AL-RAI FLOUR MILLS, LAHORE VS COMMISSIONER OF INCOME TAX/WEALTH TAX, COMPANIES ZONE-I, LAHORE, 2008 PTD-LAHORE-HIGH-COURT-LAHORE 838 (2008)

(a) Interpretation of statutes---

----Fiscal statutes---Explanation to a section is always retrospective so far as it explains the original provision.

(b) Interpretation of statutes---

----Fiscal statutes---Charging provisions---Two interpretations---Scope---Method of interpretation of charging provisions in fiscal statute is that where two interpretations are equally possible, then issue is to be resolved in favour of tax payer and not in favour of the revenue.

(c) Interpretation of statutes---

----Fiscal statutes---Tax charging---Principle---Tax cannot be charged by implication and there is no equity about tax---In taxing statutes one has to look at what is clearly said---One can only look fairly at the language used and there is no room for intendment.

Cape Brandy Syndicate v. Inland Revenue Commissioners 1921 1 KB 69; 1972 1985 ITR 121; Atlas Cycle Industry Limited v. State of Haryana and others (1974) 97 ITR 246; Commissioner of Income Tax Karnatka-I v. Academy of General Education Manipal (1984) 150 ITR page 135 and Commissioner of Income Tax, West Bengal-VII Calcutta v. Doon Foundation (1985) 154 ITR page 208 rel.

(d) Wealth Tax Act (XV of 1963)---

----S.2(1)(5)(ii)---Terms "held" and "for the purpose of"---Meaning---Term "held" pre-supposes perpetual right to possess and subsequent language i.e. "for the purpose of" means the basic object for the said holding---Subsequent words are ejusdem generis to the term "held" and hence are to be read as a whole---Term "held for the purpose of" conveys that the object should be the one which is of perpetual and regular nature---Some change in working or if it is let out for some period, would not affect the main object.

(e) Wealth Tax Act (XV of 1963)---

----Ss. 2(1)(5)(ii), 3 & 27---Term "held for the purpose of"---Applicability---Assessee was aggrieved of assessment of his manufacturing unit which was let out against rent/lease and the authorities held that unit for the purpose of letting out, therefore, tax was accordingly charged---Validity---Asset of the assessee did not bear the purpose of letting out---If, for some span of time the asset was rented out, it would not remain within the charge created by definition of "asset" under S.2(1)(5)(ii) of Wealth Tax Act, 1963, and explanation provided therein---In such a case Court had to give benefit of doubt to assessee and the case could have been decided in favour of tax payer---Term "held for the purpose of" could not be extended to apply where for some time the property had been let out while the original purpose remained self use---Letting out was not the actual use but the purpose which was subject to charge under the provision---High Court decided that temporary let out of property was not subject to charge under wealth tax---Reference application was decided in favour of assessee.

B. P Biscuit Factory Ltd; Karachi v. Wealth Tax Officer, II Circle, Karachi and another 1981 PTD 217; Ibrahim Brothers Limited's case PLD 1985 Kar. 407 and Messrs Homes Limited v. Commissioner of Income Tax Zone V, Karachi 1989 PTD 1044 ref.

B.P. Biscuit Factory's case 1996 SCMR 1470 fol.

Muhammad Ilyas Khan, Shahid Jamil Khan, Khadim Hussain Zahid, Miss Yasmin Nighat and Shahbaz Butt (in W.T.As. Nos.37 and 38 of 2005 only) for Appellant.

Shahbaz Butt, Sardar Ahmad Jamal Sukhera for Respondent.

Date of hearing: 16th January, 2008.

JUDGMENT

KH. FAROOQ SAEED, J.---This judgment will dispose of W.T.A. No.38 of 2003, W.T.A. No.144 of 2003, W.T.A. No.9 of 2004, W.T.A. No.10 of 2004, W.T.A. No.11 of 2004, W.T.A. No.12 of 2004, W.T.As. Nos. 62 to 66 of 2004, W.T.A. No.10 of 2005, W.T.A. No.28 of 2005, W.T.A. No.33 of 2005, W.T.A. No.34 of 2005, W.T.A. No.35 of 2005, W.T.A. No.37 of 2005, W.T.A. No.38 of 2005 and W.T.As. Nos.161 to 167 of 2005.

2. Except for in the case of Faisal Weaving Mills Pvt. Ltd. v. C.I.T. in all other cases Federal Board of Revenue is the petitioner. In Faisal Weaving Mills the question of law has been proposed by the petitioner assessee.

3. Learned L.A from the department while opening his arguments first of all commented that all the cases before this Court are on one issue while however, the questions have been drafted in different styles. Mr. Shahbaz Butt who was counsel in some of the cases agreed that the issue is common though different languages have been used. All the learned counsel of the petitioners and respondents present agreed for its disposal accordingly.

4. The issue basically is with 'regard to interpretation of term "assets" as defined under section 2(1)(5)(ii) of the Wealth Tax Act (repealed).

5. Learned L.A starting his arguments said that the term asset as used in Wealth Tax Act includes property of every kind and description whether moveable or immovable except growing crops or standing trees on agricultural land and any building on agricultural land. He said that this definition was only in respect of asset which were owned by an individual, Hindu undivided family, firms, an association of persons or body of individuals. The companies were not within the charge of the Wealth Tax till insertion of a new provision through Finance Act, 1980 wherein said charge was created by inclusion in the definition of "Assets" the properties held for the purpose of construction and sale or letting out. Unfortunately the provision of law inserted by way of a new definition to the term "asset" under section 2 was not happily drafted, hence it came to lot of attacks and gave rise to many controversies. The matter therefore, went up to the Honourable Supreme Court of Pakistan in the case of B.P Biscuit Factory Ltd. Karachi v. Wealth Tax Officer, II Circle, Karachi and another. This case was earlier decided by High Court Karachi, and reported as 1981 PTD 217 wherein interpretation and vires of the provision were discussed in detail. The learned High Court while discussing the facts of the case found that the construction of the factory was basically for the purposes of business. Since, however, all the business premises was not always occupied, a part of the same was leased out. The let out part of the said factory was considered as an asset chargeable to tax by considering that the same was held for the purposes of business and letting out and for the purposes of letting out. It was also held that the charge was many fold as the terms used are disjunctive. The other judgment, which is reported as PLD 1985 Kar. 407 in the case of Ebrahim Brothers Limited was on a constitutional petition. In that case the petitioner was a private limited company which owned a building at West Wharf Karachi comprising of a godown and offices. The memorandum and the articles contained as one of its objects, to own an immoveable property and to lease it out. It was also an admitted position that the petitioner was not carrying on a business in any portion of the building. They were rather having their office in Sheikha House, Campbell Street Karachi. The Honourable High Court after holding that section 2-e (ii) as the then it was now 2(1)(5)(ii) fully applied on the facts as the company was totally involved in the business of letting out. Moreover the provision as it was drafted was disjunctive in its nature. Learned L.A. commented that matter never ended there. The Honourable Supreme Court in B.P Biscuit Factory case reported as 1996 SCMR 1470 further explained the circumstances in which the said provision becomes applicable. Honourable august Court categorized the provision in three sub heads which are as follows:

(i) Immovable property held for the purpose of letting out of property.

(ii) Immovable property held for the purpose of business of letting out of property, and

(iii) Immovable property held for the purpose of business of construction and sale or business of construction and letting out, of property.

5. The Honourable Supreme Court also held that on the facts of the said case wherein the leasing out was not main business as only a part of the assets let out was not covered within the charge created as above. The Honourable Supreme Court further agreed that all the three categories mentioned above were disjunctive and applicable separately even if the property held or possessed by a person or covered under any one of the same. However, while determining charge of said BP Biscuit Factory it was found that the new charge on the set of the circumstances of said factory was doubtful. The Honourable Supreme Court then gave the benefit of doubt to the taxpayer by holding that in fiscal statute doubt is always to be resolved in favour of the assessee.

6. Learned L.A. proceeded ahead on the basis of the above background and read the explanation in the said provision of the Wealth Tax Act introduced by Finance Act, 1991.

7. He said that the insertion of the said explanation being on the direction of Honourable Supreme Court of Pakistan would be considered as part and parcel of the main provision and even if there is some feeling in some quarters that it has enhanced the chargeability of the main provision it shall apply with full force being supported by legislative intent. The explanation speaks as follows:---

(i) Immovable property held for the purpose of letting out or business of letting out, of property,

(ii) Immovable property held for the purpose of construction and letting out of property; and

(iii) Immovable property held for the purpose of construction and sale of property.

8. Further interpreting the above provision he said that now the explanation, has taken over the main provision and it clearly creates a charge even on an immovable property which was earlier held for the purpose of business and was later given on rent/lease. The conversion conveys the purpose and whenever there is an intent to rent out an asset earlier used for personal business it immediately becomes an object of letting out. On a question from the Court that the language is very conspicuous and emphasis on "held" apparently conveys a different intention. He reiterated that the purpose means the purpose on the day of letting out, hence its earlier intention is of no help. He also commented that in some of the cases even the object clause of the memorandum of the company contains the intention of letting out of the property if need so arises. He concluded his arguments by saying that the provision of law and its explanation both are clear and whosoever shall rent out his asset becomes liable to the charge under wealth tax on the day it is let out.

9. The arguments of learned L.A. were further adopted by his colleagues namely Mr. Khadim Hussain Zahid, Advocate and Sardar Ahmad Jamal Sukhaira, Advocate. Mr. Khadim Hussain, Advocate did not add any thing new while Sardar Ahmad Jamal Sukhaira, Advocate came out with another judgment re: Messrs Homes Limited v. Commissioner of Income Tax Zone V, Karachi reported as 1989 PTD 1044. The judgment referred by him decides the controversy that the land building and machinery installed within the same premises is one unit and that it is covered within the definition of an asset.

10. Mr. Shahbaz Butt, Advocate said that in almost all the cases the assets given on lease are for a short term. He said that some of the factories have been given on lease for one year, two years and maximum for three years while none has been permanently let out. Speaking about the provision of law he argued that since detail has already been mentioned by L.A. to the extent of his reference he will only add that while interpreting the said provision one should not ignore that it creates a charge and there are settled methods for interpreting the charging provisions. The provision of law is very clear to the extent of its language. The emphasis has been put on "held for the purpose of". He said that "held" means possessed with a right to further let out or alienate as the case may be. Referring Law Lexicon and Oxford dictionary he added that it would mean and include the property possessed and owned with the right to utilize it in the manner considered appropriate. Regarding "purpose" he said that it includes the "object" in the nature of perpetuity. In fact he is petitioner in Faisal Weaving Mills in which the emphasis of the learned Tribunal remained on the definition of the term `asset' in total ignorance to the language of the provision under discussion as well as the explanation added in 1991. He said that one can in principle agree with the departmental point of view that where the plant, building and machinery are inseparable being fixed with land it becomes an immovable asset but one cannot ignore that language of law under discussion puts emphasis on the purpose of holding and possessing the property. No one would construct and raise factory for the purpose of renting it out as this way one can fetch much less than what he can earn by running it himself. The purpose in this case was obvious. The finding of the fact by the learned Tribunal that the assessee always had the planning to rent it out is against the main objects of TGR Company which are manufacturing of grey cloth. Further that the purpose is always determined at the time of either purchasing or raising such a manufacturing unit and same should prevail while deciding an issue like this. He has referred a long line of judgments, some of which appear to be irrelevant. However, while discussing the issue we shall come back to them.

11. Mr. Muhammad Ilyas Khan, Advocate, representing the department in the case of Faisal Weaving Mills v. C.I.T. referred various parts of the judgment impugned before us. After taking benefit from the language of the same he remarked that all the issues have been dilated upon and taken care of by learned Tribunal and that the earlier judgments expressing a contrary view, were per incurium.

12. Heard. Record perused. After hearing both sides in our opinion it will be more appropriate if we revert back to the provision under discussion. Section2(1)(5)(ii) reads as follow:---

S.2(5) "Asset"

(5) "asset" includes:---

(ii) in the case of a firm, an association of person or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of the business of construction and sale, or letting out, of property;

Explanation: For removal of doubt, it is hereby declared that immovable property and the purpose, referred to in this sub-clause, includes:---

(i) Immovable property held for the purpose of letting out; or business of letting out of property; '

(ii) Immovable property held for the purpose of construction and letting out of property; and

(iii) Immovable property held for the purpose of construction and sale of property.

13. From the plain reading of above section in the background of the discussion and decision in the B.P Biscuit Factory (supra) it is clear that the main provision is to be read as a whole. It is an inclusive definition meaning thereby that it can add certain other items also including those mentioned in the provision. This obviously enlarges the scope of the provision. Keeping the same in view in the case of firm, association of persons or a body of individuals and company immovable property held by them has been brought to the charge of tax by virtue of above definition. The legislature however, is very particular and specific in specifying a particular variety of immovable property for the purpose of said charge which is as under:---

(i) Immovable property held for the purpose of letting out of property,

(ii) Immovable property held for the purpose of business of letting out of property, and

(iii) Immovable property held for the purpose of business of construction and sale or business of construction and letting out, of property.

14. The above bifurcation is based upon the aforementioned judgment of Honourable Supreme Court of Pakistan (supra). This bifurcation by the Honourable apex Court was later adopted by legislature in terms of the explanation to the above provision. In principle we cannot agree with the arguments of learned L.A. that application of the main provision can be increased by virtue of explanation. In our opinion after the judgment of Honourable Supreme Court of Pakistan in the aforementioned case the provision should have been couched somewhat differently to avoid further complication in its interpretation. The principles of interpretation of fiscal statute are very clear' and by now well settled. We agree that the explanation is always retrospective so far as it explains the original provision. We will also agree that there is no new charge created through the same or that it has not enlarged the scope of main provision. In all four phrases the words which are conspicuous and require interpretation are "immovable property held for the purpose of". The words which are prominent in the above quotation are `held' and `purpose'. As per dictionary word "held" means:

(1) The Law Lexicon

"Held" embraces two ideas.---that of actual possession of some subject of dominion or property and that of being invested with legal title or right to hold or claim such possession.

"has always been constructed as denoting a present possession, either actual or constructive.

Purpose

1. Blacks Law Dictionary

That which one sets before him to accomplish or attain an end, intention, or aim, object, plea, project.

Term is synonymous with ends sought, an object to be attained, an intention.

15. The more prominent word among the above two is the purpose and how to determine the time for the purpose. It hardly needs to be mentioned that the Act is a fiscal one as it imposes a pecuniary burden on the citizens. According to Maxwell:---

"It is well-settled rule of law that all charges upon the subject must be imposed by clear and unambiguous language, because in some degree they operate as penalties; the subject is not to be taxed unless 'the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction which, had the legislature thought of it, would have been covered by appropriate words". (see Maxwell on the Interpretation of Statutes, Twelfth Edition P.256).

16. The second and equally important method of interpretation of charging provisions in fiscal statutes is that where two interpretations are equally possible, then the issue is to be resolved in favour of taxpayer and not in favour of the revenue. In fact the assets of B.P Biscuit referred above were excluded from the charge of wealth tax by adopting this method of interpretation. For all practical purposes the facts and circumstances of the cases under discussion are more or less similar. The judgment of Honourable Supreme Court is not only binding in respect of its findings but it is also binding in respect of its obiter dicta under the law of stare decisis. It is not the case of department that the property of the taxpayer under discussion were permanently let out. The BP Biscuit Factory was constructed for the purpose of making confectionery items. Due to adverse circumstances it leased out some of the godowns which were originally constructed for the purpose of business of confectionery. The Honourable Supreme Court considering it a temporary phase and applying the principle that, in doubtful situations benefit should be given to the taxpayer held the action to be outside the charges created by wealth tax.

17. Corning back to the language on the basis of aforementioned methods of interpretation the purpose as noted above is connected with the hording of the property. Both are conjunctive and not disjunctive. The whole sentence is to be read together. Such and similar language whenever used the Courts have held that the purpose is determined at the time of creation of the asset. The purpose can be changed with the change of circumstances. However, what is to be kept in view is the original purpose. Normally no one would construct a factory or a. mill for the purpose of renting it out. It is only in some peculiar and special circumstances that such type of assets given on rent. It is in such circumstances that Honourable Supreme Court has already given benefit of doubt to the taxpayer.

18. Tax cannot be charged by implication and there is no equity about the tax. In taxing statutes one has to look at what is clearly said. One can only look fairly at the language used and there is no room for intendment. It was so held in re: Cape Brandy Syndicate v. Inland Revenue Commissioners (1921, 1 K.B 69) and 1972, 1985 ITR 121, Atlas Cycle Industry Limited v. State of Haryana and others 1974, 97 ITR 246. Keeping the same in view the term `held' means' to possess with legal title' or to possess with or without legal title with having right to further pass the possession in some form to others. As regards to quotation `held for the purpose of is concerned, the Karnataka High Court in re" Commissioner of Income Tax Karnatka-I v. Academy of General Education Manipal (1984, 150 ITR page 135) held "that the assessee was registered society and it carried on organized activities as per the objects set out in the memorandum. Its primary object was to establish support, manage or conduct schools, colleges, and such other educational institutions. It had income of its own. In its balance-sheet the income of the twenty two colleges or institutions established under separate trusts had not been included, nor the income of the nine schools which were run directly by the assessee. The assessee out of its income had given outright grants to some of those schools. The assessee had not spent its income for any purpose unconnected with the education. It was, therefore, an educational institution existing purely for educational purposes and not for profit." Similarly the words `held for the purpose of also came to discussion before the Calcutta High Court in a case of Commissioner of Income Tax, West Bengal-VII Calcutta v. Doon Foundation, reported as (1985, 154 ITR page 208). Held that the assessee society had no motive of profit or personal gain. All its objects were educational. During the previous year relevant to the assessment year 1973-74 it had taken steps towards the running of a full-fledged teaching course. The educational institution had been established during the relevant previous year and the assessee was entitled to exemption under section 10(22)."

19. From the reference given above and the discussion made in the case of the BP Biscuit Factory the apparent meaning which can be assigned are that term `held' pre-supposes the perpetual right to possess and the subsequent language i.e. `for the purpose of means the basic object for the said holding. The subsequent words are `ejusdum generis' to the term `held' and hence are to be read as a whole. To say that the legislature has used this language without purpose is naive. We cannot ignore that nothing could stop the legislature from amending the provision by clear implications. The action of adding explanation clearly meant that the purpose was to remove the ambiguity because of faulty language. This is where reference to the other judgment quoted by learned L.A. Mr. Shahid Jamil becomes relevant. In the case of Ebrahim brothers limited decided by Sindh High Court the facts were that the petitioner constructed a building and let it out as a whole permanently. They did not occupy even an inch of said building for their personal use at any stage before or after the completion of the building. They had rather kept their personal office in some other premises. On the said circumstances the purpose of the property was considered as "held for the purpose of letting out". Conversely the asset under discussion have been constructed or purchased with the intention to run manufacturing units but under the compulsion of the circumstance the same have been let out. The term held for the purpose of conveys that the object should be the one which is of perpetual and regular nature. Some change in the working or it is let out for some period would not affect the main object. This would mean that if some one constructs a house for his own residence but by virtue of his job he gets another residence to live in, it does not mean that the purpose of construction of his own house was not for his own residence. The purpose of holding, however, remains personal use. Similarly the `assets' under discussion do not bear the purpose of letting out. If for some span of time it has been rented out as in the cases in hand it shall not remain within the charge created by the definition of an asset under section 2(i)(5)(ii) and explanation provided therein. In our considered opinion the matter had already been decided by the Honourable Supreme Court by giving the benefit of doubt to B.P. Biscuits company. The findings given therein are still applicable with full force. In, all these cases the situation is obvious, hence case could have been decided in favour of taxpayer even for the said reason alone. Even otherwise we have come to the conclusion that the term `held for the purpose of cannot be extended to apply where for some time the property has been let out while the original purpose remains self use. In short it is not the actual use but the purpose which is subject to charge under the said provision.

20. As a result all the reference applications are decided in favour of taxpayers, which obviously means that temporary let out properties in all these cases are not subject to charge under wealth tax.

21. This answers all the questions accordingly.

M.H./A-267/LOrder accordingly.