COMMISSIONER OF INCOME TAX/WEALTH TAX COMPANIES ZONE-II, LAHORE VS LAHORE CANTT. COOPERATIVE HOUSING SOCIETY, LAHORE
2009 P T D 799
[Supreme Court of Pakistan]
Present: Sardar Muhammad Raza Khan, Syed Sakhi Hussain Bokhari and Sheikh Hakim Ali, JJ
COMMISSIONER OF INCOME TAX/WEALTH TAX COMPANIES ZONE-II, LAHORE
Versus
Messrs LAHORE CANTT. COOPERATIVE HOUSING SOCIETY, LAHORE and 7 others
Civil Appeals Nos.1.477 to 1484 of 2000, decided on 07/11/2008.
(On appeal from the judgment, dated 23-5-2000 of the Lahore High Court, Lahore passed in I.T.As. Nos.297, 303, 311, 472 of 1999, 439 of 199.8, 501, 511 and 508 of 2000).
Income Tax Ordinance (XXXI of 1979)---
----Ss. 2(16)(b) & 80-B---Cooperative Societies Act (VII of 1925), S.23---Corporate body formed by or under any law---Scope---Cooperative society---Status---Interest/profit from bank deposits---Plea raised by cooperative societies was that they were not companies in terms of S.2(16)(b) of Income Tax Ordinance, 1979, therefore, interest/ profit from bank deposits was covered by S.80--B of Income Tax Ordinance, 1979---Validity---Only those bodies corporate were covered under S.2 (16)(b) of Income Tax Ordinance, 1979, which were created by some law for the time being in force---Such were only those societies which were directly established, constituted and created by relevant statue itself---Body formed by private individuals and subsequently registered under some law was not a body formed under that law, rather it was a body formed otherwise but registered under law---Formation, creation and constitution of a body under law was therefore, altogether different from a body required merely to be registered under some law---Respondent societies were not creation of any law but whatever be their mode of creation, they were required to be registered with Registrar of Cooperative Societies under Cooperative Societies Act, 1925---Respondent societies were not covered by the definition of company as provided in S.2 (16)(b) of Income Tax Ordinance, 1979 and could not be taxed as claimed by income tax authorities, therefore, Supreme Court upheld the judgment passed by High Court---Appeal was dismissed.
Black's Law Dictionary, 6th Edition, New Lexicon Webster's Dictionary, Words and Phrases Permanent Edition, Stroud's Judicial Dictionary, 5th Edition ref.
M. Ilyas Khan, Advocate Supreme Court, M. Bilal, Senior Advocate Supreme Court, Mumtaz A. Sheikh, Member Legal F.B.R. for Appellant (in all cases).
Raja Abdul Ghafoor, Advocate-on-Record for Appellant (in C.A. No.1482 of 2000).
Zia Haider Rizvi, Advocate Supreme Court for Respondents (in C.As. Nos.1477 and 1478 of 2000).
Kh. Ibrar Majal, Advocate Supreme Court for Respondents (in C.As. Nos.1479 and 1480 of 2000).
Iqbal Hashmi, Advocate Supreme Court and M.S. Khattak, Advocate-on-Record for Respondents (in C.As. Nos.1481 and 1482 of 2000).
Respondents in other case: Ex parte.
Date of hearing: 7th November, 2008.
JUDGMENT
SARDAR MUHAMMAD RAZA KHAN, J.---Commissioner of Income Tax/Wealth Tax Companies Zone-III, now Companies Zone-II, Lahore has been granted leave to appeal from the consolidated judgment dated 23-5-2000 of a learned Division Bench of Lahore High Court, whereby, the Income Tax appeals of the appellants were dismissed. The legal as well as factual aspects being common, all the appeals are taken up together.
2. The respondents are Societies registered under the Cooperative Societies Act, 1925 carrying out development work like construction of roads, sewerages, electrification etcetera through funds raised from the public on account of development charges. They also performed numerous functions involving income, interests in profit towards the implementation and development of private housing schemes.
3. The Income Tax Department assigned respondents the status of a "limited company" in terms of section 2(32) of the Income Tax Ordinance, 1979. Since the assessees failed to deduct tax under section 50(4) of the Ordinance, those were subjected to tax under section 52 of the Income Tax Ordinance by declaring them as assessees-in-default. Such assessment was upheld by the Commissioner of Income Tax (appeals) vide order dated 7-12-1998. The learned Income Tax Appellate Tribunal in its judgment dated 30-8-1999, held that the respondent societies held the status of `artificial juridical persons'. While setting aside the previous order, the learned Tribunal held that the assessees were not liable to deduct tax under section 50(4) of the Income Tax Ordinance.
4. Through the impugned judgment, the learned High Court gave a verdict that the Cooperative Societies are not a Company in terms of section 2(16)(b) of Income Tax Ordinance and that Societies' income from interest/profit from Bank deposits was covered by section 80-B of the Ordinance. Hence the appeals in hand.
5. In the above context, the Income Tax Department maintains that the respondent Cooperative Societies are liable to be taxed as a "Company" under section 2(16)(b) of the Ordinance while the Societies claim that they do not fall within the definition of "Company" and are to be taxed in the context of section 80-B of the Ordinance which provides:---
"where any amount referred to in subsection (2) is received by or accrues or arises or is deemed to accrue or arise to an individual, unregistered firm, association of persons, Hindu undivided family or artificial juridical person referred to in clause 32 of section 2, the whole of such amount shall be deemed to be income of such person and tax thereon shall be charged at the rates specified in the first schedule."
6. To appreciate the difference, it would be appropriate to reproduce section 2(16) of the Ordinance:--
"Section 2(16) "Company" means--
(a) company as defined in the Companies Ordinance, 1984 (XLVII of 1984); or
(b) a body corporate formed by or under any law for the time being in force; or
(bb) a trust formed by or under ,any law for the time being in force; or
(c) a body corporate incorporated by or under the law of a country outside Pakistan relating to incorporation of companies; or (cc) a Modaraba as defined in the Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980 (XXXI of 1980)'
(d) the Government of Province:
(e) A foreign association, whether incorporated or not, which the Central Board of Revenue may, by general or special order, declare to be company for the purpose of this Ordinance for such assessment year or years whether commencing before, on or after the first day of July, 1979 as may be specified in the said order."
7. The question that now falls for determination is, whether the Cooperative Societies registered under the provisions of Cooperative Societies Act VII of 1925, are the companies within the meaning of section 2(16)(b) of the Income Tax Ordinance XXXI of 1979. The moot point on which the entire case depends is the definition of a company as given in clause (b) of section 2(16) of the Ordinance. It lays down:--
"(b) a body corporate formed by or under any law for the time being in force."
We have now to find out the differ me between a body corporate "formed by" or "under" any law for the time being in force and those required to be registered only, under any law.
8. The learned Division Bench of the High Court in its elaborate judgment has consulted lack's Law Dictionary, 6th Edition, New Lexicon Webster's Dictionary, Words and Phrases Permanent Edition, Stroud's Judicial Dictionary, 5th Edition in order to scan the real connotation of the words "formed by" and "under", as used in clause (b) above. The word "formed by" means; to make, shape, to put together, to mould, to develop, to conceive or to constitute. Thus, we are clear in our mind while agreeing with the learned High Court, that clause (b) of the Ordinance brings into its ambit only those body corporates which are created by some law for the time being in force. Such are only those societies which are directly established, constituted and created by the relevant statue itself. While, on the other hand, a body formed by private individuals and subsequently registered under some law would not be a body formed under that law, rather, it would be a body formed otherwise but registered under the law. The formation, creation and constitution of a body under the law is, therefore, altogether different from a body required merely to be registered under some law.
9. In order to elaborate, the learned High Court has given certain examples of the Companies constituted under the law. Pakistan Insurance Corporation is a Company established by Act XXXVIII of 1952 and finds its origin in section 2(b) of the Act providing that Pakistan Insurance Corporation is established by the Act aforesaid. Similar is the example of National Bank of Pakistan which would not have been in existence if subsection 2(a) of Ordinance XIX of 1949 had not provided "that the Bank means National Bank of Pakistan, constituted by this Ordinance". Pakistan International Airlines Corporation finds its origin and source of creation in section 2(b) of Act XIX of 1956 according to which "Corporation means the Pakistan International Airlines Corporation established under this Act". Last one is the example of Agricultural Bank established under Agricultural Bank Act of 1957. If one follows the dictionary meaning of "formed by" and "under" and the aforementioned examples, one comes to an unescapable conclusion that the respondent-societies are not the creation of any law but whatever be their mode of creation, they are required to be registered with the Registrar of Cooperative Societies under the Cooperative Societies Act. We, therefore, have no two opinions that the respondent-societies are not covered by the definition of Company as provided in section 2(16)(b) of the Ordinance.
10. Coming to the intention of legislature as to whether the Cooperative Societies like respondents, were intended to be included into the definition of Company under section 2(16) of the Ordinance. We would observe emphatically that the respondent-societies were not so included. We are also positive that the legislature itself, while enacting the latest Income Tax Ordinance of 2001, was conscious of the fact that such Societies are not so included in the definition of Companies as provided by section 2(16) of the Ordinance. While enacting Income Tax Ordinance of 2001, such Cooperative Societies were included in the definition of Company. Section 80(2)(v) of the Income Tax Ordinance of 2001 reads as under:---
"a trust, a cooperative society or a finance society [or any other society established or constituted by or under any law for the time being in force;]
This subsequent inclusion of Cooperative Societies by positive act of legislation is a conclusive proof of the fact that the same were excluded in the earlier enactment.
11. Consequently, we hold that under section 2(16)(b) of the Income Tax Ordinance, the respondent-societies are not included in the definition of Company and cannot be taxed as claimed by the appellant-department. Upholding the judgment of the learned High court, the instant appeals are hereby dismissed with no order as to costs.
M.H./C-3/SCAppeal dismissed.