing Officer referring to the definition of "redeemable capital" under section 30-A of the Companies Act formed the view that the same could not be issued without an instrument and holding that the loan agreement with the Banker's Equity Ltd. was thus an instrument within the scope of section 50(7D), under which any payment of profit or interest on "instrument of any kind" was liable for such deduction of tax.

4. Mr. Jawaid Farooqui learned counsel for the appellant addressing the Court has argued that the language of the above-referred provision of law, with the use of words "or instruments of any kind" has become wide enough to cover the loan agreement through which loan was obtained by the respondent from Banker's Equity Limited, thus the contrary conclusion recorded by the Tribunal in its order, dated 9-3-1999 is unwarranted by law. To add force to his submission with regard to the connotation and interpretation of word "instrument", learned counsel made reference to the judgment of the Hon'ble Supreme Court in the case of Noor Alam Khan v. Sohbat Khan and others (1991 SCMR 661). Relevant observations read as under:--

"Independently of it, the entries of the Wajib-ul-Arz bind the parties and Wajib-ul-Arz has to be treated for the purposes of General Clauses Act (Section 8) as an instrument. Black's Law Dictionary defines `instrument' as "A written document; a formal or legal document in writing, such as a contract, deed, will, bond, or lease". In the Stamp Act `instrument' is defined so as to include "every document by which any right or liability is or purports to be created, transferred, limited, extended, extinguished or recorded."

5. In his reply submissions Mr. Arshad Siraj learned counsel for the respondent strongly supported the judgment of the Tribunal, dated 9-3-1999 on the basis of detailed reasons assigned therein and placed reliance upon the following cases:

(1) National Insurance Corporation and others v. Pakistan National Shipping Corporation and others (2006 CLD 85).

(2) Zamiruddin Ahmed v. Havas Khan (PLD 1969 SC 57).

(3) The Commissioner of Income Tax Karachi v. Mst. Khatija Begum, Partner, Shakil Impex, Karachi (1965 PTD 540).

6. A review of these cases shows that, in the first case of National Insurance Corporation (Supra), while dealing with the subject of interpretation of statutes the learned Single Judge of this Court had discussed the doctrine of "Ejusdem generis and held that the special words that immediately followed or were closely associated with general words, their meaning are limited to the preceding words. In order to further elucidate the doctrine of `Ejusdem generis' reference of Privy Council judgment in the case of Sir Stuart Samuel's 19 I.C. 765.768 was also made. In the other case of Zamiruddin Ahmed (Supra) discussing the principles of interpretation of statutes, the Hon'ble Supreme Court of Pakistan held that when two or more words, which are susceptible of analogous meaning are coupled together 'noscuntur a sociis", they are understood to be used in their cogent sense. It was further held that meaning of words of general nature are to be restricted to the sense analogous to the less general ward used in the document. In the last case of the Commissioner of Income Tax Karachi (Supra) dealing with the principles of interpretation of statutes it was held that words of doubtful meaning are to be interpreted in the manner which they best harmonize with the subject of the enactment and the object, which legislature had in view. Making reference to the Book "Maxwell on Interpretation of Statutes" it was also noted that to arrive at the real meaning, it is always necessary to get an exact conception of the aim, scope and object of the whole Act, to consider according to Lord Coke (i) what was the law before the Act was passed (ii) what was the mischief or defect for which the law had not provided; (iii) what remedy Parliament has appointed; and (iv) the reasons of the remedy."

7. Mr. Arshad Siraj further contended that well recognized rule of 'Ejusdem generis' is to be applied for proper interpretation of section 50(7D) of the Ordinance of 1979, therefore, following such rule of interpretation the word "instruments of any kind" are not to be read independent of the earlier category of instruments as any isolated or independent interpretation of these words will be misleading and will frustrate the very intention of the legislature.

8. We have carefully considered the submissions of the learned counsel, perused the material placed on record and the case-law cited at the bar. A plain reading of section 50(7D) of the Ordinance of 1979, reproduced above, goes to show that it deals with the deduction of advance tax by the assessee, at the rate specified in the First Schedule, over the payment of profit or interest made by him on the instruments of the nature specified in the section, issued by any banking company, or any company referred to in sub-clause (a) or sub-clause (b) of clause (16) of section 2, or any local authority, or any finance society, not being a payment to which subsection (2) of section 50 applies. To this extent the language of section 50(7D) is quite clear and unambiguous. However, the need for further deliberations regarding the interpretation of this provision of law, in the context of the facts and circumstances of the present case, has arisen due to the words "or instrument of any kind" used by the legislature after specifying the category of particular instruments viz. bonds, certificates, debentures, securities, which are all negotiable and income generating instruments issued by any banking company, local authority, finance society or any company in terms of this section. In our view a key to the correct interpretation of these words, used in section 50(7D), will be the application of well-recognized doctrine of 'Ejusdem generis' which has been ably discussed/analyzed by the Hon'ble Supreme Court of Pakistan in the case of Jamat-I-Islami Pakistan v. Federation of Pakistan (PLD 2000 SC 111). For advantage relevant observations are reproduced as under:

"The doctrine of "ejusdim generis" is well-settled. It means that where general words follow an enumeration of persons or things, by words of a particular and specific meaning such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned.

However, the doctrine will apply when there is nothing in the provision or Act to show a wide sense was not intended or the intention to give to the general term a broader meaning than the doctrine requires was not manifested.

General terms of following particular ones apply only to such persons or things as are "ejusdem generic" with those comprehended in the language of the Legislature. In other words, the general expression is to be read as comprehending only things of the same kind as that designated by the preceding particular expressions, unless there is something to show that a wider sense was intended.

The rule of doctrine of `ejusdem generis' will apply unless intention to the contrary is clearly shown.

Where general words follow the enumeration of particular classes of persons or things, the general words, under the rule or maxim of construction known as `ejusdem generis', will be construed as applicable only to persons or things of the same general nature or class as those enumerated unless an intention to the contrary is clearly shown.

The doctrine applies when the following five conditions exist;

(1) The statute contains an enumeration by specific words;

(2) the members of the enumeration constitute a class;

(3) the class is not exhausted by the enumeration;

(4) a general term follows the enumeration; and

(5) there is not clearly manifested an intent that the general term be given a broader meaning than the doctrine requires."

9. A careful reading of the above reproduction from the judgment of Hon'ble Supreme Court of Pakistan leaves us in no doubt to hold that the doctrine of `Ejusdem generis' is fully applicable for the correct interpretation of section 50(7D), in the context of peculiar facts and circumstances of the present case. If the intention of the legislature was that advance tax is to be deducted by the assessee on the payment of profit or interest made by him on instruments of any nature, as argued by Mr. Jawaid Farooqui then the insertion of specified category of financial instruments viz; bonds, certificates, debentures, securities under section 50(7D) was a futile exercise as this intendment could have been achieved by the legislature on phrasing of section 50(7D), in the following simple words:

"Any person responsible for making any payment by way of profit or interest on instruments of any kind issued by...."

10. It is one of the well-recognized principles of interpretation of statute that no redundancy can be attributed to the use of any word or phrase, incorporated in any particular provision of law by the legislature. Not only this, but the rule of harmonious construction, when applied for the interpretation of section 50(7D) of the Ordinance of 1979 lends support to the view that the words "or instrument of any kind" are to be read in conjunction to the category of financial instruments particularly referred in section 50(7D). In the context of the facts of the present case the submission of Mr. Arshad Siraj, that the words "issued" is also significant for proper understanding of the spirit, aim and objective of section 50(7D), also seems to have much force, as in the instant case the loan agreement executed between the Banker's Equity Ltd. and the respondent, as evident from its terms and conditions, is not a negotiable instrument, therefore, it cannot be said that it was a financial instrument "issued" by the respondent in favour of Banker's Equity Ltd. on which advance tax was to be deducted by the respondent in terms of section 50(7D) ibid. The Tribunal in its impugned order, dated 9-3-1999 has also lucidly discussed and interpreted section 50(7D) ibid and rightly concluded that this provision of law, for the purpose of deduction of advance tax, refers only to the income generated from the negotiable instruments of like nature as referred in, it, and not on the instruments of any other kind, having no nexus to the financial instruments referred in this section. In our view for ascertaining the intention of the legislature as to the category of instruments on which the assessee has to deduct advance tax in terms of section 50(7D), the doctrine of `ejusdem generis' is squarely applicable in the instant case, which justified the conclusion recorded by the Tribunal in its impugned order. The other judgments referred by Mr. Arshad Siraji, as discussed above, also supports such interpretation of section 50(7D) of the Ordinance of 1979.

11. Foregoing are the reasons for our short order, dated 8-3-2007, whereby the re-framed question of law was answered in the affirmative.

M.B.A./C-4/KReference answered in affirmative.