COMMISSIONER OF INCOME TAX AND WEALTH TAX VS Messrs USMAN GHEE, IDUSTRIES (PVT.) LTD. and others
2007 P T D 1377
[Supreme Court of Pakistan]
Present Iftikhar Muhammad Chaudhry, C.J., Abdul Hameed Dogar and Saiyed Saeed Ashhad, JJ
COMMISSIONER OF INCOME TAX AND WEALTH TAX
Versus
Messrs USMAN GHEE, IDUSTRIES (PVT.) LTD. and others
Civil Appeals Nos. 1344 of 2003 and 1367-1370 of 2003, decided on 27/04/2006.
(On appeal from the judgment, dated 26-7-2001 passed by Peshawar High Court, Peshawar in TR No. 33/1997 and F.A.O. Nos.24, 26 and 27 of 1997.and F.A.O. 192 of 1999).
Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Central Board of Revenue's Circular Nos. 3, 11, 12 of 1992 and Circular No.1 of 1993---`Loan'---Scope---Word "cash" not expressly used in substantive law---Not cash transactions, but only amounts received through crossed cheques or any other banking channel would be-considered a loan for purpose of S. 12(18) of Income Tax Ordinance, 1979.
Malik Muhammad Nawaz, Advocate Supreme Court, Raja Abdul Ghafoor, Advocate-on-Record and Mumaz Ahmed Member (Legal) C.B.R. for Appellants.
M.S. Khattak, Advocate-on-Record for Respondents.
ORDER
IFTIKHAR MUHAMMAD CHAUDHRY, C.J.---These appeals are by leave of the Court granted on 17-9-2003 to examine the following questions:
(i) Whether Circulars Nos. 3, 11 and 12 of 1992 and Circular No.1 of 1993 have the effect of interpreting section 12(18) of the Income Tax Ordinance? If the answer to Circular No.1 is in the affirmative, whether the Assessing Officer and the Appellate Authorities' are bound to follow the interpretation of law made by the Central Board of Revenue?
(ii) Whether the above-mentioned circulars are merely explanatory, not given in respect of section 12(18) of the Income Tax Ordinance and simply regulates the procedure in dealing with the amounts described in section 12(18) of the Income Tax Ordinance?
(iii) Whether Circulars Nos. 3, 11 and 12 of 1992 and Circular No.1 of 1993, have the effect of modification in section 12(18) of the Income Tax Ordinance?
2. Precisely stating the facts of the case are that Central Board of Revenue issued Circular Nos. 3, 11 and 12 of 1992 and Circular No. 1 of 1993 statedly to facilitate the assessees in respect of the income tax on the loans in terms of section 12(18) of the Income Tax Ordinance, 1979 (hereinafter referred to as the "Repealed Ordinance") which for the sake of convenience is reproduced as follows:--
"Section 12(18).---Where any sum, or the aggregate of sums, claimed, Or shown, to have been received as loan by an assessee during any income year commencing on or after the first day of July, 1987, from any person, not being a banking company, or a financial institution notified by the Central Board of Revenue for this purpose, otherwise than by a crossed cheque drawn on a bank exceeds one hundred thousand rupees, the said sum or the aggregate of sums shall be deemed to be the income of the assessee for the said income year chargeable to tax under this Ordinance."
3. It is the case of the Department that respondent filed a return for the assessment year 1993-94 declaring Nil income along with the statement that an amount of Rs.29,68,248 had been obtained as loan from its sister concern namely Messrs Sawabi Flour Mills through banking channel/cheque. The explanation offered by the assessee was not accepted and the amount of loan was considered to be "deemed income" of the assessee. The assessee filed appeal before the Commissioner of Income Tax (Appeals) which was allowed but the Department being not satisfied with the order of Commissioner (Appeals) approached the Income Tax Appellate Tribunal. The Tribunal allowed the appeal, set aside the order of Commissioner Income Tax (Appeals), and restored decision/order of the Deputy Commissioner of Income Tax. The assessee filed Reference Application No.40(PB) of 1996-27 before the Tribunal but the Tribunal refused to refer the questions to the High Court for its opinion. Therefore, in terms of section, 136(1) the Reference No.33 of 1997 was filed before the High Court. The learned High Court framed following questions for determination:
(i) Whether any amount received through crossed cheques, cash or any other Banking Channel is liable to tax under section 12(18) of the Income Tax Ordinance, 1979; and
(ii) Whether Income Tax Appellate Tribunal has rightly declared Circulars Nos. 3, 11 and 12 of 1992 and Circular No.1 of 1993 ultravires of section 12(18) of the Income Tax Ordinance, 1979.
4. The question No.1 was answered in negative holding that any amount received through cross cheque, cash on any other banking channel is not liable to tax under section 12(18) of the Ordinance.
5. Learned counsel for the appellant contended that the High Court had fallen into an error in using the word "cash" for the purposes of taking into consideration the loan to be income of assessee in terms of section 12(18) of the Ordinance 'because this phrase has not been used in law. Similarly the Circulars Nos. 13 and 11 of 1992 had not used this expression except in Circular No.12, that too, for the purpose of assessment year 1991-1992. According to him, the assessment under section pertained to assessment years 1992-93 and 1993-94. Similarly in Circular No.1 of 1993 the word "cash" has been used and he conceded that the expression cash cannot be used in view of the substitution of provisions of section 12(18) of the Ordinance. Thus according to him the question No.1 has not been properly decided and same is required to be modified to the extent of remaining channels of Bank i.e. cross cheques etc. and loan obtained not by cash.
6. No one has appeared on behalf of the respondent. Although the case was taken up on 26th April, 2006 when learned Advocate-On-Record appeared and in his presence the case was adjourned for today. However, he appeared and requested for adjournment on the ground that Mr. Rohela, Advocate Supreme Court is not available and he himself is not in a position to argue the case.
7. We have heard the appellants counsel and have gone through the Circulars Nos. 3, 11, 12 of 1992 and Circular No.1 of 1993 and tested their validity on the touchstone of section 12(18) of the Ordinance and on the basis of the same we are of the opinion that the learned High Court should not have used the `word "cash" in framing and answering question No.1 because substantive law has referred to other banking channels and word "cash" has not been expressly used. Therefore, on having taken into consideration the substantive law the answer to question No.1 is modified to the effect that except the cash transactions, loans/amounts received through crossed cheques or any other banking channel shall be considered a loan for the purpose of section 12(18) of the Ordinance.
8. Thus for the foregoing reasons the appeals are allowed in terms of the above observation leaving the parties to bear their own costs.
M.H./C-8/SCAppeals accepted.