COMMISSIONER OF INCOME TAX, COMPANIES-I, KARACHI VS HUMAYUN ELLAHI SHAIKH, 2011 PTD-KARACHI-HIGH-COURT-SINDH 145 (2010)

(a) Interpretation of statutes---

----Nothing can be read in the statute, nor any word can be added to it while interpreting the same.

(b) Interpretation of statutes---

----Intent of legislature-Scope---Principal source of interpretation is the intent of legislature but once the court has discovered the intention of legislature by reviewing the explanation given by legislature for incorporating any statute then court has to give effect to that interpretation.

(c) Wealth Tax Act (XV of 1963)---

----Ss. 16(3), 27(1) & Sched. II, Clauses 7(i), (ii)---Central Board of Revenue Circular No.30(2) Tp-iii/90, dated 13-11-1990---Central Board of Revenue Circular No. 8/42-DWT/84, dated 30-6-1985---Exemption, claiming of---Onus to prove---Foreign remittance-Subsequent conversions---Contention of authorities was that only assets created on first conversion of foreign exchange repatriated through banking channels was entitled to exemption under clause 7(ii) of Second Schedule to Wealth Tax Act, 1963, and any further conversions were not exempted---Validity---Exemption had to be strictly construed and onus was on the person claiming the exemption to establish that he was entitled to such exemption and whenever two interpretations of an exemption were possible the interpretation which was against the grant of exemption had to be given effect---Only one interpretation of clause 7 (ii) of Second Schedule to Wealth Tax Act, 1963, was possible that exemption in respect of assets created out of foreign remittance was applicable not only to first conversion of asset but also to subsequent conversion so long as source of fund remained foreign remittance received through banking channels during the period as provided under the clause, to the extent of amount received through foreign remittance---Exemption was also available in respect of subsequent conversions of original asset created from foreign remittance received through banking channels---Appeal was dismissed in circumstances.

Iqbal Haji Ali Muhammad v. Inspecting Additional Commissioner of Income/Wealth Tax and others 2006 CLC 1000 and Commissioner of Income Tax/Wealth Tax Companies Zone-I, Lahore v. Zoraiz Lashari 2005 PTD 2064 distinguished.

197 (76) Tax 76 (Trib.); 2005 PTD 108; CIT v. Malik Muhammad Ashique 2007 PTD 889 and Noor Hussain v. CIT PLD 1964 Dhaka 373 ref.

Javed Farooqui for Appellant.

Ms. Lubna Pervez, Abdul Rahim Lakhani and Iqbal Salman Pasha for Respondents.

ORDER

MUHAMMAD ATHAR SAEED, J.---This Full Bench has been constituted because while hearing the Wealth Tax Appeals, which are fixed before the full bench, a Divisional Bench of this Court vide its preliminary order on these Wealth Tax Appeals dated 19-10-2007 could not reconcile with the judgment of this Court in the case of Iqbal Haji Ali Muhammad v. Inspecting Additional Commissioner of Income/ Wealth Tax and others reported in 2006 CLC 1000, whereby this Court had held that only the asset created on first conversion of foreign exchange repatriated through banking channels is entitled to exemption under clause 7(ii) of Second Schedule of the Wealth Tax Act, 1963 and any further conversions are not exempted and sent their observations to the Hon'ble Chief Justice with the request to form a larger Bench to hear and dispose off these Wealth Tax Appeals in response to which the Hon'ble Chief Justice has been pleased to constitute this Full Bench.

2. These Wealth Tax Appeals have been filed by the Commissioner of Income Tax against the combined order of the Tribunal dated 9-12-1998 wherein the Tribunal has held that Foreign Exchange Bearing Certificate (FEBC) constitute foreign exchange and allowed exemption from levy of wealth tax to the Pak rupee acquired by applicant as a result of encashment of FEBCs which were purchased out of foreign remittance received from normal banking channels.

3. The learned counsel submits that in this bunch there are three categories of cases one in which FEBCs were converted into Pak rupee and exemption was claimed in respect of wealth tax payable on Pak rupees; second where loans were advanced to various companies on conversion of FEBCs; and third where shares of various companies were purchased on conversion of FEBCs. In WTA No.44 of 1999 which appears to be the case of exemption of cash asset, opinion of this Court has been sought on the following proposed questions:

(1)Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal has correctly applied the provisions of sub-clauses (i) and (ii) of clause 7 of Second Schedule of the Wealth Tax Act, 1963 and relevant laws and definitions Involved in this case?

(2)Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in treating the rupee denominated Foreign Exchange Bearer Certificates as foreign exchange?

(3)Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in holding that sub-clauses (i) and (ii) of clause 7 of second, schedule of the Wealth Tax Act, 1963 are inter related with each other and asset which is brought into Pakistan enjoys exemption for period of six years under the sub-clause (i) of clause 7 of Second Schedule of the Wealth Tax Act, 1963 under sub-clause (ii) of clause (7) enjoys further exemption on its conversion as a new asset?

(4)Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in holding that an asset was created out of foreign remittances when FEBCs (purchased from foreign exchange) were enchased in Pak. Rupee, as encasement of FEBCs in Pak. Rupee is first conversion of foreign exchange which was received through normal banking channels and such an asset is entitled for exemption?

(5)Whether the learned ITAT was justified in holding that remittance through banking channel also included conversion of Foreign currency in FEBC?

(6)Whether a judgment delivered by Full Bench of learned Income Tax Appellate Tribunal is not binding upon other Division Bench of Appellate Tribunal and such Division Bench can pass a conflicting judgment without referring it to the Larger Bench?"

4. The questions raised in other WTAs are almost identical to these questions and, therefore, we propose to dispose of all these WTAs by this common judgment.

5. Brief facts of the case are that the Wealth Tax Officer had allowed exemption vide his order under section 16(3) of the Wealth Tax Act, 1963, but on examination of the file the Inspecting Additional Commissioner considered the order erroneous in so far as it was prejudicial to the interest of the revenue allegedly for the reason that initially the foreign exchange remitted through normal banking channels, was first utilized to purchase FEBCs the proceeds of which were then utilized to create the asset which was claimed exempt under the provisions of section 5(1)(5) (now clause 7(i) and (ii) part-I of the Second Schedule) of the Wealth Tax Act, 1963, as according to the Inspecting Additional Commissioner it was hit by the judgment of the full bench of the Income Tax Appellate Tribunal reported in 1997 (76) , Tax 76 (Trib.) as it was the second conversion and according to the full bench of the Tribunal only one conversion was allowed exemption. When the matter came up before the Tribunal, the Tribunal by its exhaustive order held that the purchase of FEBCs out of foreign exchange received through normal banking channels did not amount to conversion of foreign exchange and the foreign exchange was converted for the first time when the respondent created an asset out of foreign remittance when FEBCs were enchased in Pak rupees as according to the Tribunal the assets created on encashment of FEBCs is the first conversion of the foreign exchange which was received from normal banking channels and, therefore, the Tribunal vacated the orders of the IAC and restored the orders of the Wealth Tax Officer. Hence these reference applications.

6. We have heard Mr. Javed Farooqui Advocate for the appellant in all appeals, Ms. Lubna Pervez, Mr. Abdul Rahim Lakhani and Mr. Iqbal Salman Pasha Advocates for the various respondents.

7. Mr. Jawaid Farooqui first read out the provisions of sub-clauses (i) and (ii) of Clause 7 and submitted that sub-clause (ii) makes it clear that only the first asset created out of foreign remittance received from normal banking channels is exempt from tax. In this connection he relied on the judgment of the full bench of the Tribunal reported as 1997 (76) Tax 76 wherein it has been held that only assets created on first conversion of the foreign exchange are entitled to exemption. The learned counsel went on to submit that the Tribunal had ignored the judgment of the full bench which was binding on it and has wrongly held that if FEBCs are purchased out of remittance received from normal banking channels, it still remains foreign exchange and no conversion takes place. The learned counsel then relied on a judgment of this Court in Iqbal Haji Ali Muhammad v. Inspecting Additional Commissioner of Income Tax/Wealth Tax (2006 CLC 1000) wherein this Court in identical facts and circumstances had held that asset created on second conversion is not entitled to exemption under clause 7(ii) of the Second Schedule of the Wealth Tax Act, 1963 and, therefore, according to the learned counsel, at least in those cases where the Pak rupee on conversion of FEBCs was used to purchase shares or to advance loans to various companies, the respondent could not be granted exemption.

8. Ms. Lubna Pervez who was the first counsel to argue on behalf of the respondents traced the history of the applicability of exemption on foreign remittance received through proper banking channels. She submitted that initially in 1975 this exemption was extended to non-resident assessee only who had remitted foreign exchange to Pakistan and created assets out of that foreign exchange. However, in 1985 the law was amended and this exemption was extended to resident assessees also. She filed a copy of the Finance Bill 1985 whereby for clause (xv) of section 5, a new clause was substituted which reads as under:

Clause (xv) "Assets:---

(i)brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;

created by an assessee out of remittance received in, or brought into Pakistan, through normal banking channels, during the period referred to in sub-clause (i) Provided that where investment in the assets is not made entirely out of remittances received in, or brought into, Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittance bear to the total investment."

9. She further pointed out to the notes on clauses which is a part of the Finance Bill and submitted that the legislature had explained this amendment in the following manner:

(b) to remove the distinction of resident and non-resident for exempting foreign remittance, and there would no restriction on the number of conversions.

10. The learned counsel then relied on two circular letters of the Central Board of Revenue being letter C-No.3(2)Tp-iii/90 dated 13th November, 1990 and C.B.R. Circular No.8/42-DWT/84, dated 30 June, 1985 whereby it has been provided that there is no restriction on conversion of assets and the assets would remain exempted for six years even if they change form. The learned counsel then relied on the judgment of the learned Lahore High Court Lahore in the case of Commissioner of Income Tax/Wealth Tax Companies Zone-I, Lahore v. Zoraiz Lashari reported as (2005 PTD 2064) where the learned Lahore High Court had held that the exemption under clause 7(ii) extends to converted or reconverted assets during the currency and tenure of exemption as long as the source of original funds remains the foreign remittance received through normal banking channels. The learned counsel on the basis of the clauses on amendments attached with Finance Bill 1985 submitted that first principle of interpretation is that 'the intention of the legislature has to be given effect to and the intention of the legislature is clear from the clauses which are a part of the Finance Bill, which had later on been passed by the legislature. She, therefore, submitted that such provision has been properly interpreted in the judgment of the learned Lahore High Court Lahore in the case Zoraiz Lashari quoted supra and the judgment of this Court in the case Iqbal Haji Ali Muhammad quoted supra, has not correctly interpreted the provisions of law.

11. In response to a query of this Court, she submitted that as far as valuation date is concerned, it is the date on which all assets, which are owned by the Wealth Tax assessee are to be valued in accordance with Wealth Tax Rules and Tax paid thereon. She however, submitted that the valuation date has no nexus to the conversion of one asset to another in the period preceding the valuation date because the original source which has been utilized for acquiring or purchasing the new asset will remain the source from which the asset which has been converted was purchased or acquired.

12. On the basis of her arguments the learned counsel prayed that this Court may answer questions Nos. 1 and 3, in affirmative thereby holding that exemption is not limited to first conversion only, but also available to subsequent conversions during the exempt period, to the extent of the amount of foreign remittance through Banking channels.

13. Mr. Iqbal Saiman Pasha the learned counsel adopted the arguments of Ms. Lubna Pervez and relied on two judgments of the Lahore High Court in the case of Zarina Yousuf reported in 2005 PTD 108 and CIT v. Malik Muhammad Ashique reported, in 2007 PTD 889 and a judgment, of Dhaka High Court in the case of Noor Hussain v. CIT reported in PLD 1964 Dhaka 373 and Mr. Abdul Rahim Lakhani the learned counsel also adopted the arguments of the other counsel for the respondents.

14. We have examined the case in the light of the arguments made by the learned counsel and have carefully perused the law on the subject and, the judgments relied on by the learned counsel.

15. Before we proceed further it will be relevant to reproduce clause 7 of Second Schedule under sub-clause (ii) of which this exemption is being claimed:-

"Assets

(i)brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years;

(ii)created by an assessee out of remittance received in, or brought into Pakistan, through normal banking channels, during the period referred to sub-clause (i):

Provided that where investment in the assets is not made entirely out of remittances received in, or brought into, Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittance bear to the total investment."

16. From a perusal of the above clause it is seen that the exemption has been granted to two types of assets one which are brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and in the following five years and second, which have been created by an assessee out of the remittances received in, or brought into Pakistan, through normal banking channels. The learned counsel for the appellant has relied on the judgment of this Court in the case of Iqbal Haji Ali Muhammad quoted supra. A careful perusal of that case reveals that it was conceded by the learned counsel for the appellant in that case that the exemption under sub-clause (ii) of clause 7 was available to the assets created, as a result of first conversion of foreign exchange only and any subsequent conversion was not entitled for exemption. In the later part of the order while giving its finding the learned Division Bench of this Court had also observed that it is admitted that under clause 7(ii) of the Second Schedule of the Wealth Tax Act 1963, the exemption is granted to the first conversion of asset only and therefore, according to this Court the point for consideration was whether in the facts and circumstances of that case, the purchase of the shares by the appellant was first conversion of asset or second conversion of asset, and after reaching the conclusion on the basis of the factual position of the case that the investment in shares was the second conversion, the learned Division Bench of this Court held that investment in shares was the second conversion and was, therefore, not entitled to the exemption on the basis of the conceded and admitted interpretation of clause 7(ii) of the Second Schedule. In that judgment the Court has not given any finding as to what were the basis on which it was conceded or admitted that exemption under Clause 7(ii) of the Second Schedule of the Wealth Tax Act, was applicable to first conversion of assets only.

17. We have examined clause 7 (ii) of the Second Schedule of the Wealth Tax Act in the light of the conceded/admitted admission made in the above judgment and have been unable to 'determine as to on what basis this admission or, concession was made. In the light of this observation we examined the judgment of the Lahore High Court in the case, of Commissioner of Income-Tax/Wealth Tax Companies Zone-I, Lahore v. Zoraiz Lashari quoted supra where the learned Lahore High Court while analyzing the above provision of law held that the primary basis for the applicability of the exemption under Clause 7(ii) of the Second Schedule of the Wealth Tax Act is not nature of the assets. The decisive factors are the origin of the assets or funds, the mode of transmission of funds and the period of exemption i.e. the period specified in the said clause. According to the learned High Court there is nothing in the said provisions, which can explicitly or impliedly lead to the-conclusion that the assessee can only claim exemption with regard to assets acquired through one conversion only. The learned Court held that the exemption extends to converted or re-converted assets during the currency and tenure of the exemption as long as the source of the original funds remains the foreign remittance received through normal banking channels.

18. We are inclined to agree with this observation/interpretation of Clause 7(ii) of Second Schedule of the Wealth Tax Act made by the learned Lahore High Court as we are also of the view that there is nothing in the section which can be read to mean that the exemption is limited to the first conversion of asset only and subsequent conversions are not entitled to exemption as that will tantamount to read something in the statute which is not provided and while interpreting statute nothing can be read in the statute nor any words can be added to the statute.

19. The learned counsel for the respondents Ms. Lubna Perwez has drawn our attention to clause included in the clauses to the Finance Bill 1985 by which this exemption was extended to resident assessees. From a reading of this clause, it is apparent that by this clause proviso to Clause 7(ii) has been interpreted to mean that there would be no restriction on the number of conversions for the purpose of exemption. This clause is a part of the Finance Bill 1985 by which this provision was added and explains the intention of the legislature for incorporating this provision. One of the principles of interpretation is that the principal source of interpretation is the intent of the legislature and once the Courts have discovered the intention of the legislature by reviewing the explanation given by the legislature for incorporating any statute then the Courts have to give effect to that interpretation. When we review the arguments made by the learned counsel for the appellants in the cases of Iqbal Haji Muhammad Ali quoted supra and Zoraib Lashari we see that both the Courts were not properly assisted and this important clause which was a part of the 1985 Finance Bill was not brought to the notice of both the Courts and before this Court a concession and admission was made that only first conversion is entitled to exemption and therefore, the learned division bench of this Court after holding that the shares were in nature of second conversion held that exemption was not available to the investment in shares. The learned Lahore High Court, however, without such assistance observed that there is no bar on subsequent conversion and subject to the source of assets' being foreign remittance received through normal banking channels, the assets on first conversion and subsequent conversion were exempt for a period of six years from the date of the remittance being received in Pakistan to the extent of the amount received through foreign remittance.

20. Though, we have already concurred with the interpretation of clause 7(ii) of the Second Schedule of Wealth Tax Act, 1963 given by the learned Lahore High Court, on the touchstone of the principles of interpretation of taxing statutes, however, we are fortified in our view with the assistance provided hereinabove by the learned counsel for the respondent, whereby the legislative intent was determined which is in conformity to the view reached by us.

21. Mr. Jawed Farooqui learned counsel for the appellant had submitted that the exemption has to be strictly constructed and the onus is on the person claiming the exemption to establish that he falls within the four corners of such exemption and whenever two interpretations of an exemption are possible the interpretation which is against the grant of exemption has to be given effect.

22. There can be no cavil to the above proposition, being canvassed by the learned counsel for appellant, but after examining the clause referred to above and determining the intention of the legislature, we are of the considered view that only one interpretation of clause 7(ii) is possible that the exemption in respect of the assets created out of foreign remittance is applicable not only to the first conversion of the asset but also to subsequent conversions so, long as the source of fund remains the foreign remittance received through banking channels during the period as, provided under said clause, to the extent of the amount received through foreign remittance.

23. We, are therefore, of the considered opinion that these appeals do not merit consideration, However, on a review of the proposed questions we see that no question has been proposed which can set this controversy at rest. We will, therefore, instead of answering the proposed questions, reframe the questions which can resolve the controversy fully. The reframed questions will read as under:

(i) Whether, on the facts and circumstances of the case the exemption under Clause 7 (ii) of the Second Schedule of the Wealth Tax Act can be restricted to first conversion of assets only?

(ii) Whether on the facts and circumstances of the case the exemption under Clause 7(ii) will extend to subsequent conversions of the initial asset so long as the source of fund remains the foreign remittance received from banking channels and will continue for the period provided under section 7?

24. On the basis of above discussion we will answer question No.1 in negative and Question No.2' in affirmative meaning thereby that the exemption is also available in respect of subsequent conversions of the original asset created from foreign remittance received through banking channels.

25. The above are the reasons in support of our short order announced in Court after hearing the learned counsel on 6th October, 2010 by which we had dismissed the above appeals.

M.H./C-10/KAppeal dismissed.