UCH POWER (PVT.) LTD. VS INCOME TAX APPELLATE TRIBUNAL
2010 P T D 1809
[Supreme Court of Pakistan]
Present: Sardar Muhammad Raza Khan, Anwar Zaheer Jamali and Khilji Arif Hussain, JJ
UCH POWER (PVT.) LTD. and others
Versus
INCOME TAX APPELLATE TRIBUNAL and others
Civil Appeals Nos.2652-2654 of 2006, 1328-1336 of 2009, Civil Petitions Nos.1462, 1482, 1718-1724 and 1772-1774 of 2009, decided on /01/.
29th January, 2010.
(On appeal from the judgment dated 19-5-2005 passed by the Islamabad High Court, Islamabad in T.R. Nos.26, 27 and 51 of 2005, 1 and 2 of 2006, 58, 59, 60 and 61 of 2007 and 1, 2, 3, 63, 161, 162, 163 and 164 of 2008 and 17, 19, 21 and 22 of 2009 and judgment dated 27-7-2009 passed in T.R. No.3 of 2009 and judgment, dated 13-3-2006 passed by the Lahore High Court, Lahore in T.R. Nos.87 and 88 of 2002 and 457 of 2003).
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss. 23(1)(vii), 34 & Second Sched. Part-I, Cl.176 [as inserted through S.R.O. No.1046(I)/88, dated 21-11-1988]---Income Tax Ordinance (XLIX of 2001), Second Sched. Part-I, Cl.132---Assessee company engaged in Private Sector Power Generation Project---Profit/interest earned by company on Bank account maintained solely for such project---Set off of business losses of company against their such interest income or any other income---Scope---Set off of losses covered by S. 34 of Income Tax Ordinance, 1979 were not restricted to any particular head of income, rather same were adjustable against income of company under any other head.
(b) Income Tax Ordinance (XXXI of 1979)---
---Ss. 23(1)(vii), 30(2)(b), 31(1)(b), 34 & Second Sched., Part-I, Cl.176 [as inserted through S. R. O. No.1046(I)/88, dated 21-11-1988]--Income Tax Ordinance (XLIX of 2001), Second Sched. Part-I, Cl.132---Assessee-Company engaged in Private Sector Power Generation Project---Profit/interest earned by company on Bank account maintained solely for such project---Interest paid in respect of capital borrowed by company---Exemption from tax on such interest income of the company---Deduction of such paid interest while computing such interest income of company under S.31(1)(b) of Income Tax Ordinance, 1979---Scope---Use of words "profits and gains" under Cl.176 of Part-I of Second Schedule of Income Tax Ordinance, 1979 was only with reference to income generated by company covered by S.22 thereof---Such interest income of company for being a separate income covered by S.30 of Income Tax Ordinance, 1979 was not entitled to exemption under Cl.176 of Part-1 of Second Schedule thereof.
Genertech Pakistan Ltd. and others v. Income Tax Appellate Tribunal of Pakistan, Lahore and others 2004 SCMR 1319; AES Pak. Gen (Pvt.) Ltd. v. Commissioner Income Tax C.Ps. Nos.2211 and 2212-L of 2005; Black's Law Dictionary; Genertech Pakistan Ltd. and others v. Income. Tax Appellate Tribunal of Pakistan, Lahore and others 2004 SCMR 1319; AES Pak. Gen (Pvt.) Ltd. v. Commissioner Income Tax C.Ps No.2211 and 2212-L of 2005; Pakistan v. Messrs Lucky Cement 2007 PTD 1656; C.I.T./W.T. v. Surraya Zafar 2008 PTD 202; Federation of Pakistan v. Muhammad Sadiq 2007 PTD 67; Facto Belarus Tractors Ltd. v. Pakistan 2001 PTD 1829; Packages Ltd. v. Commissioner of Income Tax 1993 SCMR 1224; Sanam Progetti S.P.A. v. Addl. C.I.T. (Delhi) (1981 (132) ITR 70; (1995 (216) ITR 535; A&B Food Industries Ltd. v. Commissioner of Income Tax/Sales 1992 SCMR 663; State v. Qaim Ali Shah 1992 SCMR 2192; B.P. Biscuit Factory Ltd. v. Wealth Tax Officer 1996 SCMR 1470; Muhammad Rafique Goreja v. Islamic Republic of Pakistan 2006 SCMR 1317 Messrs AES PAK GEN (Pvt.) Company. Lahore v. Income Tax Appellate Tribunal, Lahore and another 2006 PTD 1; Commissioner of Income Tax, East Pakistan v. Liquidator, Khulna Bogerhat, Railway Company Ltd. PLD 1962 SC 128; Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan 2004 SCMR 1319; AES Pak. Gen. (Pvt.) Ltd. v. Commissioner of Income Tax (in Civil Petitions No.2211 and 2212-L of 2005 and Tuticorin Alkali Chemical and Fertilizer Ltd., v. Commissioner of Income Tax 1993 PTD 900 ref.
Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan 2004 SCMR 1319 and the judgment dated 16-6-2006 (AES Pak. Gen. (Pvt.) Ltd. v. Commissioner of Income Tax) rel.
(c) Words and phrases---
--- "Profit "---Definition.
Black's Law Dictionary ref.
(d) Words and phrases---
----"Gain "---Definition.
Black's Law Dictionary ref.
Wasim Sajjad, Senior Advocate Supreme Court and M.S. Khattak, Advocate-on-Record assisted by Mustafa Ramday for Appellants (in C.As. Nos. 1328-1336) and for Respondent No 1 (in C.P.S. Nos. 1465, 1466, 1477, 1482 of 2009).
Shahid Hamid, Senior Advocate Supreme Court and Ikram-ul-Haq, Advocate Supreme Court for Appellants (in C.As. Nos.2652-2654 of 2006).
Hafiz Muhammad Idris, Advocate Supreme Court for Petitioners (in C.Ps. Nos.1718-1724, 1772-1774 of 2009) and for Respondents (in C.Ps. Nos.1462-1464, 1467-1470 of 2009).
M. Iqbal Vehniwal, Advocate Supreme Court for Respondents (in C.As. Nos.2652-2654 of 2006).
Shahid Raza, Advocate Supreme Court and Mehmood A. Sheikh, Advocate-on-Record for F.B.R: (in C.As. No.1328-1336, 1718-1724.
Raja Abdul Ghafoor, Advocate Supreme Court for F.B.R. (in C.Ps. Nos. 1462-1468 of 2009 only).
Dates of hearing: 28th 29th January, 2010.
JUDGMENT
ANWAR ZAHEER JAMALI, J.---All the above titled forty three civil petitions for leave to appeal/civil appeals, (Civil Petitions for Leave to Appeals Nos.1462 to 1482/2009, 1718 to 1724/2009 and Civil Appeals Nos.1328 to 1336/2009, preferred against the judgment dated 19-5-2009, passed by Islamabad High Court, Islamabad in T.R. No.26/05 and twenty other connected T.Rs; Civil Appeals No.2652 to 2654/2006 preferred against the judgment dated 13.3.2006, passed by the Lahore High Court, Lahore in P.T.R. Nos.87, 88.and 457/2002; Civil Petitions for Leave to Appeals Nos.1772 to 1774/2009, preferred against the judgment dated 27-7-2009, passed by the Islamabad High Court, Islamabad in T.R. Nos.3, 20 and 55/2009) involving common questions of law and similar controversy for adjudication by this Court are being disposed of by this common judgment.
2. Though, broadly speaking, the questions of law for consideration involved in all these petitions for leave to appeal/civil appeals are about the interpretation and applicability of Clause- 176 of Part-I of the IInd Schedule to the repealed Income Tax Ordinance, 1976 [now corresponding to clause-132 of the Second Schedule to the Income Tax Ordinance, 2001] (hereinafter referred to as "clause 176"), but for better understanding of relevant facts, it will be useful to classify these petitions into five different categories as under:---
(a) Civil Petitions for Leave to Appeals Nos.1462 to 1482/2009 (twenty one in number), have been preferred by the Commissioner of Income Tax/Revenue to question the legality of the impugned judgment dated 19-5-2009, to the extent, whereby keeping in view the provisions of clause (vii) to section 23(1) with section 34 and the scope of Clause 176 of the Ordinance of 1979, set off of losses incurred by the respondent-companies, in their respective businesses, were allowed against their interest income specified under section 30 of the Ordinance, 1979, although their business income as assessees was already exempt from levy of income tax under Clause 176 (ibid).
(b) Civil Petitions for Leave to Appeals Nos.1718 to 1724/2009 (seven in number), have been preferred by the petitioners, who are engaged in the Private Sector Power Generation Projects, which have been set up in Pakistan on or after 1st. July, 1988. In these petitions, the petitioners have challenged the same impugned judgment of the Islamabad High Court, Islamabad dated 19-5-2009, to the extent, whereby, they have been denied exemption under Clause-176 (ibid) on their income generated during the relevant assessment year from interest/profit received on bank accounts, though such Bank accounts were maintained by these companies exclusively for the purpose of their respective power projects, and therefore, such income was incidental to the power projects and thus, entitled for exemption.
(c) Civil Appeals Nos.1328 to 1336/2009 (nine in-number), are other civil appeals involving similar controversy as raised in the cases at category `b' (supra), wherein, leave was granted by this Court to examine, inter alia, the following contentions raised in these petitions:---
"(1) Whether profits and gains on deposit of funds in Banks maintained for the purpose of Company's electric power generation project, as part of Company's normal business, is exempt from Income Tax Ordinance, 1979?
(2) Whether interest paid on the amount borrowed is deductible under clause (b) of section 3(1) of the Income Tax Ordinance, 1979 from profit earned on deposits of such amount in Bank?
(3) Whether the learned Islamabad High Court has correctly interpreted clause 176 of the Second Schedule Part-I and section 31(1)(b) of the repealed Income Tax Ordinance, 1979?
(4) Whether exemption of "profits and gains from electric power generation project" under Clause 176 of Part-I of the Second Schedule to the repealed Income Tax Ordinance, 1979 includes within its scope the entire income, as consequence of deliberate insertion of the word "Project"?
(5) Whether the judgment in the Genertech case is distinguishable from the present case? and
(6) Whether the learned High Court has correctly interpreted the provisions of the Economic Reforms Act of 1992?"
(d) In Civil Appeals Nos.2652 to 2654/2006 (three in number), judgment of Lahore High Court, Lahore dated 13-3-2006, has been challenged by a public limited company (M/s Kohinoor Energy Limited, Lahore), who are engaged in a Private Sector Power Generation project, whereby, while interpreting Clause-176 (ibid) vis-a-vis section 5(2) of the Protection of Economic Reforms Act, 1992, and relying upon the judgment of this Court in the case of Genertech Pakistan Ltd. and others v. Income Tax Appellate Tribunal of Pakistan, Lahore and others 2004 SCMR 1319, it was held that income of the petitioners from interest/profit on bank accounts maintained wholly and solely for the purpose and in connection with Power-Generation Project was not exempt from income tax by virtue of either Clause-176 (ibid) or section 5(2) of the Act of 1992. In these cases leave was granted by this Court vide its order dated 13-12-2006, inter alia, to examine the applicability of the above referred judgment of this Court as well as the other subsequent judgment of this Court in the case of AES Pak. Gen (Pvt.) Ltd. v. Commissioner Income Tax C.Ps No.2211 and 2212-L of 2005 decided on 16-6-2006.
(e) Civil Petitions for Leave to Appeal No.1772 to 1774/2009 (three in number), arise from the common judgment dated 27-7-2009, passed by the Islamabad High Court, Islamabad, whereby, T.R, Nos.3, 20 and 25/2009, preferred by the petitioner, a public limited company (M/s Fouji Kabir Wala Power Company Limited), engaged in the Private Sector Power Generation Project, containing following questions of law for the opinion of the Court, were disposed of:---
(i)Whether the interest income of Messrs Fauji Kabirwala Power Company Ltd., is exempt from income Tax in view of entry 176 of Part-I of the Second Schedule and the said income is included in the profit and gains derived by the assesses from an electric power generation projects?
(ii)Whether the interest paid in respect of capital borrowed by the assesses can be deducted while computing interest income under clause (b) of section 31 (1)?
(iii)Whether the petitioner is liable to pay worker welfare fund on the interest income?
(iv)Whether exchange loss is not a revenue expenditure on revaluation of Assets and Appellate Tribunal was justified in rejecting the arguments of the petitioner?"
(v)Whether the income earned by the petitioner on letting out of property is assessable under section 19 instead of section 22 and Appellate Tribunal was justified in confirming the order of Assessing Officer?
(vi)Whether the interest received by the petitioner from WAPDA on delayed payments is not exempt under clause 176 of 2nd Schedule to the Ordinance being attributable to the business activities of its electric power generation project?"
3.These questions were answered by the High Court in the manner that following its earlier view contained in the judgment dated 19-5-2009, passed in T.R. No.26 of 2005 and other connected T.Rs., Questions Nos.I and II were answered in `negative and Question. No. III was answered in positive. Further, Questions Nos.IV, V and VI were also answered in positive.
3. As stated earlier whole controversy involved in these petitions revolves around the interpretation and applicability of Clause 176 of Income Tax Ordinance 1979 (in short the Ordinance), inserted through S.R.O. No.1046(I)/88 dated 21-11-1988, to the facts of each case. Therefore, it will be advantageous that before recording respective contentions of the learned counsel in this context, for better understanding, same may be reproduced here as under:---
"[(176) Private Sector Power Projects.---Profits and gains derived by an assessee from an electric power generation project set up in Pakistan on or after the 1st day of July, 1988:
[Provided that the condition laid down in sub-clause (a) shall not apply to the Hub Power Company Limited]
The exemption under this clause shall apply to such project which is.---
(a) owned and managed by a company formed for operating the said' project and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;
(b) not formed by the splitting .up, or the re-construction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; and
(c) owned by a company fifty per cent of whose shares are not held by the Federal Government or Provincial Government or a local authority or which is not controlled by the Federal Government or a Provincial Government or a local authority.
Provided that the condition laid down at .sub-clause (a) shall not apply to the Hub Power Company Limited."
4. Mr. Wasim Sajjad, learned Senior Advocate Supreme Court, who first made his submissions on behalf of some of the public limited companies, engaged in private sector power generation projects, making specific reference to the words "profits and gains" and "projects" used in clause 176, vehemently argued that keeping in view the true import and connotation of these words no room was left for the revenue to disallow exemption to the power generating projects of the companies, under clause 176, on their incomes earned by way of interests/profits on their bank accounts, which were wholly opened and maintained by them for the purpose of management of accounts of such projects. According to learned counsel, the income so derived by the companies engaged in private sector power projects was incidental in nature, which was covered by the words "profits and gains" of the company derived from their electric power generation projects set up in Pakistan, therefore, treatment to the contrary given to such companies by the revenue/ department, as upheld in the impugned judgments of the High Courts, is contrary to the established principle of interpretation of fiscal statutes. In order to fortify his submissions, he also made reference to the definition of words "profits and gains" from the Black's Law Dictionary, which read thus;
Profit: Most commonly, the gross proceeds of a business transaction less the costs of the transaction; i.e. net proceeds, Excess of revenues over expenses for a transaction; sometimes used synonymously with net income for the period. Gain realized from business or investment over and above expenditures.
Profit means accession of good, valuable results, useful consequences, avail, gain, as an office of profit, excess of returns over expenditures or excess of income over expenditure.
"Gain: Profits; winnings; increment of value. Difference between receipts and expenditures; pecuniary gain. Difference between cost and sale price. Appreciation in value or worth of securities or property.
Excess of revenues over expenses from a specific transaction. Frequently used in the context of describing a transaction not part of a firm's typical, day-to-day operations.
5. Mr. Wasim Sajjad also discussed in detail the contents of Implementation Agreement (IA) dated 24-9-1994 (as amended on 19-11-1995) between the President of Pakistan and petitioner Uch Power Private Limited (UPL), the Power Purchase Agreement, (P.P.A) between petitioner (UPL) and WAPDA dated 23-11-1995, and the common Debt Agreement (CDA) dated 17-5-1999, to amplify the meaning of word "project" used in clause 176. In addition to it, learned counsel made reference to section 3 of Protection of Economic Reforms Ordinance, 1992 (POER) to gain force to his submissions regarding exemption from tax of their income from interest/profit on the bank accounts earned by the companies, as, according to him, any view contrary to it will be a violation of such commitments made by the Government. In the end, learned counsel also candidly discussed the effect of two judgments of this Court in Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319) and AES Pak. Gen (Pvt.) Ltd. v. Commissioner of Income Tax (in Civil Petitions No.2211 and 2212-L of 2005) decided on 16-6-2006. According to him, though, in these two judgments, the apex Court has formed a view contrary to the interest of the public limited companies engaged in Private Power Generation Projects, but on different premises, and therefore, these cases are distinguishable and have no relevancy or applicability to the controversy raised in these petitions.
6. Mr. Shahid Hamid, learned counsel for the appellants, in Civil Appeals Nos.2652 to 2654 of 2006, while adopting the arguments of Mr. Wasim Sajjad, further argued that in Pakistan total sixteen companies from private sector are engaged in the Power Generation projects, having total production capacity of 4000 megawatts (MW) of electricity per day. All these companies ventured to enter in this field on clear understanding from the Government for extra concessions ensured to them as incentive, independent from the power supply agreement with WAPDA; policy framed by the Government in this regard, and section 3 of Protection of Economic Reforms Act 1992, and Power Policy of 1994. Precisely, according to the learned counsel, the treatment of interests/profits earned by the petitioner companies on their bank accounts given by the income tax department, as also upheld by the Lahore High Court in its impugned judgment dated 13-3-2006, is a clear negation of such protected rights of the petitioners. According to him clause 176 (ibid) because of the use of words "profits and gains" of the "project" of electricity generation, is to be widely interpreted, in favour of Assessee-companies, in the manner that all incomes derived by such companies from, any source shall be deemed to be exempt and not merely their income from business, which will amount to a narrow interpretation of a beneficial provision of statute, particularly, relating to fiscal matters. He further contended that the income derived in the form of interest/profit on the bank accounts/deposits maintained by the companies `in connection with the working of their projects cannot be bifurcated for the purpose of tax exemption under clause 176, even on the ground that for this purpose the income of the projects shall be deemed to have commenced from the date of their commercial production, as the word "project" makes such benefit allowable to such companies from the date, of their incorporation and sanction of the scheme for installation of Power Generation Projects. In support of his submissions, learned counsel cited the following cases:---
(1)Pakistan v. M/s Lucky Cement (2007 PTD 1656).
(2)C.I.T./W.T. v. Surraya Zafar (2008 PTD 202).
(3)Federation of Pakistan v. Muhammad Sadiq (2007 PTD 67).
(4)Facto Belarus Tractors Ltd. v. Pakistan (2001 PTD 1829).
(5)Packages Ltd. v. Commissioner of Income Tax (1993 SCMR 1224).
(6)Sanam Progetti S.P.A. v. Addl. C.I.T. (Delhi) (1981 (132) ITR 70).
(7)(1995 (216) ITR 535.
(8)A&B Food Industries Ltd. v. Commissioner of Income Tax/Sales (1992 SCMR 663).
(9)State v. Qaim Ali Shah (1992 SCMR 2192).
(10)B.P. Biscuit Factory Ltd. v. Wealth Tax Officer (1996 SCMR 1470).
(11)Muhammad Rafique Goreja v. Islamic Republic of Pakistan (2006 SCMR 1317).
(12)Messrs AES PAK GEN (Pvt.) Company. Lahore v. Income Tax Appellate Tribunal, Lahore and another (2006 PTD 1).
7. A careful reading of above cited cases goes to show that in all these cases superior Courts have laboured to elucidate and amplify different principles of interpretation of statutes, particularly in fiscal matters. In the case at serial No.1, dilating upon the subject of interpretation of statutes this Court held that:---
(a) Where two interpretations of some statutory provisions were possible or any ambiguity existed therein, the interpretation favourable to tax payer is to be preferred.
(b) While interpreting a statute, words used therein are to be assigned their ordinary meaning unless text dictates otherwise.
(c) Different words used in same section or subsection of statute reveal intention of legislature not to assign them the same meaning.
In the case at serial No.2, discussing the principles of interpretation of statutes, it was observed that every word in a statute is to be assigned some meaning, and of course all provisions, ostensibly conflicting, have to be reconciled. In the case at serial No.3, amplifying the principles of interpretation of a statute, it was held that:
(a) in the absence of clear intention of legislature to apply provision of statute with retrospective effect, same would be deemed applicable prospectively.
(b) the Courts while interpreting laws relating to economic activities view the same with greater latitude than the law relating to civil rights, keeping in view the complexity of economic problems which do not admit of solution through any doctrine or strait-jacket formula.
(c) it was not safe to compare language of one statute with another, even though subject covered by the two statutes may involve similarities.
(d) the language used in a fiscal statute would be interpreted in its ordinary meaning in such a manner that, if possible, some should be saved rather than destroyed.
8. In the case at serial No.4, the effect of section 3 of the Economic Reforms Act, 1992, regarding its overriding effect on other laws, was examined with reference to economic activities and it was held that while interpreting laws relating to economic activities the Courts should view the same with greater latitude and interpret it in the light of its phraseology and language. In the case at serial No.5, discussing the scope of section 10(2)(iii)(xvi), it was held that where the assessee was running a business and has obtained loan for purchase of additional machinery, which was not obtained for installation of machinery in order to go for new products, but to improve efficiency of existing production, the amount of interest paid by him, being an integral part of profit earning process relating to carrying and conduct of business had brought his case within the fold of such provision of Income Tax Act, 1922. Therefore, deduction of interest was to be allowed in full regardless of the fact whether it was at pre-production stage or otherwise. In the case at serial No.6 from Indian jurisdiction of Delhi High Court, it was held that when the assessee had not come from abroad to make bank 'deposits in India but had come to carry on business the income earned by it by depositing spare funds in banks and earning interest thereon would also be business income and for the purpose of set-off it could not be treated as separate from business income. Following this principle, loss brought forward by the assessee was allowed as set-off against interest income of the assessee for the subsequent year. In the case at serial No.7, another case from Indian jurisdiction of Madras High Court, discussing the term "business" it was held that word business carry very wide connotation and by no means determinate its scope, which-has to be considered with reference to each particular kind of activity and occupation of the concerned person. It was "further held that where the interest has accrued on short-term deposits of the assessee made out of business funds available with the assessee before they were utilized for actual business, the same was incidental to the business activity of the assessee company, therefore, interest on the short-term deposits should be treated as business income. In the case at serial No.8, again dilating upon the principle of interpretation of fiscal statute in tax matter; it was held that reference to proceedings of legislature can be resorted to, when the words in a provision of statute were ambiguous, with, the object to discover the real intention of the law-makers. However, where there was no ambiguity in the language employed in the relevant provisions of the statute, recourse to the proceedings of the legislature cannot be made in order to construe, the same in violation of the language employed therein. It was further held that while interpreting a fiscal statute, the Court was competent to determine real nature of a particular levy with reference, to relevant statute, but it was not empowered to read something into a clear provision of a taxing statute. When the language of a statute was clear and unambiguous, the Court was bound to construe and to give its effect, without taking into consideration anything extraneous to it. In the case at serial No.9 relating to criminal proceedings in a case pending before the Suppression of Terrorist Activities, Special Court, touching the subject of interpretation of statutes, it was observed that a statute, which transgresses on the rights of a subject whether as regards his person or property should be so construed, which may preserve such rights, It was also observed that if two views of a provision, of law of penal nature were possible, one which favours an accused person be preferred over the other. In the case at serial No.10, this Court reiterated the principle of interpretation of a fiscal statute that when the language of such statute was ambiguous and several interpretations of the same provisions were possible, doubt should be resolved in favour of the citizen. In the case at serial No.11, this Court dilated upon the scope of Article 189 of the Constitution and held that the law declared by the Supreme Court was binding on the State and its officers and they were bound to follow it, whether they were in a particular case party or not .to the previous proceedings. It was further held that decision per incurium do not constitute binding precedent. Such decisions are those which are given in ignorance of the terms of the Constitution or of a statute or of a rule having the force of a statute. It was also observed that an order delivered without argument, without reference to the relevant provisions of the Constitution or the Act and without any citation of authority, is per incurium. Similarly, decisions sub silentio have no precedential value. Such decisions are those which are given on a point of law not perceived by the Court or present to its mind. Sometimes will considered obiter dicta of the Supreme Court is taken as precedent, but 'every passing expression of a Judge cannot be treated as an authority. In the case at serial No.12, discussing the principles of interpretation of a statute in fiscal cases vis-a-vis the impact of Protection of Economic Reforms Act, 1992, it was held that the provisions of law cannot be amended, rescinded or changed by any policy guideline agreed to between the Government and certain private individuals or private entities, as any policy framework or principle laid down by the Government, in any manner, cannot take precedent over theexpress provisions oflaw. (This judgment ofa Division Bench of Lahore High Court was maintained by this Court vide its judgment dated 16-6-2006 in C.P. Nos.2211-L and 2212-L of 2005, which will be referred to and discussed in the later part of this judgment).
9. Replying to the above submission, Mr. Muhammad Iqbal, learned counsel representing Revenue in Civil Appeals Nos.2652 to 2654 of 2006, made reference to sections 22 & 30 of the Ordinance to show that on one hand the income of respondents entitled for exemption in terms of clause 176 was only business income, which was specifically covered by section 22 of the Ordinance, as it is only under this head of income that words "profits and gains" of any business or profession are to be computed for the purpose of income tax, on the other hand section 30 of the Ordinance clearly goes to show that it is residuary provision, which covers the income from all sources, not covered by other five heads of income under section 15(a) to (e). Therefore, the income earned by the petitioner companies in the form of interests/ profits on their bank accounts was not qualified for exemption under clause 176 (ibid), as rightly held in the impugned judgments as well as by this Court in the case of Genertech Pakistan Ltd. (supra) and other case of KES Pak. Gen (Pvt.) Ltd. He again made reference to section 30 of the Ordinance to show that interest income earned by the petitioner companies was accordingly covered by such provision of law, and thus, not covered or influenced by the scope of words, "profits and gains" used in clause 176 ibid, which only find place in section 22 of the Ordinance relating to income from, business or profession.
10. Mr. Shahid Raza, another counsel representing revenue, argued that the term "profits, and gains" is covered under section 22(1)(a) of the repealed Ordinance 1979 relating to income from any business or profession carried on or deemed to be carried on by the assessee at any time during the year, whereas interest income is covered under section 30(2)(b) of the Ordinance, "being income from other sources". In such circumstances, as the income earned under two different sources having no relevancy to each other and charged under different sections of the repealed Ordinance, therefore, the contentions of petitioners that their interest income is actually accretion of income in the shape of profits and gains is not justified. More so, as the nature of the two sources of the income is different, therefore, rate of taxes under the repealed Ordinance were also different. In this regard he also made reference to section 23(1)(vii) of the Ordinance, which stipulates that only interest paid in respect of capital borrowed for the purposes of the business or profession shall be allowed against income from business or profession, whereas as per section 31(1)(b) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) incurred, wholly and exclusively for the purpose of earning such income shall be allowed against "income from other sources" under section 30 of the Ordinance, and not otherwise. In order to fortify his submissions, learned counsel made reference to the following two cases:---
(1) Commissioner of Income Tax, East Pakistan v. Liquidator, Khulna Bogerhat Railway Company Ltd. (PLD 1962 SC 128);
(2) Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319) and
(3) AES Pak. Gen. (Pvt.) Ltd. v. Commissioner of Income Tax (in Civil Petitions No.2211 and 2212-L of 2005).
In the case of Commissioner of Income Tax East Pakistan, Dacca, after discussion of relevant facts about the construction business of respondent railway Company, it was held that the normal business of the company was construction and running of railway/services and not investment of its money on interest. If the company, instead of retaining its surplus moneys in idle condition, invested it under the powers given to them by their Articles of Association, it would not follow that the income so derived would be part of the company's normal business income. In the case of Genertech Pakistan Ltd., which has been squarely relied by the learned counsel for the revenue, after discussion of number of citations referred to above, this Court held as under:---
"9. Now question for consideration is as to whether interest earned by the appellants from the share capital deposited in the Banks does fall within the scope of "income from other sources" under section 30 of the Ordinance. To answer the proposition it is to be borne in mind that item 176 of Second Schedule of the Ordinance provides in clear terms that "profits and gains derived by an assessee from Electric Power Generation Project, set up in Pakistan on or after 1st of July, 1998 shall be exempted from total income tax.". Essentially, profits and gains from the Electric Power Generation Project is distinct and different from the interest being obtained by the Company on the deposit of share capital in the Banks, during the financial years for which the return of income under the relevant provision of Ordinance is filed and the exemption is claimed from the payment of income tax under Item 176 of Second Schedule of the .Ordinance. It is informed that Electric Generating Plants of appellants-companies had started functioning in 1994-95 but they instead of claiming exemption on the profits/gains from Power Generation, claimed it from the deposit of the share capital lying in the Banks. It is to be seen that no sooner as a Company goes in production it cannot claim exemption of income tax on the interest of share capital deposited in Banks because on commencement of the production, profits and gains are to be earned out of the income of Electric Generation independently.
10. Learned counsel heavily relied upon the judgment report in the case, of Messrs Packages Ltd., (ibid) but the question raised therein pertains to the claim of deduction on interest on loan borrowed by appellant for import of machinery. Income Tax Officer disallowed such claim on the ground that interest relating to pre-production stage was being capitalized by him, he however, allowed depreciation at 10% as the machinery was installed and used during the year under assessment. The Appellate Forums dismissed its appeals and this Court ultimately agreed with the contention of appellant to the effect that amount of interest paid by the purchaser of an Industrial concern to the vendee on the unpaid price was an integral part of the profit earning process relating to the carrying or conduct of business and satisfies the test laid down for bringing the case within the fold of section 10(2) (xvi)."
In the unreported judgment of this Court dated 16-6-2006, referred to above, in addition to reference to the case of Genertech Pakistan Ltd. (supra) the case of Tuticorin Alkali Chemical and Fertilizer Ltd., v. Commissioner of Income Tax (1993 PTD 900) was also discussed and the conclusion recorded was as under:---
"From a bare perusal of the paragraph reproduced from the judgment of Tuticorin Alkali Chemical and Fertilizers Ltd. v. Commissioner of Income Tax (1998 PTD 900) it may be observed that the Supreme Court of India after considering relevant provisions of the Indian Income Tax Act, 1961 pronounced that anything which can properly be described as income is taxable under the Act unless expressly exempted and further that payment of interest on the capital generated/ borrowed by the petitioner for starting a business venture would not be adjustable or it could be set off against the income accruing to it by investing/utilizing the generated/borrowed capital or part thereof and caring interest thereon. There is no provision in the Ordinance exempting such income from being charged to tax."
11. Mr. Wasim Sajjad, in his reply arguments again made reference to he Power Policy 1994 framed by the Government as well as section 3 of the Protection of Economic Reforms Ordinance, 1992 to lay stress to his submissions that income earned by such power projects from any source was exempt from payment of income tax in terms of clause 176, as the use of words "profits and gains" have a wide connotation and meaning, broad enough to cover all incomes of the project. However, he did not controvert that under section 15 of the Ordinance, total income has been divided, into six heads, and in this contexts words "profits and gains" only finds place in section 22, which relates to the income from business or profession.
12. Mr. Raja Abdul Ghafoor, learned Advocate Supreme Court, representing petitioners/Revenue in the petitions placed in category (a), vehemently contended that only such losses, which relate to the business of respondent, companies engaged in electricity power generation projects set up in Pakistan on or after the 1st day of July, 1988, are exempt from income tax under clause 176, therefore, losses incurred by them under any other head of account are not allowable as set off against their income under any other head. In this regard he also made reference of section 15 of the Ordinance to show six different. heads of income, meant for computation of total Income under the Ordinance, The gist of his arguments was that set off of losses available to the respondent companies was only for those losses which fell under the same head of income, therefore, set off of business losses claimed by respondents against their income earned under any other head of income., covered by section 30 of the Ordinance was not allowable net off. However, learned counsel, when confronted with the language of clause (vii) of section 23(1) relating to allowable allowances and deductions in computing the income under the head "Income from business and profession" and section 34 of the Ordinance, relating to "set off of losses" could, not properly respond as to how, despite the clear language of these provisions of law, set off of losses suffered by .the respondent companies in their business cannot be allowed to be adjusted against their income from other sources, covered by section 30 of the Ordinance, as allowed to the respondent companies through impugned judgment.
13. Conversely, all the learned counsel for respondent companies in the petitions falling under category (a) strongly relied upon the language of clause (vii) of section 23 (1) and section 34 read with clause 176 of the Ordinance to support the impugned judgments, to this extent. According to them, by virtue of these clear provisions of the Ordinance, business losses of respondent companies engaged in private sector power project, were entitled for set off against their income from any other source.
14. For better understanding of the controversy involved in these 21 petitions, it would be advantageous to reproduce hereunder clause (vii) of section 23(1) and section 34 of the Ordinance, which reads as under:-
"23. Deductions.---(1) In computing the income under the head "Income from `business or profession", the following allowances, and deductions shall be made, namely.---
(i)------------
(ii)------------
(iii)------------
(iv)------------
(v)------------
(vi)------------
(vii) any interest paid in respect of capital borrowed for the purposes of the business or profession;
34. Set off of losses.---Where an assessee sustains a loss (not being a loss to which section 36 or section 37 applies) in any assessment year under any head of income specified in section 15, he shall [subject to clause (v) of subsection 91) of section 23] be entitled to have, the amount of the loss set off against his income (other than income to which subsection (7) or (9) of section 12 applies), if any, under any other head assessable for that assessment year."
15. A careful reading of above reproduced sections from the Ordinance and placing it in juxtaposition with clause 176 of the Ordinance leaves no room for doubt in our mind to hold that the set oft` of losses from business or profession, if any, incurred by respondent companies,- which are covered by above provisions of the statute were not restricted to any particular head of income, but the same were adjustable against their income under any other head, therefore, the impugned judgment of the Islamabad High Court, affirming this position, and thereby maintaining the findings of the Income Tax Appellate Tribunal in the same terms, is unexceptionable. This being the position in 21 petitions, relating to the issue of set off of business losses, claimed by the respondent companies, placed in category (a), being devoid of merits, are dismissed. Leave refused.
16. Reverting to the other set of twenty two petitions placed in categories (b) to (e); keeping in view the submissions of the learned counsel in this regard, we have carefully perused the case record and the relevant provisions of the Ordinance, which goes to show that by virtue of section 15 of the Ordinance, for computation of total income, law makers have bifurcated all incomes into six heads, which are covered by sections 16 (salary), 17 (interest on securities), 19 (house property), 22 (income from business or profession), 27 (capital gains) and 30 (from other sources) of the Ordinance. From the plain reading of these sections, it is evident that it is only the language of section 22, which carries the words "profits and gains" and for the purpose of allowable deductions, income generated under this head is regulated by section 23, while inadmissible deductions have been categorized in section 24. Relating to the controversy in hand, the other relevant section is section 30, which is the residuary section and covers income from all other sources, which are not covered by sections 16, 17, 19, 22 and 27. Thus a combined reading of these provisions of the Ordinance makes it abundantly clear that use of words "profits and gains" under clause 176 is only with reference to the income generated by the companies, which is covered by section 22 of the Ordinance. Admittedly, interest earned by the petitioner companies on their bank investments/savings accounts was an income covered by section 30 of the Ordinance and thus not covered by exemption under clause 176 ibid. Similarly, the use of word "project" in clause 176 (ibid) has brought no significant change in this clear legal position. Thus, the arguments based on such premises are also devoid of force. Not only the Division Bench of Islamabad High Court has rightly examined this aspect of the case and decided the same against the petitioners/appellants/assessees but the findings of the Income Tax Appellate Tribunal in its judgments in the case of petitioner/appellant companies, following the same view, are unexceptionable.
17. In addition to it, from the above exhaustive discussion of relevant facts of these cases; the statutory provisions involved/applicable to the controversy, and the case law 'cited and discussed above, it is evident that the ratio of judgment in the case of Genertech Pakistan Ltd. v. Income Tax Appellate Tribunal of Pakistan (2004 SCMR 1319), and the judgment dated 16-6-2006 (AES Pak. Gen. (Pvt.) Ltd. v. Commissioner of Income Tax), has in clear terms, already settled the controversy relating to the case of the petitioners (Private Power Generation Companies), regarding their claim of exemption of income earned from interest/profit on their Bank accounts under clause 176 (ibid), against them. None of the arguments advanced by the learned counsel for the petitioner companies has convinced us to hold that the view formed by this Court in its two earlier judgments is distinguishable or it is not applicable to the facts of these petitions for any valid reason. Indeed, there is no cavil to the principles of interpretation of statute, dilated in various judgments, discussed above, but the applicability of such principles is dependent upon the peculiar facts and circumstances of each base. In the instant cases, the interest/profit earned by the Generation Companies/petitioners on their investments/bank accounts was clearly a separate income covered by section 30 of the Ordinance, and thus not entitled for exemption in terms of clause 176.
18. This being the position, the remaining twenty two petitions placed in categories (b) to (e) are also dismissed. The questions for consideration proposed by this Court in some of the appeals, vide leave granting orders dated 13-12-2006 and 22-10-2009, are also answered and disposed of in terms of the above discussion.
S.A.K./U-3/SCQuestions answered accordingly.