Messrs ELLCOT SPINNING MILLS LTD. VS FEDERATION OF PAKISTAN and others
2007 PTD 1570
[Lahore High Court]
Before Nasim Sikandar, J
Messrs ELLCOT SPINNING MILLS LTD.
Versus
FEDERATION OF PAKISTAN and others
Writ Petition No.2040 of 2004, heard on 14/03/2007.
Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Part I, Cl. (77-C)---Income Tax Ordinance (XLIX of 2001), Ss.151, 159 & 239(14) [as amended by Finance Act (I of 2003)] & Second Sched., Part I---Investment in Regular Income Certificates issued by National Savings Organization---Deduction of withholding tax on profits distributed or to be distributed in future from such Scheme to investor---Validity---Such Organization as Collecting Agent of Revenue could not withhold any tax on such profits---Principles.
Messrs Prosperity Weaving Mills Ltd. v. Federation of Pakistan 2006 PTD 402 fol.
Siraj-ud-Din Khalid for Petitioner.
Muhammad Ilyas Khali for Respondents.
Date of hearing: 14th March, 2007.
JUDGMENT
NASIM SIKANDAR, J.---The petitioner a company limited by shares has invested in Regular Income Certificates issued by the National Savings Origination Working under the Directorate of National Savings, Government of Pakistan. It is aggrieved of notices issued by the respondent No.2 National Saving Centre, Gulberg, Lahore as collecting agent and the respondent No.3. The Commissioner of Income Tax, Special Zone, Lahore expressing their intention of deduction of withholding tax at the rate of 10% from the profits paid under the said scheme with reference to rule 9 of Finance Division Notification S.R.O. 100(I)/93, dated 2nd February, 1993.
2. It is the case of the petitioner that profit/interest accrued on different National Savings Schemes has all along been exempt from levy of income tax. It is, therefore, stated that the Organization as an agent of respondent No.3, the Revenue could not deduct withholding tax with reference to the said S.R.O. which is claimed to be against the statutory exemptions granted to these schemes both under the late Income Tax Ordinance, 1979 as well as the Income Tax Ordinance, 2001 (for short the Ordinance). These exemptions, according to the learned counsel for the petitioner, were granted under various clauses of Part-I of the Second Schedule to the late Income Tax Ordinance, 1979. Also relies upon a judgment recorded by me in re: Messrs Prosperity. Weaving Mills Ltd. v. Federation of Pakistan 2006 PTD 402 to contend that the facts in hand are strikingly similar to those obtaining in the aforesaid eases in which it was held that National Savings Organization as an agent of the Revenue could not withhold any tax with reference to the aforesaid rule on the profits distributed; that the said rules could not take away the concession given by law i.e. the provisions of late Income Tax Ordinance, 1,079 as also the Income Tax Ordinance, 2001.
3. A particular reference is made to paras. 6 and 7 of that judgment which read as under:---
"Para. 6 After hearing the learned counsel for the parties, I am of the view that the deduction of withholding tax on the profits earned by the petitioners on various National Savings Schemes by reference to rule 9 of the aforesaid notification is not justified on the face of it. A collective reading of the exemption clauses as contained in the late Income Tax Ordinance, 1979 as well as the Ordinance, 2001 as amended by Finance Act, 2003 supports the case of the petitioners. A yield from National Savings Schemes of respondents/Directorate of National Savings enjoys exemption where investment was made on or before 30th June, 2001. In case of Mahana Amdani Account the exemption as accordingly available where monthly instalment does not exceed one thousand rupees. In terms of section 151 of the Income Tax Ordinance, 2001 any person paying such profit or interest is not obliged to deduct tax at source nor the recipients of such yield or income is required to produce the exemption certificate under section 159 of that Ordinance. The exemption clauses contained in the Second Schedule to the late Income Tax Ordinance, 1979 as also the similar clauses in the schedule to the Income Tax Ordinance, 2001 make it clear that a continuous exemption from levy of income tax is available to the recipients of the profit/ interest/income to various schemes of the National Savings Organization. In case of Mahana Amdani Account, however, the latest provisions of subsection (14) of section 239 provide for a rider in the form of restriction of exemption where monthly instalment does not exceed one thousand rupees.
Para. 7 The respondents; National Savings Organization as well the Revenue have not been able to bring home that the petitioners are not entitled to exemption from levy of income tax or that they are required to produce any exemption certificate. It is also not disputed that all of them have made investments in the various schemes on or before 30th June, 2001. Also in the same way since the petitioner in Constitutional Petition No.5511 of 2004 enjoys exemption from levy of income tax, no withholding tax from the profits distributed to him can legally be made by the Organization.
4. Learned counsel appearing for the Revenue as well as the National Savings Organization not only support the deduction of 10% of withholding tax but also attempt to distinguish the case in hand from the ratio settled in the said judgment cited at the bar.
5. Having heard the learned counsel for the parties, I will readily agree that the ratio settled in the aforesaid judgment is applicable on all fours to the facts in hand. Para., three of that judgment details the history of exemption provisions made with respect to various schemes introduced by the National Savings Organization and the changes these provisions underwent in the late Income Tax Ordinance, 1979. Sub-clause (14) of section 239 of the Income Tax Ordinance, 2001 enforced on 1-7-2002 provided for continuation of the exemptions in the following words:---
"(14) Clause (77-C) of Part I of the First Schedule of the repealed Ordinance shall continue to apply to the yield on National Savings Deposit Certificates issued before 1st July, 2001, and a person paying yield on such a Certificate shall not deduct tax under section 151 from the payment, and the holder of such certificate shall not be required to acquire an exemption certificate under section 159 to given effect to the said exemption."
6. These provisions were further amended by Finance Act, 2003. Accordingly sub-clause (14) of section 239 was re-modeled to prescribe as under:---
"(14) Any yield from National Savings Schemes of Directorate of National Savings where investment was made on or before 30th June, 2001 and any income derived from Mahana Amdani Account where monthly instalment does not exceed one thousand rupees shall continue to remain exempt and any person paying such yield or income shall not deduct tax under section 151 therefrom and the recipient of such yield or income shall not be required to produce an exemption certificate under section 159 in support of the said exemption."
7. For the various other reasons stated in that judgment I am inclined to hold that respondent No. 2 National Savings Organization as a collecting agent of the Revenue cannot withhold any tax on the profits distributed or to be distributed in future from the scheme in which the petitioner had invested on account of their enjoyment of exemption under the provisions of late Income Tax Ordinance, 1979 as well as the Income Tax Ordinance, 2001 as detailed in that judgment.
8. Accordingly, all amounts deducted as withholding tax from the accounts of the petitioners as investor shall, at its option either be repaid in cash or wherever the concerned scheme so permits be considered to have been a part of the re-investment made by the depositor/petitioner.
9. Petition allowed.
S.A.K./E-7/LPetition accepted.