2009 P T D (Trib.) 526
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Chairperson, Jawaid Masood Tahir Bhatti, Judicial Member and Shahid Azam Khan, Accountant Member
I.T.A. No.116/KB of 2006, decided on 28/04/2007.
Per Shahid Azam Khan, Accountant Member [Minority view]
Income Tax Ordinance (XXXI of 1979)---
----S.12(18)--/Finance Act (III of 1998), Preamble---C.B.R. Circular No.11 of 1998, dated 25-7-1998---Addition---Deposit for share---Addition was made on account of amounts received by the assessee as loans and deposits for shares from Directors---Validity---Term "share deposit money" and "share advance money" clearly showed that the word `deposit' meant the same as `advance' and was within the scope of S.12(18) of the Income Tax Ordinance, 1979 as it stood after the amendment in 1998---Assessee had not denied the receipt of loans from Directors and had also not proved that both amounts added under S.12(18) of the Income Tax Ordinance, 1979 were received through banking channels as had been provided in S.12(18) of the Income Tax Ordinance, 1979---Additions were confirmed by the Appellate Tribunal in circumstances.
2003 PTD 1527 and 2006 PTD 386 not applicable.
2006 PTD 386 rel.
Per Khawaja Farooq Saeed, Chairperson disagreeing with Shahid Azam Khan, Accountant Member
(a) Income Tax Ordinance (XXXI of 1979)---
----S.12(18)---Sale of Goods Act, (III of 1930), Preamble---Addition---'Share deposit money'---'Loan'---Meaning---'Loan' means the amount which is to be returned in the same form while the `share deposit money' is not returnable in the same form in which it has been deposited---Buyer is to receive the shares against the share deposit money which was a trading transaction under Sale of Goods Act, 1930.
(b) Income Tax---
----Regular charging provisions---Deemed income provisions---Exemption granting provisions---Principles of interpretation with respect to the regular charging provisions, deemed income provisions and exemption granting provisions are different---In deemed income provisions the department is under a legal obligation to be very sure about the nature of transaction as it is not to enhance the power of the department so that they may start showing their muscles to the tax payers---In such like situations even an iota of doubt is to go to favour the tax payers---In deemed income provisions the legislature has declared certain unexplained investments expenditure or existence of cash to be as income---Such is in total disregard and deviation to the standard and the settled definitions of 'income'---Purpose behind such a provision is always to create a check on concealment of income which, in its nature, becomes a penal charge; in such a situation the purpose of the legislation becomes the prime factor in its interpretation.
(c) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Sale of Goods Act (III of 1930), Preamble--Finance Act (III of 1998), Preamble---C.B.R. Circular No. 11 of 1998, dated 25-7-1998---Addition---Share deposit money---Transaction of salt of share was, a contract under Sale of Goods Act, 1930 on which provision of S.12(18) of the Income Tax Ordinance, 1979 did not attract being for the purpose of curbing fictitious loans and fictitious advances---Even after addition of the word "advance" the share deposit money remained a trading transaction---Provision of S.12(18) of the Income Tax Ordinance, 1979 were not applicable therein.
1973 PTD 375 rel.
Per Jawaid Masood Tahir Bhatti, agreeing with Khawaja Farooq Saeed, Chairperson
(d) Income Tax Ordinance (XXXI of 1979)---
----S. 12(18)---Sale of Goods Act (III of 1930), Preamble---Finance Act (III of 1998), Preamble---C.B.R. Circular No.11 of 1998, dated 25-7-1998---Addition---Share deposit money---Transaction of share was a contract under Sale of Goods Act, 1930 on which provisions of S.12(18) of the Income Tax Ordinance, 1979 did not attract being for the purpose of curbing fictitious loans and fictitious advances and even after addition of the word "advance" the share deposit money remained a trading transaction and the provisions of S.12(18) of the Income Tax Ordinance, 1979 were not applicable thereon.
Faisal Nini, FCA for Appellant.
Manzoor Ahmed Memon, D.R. for Respondent.
ORDER
SHAHID AZAM KHAN (ACCOUNTANT MEMBER).---This appeal has been filed by the assessee appellant against the order of the learned CIT(A), dated 21-9-2005 on the following grounds:--
That the learned Assessing Officer has misdirected himself by assessing income at Rs.153,986 to the case of appellant.
That the learned Assessing Officer has erred in making addition under section 12(18) of the repealed income Tax Ordinance, 1979 to the case of appellant.
That the learned Assessing Officer has erred in making following add backs to the income of appellant.
| (i) Mobile Phone Expenses | Rs.6,100 |
| (ii) Traveling Expenses | Rs.5,025 |
| (iii) Entertainment Expenses | Rs.2,109 |
That the Assessing Officer apply correct law to the case of appellant.
2. The learned AR of the appellant and the DR are present and heard in detail. The first issue raised before us pertains to the addition of Rs.315,000 to the appellant's income made by the Taxation Officer under section 12(18) of the repealed Income Tax Ordinance, 1979. The impugned addition has been made on account of two amounts received by the appellant company i.e., Rs.195,000 as loans and Rs.120,000 as deposit for shares from the directors. The names of directors, details of deposit for shares and receipt of loan with cheque numbers and date were not provided by the appellant to the Taxation Officer in spite of time provided by the Taxation Officer through two adjournments. The appellant did not find favour with the learned CIT(A) who has confirmed the impugned additions under section 12(18) ibid. The learned AR of the appellant has argued that, as admitted by the Taxation Officer, the appellant has declared in accounts deposit for issuance of shares which is neither loan nor advance or gift and hence section 12(18) is not applicable. In support of his contention, the learned AR has cited two cases reported as 2003 PTD 1527 and 2006 PTD 386 the ratios of which are reproduced as under:--
(2004) 89 Tax 185 (H.C. Lah.)(sic)
"Income Tax Ordinance, 1979 (XXXI of 1979), Ss.12(18), 66-A & 156---Reference to High Court--Share deposit- money---Receipt in advance on promise of allotting shares--Treatment as loan---Validity---Whether where assessee had not claimed disputed amount as loan then Assessing- Officer or Revenue Authority could not treat same as loan to invoke such provisions---Held yes---Whether exercise of jurisdiction under section 66-A by I.A.C. in such circumstances was disapproved--Held yes."
2006 PTD 386 (Lahore H.C.):--
"(5) It is the case of the appellants that neither the original assessments were prejudicial of the interest of the revenue nor the amounts received as advances could be treated as deemed income. In this regard it is pointed out that in all the assessment years involved these provisions were attracted only to sums "claimed or shown to have been received" as "loan" while neither these sums were "claimed" nor shown to be "loan". By relying upon Dictionary meaning page 936 the Shorter Oxford English page 1227 Volume-I and Chambers 20th century Dictionary page 739 it is asserted that share deposit money could never be taken to mean to "loan". To explain the terms reliance has further been placed on a reported judgment cited as Guracharan Das and another v. am Rakha Rakha Mal AIR 1937 Lahore 81. Reference is also made to re: Venkatakrishna Rice Company v.- C.I.T. (1987) 163 ITR 129; re: CIT v. National Gayalal (1973) 89 ITR 190; re: C.W.T. Southern Region Karachi v. Abid Hussain 1999 PTD 2895; re: C.I.T. Patiala v. Paira Singh (1972) 83 ITR 678; re: Chairperson Evacuee Trust Property West Pakistan, Lahore v. Muhammad Din and another PLD 1971 Lahore 217, re: Abdul Hameed Sahib and others v. Rehmat Bi AIR 1965 Mad. 127 (V 52 C 151) and re: Mian Abdul Hameed Puri and 5 others v. Federation of Pakistan PLD 1979 Lahore 252 to claim that the share deposit money did not answer the requirement of law to be added as deemed income Reference is also made to Circular No.6 of 1987 dated July 5, 1987 wherein these provisions were explained by CBR on their introduction in the statute book through Finance Act, 1987 Reference is also made to re: CIT North Zone (WP), Lahore v. Crescent Textile Mills Ltd. 1973 PTD 375."
(7) ..
It was by Finance Act, 1998 effective on 1-7-1998 that the words `Advance' or `gift' were also added to expand the operation of the provision. Admittedly that amendment in law is not attracted to any of the assessee inasmuch as their case pertained to earlier assessment year's and finalized before the aforesaid amendment in 1998 bringing in the words `advance' and `gift' to attract the mischief the provision was made. It is therefore clear that at the relevant time in these case no addition of the kind could be made before the amount received by the company was held to be a `loan'. In our view the share advance money indicated in the books of accounts balance-sheet of the companies could be no imagination be treated as a loan."
3. On the other hand, the learned DR has argued that admittedly the appellant has received loans from directors amounting to Rs.195,000 which is also not disputed by the learned AR of the appellant. The learned DR has further argued that the. amount of Rs.120,000 received by the appellant as deposit for shares is covered by the term `advance' as incorporated in section 12(18) through the Finance Act, 1998 and explained by the C.B.R. through its Circular No.11 of 1998.
4. We have given due consideration to the arguments of both the sides and have very carefully perused the two reported judgments supra. We have found that the scope of section 12(18) was enlarged from the `loan' to `loan' `advance' and `gift' through the Finance Act, 1998 and the enlarged scope of section 12(18) applies in the instant case for the assessment year 2002-2003. In both the reported judgment supra, it has been held that `share deposit money' could not be termed as loan and pertain to the assessment years prior to the amendment in section 12(18) through the Finance Act, 1998. It is not the issue in the appellant's case. The Taxation Officer has not made any addition under section 12(18) treating share deposit money as loan. Accordingly, the two reported judgments supra are not of any help appellant assessee. On the contrary we have found that their Lordships of the Hon'ble Lahore Court in the case reported as 2006 PTD 386 have used the two terms "share deposit money" in para. (5) and `share advance money' in para (7) of their order. It clearly shows that the word `deposit' means the same as `advance' and is within the scope of section 12(18) of the repealed Income Tax Ordinance, 1979 as it stood after the amendment in 1998. Regarding second amount of Rs.120,000 the learned AR of the appellant has not denied the receipt of loans from directors and has also not proved that both the impugned amounts added under section 12(18) were received through the banking channels as have been provided in section 12(18). Accordingly we find no reason to interfere with the orders of both the authorities below and both the additions under section 12(18) are confirmed.
5. The next issue relates to impugned additions made out of mobile phone expenses (Rs.4,100) out of travelling expenses (Rs.6,025) and out of entertainment expenses (Rs.2,109). The Taxation Officer has made these additions on account of being personal in nature un-vouched or unverifiable which have being confirmed by the learned CIT(A). We have found that the total claim after these heads of expenses were of nominal amounts and there appears no justification to make insignificant amounts of add backs. Accordingly we direct deletion of all the three impugned additions out of the said heads of expenses.
6. The appeal filed by the assessee company stands disposed of as indicated above.
(Sd.)(Sd.)
KHAWAJA FAROOQ SAEED(SHAHID AZAM KHAN)
CHAIRPERSON.ACCOUNTANT MEMBER
As per Khawaja Farooq Saeed, Chairperson.
7. With full regard for the findings of my learned brother Accountant Member, I beg to differ with his observations recorded in para.5 with regard to the treatment of share deposit money as a loan. The learned A.R. has relied upon 2006 PTD 386. However, relevant para of the order has not been quoted. I, therefore, deem it more appropriate to reproduce the relevant part of para.5 of the referred judgment:--
"It was by Finance Act, 1998 effective on 1-7-1998 that the words `advance' or `gift' were also added to expand the operation of the provision. Admittedly that amendment in law is not attracted to any of the assessee inasmuch as their case pertained to earlier assessment year's and finalized before the aforesaid amendment in 1998 bringing in the words `advance' and `gift' to attract the mischief of the provision was made. It is, therefore, clear that at the relevant time in these cases no addition of the kind could be made before the amount received by the company was held to be 'loan'. In our view the share advance money indicated in the books of accounts/balance-sheet of the companies could by no imagination be treated as a loan. The concerned ICAs cancelling the assessments and deeming these amounts as incomes did not elaborate as to how they treated the share advance money as `loan. It was their personal view that the aforesaid sums had been introduced in the books of accounts, as share deposit money but factually they were loans. However, nothing was brought on record to support that in the given facts the share deposit money was in fact loan. In one of the orders under section 66-A the concerned IAC relied upon a judgment of the Income Tax Appellate Tribunal to drive home that these amounts were loan simpliciter and therefore, could be deemed as income under the said provisions of the Ordinance. In that judgment the Tribunal expressed the view that similar sums shown as share deposit money were only to defeat the purpose of the legislation. However, we do not subscribe the view of the Tribunal which was based upon the so-called purposive approach in interpreting the provisions. Even if that approach was justified, it was only fictitious loans which were intended to be curbed and that too which had so been `claimed' or `shown', (underlining is by us for emphasis)."
8. Above para. has clearly settled this issue. The principles which have been settled in the aforementioned judgment relief by my learned brother Accountant Member as follows:-
(i) That the assessee has a or has shown claim in his account that he has obtained a `loan'.
(ii) That purpose of the provision is to crub the fictitious transaction.
The Honourable High Court has clearly said that treating the share advance money as loan was the personal view and there was- no proof on record to support that in the given facts the share deposit money was in fact a loan. The emphasis as explained .by the Honourable High Court is on curbing of fictitious. For all practical purposes since the said language has not changed while adding term advance' so unless the assessee `claims' or `shows' it to be an advance it cannot be charged under the provisions of section 12(18). The legislature is very particular in putting emphasis on the words "claimed" or "shown". Thus if the assessee does not claim an amount to be an advance or it is not shown to be as such, the Assessing Officer cannot proceed further. The Assessing Officer thus is debarred to change the nature of the amount even otherwise.
9. Another important fact which has totally been ignored is that in the above judgment as well as in the earlier judgments the share deposit money has been held to be as a trading transaction. It is a money deposited for the purpose of purchasing something. In such a transaction against the deposit of money the goods, which in the present case are the shares, are required to be transferred. This' has not only been very clearly held in the judgment relied by my learned brother but also in an earlier judgment by the High Court reported as 1973 PTD 375. Though the matter from my point of view stands settled to the extent of application of the provision of S.12(18), however, answering certain possible questions shall be of help:--
(a) The use of connotation of advance and deposit at the same time by the Honourable High Court is not to give them the same meanings. One cannot equate a bank deposit with an advance given for some other particular purpose. Thus in certain areas the deposit definitely is a different connotation than of advance. Moreover, loan means the amount which is to be returned in the same form while the share deposit money is not returnable in the same form in which it has been deposited. The buyer is to receive the shares against the same which has already been held to be a trading transaction under Sales of Goods Act.
(b) The principle of interpretation with respect to the regular charging provisions, a deemed income provisions and exemption granting provisions are different. It does not need further elaboration that in deemed income provisions the department is under a legal obligation to be very sure about the nature of transaction as it is not to enhance the power of the department so that they may start showing their muscles to the tax payers. In such like situations even an iota of doubt is to go to favour the tax payers. In deemed income provisions the legislature has declared certain unexplained investments expenditure or existence of cash to be as income. This is in total disregard and deviation to the standard and the settled definitions of income.
The purpose behind such a provision is always to create a check on concealment of income which in its nature becomes a penal charge. In such a. situation the purpose of the legislation becomes the prima factor in its interpretation. The Honourable High Court has in unequivocal and clear terms held in these judgments referred by learned Accountant Member para of which has been. reproduced by me as above that the purpose of the legislation was to curb the fictitious loans. If the said purpose is kept in view and the interpretation of the Assessing Officer is allowed, it would mean that each and every transaction in counter purchase shall come within the cover of this term. This would mean every body going for purchase of a grocery in streets would also require payment by the cross-cheque or through other banking channels if he is a tax payee. This would obviously offend and' disturb the entire business snario of the country. I do not hesitate in saying that this is practically an impossibility. This is where reference to 1973 PTD 375, shall also be of help:
Section 105-C---Issuance of further shares to existing shareholders---Offer of new shares, by company, accepted by existing shareholders and price for acquisition of shares duly deposited in coffers of company---Held, all formalities of contract of sale of goods, under section 5. Sale of Goods Act, complete from date shareholders accepted offer---Sale of Goods Act (III of 1930), S.5.
The transaction of sale of share, therefore, is a contract under Sales of Goods Act on which provision of section 12(18) does not attract being for the purpose of curbing fictitious loans and fictitious advances.
(c) Suffice will be to say that even after addition of the word "advance" the share deposit money remains a trading transaction. The provisions of section 12(18), therefore, are not applicable therein.
The result, therefore, is obvious, I respectfully disagree with my learned brother that section 12(18) was applicable in respect of the amount received as share deposit money while, however, since the other amount has been received as loan and is so shown in the accounts, confirmation of the same is not disturbed.
(Sd.)(Sd.)
(SHAHID AZAM KHAN)(KHAWAJA FAROOQ SAEED)
ACCOUNTANT MEMBERCHAIRPERSON
This obviously results in disagreement hence I propose following question for referring to the 3rd member:--
"That whether in the facts and circumstances of the case the term `Advance' can be equated with deposit for purchase of shares and that whether section 12(18) was applicable on these facts or not?"
(Sd.)
(KHAWAJA FAROOQ SAEED)
CHAIRPERSON
ORDER
JAWAID MASOOD TAHIR BHATTI (JUDICIAL MEMBER).---This matter has been referred to me by the Hon'ble Chairperson to resolve the difference of opinion between my learned brother Mr. Khawaja Farooq Saeed, (presently Hon'ble Judge of Lahore High Court and was Chairman at that time) and Mr. Shahid Azam Khan, Accountant Member. Above referred single question has been framed by both my learned brothers which is regarding term "Advance" as mentioned in subsection (18) of section 12 of the repealed Ordinance. My brother learned Accountant Member has upheld the addition made under section 12(18) regarding amount received by the assessee as deposit for shares with the observation that the amount is covered by the term `advance' as incorporated in section 12(18) through the Finance Act, 1998 and explained by the C.B.R. through its Circular No.11 of 1998.
2. While my learned brother who was Chairman of the Tribunal at that time is of the view that even after addition of the word "advance" the share deposit money remains a trading transaction and therefore, the provisions of section 12(18) on such amount are not applicable therein.
3. I have heard the learned D.R. and have also perused the above referred views of both my learned brothers, the relevant provisions of law, the case-law referred and facts of the case. Following the case-law discussed in the above referred paras of judgment written by my learned brother the Hon'ble Chairman (as then was), I find myself to be in agreement with that view allowing the appeal filed by the assessee following the earlier decisions of the Tribunal which has already been upheld by the Hon'ble Superior Court. The view taken in this regard that the transaction of sale of share is a contract under Sale of Goods Act on which provisions of section 12(18) does not attract being for the purpose of curbing fictitious loans and fictitious advances and even after addition of the word "advance" the share deposit money remains a trading transaction and the provisions of section 12(18) are not applicable thereon.
4. Consequently the appeal filed by the assessee is allowed on all counts. Order accordingly.
(Sd.)
(JAWAID MASOOD TAHIR BHATTI)
JUDICIAL MEMBER
C.M.A./7/Tax (Trib.)Appeal accepted.