FIRST WOMEN BANK LIMITED through Head of Finance Planning & Operation, Karachi VS COMMISSIONER OF INCOME TAX, LEGAL DIVISION, KARACHI, 2010 PTD-KARACHI-HIGH-COURT-SINDH 1245 (2010)

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

----S.80-D---Income Tax Ordinance (XLIX of 2001), S.113---Banking company incorporated under Companies Ordinance, 1984 working under licence issued by State Bank of Pakistan---Turnover tax, levy of---Scope---Purpose of introducing S.80D in Income Tax Ordinance, 1979 was not merely to enhance exports of country---Lawmakers by adding explanation to S.80D(2) of Income Tax Ordinance, 1979 had in fact removed doubt, it any, in interpreting term "turnover" by giving descriptions of certain items, which could be included in its definition--No distinction existed between S.80D of Income Tax Ordinance, 1979 and S.113 of Income Tax Ordinance, 2001---Section 80D of Income Tax Ordinance, 1979 starting with non obstente clause stipulated that if either no tax was payable or tax paid by a company was less than half per cent of amount representing its turnover from all sources, then company would have to pay a tax known as turnover tax, which would be half per cent of amount of its turnover---Turnover would mean gross receipts, exclusive of discounts shown on invoices or bills, derived from giving or supplying services also---Such company was giving and supplying services---Banking companies used to give discounts and rebate to its customers in respect of amounts charged by them from its customers---Such company was liable to pay turnover tax in circumstances.

PLD 1993 Kar. 799 ref.

Commissioner of Income Tax v. Orix Leasing Pakistan Ltd. 2007 PTD 115 rel.

(b) Interpretation of statutes---

----No part of section of a statute would be read in isolation without making reference to other parts of same section.

Humayoon Muhammad Khan v. Province of Sindh 2009 CLC 909 rel.

Furqan Ali for Applicant.

Javed Farooqui for Respondent.

Date of hearing: 4th March, 2010.

JUDGMENT

IRFAN SAADAT KHAN, J.---These Income Tax Reference Applications (ITRA) have been filed against the consolidated order passed by the Income Tax Application Tribunal (ITAT) in I.T. As. Nos.236 to 240/KB 2005 dated 31-1-2006, by raising the following question of law.

(1) "Whether on the facts and circumstances of the case the definition of turnover in section 80-D can be held to be applicable to the business of banking companies?

(2) Whether on reading section 80-D in its entirety, the applicant falls within the purview of "company" or "registered firm" for the purposes of section 80-D of the 1979, Ordinance?

(3) Whether the learned Tribunal could rely on the order in I.T.A. No. 1400/KB/2002 without any application of mind as to the merits of the arguments advanced?

2. Mr. Furqan Ali, learned counsel appeared on behalf of the applicant and submitted that the department was not justified in levying the tax under section 80D of the Income Tax Ordinance, 1979, (repealed Ordinance). As per the learned counsel the applicant is a Banking Company and the provisions of section 80D of the repealed Ordinance are not applicable to a Banking Company. He submitted that as per the explanation given in subsection (2) of section 80D of the repealed Ordinance the term turnover has been defined to "mean gross receipts, exclusive of trade discount shown on invoices or bills derived from the sale of goods" and as the applicant is a Banking Company and is not engaged in any trading activities hence the provisions of section 80D of the repealed Ordinance are not applicable to the said Banking Company.

3. The learned counsel further submitted that the rationale behind brining section 80D of the repealed Ordinance was to enhance the exports of Pakistan and in support thereof he relies upon paragraph Nos.17, 18, 23 & 24 of the decision given by the Hon'ble. Supreme Court of Pakistan in the case of Ellahi Cotton Mills Ltd. v. The Commissioner of Income Tax PLD 1997 SC 582 = 1997 PTD 1555, wherein as per the learned counsel it has been observed by the Hon'ble apex Court that this tax has been imposed on the recommendations of the Export Committee, hence there was no intention of the law makers to tax a Banking Company. The learned counsel further submitted that the applicant company only receives interest and markup on the monies advanced to it from its client/customers, which could not be considered as the turnover of the said company hence the provisions of section 80D of the repealed Ordinance are inapplicable toe the said Banking Company. The learned counsel also relied on the principle of Ejusdem Generis by stating that the words used in a statute have to be given same meanings. The learned counsel submitted that as per the provision of section 113 of Income Tax Ordinance, 2001 (the Ordinance) which is in para materia of section 80D of the repealed Ordinance, the law-makers have specifically used the words "fees" instead of the word "receipt" hence in his opinion there was an ambiguity in the provision of section 80D of the repealed Ordinance. The learned counsel also submitted that it is a trite law that whenever there is an ambiguity it has to be resolved in the favour of the assessee. In support of his contention he relied upon the decision reported as PLD 1993 Kar. 799. In the end the learned counsel submitted that the questions proposed in the present ITRA may be answered in his favour.

4. Mr. Javed Farooqui, learned counsel appeared on behalf of the Department submitted that assessee admittedly is a Banking Company, which squarely falls under the definition of company as given in the Companies Ordinance, 1984, as well as in the Income Tax Ordinance, 1979 and Income Tax Ordinance 2001. Learned counsel submitted that the turnover tax is levied across the board on every company whether public, private, banking or any other company. The learned counsel also relied upon of the decision of Supreme Court of Pakistan mentioned supra wherein it was held that this section does not suffer from any constitutional infirmity. The learned counsel further submitted that the interpretation placed by the counsel representing the assessee/applicant is totally misplaced as he is interpreting the law in isolation without making reference to the other parts of section 80D of the repealed Ordinance and without considering the Explanation (1) of the subsection (1) of the said section. He then read out the whole section and submitted that after reading the whole section it would become crystal clear that this tax has to be paid by every company on its turnover, if it is income otherwise is less than 1/2% of its turnover from all sources.

5. The learned counsel further submitted that the counsel representing the assessee in not even reading the Explanation (2) in its proper perspective and a is reading the said section uptill the place suiting him but if the whole explanation is read it would become quite clear that explanation is applicable on the services rendered by a company also. The learned counsel thereafter submitted that the principle of Ejusdem Generis is rather in his favour as if the whole section 80D is read in its true spirit everything would become apparent and there would remain no question of any ambiguity with regard to either application or interpretation of this section. The learned counsel further submitted that in the case of Banking Company its gross receipts are to be considered as turnover and the Bank does give rebate/discount to its customs in appropriate cases. In the end the learned counsel submitted that these ITRAs are not only misconceived but are also devoid of any consideration and requested that these may be dismissed din limine.

6. We have heard both learned counsel at length and have gone through the record and the case-law cited before us.

7. Briefly stated that the applicant is duly registered as a Banking Company which was incorporated on 21-11-1989 as per the Companies Ordinance, 1984 and is working under the licence/permission issued by" the State Bank of Pakistan. During the course of the assessment proceedings the company raised an objection that as they are a Banking Company hence tax under section 80D of the Ordinance may not be levied on them, however, such plea was not accepted by the Taxation Officer. Being aggrieved with the said order an appeal thereafter was filed before the Commissioner of Income Tax (Appeals) who vide his order dated 29-11-2004, dismissed the same by making the observation that under indentical circumstances in I.T.A. No. 1400/KB of 2002 dated 3-5-2003, in the case of some of other bank this issue has already been laid at rest by the ITAT. An appeal thereafter was filed by the applicant before the ITAT, which also after considering the matter dismissed the same by observing that the issue taken in the said appeals already stands decided in I.T.A. No. 1400/KB of 2002. It may be noted that neither the counsel representing the applicant nor the department has made any averment in respect of the I.T.A. No. 1400/KB of 2002 as to what happened in that case whether the applicant Bank in that case filed any ITRA before this Court or not. However, we refrain ourselves in making any observation with regard to the decision given by the Tribunal in I.T.A. No. 1400/KB of 2002, as neither that case is before us nor any argument in respect thereof has been made and will deal with the present applications independently in view of the arguments advanced before us. Before proceeding any further it would be in fitness of things if the relevant provision of the repealed Ordinance is first discussed. The provision of section 80D of the repealed Ordinance states as under.

80D. Minimum tax on income of certain persons.---

(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, whereon tax is payable or paid by a company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family resident in Pakistan or the tax payable or paid is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family and tax thereon shall be charged in the manner specified in subsection (2).

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

(2) The company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family referred to in subsection (1) shall pay as income tax-

(a) an amount, where no tax is payable or paid, equal to one-half per cent of the said turnover, and

(b) an amount, where the tax payable or paid, is less than one-half per cant of the said turnover, equal to the difference calculated in accordance with clause (a).

Explanation: For the removal of doubt it is declared that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts.

(3) Nothing in this section shall apply to an individual, an association of persons, an unregistered firm or a Hindu undivided family in respect of any assessment year commencing on, or after, the first day of July, 2001.

8. Perusal of the above section would reveal that this section starts with the non obstente clause and stipulates that if either no tax is payable or the tax paid by a company is less than 1/2% of the amount representing its turnover from all sources, the said company has to pay a tax known as turnover tax which will be 1/2% of the amount of its turnover. An elaborate discussion in this regard has also been made by the Hon'ble Supreme Court of Pakistan in the decision noted above. Some extracts of the said decision are quoted hereunder:

[Page 84]

"It is also manifest that income tax is not only levied in the conventional manner i.e. by working out the net income after adjusting admissible expenses and other items, but the same may also be levied on the basis of gross receipts, expenditure etc. There are new species of income tax, namely, presumptive tax and minimum tax."

[Page 90]

"It may be stated that non obstante clause in section 80-D is for the purpose of liability to pay minimum tax of half per cent on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. But the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80-D."

[Pages 94-95]

"The minimum tax is payable at the rate of 1/2% by those assesses who do not declare their income equivalent to the amount which can be subject to tax the rate of half per cent on the basis of turnover. Payment at the rate of half per cent by them under sections 80D is .An the total discharge of their minimum tax liability. However, the assesses who earn more than the above amount, they remain liable to file income tax returns or to get their assessment orders framed in terms of the provisions of the Ordinance."

[Page 101]

"57. The upshot of the above discussion is that no exception can be taken to the impugned sections 80C, 8000 and 80D of the Ordinance as they do not suffer from any constitutional infirmity and, therefore, the above appeals have no merits and are liable to be dismissed."

9. The interpretation placed by the learned counsel on behalf of the applicant in our opinion is based on the premise that he is reading the section in isolation without making reference to the other parts of same section. No doubt, the turnover means "gross receipts, exclusive of discounts shown on invoices or bills" but the said explanation also speaks "giving or supplying services." In reply to a specific question raised by the Bench, the learned counsel for the applicant candidly conceded that the applicant is a company and is giving and supplying services. It is a trite proposition of law that no part of statue has to be read in isolation without making reference to the other parts of the said section. Reference in this regard may be made to the decision reported as Humayoon Muhammad Khan v. Province of Sindh (2009 CLC 909) wherein it was held that no subsection of a section can be read in isolation to whole section of likewise no section can be read in isolation to whole section of an Act.

10. So far as the application of the term Ejusdem Generis concerned we are fortified with the issues expressed by this Court in the case Commissioner of Income Tax v. Orix leasing Pakistan Ltd. (2007 PTD 115) wherein the Division Bench of this Court comprising of Mr. Justice Anwar Zaheer Jamali (as he then was) and Mr. Justice Muhammad Athar Saeed observed as under:

"The application of well-recognized doctrine of `Ejusdem genris' which has been ably discussed/analyzed by the Hon'ble Supreme Court of Pakistan in the case of Jamat-I-Islami Pakistan v. Federation of Pakistan (PLD 2002 SC 111). For advantage relevant observations are reproduced as under:-

The doctrine of "ejusdem generis" is well-settled. It means that where general words follow an enumeration of persons or things, by words of a particular and specific meaning such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned.

However, the doctrine will apply when there is nothing in the provision or Act to show a wide sense was not intended or the intention to give to the general term a broader meaning than the doctrine requires was not manifested.

General terms of following particular ones apply only to such persons or things as are "ejusdem generic" with those comprehended in the language of the Legislature. In other words, the general expression is to be read as comprehending only things of the same kind as that designated by the preceding particular expression, unless there is something to show that a wider sense was intended.

The rule of doctrine of `ejusdem generis' will apply unless intention to the contrary is clearly shown.

Where general words follow the enumeration of particular classes of persons or things, the general words under the rule or maxim or construction known as `ejusdem generis' will be construed as applicable only to persons or things of the same general nature or class as those enumerated unless an intention to the contrary is clearly shown.

The doctrine applies when following five conditions exist.

(1) The statute contains an enumeration by specific words;

(2) The members of the enumeration constitute a class;

(3) The class is not exhausted by the enumeration;

(4) A general term follows the enumeration;

(5) There is not clearly manifested an intent that the general term be given a border meaning than the doctrine requires.

11. The definition of the turnover given in the said section has in order to remove ambiguity or doubt, explained certain eventualities, which are to be considered as turnover of any company. Hence by simply reading one such eventuality and ignoring the other would be a defiance of law. We also find force in the arguments of learned counsel appearing on behalf the Department that Banking Companies also gives discounts and rebate to its customers in respect of the amounts charged by these companies from its customers, hence submission of the learned counsel for the applicant that as a Banking Company they do not issue any invoices or bills showing discount etc. is also found to be contrary to the facts.

12. We also do not find any merit in the observation made by the learned counsel for the applicant that the section 80D of the repealed Ordinance was introduced to enhance exports of the country, the answer to his argument is given in the order passed by the Hon'ble apex Court in para. 42 of the decision which states as under.

[Page 91]

"42 we may again point out that the NTRC, which mostly comprised the representatives of business community representing various trade associations, in its report of December, 1986, quoted hereinabove in para 17, highlighted the corruption obtaining in Government and semi-Government departments and so also the dishonest tendency on the part of the tax payers to evade the payment of lawful taxes by using unfair means. In such a scenario, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenues which may be used for running of the State and welfare of its people. The imposition of minimum tax under section 80D is designed and intended to achieve the above objectives. The rate of half per-cent of minimum tax adopted under section 80D seems to be on the basis of the minimum rate of tax suggested by the Exports Enhancement Committee. In our view, the above provision falls within the legislative competence under Entry 47 read with Entry 52. The approach of this Court while interpreting the Constitution should be dynamic, progressive and oriented with the desire to meet the situation effectively which has arisen keeping in view the requirement of ever changing society. Applying the above rule of interpretation, we do not find any infinity in the impugned section 80D of the Ordinance."

13. Moreover we do not find any merit in the submissions made by the learned counsel for the applicant that in case of any ambiguity the same has to be resolved in his favour as find no ambiguity in the said explanation (2) given in subsection-2 of section 80D of the repealed Ordinance as the law makers by adding the explanation have in fact removed the doubt, if any, in interpreting the term turnover by, giving descriptions of certain items which could be included in the definition of term turnover. Hence the case-law relied upon by the learned counsel is of no help to him. We also do not find any merit in the argument of the learned counsel that by using the term "fee" in section 113 of the Ordinance, the law makers have drawn a distinction in section 80D of repealed Ordinance and the present section 113 of the Ordinance and have thus created an ambiguity in his regard. On perusal of these two sections i.e. 113 of the Ordinance and section 80D of repealed Ordinance one could hardly find any distinction between the two. The introduction of the word gross fees before the term "for rendering of services" would not wash away the essence of this section rather the introduction of this word has further clarified the term turnover while the term "any trade discount shown on invoices or bills" on which the learned counsel appearing for the applicant has placed reliance has remained unchanged.

For the sake of ease of reference the said section 113 of the Ordinance is also reproduced hereinbelow:

113. Minimum tax on the income of certain persons.---(1) This section shall apply to a resident company where, for any reason whatsoever, including the sustaining of a loss, the setting off of a loss of an earlier year, exemption from tax, the application of credits or rebates, or the claiming of allowances or deductions (including depreciation and amortization deductions) allowed under this Ordinance or any other law for the time being in force, no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than one-half per cent of the amount representing the person's turnover from all sources for that year.

(2) Where this section applies---

(a) the aggregate of the person's turnover for the tax year shall be treated as the income of the person for the year chargeable to tax; []

(b) the person shall pay as income tax for the tax year (instead of the actual tax payable under this Ordinance), an amount equal to one-half per cent of the person's turnover for the year[;and]

[(c) where tax paid under subsection (1) exceeds the actual tax payable under Part-I, Division II of the First Schedule, the excess amount of tax payable under Parte I, Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under Part-I, Division II of the amount under this clause shall be carried forward and adjusted against tax liability for five tax years immediately succeeding the tax year for which the amount was paid.]

(3) In this section, "turnover" means-

(a) The gross receipts, exclusive of [sales tax and [Federal] excise duty or] any trade discounts shown on invoices or bills,

derived from the sale of goods;

(b) The gross fees for the rendering of services 6 [or giving benefits], including commissions;

(c) The gross receipts from the execution of contracts; and

(d) The company's share of the amount stated above of any association of persons of which the company is a member.

14. In view of the observation made above we do not find any merit in the present ITRAs, which are hereby dismissed in limine and all the questions raised in the present ITRAs are answered in the following terms:

Question Nos. 1 and 2 In affirmative.

Question No.3: Being academic in nature and is left unanswered.

15. Through our short order dated 4-3-2010 we have dismissed these ITRAs and above are the reasons for doing the same.

S.A.K./F-7/KOrder accordingly.