COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI VS N.I.T. LIMITED
2010 PTD 553
[Karachi High Court]
Before Muhammad Athar Saeed and Arshad Siraj Memon, JJ
COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI
Versus
N.I.T. LIMITED
I.T.A. No.316 of 2000, decided on 30/04/2009.
Income Tax Ordinance (XXXI of 1979)---
----Ss. 2(12), 80-D & Second Sched., Cl. (104)---Capital gains, declaration of---Non-inclusion of receipts derived from sale of shares by assessee (N.I.T Limited) in its turnover---Validity---Such receipts could not be included in turnover for purpose of charge under S.80-D of Income Tax Ordinance, 1979 for being restricted only to gross receipts derived from sale of goods and not extended to sale of capital assets---Exemption granted to assessee against charge under S.80-D of Income Tax Ordinance, 1979 for being beneficial in nature was retrospective and would attract to pending proceedings---Principles.
Commissioner of Income Tax v. Gates (Pvt.) Ltd. 2002 PCTLR 888 and Commissioner of Income Tax v. Shahnawaz Limited 1993 SCMR 73 rel.
Jawaid Farooqui for Appellant.
Nemo for Respondent.
Date of hearing: 30th April, 2009.
JUDGMENT
ARSHAD SIRAJ MEMON, J.---By this Income Tax Appeal filed against the order of the Income Tax Appellate Tribunal passed on 27-9-1999 the following questions, said to have arisen out of that order have been proposed for the opinion of this Court:-
(1) "Whether on the facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding since the capital gains declared by the assessee did not attract the provisions of section 80-D of the Income Tax Ordinance, 1979, consequently, purchase and sale of shares also did not constitute turnover or cannot be termed as turnover?"
(2) "Whether on the facts and circumstances of the case the learned Income Tax Appellate Tribunal was justified in holding that the amendment in clause (2) in Part-IV of second schedule to the Income Tax Ordinance 1979 specifically exempting transactions in Stock & Shares from the purview of section 80-D is merely of clarificatory nature and has retrospectivity although the retrospectivity has not been notified in the said clause?"
2. The brief facts of the case are that the assessee is a mutual fund which is managed by N.I.T. Limited . The assessee/respondent claimed exemption under clause 104 of the 2nd Schedule to the Income Tax Ordinance, 1979 which was allowed, assessment was framed under section 62 and consequently tax under section 80--D was not charged. On the basis of above the Inspecting Additional Commissioner issued show cause notice under Section 66-A of the Income Tax Ordinance, 1979 treating such action of non-charge of tax under section 80-D being erroneous and prejudicial to the interest of revenue and the Inspecting Additional Commissioner was of the view that gross receipts of the respondent was liable to tax under section 80-D notwithstanding the exemption of its income from normal tax. The Inspecting Additional Commissioner relied upon para. 2 of the Circular No.10 of 1991 to the Explanation inserted in section 80-D, tax under said Section will be still leviable even if the income of the assessee was exempted from tax or tax was not otherwise payable. In response to the show-cause notice the respondent contended that tax under section 80-D is leviable only on turnover/receipts assessable as business income and not on other receipts. Reliance was placed on Explanation to subsection (2) of the section 80-D where the word "turnover" has been defined' to mean "gross receipts, exclusive of trade discount shown on invoices or bills derived from sale of goods or from rendering, giving or supplying services or benefit or from execution of contracts." Nevertheless, the learned Inspecting Additional Commissioner did not' accept the contention of the respondent and consequent thereof passed an order under Section 66-A and charged tax under section 80-D.
3. The respondent preferred appeal against such order before the learned Income Tax Appellate Tribunal and after hearing both the parties the learned Tribunal held that so far as exercise of powers under section 66-A are concerned those were validity invoked. However, as regards the issues of chargeability of tax under section 80-D it was held by the Tribunal that so far as the charge of tax under section 80-D is concerned there is no ambiguity that the turnover from the sources is restricted to sources specified under clauses (a), (b) and (c) of section 22 of the Income Tax Ordinance, 1979, in view of definition incorporated in the Explanation to section 80-D. It was, therefore, held that sale of shares does not fall in the category of turnover chargeable under section 80-D. It was further held that in the respondent's case the charge under section 80-D has been specifically exempted under clause (2) of Part IV of 2nd Schedule to the Income Tax Ordinance, 1979.
4. The learned counsel for the applicant Mr. Jawaid Farooqui submitted that the view taken by the learned Tribunal is not correct as in the said Explanation the legislature has used the word gross receipts and turnover from all the sources. However, he was not able to controvert the legal position that the provisions contained in section 2(12) of the Income Tax Ordinance, 1979 and .C.B.R's Circular dated 1-7-1974 read with definition of turnover given in section 80-D leaves no room for any doubt that receipts from sale of shares cannot be included in turnover for the purpose of section 80-D as the same is restricted to the gross receipt derived from the sale of goods and is not extended to the sale of capital assets. Such view has been approved by this Court in the case of the Commissioner of Income Tax v. Gates (Pvt.) Ltd., reported in 2002 PCTLR 888.
5. The learned counsel was also asked to show that in presence of express' exemption allowable under clause 2 of Part IV 2nd Schedule to the Income Tax Ordinance, 1979 where express exemption has been granted to the respondent against the charge of section 80-D on the receipts of sale of shares, why such exemption being beneficial in nature may not be held to be retrospective in nature and be attracted to proceedings pending before this Court in view of the judgment of the Honourable Supreme Court of Pakistan in Commissioner of Income Tax v. Shahnawaz Limited 1993 SCMR 73, where it was held as under:--
"While applying its dictum, the High Court, however felt that the retrospective operation visualized by the instant amendment could extend only to such cases which are pending at the time the amending law was enacted i.e. cases which had not been finally determined or proceedings which had not attained finality. The retrospective effect of the amending law would therefore apply only to those cases where the assessment had not been made by the I.T.Os or where as appeal was pending before the Tribunal or a reference was sub judice before the High Court, at the time the amending law was enacted. The case which had finally been determined or had attained finality i.e. which are past and closed transactions could not be reopened under the amending legislation as there are not express words to that effect employed in the amending laws."
6. The learned counsel was not able to controvert the above legal position, which in our view has been correctly appreciated by the C learned Tribunal.
7. In view of the above discussion it is held that the receipts from sale of shares cannot be included in turnover for the purpose of charge of tax under section 80-D. The exemption granted being beneficial in nature was retrospective and applied to the respondent in the years under consideration. We, therefore, answer both these questions in affirmative in favour of the respondent and against the appellant.
8. These are the reasons of our short order passed on 30-4-2009.
S.A.K./C-30/KQuestion answered in affirmative.