2009 P T D (Trib.) 820
[Income-tax Appellate Tribunal Pakistan]
Before Syed Nadeem Saqlain, Judicial Member and Mazhar Farooq Shirazi, Accountant Member
I.T.As. Nos.623/LB of 2000, 4874/LB to 4880/LB, 5697/LB to 5703/LB of 2005, decided 28th February, 2008.
(a) Income Tax Ordinance (XLIX of 2001)--- ----S.2(16)---Companies Act (VII of 1913), S.26---Companies Ordinance (XLVII of 1984), S.42---Companies---Association of persons---Chamber of Commerce and industry---Status---Although assessee was registered as limited company with the Joint Registrar of Companies under S.26 of the Companies Act, 1913 but the Appellate Tribunal did not subscribe to the view that it was a limited company in stricto senso with the object of doing business, therefore, filing of return with the status of Association of Persons was not acceptable to the Department---Assessee got prior permission from the Federal Government before it could get itself registered as a company with the Joint Registrar of the Companies---Such was a distinguishable feature which separates the assessee from other ordinary companies, which were involved in doing business because they could get themselves registered with the Joint Registrar of Companies after fulfilling the legal requirements prescribed under the law i.e. Companies Ordinance and Security and Exchange Commission Act etc., but were not under any legal obligation to seek prior permission from the Federal Government, as in the case of assessee---One had to go through objects of the company as set out in the Memorandum of Association and also the nature of activities involved before one could ascertain whether it was a limited company formed for the purpose of doing normal business activities or an association made for some other purposes i.e. charitable etc.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.2(16)---Companies Act (VII of 1913), S.26---Chamber of Commerce and Industry---Status---Assessee having objects like promoting and protecting the trade, commerce and industries and to watch over and protect the general industrial and commercial interests of the persons engaged in trade, `commerce and industries, clearly it was a charitable institution and it could not only dispense with the word "limited" but it could show its status as an Association of Persons at the time of filing of return---In the case of limited company veil could be lifted to ascertain true nature of a particular corporate body---Assessee could declare its status as a Association of persons despite the fact the it was registered as a limited company.
PLD 1985 SC 97; Commissioner of Income Tax, Madras v. Andra Chamber of Commerce (1965) ITR Volume 11 page 306; CIT East Pakistan, Dhaka v. Narain Ganj 1968 PTD 513 and Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce (1939) ITR Volume 7 Page 575 rel.
(c) Income Tax Ordinance (XXXI of 1979)---
----S.22(b)---Income from business or profession---Chamber of Commerce and Industry---Doctrine of mutuality---Applicability---Receipts made on account of subscription/contribution, research/ development and TQM service were for the benefits of its members and no individual member could claim any specific service in consideration of contribution/subscription paid to the Chamber, therefore, the doctrine of mutuality was attracted in the case of assessee---Receipts made by the assessee on account of contribution/subscription, research and development contributions and TQM service etc., were not covered by the provisions of S.22(b) of the Income Tax Ordinance, 1979 and were not assessable.
1997 PTD (Trib.) 1034 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cls. (93) & (94)---Exemption---`Charitable purposes'---Any benefit for the purposes of welfare extended to a section of public would fall within the ambit of `charitable purposes'.
Ameen Mouddin Foundation Ltd., Karachi v. Commissioner of Income Tax, East Karachi 1984 PTD 282; Ahmedabad Ran Caste Association v. Commissioner of Income Tax, Gujarat 704 ITR Volume 82; CIT East Pakistan, Dhaka v. Narain Ganj 1968 PTD 513; Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce (1939) ITR Volume 7 page 575; Commissioner of Income Tax, Madras v. Andra Chamber of Commerce (1965) ITR Volume 11 page 306; and Commissioner of Income Tax, New Dehli v. Federation of Commerce and Industry (1981) ITR Page 186; Ahmadabad Rana Caste Association v. CIT, Gujrat (1971) 82 ITR 704 (SC) and 1997 PTD (Trib.) 1034 rel.
(e) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cls. (93) & (94)---Exemption---`Charitable pur poses'---Chamber of Commerce and Industry---Object set out to protect the commerce, trade and industry would always be considered as `charitable'.
Ameen Mouddin Foundation Ltd., Karachi v. Commissioner of Income Tax, East Karachi 1984 PTD 282; Ahmedabad Ran Caste Association v. Commissioner of Income Tax, Gujarat 704 ITR Volume 82; CIT East Pakistan, Dhaka v. Narain Ganj 1968 PTD 513; Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce (1939) ITR Volume 7 page 575; Commissioner of Income Tax, Madras v. Andra Chamber of Commerce (1965) ITR Volume 11 page 306 and Commissioner of Income Tax, New Dehli v. Federation of Commerce and Industry (1981) ITR 186 rel.
(f) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cls. (89), (93) & (94)---Exemption---`Charitable purposes'---Chamber of Commerce &,Industry---Deleted Cl. (89) of the Second Schedule of the Income Tax Ordinance, 1979 was specifically meant for granting-exemption to bodies like Chamber of Commerce but deletion of one clause did not stop operation of other clauses still appearing in the statute book.
CIT East Pakistan, Dhaka v. Engineers Limited (1967) SCC 289 ref.
(g) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., Cl. (94)---Exemption---`Charitable purposes'---Chamber of Commerce & Industry---Clause (94) of the Second Schedule of the Income Tax Ordinance, 1979 refers to income received by the charitable institution through voluntary contribution to bring it within the domain of grant of exemption---Chamber of Commerce was a charitable institution and its contribution was also voluntary in nature---Despite the fact that Cl. (89) of the Second Schedule of the Income Tax Ordinance, 1979 was no more in the statute book, the case of the assessee would stand covered by Cl. (94) of Second Schedule of the Income Tax Ordinance, 1979 and contributions received by the Chamber of Commerce from its members would be exempt from incidence of taxation.
(h) Income Tax Ordinance (XXXI of 1979)---
---S.62---Assessment on production of books of accounts, etc.---Profit and Loss expenses---Disallowance:-Taxation Officer had not uttered even a single word while making add backs under various heads of Profit & Loss account---No notice under S.62 of the Income Tax Ordinance, 1979 was ever issued and at no stage the same was confronted to the assessee---Assessing Officer had miserably failed to cite any instance of un-vouch unverifiable item of expense---Such additions could not be clothed with the cover of legal sanctity---Appellate Tribunal directed to delete the same.
Dr. Muhammad Sharif Ch. and Ch. Mumtaz-ul-Hassan for Appellant (in I.T.As. Nos.623/LB of 2000, 2874/LB to 2880/LB of 2005).
Mian Yousaf Umer, L. A. for Respondent (in I.T.As. Nos.623/LB of 2000, 2874/LB to 2880/LB of 2005)
Mian Yousaf Umer, L.A. for Appellant (in I.T.As. Nos.5697/LB to 5703/LB of 2005).
Dr. Muhammad Sharif Ch. and Ch. Mumtaz-ul-Hassan for Respondent (in I.T.As. Nos.5697/LB to 5703/LB of 2005).
ORDER
Captioned appeals for the assessment years 1994-95, 1996-97 to 2002-2003 have been directed at the instance of the assessee against the combined impugned order dated 30-6-2005, passed by the learned CIT(A), Zone-IV, Lahore. Cross appeals in respect of assessment years 1996-97 to 2002-03 have also been preferred by the Revenue against the same order. To avoid multiplicity, grounds urged by both the parties are being reproduced, which are asunder:---
GROUNDS OF APPEALS ON BEHALF OF THE ASSESSEE
(i) That the learned CIT(A) erred in law to hold that the exemption clauses (93) & (94) are irrelevant so far as claim of the assessee is concerned as the specific clause (89) was simultaneously standing on the statute book before its deletion on November 1, 1993. The exemption of income may be covered under more than one clause simultaneously.
(ii) That the learned CIT(A) was not legally correct to hold that on deletion of clause (89) that all the income of Chamber was made liable to income tax without regard to the benefit available wider clauses (93) & (94) of the Second Schedule.
(iii) That the learned CIT(A) erred in law to uphold the disallowances out of P & L expenses, without passing a speaking order.
GROUNDS OF APPEALS ON BEHALF OF THE REVENUE
(i) That the learned CIT, Additional Appeals, Zone-IV, Lahore was not justified in granting the status of AOP to the taxpayer.
(ii) That the learned CIT, Additional Appeals was unjust in holding that interest income of the assessee might be charged to tax taking status of the assessee that of an AOP.
(iii) That the learned CIT, Additional Appeals was not justified in applying the doctrine of mutuality in the case of taxpayer.
(iv) That the learned CIT, Additional Appeals was not justified in maintaining that the receipts under the heads of subscriptions, research contribution and TQM were not covered by the provisions of section 22(b) of the repealed Income Tax Ordinance, 1 979 and hence not assessable.
2. Since, most of the issues involved in appeals preferred by both the sides are common, we intend to dispose of the same through this consolidated order.
3. The facts relevant for the disposal of present appeals are that the assessee is a registered limited company by the name of Lahore Chamber of Commerce & Industries (Pvt.) Limited, Lahore. The assessee got itself registered vide permission dated 25-4-1959 with the prior permission of the Federal Government. Accordingly, Registration Certificate dated 12-5-1959 was issued under section 26 of the old Companies Ordinance, 1913 (now section 42) of the Companies Ordinance, 1984. The main objects of the company for which the company was formed are mentioned in the memorandum of association of the company and the same are as under:---
(1) To promote and protect the trade, commerce and industry of Pakistan in particular the trade, commerce and industry of Lahore Division.
(2) To watch over and protect the general industrial and commercial interests of Pakistan or any part thereof and the interests of persons engaged in trade, commerce or industry in Pakistan and in particular in Lahore Division.
(3) To consider all questions connected with trade, commerce and industry.
(4) To obtain the removal, as far as the Chamber can, of all acknowledged grievances affecting merchants and/or Industrialists or mercantile and/or industrial interests in general.
(5) To promote or oppose legislative and other measures affecting trade, commerce and industry.
(6) To adjust controversies between members of the Association.
(7) To encourage decision of disputes by arbitration and to arbitrate between parties willing to refer to, and abide by, the decision of the Chamber or Committee, or persons constituted or appointed in that behalf by the Chamber specially, or under bye-laws framed by the Chamber.
(8) To arbitrate in the settlement of disputes arising out of commercial transactions between parties willing or agreeing to abide by the judgment and decision of the Association.
(9) To establish just and equitable principles in trade, commerce and industry.
(10) To form a code or codes of practice to simplify and facilitate transactions of business.
(11) To maintain uniformity in rules, regulations and usages of trade.
(12) To sell, improve, manage, develop, exchange, lease or let, under lease, sublet, mortgage, dispose of, turn to account or otherwise deal with, all or any part of the property of the Chamber.
(13) To construct upon any premises acquired for the purpose of the Association, any building or building for the purposes of the Association and to alter, add to or remove any building upon such premises.
(14) To borrow or raise any money required for the purposes of the Association upon such terms and in such manner and on such securities as may be determined, and in particular by the issue of debentures charged upon all or any of .the property of the Association.
(15) To establish and support, or aid in the establishment and support of funds, trusts and conveniences calculated to benefit employees or ex-employees of the Association or the dependents or connections of such persons and to grant pensions and allowances.
(16) To subscribe to become a member of, and cooperate with any other Association, whether incorporated or not, whose objects are altogether or in part similar to those of this Association and to procure from and communicate to any such Association such information as may be likely to forward the objects of this Association.
(17) To obtain representation on council, commissions, boards, committees and other government or municipal bodies whose objects may be synonymous with those of this Association or when such representation may be advisable in the interests of this Association.
(18) To do all such other things as may be conducive to the extension of trade, commerce or manufacturers, or incidental to the attainment of the above objects or any of them.
(19) To collect and circulate among members statistics and other information relating to trade, commerce and industry.
(20) The income and property of the Chamber whatsoever derived shall be applied solely towards the promotion ofthe objects of the Chamber as set forth in this memorandum of association, and no portion thereof shall be paid or transferred directly or indirectly by way of dividend or bonus or otherwise how soever by way of profit to the persons who at any time are or have been members of the Chamber or to any of them or to any persons claiming through any of them. Provided that nothing herein contained shall prevent the payment in good faith or remuneration to any officers or servants of the Chamber or to any member thereof or other person in return for any service actually rendered to the Chamber, or the payment of interest on money borrowed from any member of the Chamber.
(21) The fourth paragraph of this memorandum is a condition on which a license is granted by the government .of Pakistan to the Association in pursuance of section 26 of the Companies Act, 1913. The liability of the members is limited.
(22) ------------------------
(23) ------------------------
(24) If upon the winding up or dissolution of the Association, there remains, alter the satisfaction of all its debts and liabilities, any property whatsoever, the same shall not be paid to or distributed among the members of the Association, but shall be given or transferred to some other institution having objects similar to the objects of the Association, to be determined' by the majority or in default thereof, by such judge of the Court of Lahore, as may have or acquire jurisdiction in the matter.
(25) Amendments to the Memorandum of Association shall be subject to the approval of the government and shall also be made when required by the government in public interests.
4. Following are the receipts, their nature whether taxable or exempt:
| Assts. Year | Contribution | Building Rent | Profit on investments | Misc. Income | Advets. | Taxable Receipts |
| 1996-97 | 54,62,023 | 94,50,562 | 4,10,026 | 58,48,930 | 4,35,732 | 66,96,688 |
| | Exempt | Exempt | Taxable | Taxable | Taxable | |
| 1997-98 | 50,66,844 | 95,60,958 | 14,11,293 | 59,22,315 | 4,29,537 | 77,63,145 |
| | Exempt | Exempt | Taxable | Taxable | Taxable | |
| 1998-99 | 1,08,63,641 | 1,03,13,846 | 20,12,427 | 30,77,797 | 3,97,433 | 54,87,657 |
| | Exempt | Exempt | Taxable | Taxable | Taxable | |
| 1999-2000 | 1,07,34,576 | 1,12,55,214 | 22,25,504 | 44,90,321 | 6,69,254 | 51,59,575 |
| | Exempt | Exempt | 143B | Taxable | Taxable | |
| 2000-01 | 1,09,24,252 | 1,24,92,212 | 28,18,822 | 59,01,266 | 7,53,867 | 66,55,133 |
| | Exempt | Exempt | 14313 | Taxable | Taxable | |
| 2001-02 | 1,10,82,753 | 1,43,35,680 | 28,78,633 | 70,51,627 | 10,61,126 | 81,12,753 |
| | Exempt | Exempt | 143B | Taxable | Taxable | |
| 2002-03 | 1,14,68,517 | 1,47,27,668 | 30,73,273 | 82,20,899 | 9,24,939 | 91,45,838 |
| | Exempt | Exempt | 143B | Taxable | Taxable | |
The Income Tax returns after claiming P&L expenses, were submitted as under:
| Assessment Year | (Loss) Returned | Status claimed on return |
| 1996-97 | (10134530) | Any other-on company return |
| 1997-98 | 10591656) | Any other-on company return |
| 1998-99 | (15488794) | Any other-on company return |
| 1999-00 | (20887745) | Unlisted Public Company |
| 2000-01 | (22038916) | Unlisted Public Company |
| 2001-02 | (22033859) | Artificial Juridical person-on Coy. |
| 2002-03 | (27315465) | Artificial Juridical person-on Coy. |
5. It is pertinent to mention here that initially, the assessee company filed return showing its status as company. However, later on income tax returns filed for the assessment years 2001-02 and 2002-03 were revised on 30-1-2004 to claim the status of an AOP on the basis of the case law reported as PLD 1985 SC 97 and 1984 PTD 282. It is also worth noting that for the tax year 2003, which is not under appeal, the original return was submitted on 16-12-2003 on the return Form meant for individual, AOP claiming the status of an AOP. Once again, revised return was filed on 6-1-2004 claiming the status of the company under Code-65 "any other society". The said status of the assessee company was not accepted by the assessing officer, the claim of exemption in respect of contribution and building rent was also discarded. The assessing officer also did not agree to the assessee's claim that profit on investment was assessable under section 80B, being a company case. Thus, the income of the assessee was computed as under:
| Assessment Year | Income Assessed | Status Assigned |
| 1996-97 | 70,88,295 | Limited Company |
| 1997-98 | 63,43,767 | Limited Company |
| 1998-99 | 79,48,297 | Limited Company |
| 1999-00 | 44,81,479 | Limited Company |
| 2000-01 | 60,62,938 | Limited Company |
| 2001-02 | 18,331,512 | Limited Company |
| 2002-03 | 14,302,098 | Limited Company |
6. At the first appellate level, the assessee company succeeded in persuading the learned Commissioner. Appeals whereby he upheld the status of the assessee with regard to claim of status of Society. However, assessee's claim regarding exemption under clauses (93) & (94) did not find favour with the learned Commissioner Appeals. Disallowances out of P&L Expenses under the heads of repair allowance, rates & taxes & depreciation were also confirmed. This led to filing of cross appeals by the taxpayer as well as the Revenue.
7. Learned Legal Advisor (LA) assailed the impugned findings recorded by the learned first appellate authority whereby he assigned the status to the assessee company of as an AOP. It was contended by the L.A that admittedly, the Lahore Chamber of Commerce & Industry was registered as a company with the Registrar of the Companies. It was further argued that the assessee has been claiming the status of company/artificial juridical person for the last about 30 years. It was submitted that the assessee's own declaration is .an estoppel against its present claim of "an AOP". It was also argued by the learned LA that the Chamber was doing business to earn profit through contribution made by its members as well as the property rented out. The learned LA stated that all the activities undertaken by the Chamber is covered under section 22 of the repealed Income Tax Ordinance, 1979, hence taxable. With regard to the claim of the assessee that his receipts were exempt for the reason that the Chamber was doing charitable work for the betterment of business community and promotion of trade and commerce as laid down in its objectives given in the Memorandum of Association. It was stated by the learned L.A that the reliance .of the assessee on clauses (93) & (94) of 2nd Schedule to the repealed Income Tax Ordinance, 1979 was misplaced for the simple reason that it envisaged religious and charitable institution run for the benefit of public at large and not any organization aimed at working for the benefit of a certain limited community of traders who are the members of particular association. The learned L.A vehemently entreated that the learned first appellate authority erred in law while assigning the status of AOP to the assessee company.
8. Conversely, the learned AR appearing on behalf of the assessee opposed the arguments advanced by the learned L.A tooth and nail. It was contended that undoubtedly the assessee was registered with the Joint Registrar of the Companies as a company under section 26 of the old Companies Act, 1913 (now Section 42 of the Companies Ordinance, 1984) but the above facts should, not mislead any one to assume that the assessee is a company and not an association. It was stated that mere incorporation under an enactment never meant that the entity has attained the status of what has been provided under the enactment because the veil of incorporation can be lifted by courts to see the real nature of the entity behind the veil. Learned AR, in this regard, placed reliance upon the judgment reported as PLD 1985 SC 97. The learned AR submitted that the memorandum of association of a body or corporation is the clear indication of the fact that whether the company is involved in business and the same would convey the true picture to show-that the said body/corporation is to be called the company or an association. While continuing with the arguments, the learned AR urged at the bar that an association of traders and industrialists formed for promoting commerce, industry etc is entitled to get registration under Company Act. 1913 or Companies Ordinance, 1984, therefore, the Chamber got itself registered under section 26 of the Company Act, 1913. It was further elaborated that for obtaining registration under section 26 of the Company Act, 1913, the Chamber was required to obtain license/certificate of the Federal Government, which was duly obtained prior to its registration. The .learned AR emphasized that had the assessee been a commercial company and not an association, it would not have needed such a certificate/license of the Federal Government for getting itself registered under the Company Act, 1913.
The learned AR submitted that the assessee company has been granted exemption for its total income in the preceding assessment years under clause (89) of the 2nd Schedule to the repealed Income Tax Ordinance, 1979 till 1st November, 1993 when the said clause was taken of the statute book through notification bearing S.R.O. No.1081(I)/93 dated 1-11-1993. The learned AR further explained that deletion of clause (89) in the repealed Ordinance whereby the assessee company was enjoying exemption on its total income did not mean that assessee's claim for exemption under two heads could not be allowed since it still fell within the ambit of clauses (93) & (94) of the 2nd Schedule to the repealed Ordinance. It was elaborated by the learned AR that a special clause or law does exclude application of general law. He further stated that deletion of clause (89) ibid, did not imply that assessee company could n resort to two clauses i.e. (93) & (94) of the 2nd Schedule to the repealed Ordinance. In this respect, reliance was placed on a /judgment cited as (1967) SCC 289 in re: CIT East Pakistan, Dhaka v. Engineers Limited. While continuing with the arguments, learned AR pleaded that for all intents and purposes, objectives of the assessee company, as narrated in the Memorandum of Association clearly showed that it was a charitable institution with the object to promote and protect the trade, commerce and industries of Pakistan. To substantiate his stance, learned AR referred to the Memorandum of Association, which has already been reproduced in the preceding paragraphs. Replying to the arguments, advanced by the learned L.A, appearing on behalf of the Revenue, learned AR refuted the contentions raised by the learned L.A that benefits provided, to a section of public could not be considered charitable since it is not meant for providing relief to the public at large. Learned AR emphasized that through a number of judicial pronouncements made by the superior courts of Pakistan and India, it has been quite elaborately explained that whether object set out by a body corporate like assessee company for its members who do not fall in the category of general public could be considered charitable for the purpose of clauses (93) & (94). To substantiate his stance, he relied upon various judgments of the superior courts which are cited as follows:--
(i) 704 ITR Volume 82, titled as Ahmedabad Ran Caste Association v. Commissioner of Income Tax, Gujarat.
(ii) 1984 PTD 282 titled as Ameen Mouddin Foundation Ltd., Karachi v. Commissioner of Income Tax, East Karachi.
(iii) 1968 PTD 513 (CIT East Pakistan, Dhaka v. Narain Ganj).
(iv) (1939) ITR Volume 7 Page 575 (Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce).
(v) (1965) ITR Volume 11 Page 306 (Commissioner of Income Tax, Madras v. Andra Chamber of Commerce).
(vi) (1981) ITR Page 186 (Commissioner of Income Tax, New Dehli v. Federation of Commerce & Industry).
While summing up his arguments, learned AR reiterated that case of the assessee is duly covered by clauses (93) & (94) of the 2nd Schedule to the repealed Ordinance since objectives as mentioned in the Memorandum of Association of the company are ostensibly charitable because the same are meant to promote and protect the trade, commerce and industry of Pakistan by helping and guiding the trade as well as industrial community of Pakistan, being member of the Chamber. He reiterated before the Bench that the impugned order, passed by the learned first appellate authority warrants confirmation.
9. We have heard the learned counsel for both the parties and have also gone through the relevant order's along with the case laws cited at the bar. Before we embark upon discussing the respective contentions urged by both the parties, it would be apt if we reproduce the clauses (93) & (94) to the 2nd Schedule of the repealed Ordinance hereunder to determine the true nature of the clauses whether those are attracted in the assessee's case or not. Additionally, we would like to appraise the case law cited at the bar by the learned AR.
Clause (93)
"Any income which is derived from investment in securities of the Federal Government and house property held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes and is actually applied or finally set apart for application thereto".
Clause (94)
"Any income of a religious or charitable institution derived from voluntary contribution applicable solely to religious or charitable purposes of the institution".
In re Ahmadabad Rana Caste Association v. CIT, Gujarat (1971) 82 ITR 704 (SC), the objects and purposes of the institution were the management of the movable and immovable properties of the Rana Caste or community of the City of Ahmadabad, doing acts to improve the education of the community, giving medical help to the community etc. The Income Tax Officer took the view that the objects were not charitable and therefore, the assessee was not entitled to exemption under section 4(3)(i) of the Indian Income Tax Act, 1922. Before the Tribunal, it was held that the Trust was a charitable trust and therefore, is entitled to exemption. The Commissioner of Income Tax moved the Tribunal for stating the case and referring the question of law-arising from its order. The Tribunal referred following question to the High Court:---
(i) Whether, on the facts and in the circumstances of the case, the income of the assessee trust is exempt under section 4(3)(i) of the Income Tax Act, 1922 and section 11 of the Income Tax Act, 1961"?
The High Court held that all the beneficiaries comprised in this class were not united with common characteristic or attribute, therefore, the question referred was answered in negative. Their Lordship of Supreme Court of India while reversing the findings of the High Court held as under:--
"It is well settled that an object beneficial to a section of the public is an object of general public utility. To serve a charitable purpose it is not necessary that the object should be to benefit the whole of mankind or all persons in a particular country or state. It is sufficient if the intention to benefit a section of the public as distinguished from a specified individual is present. The section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of a public or impersonal nature"
In re: Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce, in somewhat similar circumstances, the Karachi Chamber of Commerce/assessee as an association of businessmen, registered under section 26 of the Indian Companies Act, and its object as were set out in its memorandum of association was to encourage the trade, commerce and industry and the interest of persons engaged therein and particularly to advance and protect the business interests of its own members. The association employed a "public measure" to measure the merchandise of members and outsiders, the freight was payable on measurement and received a substantial amount by way of measurement fees. Subscription from the members were exempted from income tax, but the whole amount of the measurement fees including sums received from the members was taxed. It was observed by His Lordship that the fact that the services rendered by the Chamber to its members related to business or trade is immaterial. The test in such cases is not the purpose of the association but its nature. If its services are solely for the benefit of the members, or, if not solely for the benefit of its members, if the services for its members and the cost thereof are clearly separable from its services to non-members and the cost thereof, then there is no profit, but merely a surplus or saving. Hence, exempt from tax.
In re: Commissioner of Income Tax, Madras v. Andhra Chamber of Commerce-Assessee was a company registered under the Companies Act, 1913. It was permitted by the Government to omit the word 'limited' from its name, The primary objects of the assessee were to promote and protect trade, commerce and industries, to aid, stimulate and promote the development of trade, commerce and industries, and to watch over and protect the general commercial interests of the country. Under clause 4 of its memorandum of association, it was provided that the income and property of the Chamber shall be applied solely towards the promotion of its objects as set forth therein. The assessee purchased a building which it altered and improved, moved its offices into that building and let out portions not required for its use to tenants. At the assessment stage, the assessee contended that the annual value of the building was not assessable in its hands as the assessee was a charitable institution within the meaning of section 4(3)(i) of the Income Tax Act. The Income Tax Officer rejected the contention of the assessee and assessed its income from property on the basis of the net annual value without debiting the expenditure in excess of income (other than rent) against the net annual value. On appeal, Appellate Additional Commissioner held that the assessee not being a charitable institution the income in question was not exempt from tax under section 4(3)(i) of the Act. The appellate Tribunal, on further appeal, affirmed the order of the Appellate Additional Commissioner. On a reference the High Court held that the income from properly was exempt under section 4(3)(i) of the Act. Affirming the judgment of the High court, the Supreme Court held as under:--
(i) Advancement or promotion of trade, commerce and industry leading to economic prosperity enured for the benefit of the entire community. That prosperity would be shared also by those who engaged in trade, commerce and industry, but on that account the purpose was not rendered any the less an object of general public utility,
(ii) The legislature had used language of great amplitude in defining `charitable purpose': the definition was inclusive and not exhaustive or exclusive,
(iii) The expression `object of general public utility' was not restricted to objects beneficial to the whole of mankind. An object beneficial to a section of the public was an object of general public utility. To serve as a charitable purpose, it was not necessary that the object should be to benefit the whole mankind or even all persons living in a particular country or province. It was sufficient if the intention was to benefit a section of the public as distinguished from specified individuals. The section of community sought to be benefited must undoubtedly be sufficiently defined and identifiable by some common quality of a public or impersonal nature: where there was no common quality uniting the potential beneficiaries into a class, it might not be regarded as valid.
(iv) The primary objects of the Chamber of Commerce were not vague or indefinite,
(v) An object of general public utility, such as promotion, protection, aiding and stimulation of trade, commerce and industries, need not, to be valid, specify the modus or the steps by which the object might be achieved or secured.
(vi) If the primary purpose be advancement of objects of general public utility, it would remain charitable even if an incidental entry into the political domain for achieving that purpose e.g. promotion of or opposition to legislation concerning that purpose was contemplated. It was only for the purpose of securing its primary aims that it was mentioned in the memorandum of association that the Chamber might take steps to urge or oppose legislative or other measures affecting trade, commerce or manufacturers. Such an object ought to be regarded as purely ancillary or subsidiary and not the primary object and
(vii) The income of the Chamber from its building was exempt from tax under section 4(3)(i) of the Income Tax Act as the building was held under a legal obligation wholly for charitable purpose.
In the case of Commissioner of Income Tax, East Pakistan v. Narayanganj Chamber of Commerce & Industries, the assessee, Narayanganj Chamber of Commerce and Industries was registered under section 36 of the Companies Act as an association of persons and obtained a license from the Government of Pakistan under section 26(1) of the said Act. The main object of the assessee was "to promote and protect the trade, commerce and industry and manufacturers of Pakistan and in particular the trade, commerce and industry of Narayanganj. The principal source of income of the assessee was subscription received from the members, arbitration, courier service, license measurement and issue of certificates and house property. The Income Tax Officer rejected the assessee's claim of exemption under section 4(3)(i) of the Income Tax Act and charged to tax the income from business and property. The Appellate Assistant Commissioner maintained the decision of the Income Tax Officer. The Appellate Tribunal, however, held that the institution fulfilled the requirements of the proviso to section 4(3)(i) of the Act and as such was exempt from payment of tax. On a reference, the High Court affirming the order of the Tribunal held as under:--
(i) Having regard to the expression `advancement of any other object of general public utility', occurring in the explanation added to section 4(3)(i) of the Act, we have no manner of doubt that the assessee-company is furthering objects which are of general public utility. That being so, it can rightly claim exemption under section 4(3)(i) of the Act provided the income derived by it from various sources are applied solely for charitable purposes of the institution and fulfil other requirements laid down in the first proviso to section 4(3)(i),
(ii) In the case before us, it has not been found by any body at any stage that the income derived from house property and the business has been utilized for purposes other than for which this association of persons has been registered under section 26 of the Companies Act and the Tribunal has recorded its finding to the effect that it, in fact, fulfils the requirements of the proviso to section 4(3)(i) of the Act.
10. The first issue which warrants our adjudication is with regard to the status of the assessee. There is no dispute with regard to the fact that the assessee was registered as limited company with the Joint Registrar of the Companies under section 26 of the Companies Act, 1913 (now section 42 of the Companies Ordinance, 1984). However, after hearing rival arguments addressed at th0 bar, we do not subscribe to the views advanced by the learned Legal Advisor that it was a limited company in stricto senso with the object of doing business, therefore, the filing of return with the status of AOP was not acceptable to the Department. In this respect, arguments advanced by the learned AR carry weight that the assessee had to get prior permission from the Federal Government before it could get itself registered as a company with the Joint Registrar of the Companies. This is a distinguishable feature which separates the assessee from other ordinary companies, which are involved in doing business because they could get themselves registered with the Joint Registrar of the Companies after fulfilling the legal requirements prescribed under the law i.e. Companies Ordinance and Security and Exchange Commission etc. but are not under any legal obligation to seek prior permission from the Federal Government, as in the case of the assessee. Besides, one has to go through objects of the company as set out in the memorandum of Association and also the nature of activities involved in before one could ascertain whether it was a limited company formed for the purpose of doing normal business activities or an association made for some other purposes i.e. charitable etc. At this stage, it would be quite helpful to refer to the cases cited by the learned AR on the aforesaid issue. The first judgment which was cited at the bar by the learned AR reported as PLD 1985 SC 97. In the supra cited case, a body corporate namely Sindh Industrial Estate Limited was registered as a company under the Companies Act limited by guarantee whose whole working capital came from Sind Government. The principle of lifting the veil was looked into and it was held that though the company was registered as a limited company, the truth was that after lifting the veil, it revealed that for relevant purposes it was part of government machinery notwithstanding the appearance and incorporation as a company.
It is also relevant to refer to the section 26 of the Companies Act, 1913 hereunder, which provides that where the company has been formed for charitable purpose, it could dispense with the word "limited" despite the fact that it is registered as limited company with the Joint Registrar of the Companies:--
SECTION 26--Power to dispense with 'Limited' in name of chartiable and other companies:
(1) Where it is proved to the satisfaction of the Federal Government that an association capable of being formed as a limited company has been or is about to be formed for promoting commerce, art, science, charity or any other useful object, and applies or intends to apply its profits (if any) or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Federal government may, by license under the hand of one of its secretaries, direct that the association be registered as a company with limited liability, without the addition of the word "limited" to its name, and the association may be registered accordingly. .
(2) A license by the {Federal Government} under this section may be granted on such conditions and object to such regulations as the {Federal Government) thinks fit and those conditions and regulations shall be binding on the association, and shall, if the {Federal Government) so directs, be inserted in the memorandum and articles, or in one of those documents.
(3) The association shall on registration enjoy all the privileges of limited companies and be subject to all their obligations, except those of using the word "limited" as any part of its name, and of publishing its name, and of sending lists of members to the Registrar.
(4) A license under this section may at any time be revoked by the Federal Government and upon revocation the registrar shall enter the word "limited" at the end of the name of the association upon the registrar, and the association shall cease to enjoy the exemptions and privileges granted by this section:
Provided that, before a license is so revoked the Federal Government shall give to the association notice in writing of its intention, and shall afford the association an opportunity of submitting a representation in opposition to the revocation.
11. Since, the assessee had objects like promoting and protecting the trade, commerce and industries and to watch over and protect the general industrial and commercial interests of the persons engaged in trade, commerce and industries, clearly it was a charitable institution and therefore, it could not only dispense with the word "limited" but it could show its status as an AOP at the time of filing of returns. The case of the assessee stands substantiated by the judgments cited supra which laid down that in the case of limited company veil could be lifted to ascertain the true nature of a particular corporate body.
In the light of the aforesaid discussion, we are not inclined to warrant our interference in the impugned order on the issue of status-of the company whereby the learned first appellate authority held that the assessee could declare its status as a AOP despite the fact that it was registered as a limited company.
12. On the issue of doctrine of mutuality, the findings given by the learned first appellate authority need not be disturbed since the receipts made on account of subscription/contribution, research/development and TQM service were for the benefits of its members and no individual member can claim any specific service in consideration of contribution/I subscription paid to the Chamber, therefore, the doctrine of mutuality, was attracted in the case of the assessee. In this respect, judgment reported as (1997 PTD (Trib.) 1034) is very much relevant. Mr. Justice Nasim Sikandar; (the learned Judicial Member, as he then was) speaking for the Full Bench, observed as under:--
"Before concluding we would like to rule upon the doctrine of mutuality pleaded as one of the reasons to exclude, the immovable properties held by the societies from the definition of the word "assets". The submission is sought to be supported by the reported decision of Lahore High Court in re: CIT, Lahore v. Lyallpur Central Cooperative Bank. However, the plea is misconceived as the decision relied upon is clearly distinguishable. In the first instance, the doctrine .of mutuality is known only to income tax proceedings and its extension to wealth tax regime is totally out of place. The principle underlying the doctrine is that no one can make profit out of himself and that no one can be a seller and a buyer at the same time."
Perusal of the supra cited judgment as well as the discussion made in the earlier paragraphs would suggest that the aforesaid judgment is on all fours to the case of-the assessee, hence findings given on the basis of said judgment are hereby maintained. At this juncture, it would also be relevant to add that the learned first appellate authority was justified to say that the receipts made by the assessee on account of contribution/subscription, research and development contributions and TQM service etc. were not covered by the provisions of section 22(b), hence were not assessable.
13. On the issue of claim of exemption by the assessee company under, the heads income earned from rental property as well as contributions made by the members of the Chamber. Admittedly, clause (89), Part-I, 2nd Schedule to the repealed Ordinance granted blanket cover to the Chamber's earnings. However, the said clause was removed from the statute books vide S.R.O. No.1081(I)/93 dated 1-11-1993. Now, question arose that whether the assessee company was entitled to claim exemption by taking refuge under clauses (93) & (94) of the 2nd Schedule to the repealed Ordinance. The learned AR vehemently stressed that the despite the fact that clause (89) was deleted but that granted total exemption to the assessee's income while presently the assessee was not claiming the exemption to its total income but income earned from rental property and receipts made on account of contributions/subscriptions paid to the Chamber by its members.
Before we proceed further, we would like to observe that in our considered view there are three issues which need dilation by the Bench and those are as under:--
.
(i) Whether an object set out leading to welfare for a section of public could be termed as charitable purpose,
(ii) Whether a Chamber of Commerce could be considered an association/corporate body formed for the purpose of charitable purposes.
(iii) Whether after deletion of clause (89) of the 2nd Schedule to the repealed Income Tax Ordinance, 1979, the case of the Chamber of Commerce is duly covered under clauses (93) & (94) of the 2nd Schedule to the repealed Income Tax Ordinance, 1979.
As far as the first issue is concerned, there is a plethora of law and the same has already been discussed in preceding paragraphs of the judgment that/any benefit for the purposes of welfare extended to a section of public would fall within the ambit of charitable purposes/as held in the following judgments cited as:---
(i) 704 ITR Volume 82, titled as Ahmedabad Ran Caste Association v. Commissioner of Income Tax, Gujarat.
(ii) 1984 PTD 282 titled as Ameen Mouddin Foundation Ltd., Karachi v. Commissioner of Income Tax, East Karachi.
(iii) 1968 PTD 513 (CIT East Pakistan, Dhaka v. Narain Ganj).
(iv) (1939) ITR Volume 7 page 575 (Commissioner of Income Tax, Bombay v. Karachi Chamber of Commerce).
(v) (1965) ITR Volume 11 Page 306 (Commissioner of Income Tax, Madras v. Andra Chamber of Commerce).
(vi) (1981) ITR Page 186 (Commissioner of Income Tax, New Dehli v. Federation of Commerce & Industry).
We do not want to discuss those cases at the expense of repetition. If we revert back to our previous discussion, which stands incorporated in the preceding paragraphs of our judgment, the cases of CIT, Madras v. Andhra Chamber of Commerce, CIT East Pakistan, Dhaka v. Narain Ganj Chamber of Commerce, CIT Bombay v. Karachi Chamber of Commerce, CIT v. Federation of Commerce & Industry all are the cases which had almost identical facts and the questions of law involved were also same which is matter of discussion in the present case. In all those cases, unanimous view of the courts of Pakistan as well as courts from Indian Jurisdiction was that objects set out to protect their commerce, trade and industry would always be considered as charitable. Following the ratio pronounced in the supra cited cases, we have no option but to hold the same.
14. With regard to the issue No.3, though, clause (89) which was deleted by the S.R.O. No.1091(I)/93, dated 1-1-1993 was specifically meant for granting exemption to bodies like Chamber of Commerce but deletion of one clause does not stop operation of other clauses still appearing in the statute books. At this stage, it would be pertinent to say that since it has already been held that Chamber of Commerce is a charitable institution, clause (94) of Part-I, 2nd Schedule to the Ordinance would come into play. We have already produced clause (94) but for the sake of convenience, it is once again being referred to and it provides that "any income of a religious or charitable institution derived from voluntary contribution applicable solely to religious or charitable purposes of the institution". Obviously, clause (94) refers to income received by the charitable institution through voluntary contribution to bring it within the domain of grant of exemption. Since, it already stands decided that the Chamber of Commerce is a charitable institution and also the fact that these contribution are also voluntary in nature, we are of the considered view that despite the fact that clause (89) was no more in the statute books, the case of the assessee would stand covered by clause (94) and hence contributions received by the Chamber of Commerce from its members would he exempt from incidence of taxation.
15. On the issue of addition made on account of profit & loss account, the learned AR did not press the issue of depreciation, hence' same is upheld. As regards disallowance out of P&L expenses under the heads of Repairs, Rates & Taxes, the taxation officer has not uttered even a single word while making add backs under various heads of P&L A/c. It is also worth noting that no notice under section 62 of the repealed Income Tax Ordinance, 1979 was ever issued. At no stage of the case, the same was confronted to the assessee, even otherwise, the assessing officer miserably failed to cite any instance of un-vouched ness or unverifiability. In this view of the fact, these additions could not be clothed with the cover of legal sanctity, hence directed to be deleted.
16. Cross appeals stand disposed of to the extent and in the manner, as indicated above.
C.M.A./8/Tax(Trib.)Order accordingly.