VS, 2008 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 378 (2007)

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

----Ss. 80-D, 113, 63 & 2(16)(b) & Second Sched., Part-I, Cl.. (90)---Minimum tax on income of certain persons---Pakistan Hockey Federation---First Appellate Authority annulled the assessments by holding that charging tax on a non-taxable entity being an institution recognized by the Government for the purposes of promoting, controlling and regulating any sport or game was illegal---Department contended that Federation was a body corporate and well under the definition of a company and its receipts were liable to minimum taxation even if it was otherwise exempt from taxation under the Second Schedule to the Income Tax Ordinance, 1979---Validity---Pakistan Hockey Federation qualified as a body corporate and fell within the four corners of the definition assigned to a company under S.2(16) of the Income Tax Ordinance, 1979-Being a sports organization established for the promotion and controlling the game of hockey, its income was exempt from taxation under Cls. (90) & (91)(i) of Part I of the Second Schedule to the Income Tax Ordinance, 1979 but S.80D of the Income Tax Ordinance, 1979 did not exclude from its ambit, a company enjoying exemption under any other provisions of law except those entities to whom the decision of the Supreme Court in PLD 1997 SC 582 related---Hockey Federation could not be crabbed with those taxpayers enjoying the benefit of Protection of Economic Reforms Act, 1992---Federation being a non-business/non-profit organization was also not substantiated through submission of annual accounts---Pakistan Hockey Federation fell within the definition of a company and was hit by mischief of S.80-D of the Income Tax Ordinance, 1979 unless it was proved that the sources of receipts were from non-commercial activities.

Black's Law Dictionary ref.

2003 PTD 1264 and Messrs Ellahi Cotton Mills v. Federation of Pakistan PLD 1997 SC 582 rel.

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

----Ss. 80-D & 63---Minimum tax on income of certain persons---Estimation of turnover/receipts for levy of minimum tax---Validity---Provision of S.80-D of the Income Tax Ordinance, 1979 expressly mentioned that it should be the "aggregate to the declared turnover"---Such turnover could not be hypothetical figures (s) based on presumptions and surmises of the Tax. Authority---Assessing Officer had levied tax on the "presumed figures of receipt", which were neither declared nor based on an independent source---Assessee deliberately avoided to present/file statements of accounts before the departmental officer---Appellate Tribunal' vacated the order and set aside the assessment order to be made `de novo' in circumstances.

Sabiha Mujahid, D.R. for Appellant.

Aslam Malik, C.A. for Respondent.

ORDER

These six department appeals have been preferred assailing the CIT(A)'s order, dated 29-4-2006 on the following common grounds:--

(i) That the learned Commissioner of Income Tax (Appeals) was not justified in annulling the assessment finalized under section 63 of the (Repealed) Income Tax Ordinance, 1979 as it was made in accordance with the provisions of law and as per facts of the case.

(ii) That the learned Commissioner of Income Tax (Appeals) was not justified in observing "that imputation of earning receipts by the assessee and subjection of the same to tax under section 80D of the (Repealed) Income Tax Ordinance, 1979 are improper and incorrect.

(iii) That the learned Commissioner of Income Tax (Appeals) was not justified in holding that charging tax or imputing income on a non-taxable and non-income earning organization is illegal.

(iv) That the order passed by the learned Commissioner of Income Tax (Appeals) is illegal since he failed to distinguish between assessee exemption from levy of tax under normal law and assessee exemption from levy of minimum tax under section 80D of the (Repealed) Income Tax Ordinance, 1979".

2. Facts, in brief, are that since neither the assessee had filed returns nor made compliance of statutory notices issued from time to time, therefore, ex parte assessments under section 63 were completed for all the assessment years under appeal treating the respondent-Federation as a body corporate and subjecting to tax "total receipt presumed to be taxed in terms of section 80D/113". Before the learned CIT(A) it was pleaded that Pakistan Hockey Federation was a sports organization established by the Government of Pakistan and it was not a body corporate. It was further argued that sports organizations were exempt from tax under clauses (90) and (90)(i) of Part-I of the Second Schedule to the Repealed Income Tax Ordinance, 1979, therefore, it was not mandatorily required to file the return. Considering these arguments, the learned CIT(A) annulled the assessments holding that charging tax on a non-taxable entity being an institution recognized by the Government for the purposes of promoting, controlling and regulating any sports or game was illegal. The department, still feeling unsatisfied, has filed these appeals.

3. The learned DR supporting the reasoning of the Taxation Officer argued that the respondent, enjoying the status of a body corporate/company was under legal obligation to file the income tax returns. According to her, since, the respondent failed to do so, the Taxation Officer had rightly subjected the receipts to minimum tax under section 80D. The learned AR, on the other hand reiterated his submissions as were advanced before the First Appellate Authority. He further argued that since, Hokey Federation was a sports promotional organization which was not engaged in any commercial activity, therefore, it was wrongly subjected to minimum tax under section 80D. In support of his arguments he has placed before us a copy of the constitution of Pakistan Hockey Federation. According to Article 9 of the Constitution the object of the Federation, inter alia, is "to promote, control, develop and organize the game of Hockey at all levels in Pakistan...."

4. We have heard both the learned representatives of the parties to the dispute, perused the available record, and gone through the relevant provisions of law. The main thrust of the Revenue is that the respondent-Federation was a body corporate and fell under the definition of a company, therefore, its receipts were liable to minimum taxation even if it was otherwise exempt from taxation under the Second Schedule to the Income Tax Ordinance, 1979. Before proceeding further we would like to reproduce the provisions of section 80D:--

"Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable (or paid) by a company (or registered firm) an individual, an association of persons,- an unregistered firm or a Hindu undivided family resident in Pakistan or the tax payable (or paid) is less than one half per cent of the amount representing its turnover from all sources the aggregate of the declared turnover shall be deemed to the income of the said company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family and tax thereon shall be charged in the manner specified in subsection."

"Explanation.---For the removal of doubt, it is declared that the expressions "where no tax is payable or paid" and "or the tax payable or paid" apply to all cases where. tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in force".

Perusal of the above provisions of law shows that section 80D "shall" be invoked on the "aggregate of the declared turnover" (underlined for emphasis) of certain persons including a company if no tax wag payable or paid by it or the tax payable or paid was less than one half per cent of the amount. We are seized with two issues: (i) Whether PHF fell under the definition of a company; and (ii) whether the minimum tax could be imposed on the `presumed' figures of receipts as have been adopted and taxed by the department?

5. As regards the first issue, per section 2(16)(b) the definition of a "company" includes "a body corporate formed by or under any law for the time being in force..." As per Black's Law Dictionary the words "body corporate" have been equated and defined as a "corporation"---An entity (usually a business) having authority under law to act as a single person distinct from the shareholders who own it and having rights to issue stock and exist indefinitely; a group or succession of persons established in accordance with legal rules into a legal or juristic person that has legal personality distinct from the natural persons who make it up, exist indefinitely apart from them and has the legal powers that its constitution gives it...".

6. If we go by the above definition as well as its constitution, dated January, 2002, PHF having been established through a particular statute, is a legal or juristic person that has a legal personality distinct from the natural persons who make it up and exists indefinitely apart from them and has the legal powers that its constitution gives it. Therefore, relying upon a judgment reported as 2003 PTD 1264, we are of the opinion that PHF qualifies as a body corporate and thus falls within the four corners of the definition assigned to a company under section 2(16) of the Income Tax Ordinance, 1979. However, being a sports organization established for the promotion and controlling the game of hockey, its income is exempt from taxation under clauses (90) & (91)(i) of Part-I of the Second Schedule to Income Tax Ordinance, 1979. But section 80D (which starts with a `non obstante' clause) does not exclude from its ambit, a company enjoying exemption under any other provisions of law except those entities to whom the decision of the Honourable Supreme Court of Pakistan in Messrs Ellahi Cotton Mills v. Federation of C Pakistan PLD 1997 SC 582, relates. Obviously, the respondent-Federation cannot be clubbed with those taxpayers enjoying the benefit of Protection of Economic Reforms Act, 1992. The respondent's claim that the Federation was a non-business/non-profit organization was also not substantiated through submission of annual accounts as expressly mentioned on the first page of the assessment order. Keeping in view these facts, we are of the opinion that PHF falls within the definition of a company and, therefore, hit by the mischief of section 80D of the Ordinance unless it is proved that the sources of receipts are from non-commercial activities.

7. As regards the issue of turnover, on which minimum tax under section 80D was leviable, the provisions of law expressly mentions that it should be the "aggregate of the declared turnover "This turnover cannot be hypothetical figure(s) based on presumptions and surmises of the Taxing Authority. In the instant case, the Assessing Officer has levied tax on the "presumed" figures of receipt, which were neither declared by the respondent Federation nor based on an independent source. The respondent had deliberately avoided to present/file statements of accounts before the departmental officer. Under these circumstances we vacate the impugned order and set aside, the assessment order to be done `de novo' in the light of above observations.

8. Resultantly, the departmental appeals succeed to the extent and in the manner as indicated above.

C.M.A./153/Tax (Trib.)Order accordingly.