COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI VS Messrs SAMAD CHARITABLE TRUST, KARACHI, 2007 PTD-KARACHI-HIGH-COURT-SINDH 1553 (2007)

Income Tax Ordinance (XXXI of 1979)---

----Second Sched., Cls. (93) & (94)----Charitable and religious trust---Exemption from tax, claim for---Scope---Not necessary for trust to spend its entire income of assessment year in the year in which same was earned for charity---Even setting apart income for purposes of fund to be in accord with provision of CL. (93) of Second Sched., of Income Tax Ordinance, 1979 would be enough to avail exemption there under---Trust would be entitled to such claim in absence of any proof regarding misuse of any part of income for purposes other than purposes of funds or acquisition of any personal benefit by its members---Principles.

Aqeel Ahmed Abbasi for Appellant.

ORDER

MUHAMMAD ATHAR SAEED, J.---These Income Tax Appeals have been filed against the order of the Income Tax Appellate Tribunal dated 2-4-1997, seeking the opinion of this Court on the following identical question ---

"Whether on facts & circumstances of the case the learned Income Tax Appellate Tribunal was justified to hold that Assessees Trust (Messrs Samad Charitable Trust) qualifies for exemption under clause (93) of the Second Schedule of the Income TaxOrdinance, 1979?"

2. We have heard Mr. Aqeel Ahmed Abbasi, the learned counsel for the appellant and perused the impugned order.

3. At the very outset Mr. Aqeel Ahmed Abbasi, pointed out that this is a majority order as initially there was a difference of opinion between the learned Judicial Member and the learned Accountant Member. The learned Accountant Member had held that the applicant was entitled to exemption under clause (93) of the Second Schedule to the Income Tax Ordinance, 1979, whereas the learned Judicial Member did not agree with him and held that the respondent was not entitled to exemption under clause (93) of the Second Schedule. Due to this difference of opinion the following issue was referred to the learned Chairman for adjudication:---

"Whether under the facts and circumstances of the case, the income of assessee---Trust (Samad Charitable Trust) is liable for exemption in all the relevant assessment years?"

4. The learned Chairman agreed with the opinion of the learned Accountant Member that the applicant is entitled to exemption under clause (93) and therefore, by majority decision the appeals of the assessee were allowed and departmental appeals were dismissed.

5. The main contention of the learned counsel for appellant is that the applicant did not qualify for exemption under clause (93) as it did not fulfil the conditions prescribed therein. His contention was that the respondent had only donated very meagre part of his profits for the purposes of charity and had invested the balance amount in purchase of shares and real estate and other valuable properties. He took us through the order of the learned Judicial Member to prove that the dissenting order was passed in accordance with law. He adopted the provisions of the order of the learned Judicial Member and stated that the same may be considered to be his arguments.

6. We have examined these applications in the light of the arguments of the learned counsel and have carefully perused the impugned order. Since the controversy in hand relates to clauses (93) & (94) of the Second Sched of the Income Tax Ordinance, it will be relevant to reproduce the same:---

"(93) Any income which is derived from property or business held under trust or other legal obligations wholly, or in part only, for religious and charitable purposes and is actually applied or finally set apart for application thereto:

(94) Any income of a religious or charitable institution derived from voluntary contributions and 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 enure for the benefit of the public."

The said provisions were changed during the assessment year 1989-90 and onwards, and they stood as follows:---

"(93) Any income which is derived from house property held under trust or other legal obligations wholly, or in part only, for religious and charitable purposes and is actually applied or finally set apart for application thereto:

Provided that nothing in this clause shall apply to so much of the income as is not expended within Pakistan:

Provided further that if any sum out of the amount so set apart is expended outside Pakistan, it shall be included in the total income of the income year in which it is so expended or of the year in which it was set apart, whichever is the greater, and the provisions of subsection (3) of the section 65 shall not apply to any assessment made or to be made in pursuance of this proviso.

Explanation.---Notwithstanding anything contained in the Mussalman Wakf Validating Act, 1913 (VI of 1913), or any other law for the time being in force or in the instrument relating to the trust or the institution, if any amount is set apart, expended or disbursed for the maintenance and support wholly or partially of the family, children or descendents of the author of the trust or the donor or the maker of the institution or for his own maintenance and support during his life time or payment to himself or his . family, children, relations or descendents or for the payment of this or their debts out of the income from house property dedicated, or if each case such expenditure, provision, setting apart, payment or disbursement shall not be deemed, for the purposes of this clause, to be for religious or charitable purposes.

(94) Any income of a religious or charitable institution derived from voluntary contributions and 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 enure for the benefit of the public."

7. In paragraph 13 of his order the learned Accountant Member has summarized the basis for rejection of appeals.

"A gist of above discussion can be summarized as follows:---

(a)If a Trust is a private Trust then it has to pass strict test that the income of the Trust in the particular assessment year is utilized for the purposes of the Trust defined in the Trust Deed so that any doubt may not be created in the mind of the Assessing Officer that the purpose of the Trust is being thwarted.

(b)It would be better for an assessee Trust and his case would be on sound footing, if the assessee should fulfil all the conditions prescribed in section 47 of the Income Tax Ordinance and Rules contained in the Income Tax Rules.

(c)In case of exemption of the assessee Trust, it is not necessary to prove that the investment either in share or in properties is sound because we are not judging a true businessman, but we are judging a true God fearing Trustee of a charitable and religious Trust.

(d)The income of the Trust may not be spent for the purposes of the Trust in one assessment year but it would be seen that the income is not misused.

In view of the above and whatever stated above. I am of the view that the income of the Trust was not exempt and is liable to tax."

8. The learned Judicial Member has also expressed the view that if Trust had not received any public donations, but only the income from business done by the assessee the Trust cannot perform religious & charitable activities and it is not entitled for exemption, but has failed to substantiate his above contention. Perhaps he may be referring to exemption from voluntary contributions envisaged in clause (94), but in our opinion this does not prejudice his claim for exemption of other incomes under clause (93).

9. We have carefully analyzed the reasons for which learned Judicial Member has rejected the appeals and after reviewing clause (93) we are of the considered opinion that the learned Judicial Member has failed to point out any reason which can justify the disqualification of the respondent from availing the exemption available under clauses (93) & (94). We also agree with the learned Chairman that the learned Judicial Member has based his judgment on irrelevant consideration such as the procedure of approval under section 47 and the fact that the meagre amount have been spent on charity and religious activities.

10. We find that the learned Judicial Member has himself admitted that it is not necessary to spend the entire income of the assessment year in the year in which it was earned for charity, but even setting apart the A income for the purposes of fund which are irk accordance with the provision of clause (93) is enough to avail exemption under clause (93). We have also carefully reviewed the impugned order of the learned Accountant Member and the order of, the learned Chairman, who has acted as a refree, Judge.

11. From a perusal of all three orders and the order of the Assessing Officer, it is observed that it has nowhere been alleged or proved that any part of the income has been misused for the purposes other than the B purposes of funds or any personal benefit has been acquired by the members of the Trust. No judgments have been relied on before us but we find that the judgments which were cited at the Bar before the Tribunal and discussed in the orders of all the members support the case of the respondent. We find that the learned Accountant Member and the learned Chairman and even the learned Judicial Member have all decided the issue on the factual position of the case and no legal issue arises from this order. However, since the question whether an assessee qualifies for exemption under clauses (93) and (94) is a mixed question of fact and law therefore, after hearing the learned counsel on 17-1-2007, we had answered the proposed question in affirmative. As a consequence of our answer we had dismissed all the above appeals in limine.

12. Foregoing are the reasons for our short order dated 17-1-2007.

S. A: K./C-12/KAppeals dismissed.