VS

2008 P T D (Trib.) 1007

[Income-tax Appellate Tribunal Pakistan]

Before Rasheed Ahmed Sheikh, Chairperson and Muhammad Faiyaz Khan, Accountant Member

I.T.As. Nos.6557/IB, 6558/IB 1475/IB, 1486/IB of 2005 and 1170/IB to 1172/IB of 2006, decided on 08/02/2008.

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

----Second Sched., Part-I, Cl. (86), Ss.64 & 62---Exemption---Limitation---Assessments were annulled by the First Appellate Authority by holding that those were made on a day which was a "public holiday"---Assessment order having been annulled, there was hardly any occasion to assail the order by the assessee in further appeal as the assessee's claim of exemption from charge of income tax on the profit declared from the educational institution had stood accepted---No assessment order being in the field, the assessee's appeals were dismissed by the Appellate Tribunal being infructuous.

(b) Income Tax Ordinance (XXX of 1979)---

----S. 64(3)---C.B.R. Letter No.1(8)-Rev-Bud/98, dated 26-6-2002---Limitation for assessment---Public holiday---Order was passed on a day when there was a "public holiday"---Assessee contended that there was "public holiday" on 30th June, 2002 and limit of time was available to the Assessing Officer to pass the order was till 29th June, 2002---Validity---Notice issued under S.56 of the Income Tax Ordinance, 1979 was served upon the assessee on 11-12-1999---Last date on which the order was to be made by the Assessing Officer fell on 29-6-2002 and not on 30th June, 2002 because on the said date, there was a "public holiday" being the "Sunday"---Assessing Officer had become functus officio not to pass the order on any other date falling beyond 29th June, 2002---Since, the order was passed on 30th June, 2002 when the Courts were closed to conduct judicial proceedings, because of a "public holiday" on the said date order was passed by the Assessing Officer without any lawful authority being hit by limitation as provided under S.64(3) of the Income Tax Ordinance, 1979---Assessment annulled by, the First Appellate Authority was not intervened by the Appellate Tribunal.

(c) Word and Phrases---

----Public Holiday---Sunday---Expression "Public Holiday" includes "Sunday" and any other day declared by the government by notification in the official Gazette to be the "Public Holiday".

(d) Income Tax---

----Limitation---Public holiday---Application of period of limitation---Principles---Generally and usually every statute provides limitation to cater the eventualities which may, for the purposes of implementation of its provisions, be required---Some of them relate to filing of suit, appeal or application while some of them pertain to passing or making of orders---As far as suit appeal or application is concerned, where the period of limitation prescribed in the statute expires on a day when the court was closed, that may be instituted, preferred or made on the day when it re-opens which does not mean that the period of limitation prescribed under the law has been extended; it simply permits a suit, appeal or application to be filed on re-opening of the court where period of limitation had expired on the day when the court was closed---Where the order is, to be made, a cut date is always provided so that the proceedings may be concluded within that period of time---Strict adherence to the limit of time provided by the statute for making the order is to be made because question of assumption of jurisdiction is always involved in such situation.

(e) Income Tax---

----`Legal Holiday' or a `Public Holiday'---Limitation---Computation---Principles---Order could not be passed on a day when there was a "Legal Holiday" or a "Public Holiday" for the reason that all the judicial proceedings would stand terminated on the day of "Public Holiday" because the Court had ceased to have seisin over the case---Powers to pass the order could not be extended to the next working day by virtue of limitation provided by the statute which stands expired on the day when it was a "Public Holiday"---While counting the period of limitation, the day on which there was a "Public Holiday" was to be excluded.

(f) Income Tax Ordinance (XXXI of 1970)---

----S. 64(3)---C.B.R. Letter No.1(8)-Rev-Bud/98, dated 26-6-2002---Limitation for assessment---Public holiday---All officers were instructed to keep their offices open on 30th June, 2002 vide C.B.R. Letter No.1(8)-Rev-Bud/98, dated 26-6-2002---Purport and the tenor of such letter was to collect taxes and a request was made to the State Bank of Pakistan and the National Bank of Pakistan to remain open in order to ensure proper accounting the payments of taxes and to facilitate the taxpayers---Said letter of Central Board of Revenue, in no way, casts any impact or had any relevance with regard to conducting judicial proceedings or framing of assessment on 30th June, 2002---Even otherwise same had not any binding effect on the courts or the Appellate Tribunal.

(g) General Clauses Act (X of 1897)---

----S. 20-A---Income Tax Ordinance (XXXI of 1979), S.64(3)---C.B.R. Letter No.1(8)-Rev-Bud/98, dated 26-6-2002---Letter issued by the Central Board of Revenue to keep open the offices on 30th June, 2002 was not published in the official Gazette---All rules, Orders, Regulations and Circulars having the effect of law made or issued under any enactment have to be published in the official Gazette---Section 20A of the General Clauses Act, 1897 deal with the mischief in all those cases where the authorities who were conferred with the. powers to issue instructions or make rules/regulations under the statute could do the same within the secrecy of their offices without publishing the notification or publicizing the same thereby sets a trap for the citizens; under section 20-A notwithstanding the absence of requirement of notification in the statute, all regulations must necessarily be published in the official gazette---Such exercise had not been made by the Central Board of Revenue while issuing the letter directing to remain open the offices on 30th June, 2002.

2005 PTD 53 rel.

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

---Second Sched., Part-I, Cl. (86)---Exemption---Educational institution--Charitable institution---.Exemption was denied by the Assessing Officer that the institution being not established solely for educational purposes rather it was set up for various other purpose which were enumerated in the aims and objectives of the society such as establishment of blood bank, financial aid to the poors, dowers for the girls etc.---Refusal to grant exemption was upheld by the First Appellate Authority after observing that the limitation did not have sole purpose of education Validity-Although the assessee had mentioned other aims and objectives in the memorandum but the fact remained that no material had been gathered to find out as to whether the assessee was carrying on .such activities or not---Mere mentioning other aims and objectives, though also revolve around charitable purposes, did not debar the assessee from availing exemption---Assessing Officer was all out to disbelieve the claim of exemption after grappling with irrelevant material or on account of extraneous considerations which did not empower him to do so---Revenue could have a better case for denying exemption to the assessee if it could bring sufficient material on record to show that the premises owned by the institution had been rented out or the income earned by it had been channelized to other profit earning avenues---Nothing was available on record wherefrom it could be deduced that the surplus arising out of the earning of the school or any part thereof had been distributed amongst the Members of the Board or had been misused by the management---In absence of any evidence to the contrary, exemption to the institution could not be refused under the garb of flimsy or lopsided reasoning---Neither any glaring disability nor any disqualification having been pointed out by the Revenue on the basis of which claim of exemption to the profit earned by the assessee could be denied department had no case---Assessee's claim of exemption had been refused on whimsical inference drawn from the set of facts which were recorded ante, exemption to the educational institution of the assessee was allowed in terms of Cl.86 of the Part-I of the Second Schedule to the Income Tax Ordinance, 1979.

1994 PTD (Trib.) 1294 rel.

Black's Law Dictionary, Fifth Edn.; p.659; 2002 PTD 2832; 2001 PTD 987; 1998 PTD (Trib.) 1099 and 1998 PTD "(Trib.) 1099 ref.

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

----Second Sched. Part-I, Cl.86---Exemption---Educational institution---Ratio and principle---Exemption claimed must be granted to the educational institutions, which are established solely for educational purposes having non-profit motives.

1994 PTD (Trib.) 1294 rel.

Saleem Ahmed, I.T.P. and Khawaja Ali Rauf for Appellant (I.T.As. Nos.6557/IB, 6558/IB of 2005 and 1170/IB to 1172/IB of 2006).

Nemo for Respondent (I.T.As. Nos. 6557/IB, 6558/IB of 2005 and 1170/IB to 1172/IB of 2006).

Nemo for Appellant (I.T.As. Nos. 1475/IB and 1476/IB of 2005).

Saleem Ahmed, I.T.P. and Khawaja Ali Rauf for Respondent (I.T.As. Nos. 1475/IB and 1476/IB of 2005).

ORDER

This order is intended to dispose of above titled 7 appeals, out of which 4 are cross appeals; 2 each filed by the assessee-appellant and the Revenue; which pertain to assessment years 1998-99 and 1999-2000. These appeals are directed against the consolidated order passed by C.I.T., Appeals Zone Faisalabad, Camp at Sargodha, dated 29-6-2005. Besides, the assessee-appellant has also come up in further appeal against the combined order passed by C.I.T. (A), Zone-I, Faisalabad, dated 31-1-2006 in respect of assessment years 2000-01, 2001-02 and 2002-03.

2. For the assessment years 1998-99 and 1999-2000 the assessee appellant has objected the impugned appellate order, dated 29-6-2005 on the common ground that the officers below were not at all justified in refusing and confirming to allow exemption to the income earned by the assessee-appellant from charge of income tax from the educational institution namely Dar-e-Argam Model, School, Sargodha in view of clause (86) of Part-I of the 2nd Schedule to the Repealed Income Tax Ordinance, 1979. On the other hand the departmental ground is that the learned Appeal Commissioner has fallen in grave error in annulling the assessment order by observing that the assessment framed for the 2 assessment years under consideration were barred by time on 30-6-2002 on account of being "public holiday" on the said date.

3. As regards the assessee-appellant's appeal for the assessment years 1998-99 and 1999-2000 those are not maintainable in law. Reason being the assessment orders for these 2 years have been annulled by the first appellate authority by holding that those were made on a day on which there was a "public holiday". When viewed in the perspective that the assessment order has been annulled by the first appellate authority, there arises hardly any occasion to assail the impugned appellate order by the assessee-appellant in further appeal. Meaning thereby that the assessee's claim of exemption from charge of income tax on the profit declared from the educational institution had stood accepted. Since there was no assessment order in the field, therefore, the assessee's appeals for the assessment years 1998-99 and 1999-2000 are dismissed being infructuous.

4. Now, coming to the department appeal, although none has prosecuted on behalf of the Revenue despite proper intimation made to it by way of sending call notice for hearing of the appeal, nevertheless, those are disposed of on merits on the basis of available record by resort to section 132(2) of the Income Tax Ordinance, 2001 read with Rule 20 of the ITAT Rules 2004.

5. The question which has come up for our consideration is as to whether the learned Appeal Commissioner was justified in annulling the assessment order made on 30-6-2002 being hit by limitation on the ground that the said order was passed on a day when there was a "public holiday".

6. Relevant facts for adjudicating the question posed supra are that the assessee-respondent is running an educational institution and exemption from charge of income tax was claimed on the income so earned therefrom in terms of Clause (86) of Part-I of the 2nd Schedule to the Income Tax Ordinance, 1979. This is a second round of assessment.. In first round, claim of exemption was discarded by the assessing officer for the reasons embodied in the assessment order. Against that treatment, appeal was filed before the first appellate authority who set aside the assessment order to be made afresh. That order was challenged not only by the assessee but also by the Revenue before the Income Tax Appellate Tribunal. Accordingly, the case was sent back by it directing the first appellate authority to dilate upon all the points which were raised before him. Such as, passing the assessment order by the Assessing Officer without any lawful authority, rejection of claim of exemption under the said clause and non-issuance of notice under section 62 of the Income Tax Ordinance, 1979. However, on rehearing the assessment order was annulled by the learned first appellate authority on legal premises by observing that the same was not legally and lawfully made for want of limitation.

7. What happened in this case was that the notices issued under section 56 of the Repealed Income Tax Ordinance, 1979, for the assessment years 1998-99 and 1999-2000, were received by the assessee on 11-12-1999 and the order was passed by the assessing officer on 30-6-2002. According to the assessee, there was a "public holiday" on 30th June, 2002, thus, limit of time which was available to the assessing officer to pass the order was till 29th June, 2002 and not thereafter considering the period of time specified under section 64(3) of the Income Tax Ordinance, 1979. In this backdrop, the assessment order was annulled by the first appellate authority.

8. We have given anxious thought to the aforesaid facts and find action of the learned Appeal Commissioner in annulling the assessment order to be the quite legitimate. Subsection (3) of section 64 of the Income Tax Ordinance, 1979 has put embargo on the powers of the assessing officer that he shall not pass the assessment order under section 62 or section 63 of the said Ordinance after the expiration of 2 years from the end of the financial year in which notice under section 56, subsection (3) of section 72 or subsection (3) of section 81 was served upon the assessee. Reckoning the period of time, it is noted that the notice issued under section 56 of the Income Tax Ordinance, 1979 was statedly served upon the assessee on 11-12-1999. So, the last date on which the order was to be made by the assessing officer fell on 29-6-2002 and not on 30th June, 2002 because on the said date, there was a "public holiday" being the "Sunday".

9. The term "holiday" has been defined in the Income Tax Ordinance, 1979. However, according to Black's Law Dictionary, Fifth Edition, at page 659, it means:---

"a day upon which the usual operations of business are suspended and the Courts closed, and, generally, no legal process is served."

10. There is also a "legal holiday". It has been defined at page 805 of the said dictionary in the following words:---

"A day designated by law as exempt from judicial proceedings, service of process, demand and protest of commercial paper, etc. A day designated by legislative enactment for purpose within meaning of term "holiday."

11. As regards "Public Holiday", this expression includes "Sunday" and any other day declared by the Government by notification in the official Gazette to be the "Public Holiday".

12. It would not be out of place to mention here that generally and usually every statute provides limitation to cater the eventualities which may for the purpose of implementation of its provisions are required. Some of them relate filing of suit, appeal or application while some of them pertain to passing or making of orders. As far as suit, appeal or application is concerned, where the period of limitation prescribed in the statute expires on a day when the Court is closed, that may be instituted, preferred or made on the day when it re-opens. This does not mean that the period of limitation prescribed under the law has been extended. It simply permits a suit, appeal or application be filed on re-opening of the Court where period of limitation had expired on the day when the Court was closed. But where the order is to be made, a cut date is always provided so that the proceedings may be concluded within that period of time. So, by all means strict adherence to the limit of time provided by the statute for making the order is to be made because question of assumption of jurisdiction is always involved in this situation.

13. If, in this background, we look into the controversy as to whether the order can be passed on a day when there is a "Legal Holiday" or a "Public Holiday". Our answer would be in negative. Reason being all the judicial proceedings would stand terminated on the day of "Public Holiday" because the Court is ceased to have seisin over the case. So, the powers to pass the order cannot be extended to the next working day by virtue of limitation provided by the statute which stands expired on the day when it was a "Public Holiday". Outcome of it would be that, while counting the period of limitation, the day on which there is a "Public Holiday" is to be excluded therefrom.

14. We have also come across a C.B.R. letter bearing No.1(8)-Rev-Bud/98, dated 26-6-2002 whereby all the offices were instructed to remain open the offices on 30th June, 2002. On going through the contents of that letter it is noted that the purport and the tenor of this letter was to collect taxes and in this background, a request was made to the State Bank of Pakistan and the National Bank of Pakistan to remain open in order to ensure proper accounting of payments of taxes and to facilitate the tax payers. So, that letter of the C.B.R. in no way casts any impact or has any relevance with regard to conducting judicial proceedings or framing of assessment on 30th June, 2002. Even otherwise it has not any binding effect on the Court or the Appellate Tribunal.

15. We have also noted that the letter issued by the C.B.R. to, remain open the offices on 30th June, 2002. was not published in the official Gazette. According to Rule 20A of the General Clauses Act, 1897 all Rules, Orders, Regulations and Circulars having the effect of law made or issued under any enactment shall be published in the official, Gazette. This section, in fact, deals with the mischief in all those cases where the authorities who are conferred with the powers to issue instructions or make rules/regulations under the statute can do the same within the secrecy of their offences without publishing the notification or publicizing the same thereby sets a trap for the citizens. Now, under this section, notwithstanding in the absence of requirement of notification in a statute, all regulations must necessarily be published in the official gazette. This exercise has not been made by the C.B.R. while issuing the letter directing to remain open the offices on 30th June, 2002. Strength in this regard has also been acquired from the case law reported as 2005 PTD 53.

16. Corollary of the events would be that powers to make the assessment order was available to the assessing officer till 29th June, 200' and not thereafter i.e., on 30th June, 2002. Thus, the assessing officer had become functus officio not to pass the order on any other date falling beyond 29th June, 2002. Since, the order in the instant case was passed on 30th June, 2002 when the Courts were ceased to conduct judicial proceedings, because of a "public holiday" on the said date, therefore, we are persuaded to hold that the order was passed by the assessing officer without any lawful authority being hit by limitation as is provided under section 64(3) of the Income Tax Ordinance, 1979. We, are, therefore, restrained to intervene in the impugned appellate order on behalf of the revenue.

Assessment Years 2000-01, 2001-02 and 2002-03.

17. For all these 3 assessment years, main thrust of the learned counsel for the assessee is that the assessing officer was not at all justified in refusing to allow exemption on the profit earned by the educational institution in terms of clause (86) of the 2nd Schedule to the Income Tax Ordinance, 1979 and confirmation thereof by the first appellate authority was unwarranted on the facts and in the circumstances of the case. Alternate grounds pertain to rejection of declared version, excessive estimation of receipts and the add-backs made out of the profit and losses expenses. Facts as emerged are that the assessee-appellant has set up an educational institution to impart education. Income tax returns were filed claiming exemption from charge of income tax on the profit earned from the educational institution namely Supra: In order to substantiate the claim, various registers, receipts vouchers, balance sheet, audited reports of each year cash flow etc. were produced for examination of the assessing officer. This fact has been acknowledged by the assessing officer at pages 1 and 2 of the consolidated order passed for the years under reference. Moreover, in response to the show-cause notice issued under section 62 of the Income Tax Ordinance, 1979, it was stated as under:---

"The voluminous record comprising Books of Accounts, Salary Registers, Receipts Books, Student Attendance Registers, Utility Bills, Copies of Agreement and payment vouchers etc.; were produced before your honour and were thoroughly examined by your honour. That the document/details required by your honour are being produced herewith for your kind perusal."

However, after examination of all those documents, it was observed by the assessing officer, that the assessee had failed to establish its operation truly and substantially to be the charitable institution. Also observed by the assessing officer that neither any general meeting of the members of the society was called nor accounts of the society were presented before the annual general meeting. Besides, accounts of the assessee were not published and even Bank account of the Society was not maintained. The receipts and the expenses were not routed through the banking channel. It was, accordingly concluded by the assessing officer that the institution did not fall within the purview of Clause (86) of 2nd Schedule to the Income Tax Ordinance being not established solely for educational purposes rather it is set up for various other purposes which are enumerated in the aims and objectives of the society such as establishment of blood Bank, financial aid to the poors, dowers for the poor girls etc. Accordingly, net income was computed by the assessing officer at Rs.5,00,608, Rs.7,00,093 and Rs.8,00,825 respectively after estimating receipts and allowing expenses therefrom. At the first appellate authority stage, refusal to grant exemption was upheld by the first appellate authority after observing that the institution did not have sole purpose of education. The case law referred to by the learned counsel for the assessee in support of the claim were also distinguished for the reasons recorded therein. However, partial relief in the estimation of receipts was allowed while rest of the treatment accorded with regard to the profit and loss disallowance was maintained. This has compelled the assessee-appellant to come up in the appeal before the Tribunal.

18. After hearing the learned counsel for the assessee-appellant and on going through the facts available on record as well as the case law in re: 2002 PTD 2832 (L.H.C.), 1994 PTD (Trib.) 1294, 2001 PTD 987 (Kar. H.C.), 1998 PTD (Trib.) 1099 and 1998 PTD (Trib.) 1099 referred to before us, we find that the officers below have not only misdirected but have also misconceived themselves in observing that the institution does not fall within the four corners of Clause (86) of Part-I of the 2nd Schedule to the Income Tax Ordinance, 1979. In order to resolve the controversy it would be beneficial to reproduce this clause hereunder:

"Income of Universities and Educational Institutions:

(86) "any income of any University or other educational institution established solely for educational purposes and not for purposes of profit."

Plain reading of this clause makes it abundantly clear that the legislature has prescribed 2 conditions to be precedented for grant of claim of exemption. First one is that it should be the University or the educational institution. The second one is that the purpose of the institution should not be to make profit therefrom. When the facts of the case recorded for refusal of the claim of exemption have been examined by us in the parameter laid down supra, we find that this is not the departmental case that the educational institution has not been established nor it is imparting education. However, not an iota of evidence whatsoever has been adduced by the department wherefrom it could be inferred that the profit so earned was ploughed to other business channels. Nor any effort seems to have been made by the assessing officer to dig out as to whether the profit earned from the educational institution is being shared amongst the members of the Society. Although the assessee has mentioned other aims and objectives in the memorandum but the fact remains that no material has been gathered to find out as to whether the assessee is carrying on such activities or not. Mere mentioning other aims and objectives, though also revolve around charitable purposes, does not debar the assessee not to allow exemption to him under clause (86) of Part-I of the 2nd Schedule to the Income Tax Ordinance, 1979. In fact, the assessing officer went all out to disbelieve the claim of exemption after grappling irrelevant material or on account of extraneous considerations which do not empower him to do so. The revenue could have, however, a better case for denying exemption to the assessee if it could bring sufficient material on record to show that the premises owned by the institution have been rented out or the income earned by it has been channelized to other profit earning avenues. Even there is nothing on record wherefrom it could be deduced that the surplus arising out of the earning of the school or any part thereof has been distributed amongst the Members of the Board or have been misused by the management. In absence of any evidence to the contrary, exemption to the institution cannot be refused under the garb of flimsy or lopsided reasonings.

20. We have also gone through the case law mentioned supra and find the observation of the Appeal Commissioner, that those were distinguishable viz. the case of the present assessee, to be quite misplaced. Actually it was duty of the first appellate authority to look into as what was the ratio and the principles laid down therein and whether that was squarely applicable to the facts of the instant case or not? We do not think that there was any need to brush aside the case law on the basis of distinguishable facts as has been done by the first appellate authority. It should always be kept in mind that facts of each and every case vary from each other. Actually this is the ratio and the principle which has been settled in the case law in order to be followed. So, to straighten the record we would like to state here that the ratio and principle laid down in all those case law is that the exemption claimed must be granted to the educational institution which are established solely for educational purposes having non-profit motives. The appellate Tribunal, while interpreting clauses (86) and (93) of Part-I, of the 2nd Schedule to the Income Tax Ordinance, 1979, in a case cited as 1994-PTD-(Trib.) 1294 has observed in the following words:

"It is possible that trust may be doing various activities and it is also possible that one or some of the activities may fall in exemption clauses. A trust or an assessee would not be disallowed any exemption if it is available to him under any of the clauses on the basis that some of the activities or line of business are not exempt. The nature of income or line of business is necessary to determine the taxability of a person. If any income is received from the activities which are treated exempt under any clause of the Income Tax Ordinance, then the assessee would not be deprived of that benefit. In the present case, it has been proved that the main purpose of the trust is to run schools, but in doing so some activities are undertaken by trust, which are beyond the scope of exemption clauses, then only those activities would be subjected to tax. If an assessee is permitted to do various lines of business, then the trust would not be deprived of such benefits."

In our view the ratio and the principle, referred to supra, is fully attracted to the facts of the instant case because both the essential conditions as are enumerated under clause 86, Part-I of the 2nd Schedule to the Income Tax Ordinance, 1979 for grant of exemption are adhered to by the assessee-appellant in its letter and spirits.

21. Since, neither any glaring disability nor any disqualification has been pointed out by the revenue on the basis of which claim of exemption to the profit earned by the assessee-appellant could be denied. We are convinced that the assessee's claim of exemption has been refused on whimsical inference drawn from the set of facts which are recorded ante. After having taken regard to the aforesaid discussion and respectfully following the ratio and the principle decidendi in the case law, exemption to the educational institution of the assessee-appellant is hereby allowed in terms of Clause 86 of Part-I of 2nd Schedule to the Income Tax Ordinance, 1979.

22. In the result, the assessee's appeal for the assessment years 1998-99 and 1999-2000 are dismissed being infructuous while the departments appeals for these 2 years fail and are dismissed being bereft of any merits. As regards the assessee's appeal for the assessment years 2000-01, 2001-02 and 2002-2003, those are, accordingly, succeeded.

C.M.A./29/Tax(Trib.)Order accordingly.