ADAM SUGAR MILLS LTD., KARACHI VS COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI
2011 P T D 2543
2011 P T D 2543
[Sindh High Court]
Before Muhammad Athar Saeed and Munib Akhter, JJ
Messrs ADAM SUGAR MILLS LTD., KARACHI
Versus
COMMISSIONER OF INCOME TAX, COMPANIES-II, KARACHI
Income Tax Reference Applications Nos.494, 495 of 2006 27 of 2006 and 341, 342 of 2010, decided on 02/12/2010.
Income Tax Ordinance (XXXI of 1979)---
----Ss. 2(44), 9, 10, 80-D, 80-DD & First Sched., Part-III, Para-C---Levy of surcharge under Para-C of Part-III of First Sched., of Income Tax Ordinance, 1979 on companies paying minimum tax under S.80-D or S.80-DD thereof---Validity---Word "total income defined in S.2(11) of Income Tax Ordinance, 1979 was not mentioned in S.80-D(1) thereof, rather declared turnover would be deemed income of a company---Where tax including surcharge after computing found to be less than 0.5 percent of turnover, then taxpayer would fall within ambit of S.80-D of Income Tax Ordinance, 1979 and tax paid thereunder would be minimum and final tax liability not liable to levy of surcharge---Presumptive tax would be final tax liability in cases of taxpayers falling under presumptive tax regime---Minimum tax would not be final tax liability and after assessment, if tax on total assessed income found to have exceed tax payable under S. 80-D of Income Tax Ordinance, 1979, then such case would be excluded from its ambit and would be assessed under normal tax rates---Minimum tax would be compared with tax computed in accordance with provisions of Income Tax Ordinance, 1979---Total income would include all categories of taxes included in comparative tax computed on total income---Surcharge was already included in such comparison, thus, same would be deemed to be included in 0.5 per cent of turnover, whereupon no further surcharge under Para-C of First Sched., of Income Tax Ordinance, 1979 could be levied---Principles.
2002 PTD (Trib.) 2662; 2006 PTD 1189; 2009 PTD (Trib.) 782; Abdul Sattar Noor Muhammad and Co. v. Government of Pakistan and others 1999 SCMR 2345; Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan 1997 PTD 1555 and Baig Spinning Mills Ltd. v. Federation of Pakistan and others 2005 PTD 1102 ref.
Dawood Corporation (Pvt.) Ltd. Commissioner of Income Tax Appeal-II, Karachi 2006 PTD 148 and Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan 1997 PTD 1555 rel.
Arshad Siraj for Applicants (in I.T.RAs. Nos.494 and 495 of 2006).
Miss Lubna Perwez for Applicant (I.T.R.A. No.27 of 2007).
Ali Mumtaz Sheikh for the Applicants Commissioner (in I.T.R.As. Nos. 341 and 342 of 2010).
Iqbal Salman Pasha for Respondents (in I.T.R.As. Nos. 341 and 342 of 2010).
Jawaid Farooqui for Respondents (in I.T.R.As. Nos. 27 of 2007 and 494 and 495 of 2006).
Date of hearing: 14th October, 2010.
JUDGMENT
MUHAMMAD ATHAR SAEED, J.---In all these Income Tax Reference Applications filed against various. orders of the Income Tax Appellate Tribunal the same controversy is involved that is whether the surcharge levied under paragraph 'C' of Part-III of the First Schedule of the Income Tax Ordinance, 1979, is leviable on the companies who fall within the ambit of section 80D or under section 8ODD of the Income Tax Ordinance, 1979 and have been subjected to minimum tax.
2. In I.T.R.As. Nos.494 and 495 of 2006 besides other questions regarding other grievances of the applicant one of the grievances was that the Assessing Officer had levied surcharge on tax under section 80-D and the order of the Assessing Officer had been upheld by the CIT (Appeals) and the Tribunal. We had vide our order dated 8-12-2006 admitted both the appeals to regular hearing to consider the following questions:--
(1)?? Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal misdirected in not examining the explanations furnished by the applicant in response to the notice under section 62, which was obligatory on the part of the Tribunal being final fact finding forum and thereby fell in error in confirming the rejection of books of accounts?
(2)?? Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified in confirming the imposition of Surcharge on tax determined under section 80-D?
So far as question No.1 is concerned, we will hear and give our opinion on it on a later date.
3. We have heard the arguments of the learned counsel on question No.2 and intend to dispose of the reference application partly to the extent of this question along with other reference applications on the same point.
4. In I.T.R.As. Nos.341 and 342 of 2002 the Tribunal had reversed its earlier decision and held that,surcharge was not leviable on minimum tax in cases falling under the ambit of sections 80-D and 80-DD of the Income Tax Ordinance, 1979 which were liable to minimum tax and the Income Tax Department has filed this Reference Application proposing the following question for the opinion' of this Court: -
Whether under the facts and circumstances of the case learned ITAT was justified to hold that the provisions of Part-III of the First Schedule to the repealed Income Tax Ordinance, 1979 regarding rates of surcharge were not relevant to sections 80-D, and 80-DD of the late Ordinance, 1979?
5. In I.T.R.A. No.27 of 2007 the Tribunal had upheld the order of the Income Tax officer levying surcharge on minimum tax under section 80-DD and this Court vide its order dated 11-5-2007 admitted the reference application for regular hearing for consideration of the following questions:
(i)???????? Whether on the facts and on the circumstances of the case the learned Income Tax Appellate Tribunal was right to hold that process of importation of goods is completed only when the goods come in the physical possession of the Importer for being used domestically and not on the date when income tax under section 50(5) of the repealed Income Tax Ordinance, 1979 and customs duty/sales tax are paid?
(ii)??????? If the answer to the above question is in affirmative whether the customs duty/sales tax and income tax would be payable at the time when the imported goods are actually come into the physical possession of the importer.
(iii)?????? Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was justified to hold that provisions of section 80-DD of the repealed Income Tax Ordinance, 1979 are attracted to LC Nos.11201, 11202 and 11438 which were 'cleared before 30-6-1999 prior to insertion Of section 80-DD in the repealed Income Tax Ordinance, 1979 vide Finance Act, 1999, which was made effective from 1-7-1999.
(iv)?????? Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal was right to confirm the levy of surcharge at the rate of 51% on minimum tax payable under section 80-DD of the repealed Income Tax Ordinance, '1979?
6. As far as questions Nos.i and ii are concerned we will hear and give our opinion on these questions. However as far as questions Nos.iii and iv are concerned, as already pointed out in all the other reference applications the same controversy is involved therefore we decided to hear all these applications on these questions together and dispose them of by 'a common order.
7. The legal position in these cases is that vide Finance Act, 1991 section 80D was incorporated in the Income Tax Ordinance for provision of payment of minimum tax at the rate of 0.5 percent of the turnover in case of companies who are either not liable to pay the tax for any reason whatsoever or the tax payable is less than 0.5 percent of the turnover. This section started with a non-obstante clause. By Finance Act, 1991 section 80-DD was incorporated which provided for levy of minimum tax on income of importers of edible oils etc. and' this section also started with a non-obstante clause, Para 'C' was added to Part-III of the' First Schedule providing for levy of surcharge from the income year' commencing on or after the first day of July, 2000, on companies other than the banking companies. After the incorporation of para 'C' to Part III, the Assessing Officer levied surcharge on the companies who were paying minimum tax under section 80-D or section 80-DD. Initially the Tribunal by its order reported in 2002 PTD (Trib.) 2662 held that surcharge had rightly been levied on the tax paid under section 80-D. However, later on another Divisional Bench of the Tribunal by its order dated 24-2-2006 in I.T.A. No.4453/LB/2005 reported as 2006 PTD 1189 held that in case of assesses falling under section 80-D or 80-DD no surcharge is leviable. Due to these conflicting judgments a full Bench was constituted which vide its judgment reported in 2009 PTD (Trib.) 782 held that surcharge is not leviable on those companies which fall within the ambit of section 80-D or 80-DD. Hence these above reference applications have been filed before this Court.
8. We have heard Mr. Arshad Siraj the learned counsel for the applicants in I.T.R.As. Nos. 494 and 495 of 2006, Miss Lubna Perwez the learned counsel for applicant in I.T.R.A. No. 27 of 2007 and Mr. Iqbal Salman Pasha the learned counsel for respondents in I.T.R.As. Nos.341 and 342 of 2010, who supported the order of the Full Bench of the Tribunal, and Mr. Ali Mumtaz Sheikh the learned counsel for the applicant in I.T.R.As. Nos.341 and 342 of 2010 and Mr. Jawaid Farooqui the learned counsel for the respondents in I.T.R.As. Nos. 27 of 2007 and 494 and 495 of 2006, who argued that surcharge is leviable on the taxpayers falling within the ambit of sections 80-D and 80-DD.
9. Mr. Arshad Siraj the learned counsel, for the appellant in I.T.R.As. Nos.494 and 495 of 2006 took us through the. provisions of section 80-D and pointed out that this section .starts with a non-obstante clause and through subsection (1) it seeks to levy a minimum tax on those persons who otherwise are not liable to pay tax for any reason whatsoever or the tax so computed on their total income is less than 0.5 percent of their turnover. He then took us through the definition of tax and pointed out that tax includes surcharge. He submitted that surcharge is chargeable under the provisions of section 10 of the Income Tax Ordinance, 1979 and read out the provisions of this section and pointed out that this section provides for the levy of surcharge on the income tax and super tax payable on the total income of taxpayer and submitted that in section 80-D turnover has not been shown as total income but only as the income of the taxpayer and therefore under charging section surcharge cannot be levied on the minimum income under section 80-D. In support of his contentions he relied on a judgment of this Court in the case of DAWOOD CORPORATION (PVT.) LTD. COMMISSIONER OF INCOME TAX APPEAL-II, KARACHI (2006 PTD 148).
10. Ms. Lubna Perwaiz adapted the arguments of Mr. Arshad Siraj and submitted that her case falls within the ambit of section 8ODD which was incorporated by Finance Act, 1999 and by which through a non?obstante clause it was specified that tax collected under subsection (5) of section 50 on import of edible oils shall be deemed to be the minimum amount of tax payable under this Ordinance, however, if the final tax liability computed on the basis of total income of the assessee was more than the tax collected then the tax collected shall be deducted from such total tax liability and the balance tax shall be paid. She further submitted that in her case the tax computed on the basis of total income including surcharge was less than the tax collected therefore the tax under section 50(5) had become the minimum tax liability having no nexus with the total income.
11. She relied on a judgment of the Honourable Supreme Court of Pakistan in the case of ABDUL SATTAR NOOR MUHAMMAD and Co. v. GOVERNMENT OF PAKISTAN and others 1999 SCMR 2345.
12. Mr. Jawaid Farooqui the learned counsel for the respondents in I.T.R.As. Nos.494 and 495 both of 2006 and I.T.R.A. No.27 of 2007 opposed the arguments of the learned counsel and took us through the definition of the total income given in subsection (44) of section 2. He also took us through the scope of total income highlighted in section 11 of the Income Tax Ordinance, 1979 and relied on the following judgments in support of his contentions:
(1) Messrs ELAHI COTTON MILLS LTD. and others v. FEDERATION OF PAKISTAN (1997 PTD 1555)
(2). BAIG SPINNING MILLS LTD. v. FEDERATION OF PAKISTAN AND OTHERS 2005 PTD 1102.
13. He further argued that turnover is a legal part of the assessment and total income includes turnover for the purposes of section 80D.
14. Mr. Ali Mumtaz Shaikh the learned counsel for the appellant drew our attention to subsection (2) of section 80D whereby it is provided that specified person referred to in subsection (1) shall pay as income tax, where no tax is payable, equal to one-half percent, of the said turnover; and where tax payable is less than 0.5 percent of the turnover then the difference between the tax payable and the tax amount calculated in accordance with clause (a). He submitted that once the tax payable under subsection (1) has been referred to as 'income tax' and not 'tax' then under the' provisions of Para-C of Part-III of the First Schedule the tax paid under section 80D will be considered to be income tax and if it is considered to be income tax then surcharge in accordance with the provisions of above paragraph shall be leviable on such income tax. The learned counsel also adopted the arguments of Mr. Jawaid Farooqui.
15. Mr. Salman Pasha the learned counsel for the respondent in the above cases submitted that subsection (2) is only providing the rates and the basis of computation of taxes whereas the charging section is subsection (1) which provides for the levy of tax and in that section it has been provided that this section will apply where no tax is payable for any reason whatsoever or where the tax payable is, less than one-half percent of the turnover. He submitted that for the purposes whether the provisions of section 80D apply, computation has to be first made of the income tax/super tax payable by the taxpayer 'on the total income and then on such computed income tax/super tax, surcharge in accordance with the provisions of Para-3 of Part-III has to be levied and if the total tax including the surcharge is less than 0.5 percent of the turnover then the provisions of section 80D would apply but if the tax including the 'surcharge is more than 0.5. percent of the turnover then section 80D will not apply and normal tax would be levied. Further to his above arguments the learned counsel submitted that it is clear that the case falls under section 80D and no surcharge shall be payable on such minimum tax. He submitted that the exclusion of the taxes under sections 80, 80D, 80C or 80CC for the purposes of computing amount of income tax for the purposes of levy of surcharge is only in respect of incomes which fall under the presumptive tax regime and where the tax deducted is the final tax liability whereas the tax payable under sections 80D and 8ODD are minimum tax liability which is payable only if tax calculated on total income including surcharge is less than half percent of the turnover. He further pointed out that all the cases being argued today are cases of companies.
16. We have examined the case in the light of the arguments of the learned counsel and have perused the records of the case including' the impugned orders and the judgments relied on by the learned counsel.
17. We have specially perused the two contradictory judgments of the Tribunal reported as 2002 PTD (Trib.) 2662, 2006 PTD 1189 (Trib.) and the judgment of the full Bench of the Tribunal reported as 2009 PTD (Trib.) 782 whereby the issue was finally decided in favour of the taxpayer that surcharge is not leviable on tax paid under sections 80D and 8ODD.
18. In the judgment of the Tribunal reported in 2002 PTD (Trib.) 2662 the Tribunal held that surcharge is leviable on taxes paid under section 80D or 8ODD due to following reasons:--
(i)???????? non exclusion of tax under sections 80D and 8ODD from category of taxes on which surcharge is leviable specially as taxes under sections 80B, 80C and 80CC have been specially excluded from the ambit of levy of surcharge.
(ii)??????? that if it is held that under the provisions of section 80D, tax is payable and not income tax then the taxpayer who are being taxed under sections 80D or 8ODD will go scot-free even if they commit default liable to penalties and additional tax, as penalties and additional tax have also been included in the definition of tax.
(iii)?????? That in subsection (2) of section 80D income tax and not tax has been mentioned.
19. In the order of the Tribunal reported as 2006 PTD 1189 the Tribunal held that surcharge is not leviable on the minimum tax under sections 80D and 8ODD for the reason that where tax is not levied on the basis of assessed total income no surcharge can be levied as section 10 provides for levy of surcharge on income tax on total income.
20. The Full Bench, which was constituted to resolve the differences between various Benches of the Tribunal, after an exhaustive examination of the legal and factual position of the case held that surcharge could not be levied on the tax payable under section 80D or 8ODD as the income tax fall under the presumptive tax regime are taxable under First Schedule whereas sections 80D and 80DD are separate sections and have no indirect nexus to the First Schedule and surcharge.
21. Before we examine the validity or otherwise of these orders of the Tribunal it will be appropriate to reproduce the relevant sections of the Income Tax Ordinance, which may help to resolve the controversy in these reference applications.
(9) Charge of income tax.---(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979, income tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule:
Provided that where, by virtue of an amendment in the First Schedule, the rate of income tax, for the purpose of assessment in respect of any assessment year, is altered, the rate of income tax existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.
(1A) Notwithstanding anything contained in section 37 of the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980), or any other law for the time being in force, there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1993, income tax in respect of the total income of a modaraba at the rate specified in the First Schedule:
Provided that the total income of a modaraba shall not be chargeable to tax for the first three assessment years after commencement of its business if not less than ninety percent of its profits in a year is distributed to the modaraba certificate holders.
(2) Where, by virtue of any provision of this Ordinance, income tax is to be deducted at source or collected or paid in advance, it shall be so deducted, collected or paid, as the case may be, accordingly.
(10) Charge of super tax and surcharge.---(1) In addition to the income tax charged for any year, there shall be charged, levied: and paid for that year in respect of the total income, or any part thereof, of the income year or years, as the case may be, of every person, an additional duty of income tax (in this Ordinance referred to as 'super tax') and surcharge at the rate or rates specified in the First Schedule:
Provided that where, by virtue of an amendment in the First Schedule, the rate of super tax and surcharge, for the purpose of assessment in respect of any assessment year, is altered, the rate of super tax and surcharge existing prior to the said alteration shall continue to apply in respect of any assessment year to which the said existing rate is applicable.
(2) Subject to the provisions of this Ordinance, the total income of any person shall, for the purposes of super tax and surcharge, be the total income as assessed for the purposes of income tax, and where an assessment has become final and conclusive for the purposes of income tax for any year, the assessment shall also be final and conclusive for the purposes of super tax or surcharge, as the case may be, for the same year.
(3) All the provisions of this Ordinance relating to the charge, assessment, deduction at source, collection, or payment in advance, recovery and refund of income tax shall apply, so far as may be, to the charge, assessment, deduction at source, - collection, payment in advance, recovery and refund of super tax and surcharge, as the case may be.
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, where no 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 which, not being a company, does not qualify for assessment under the self-assessment scheme under subsection (1) of section 59 -resident in Pakistan or the tax payable or paid is less than on-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 which, not being a company, does not qualify for assessment under the self-assessment scheme under subsection (1) of section 59 and tax thereon shall be charged in the manner specified in subsection (2).
Explanation.---For the removal of doubt, it is declared that the expression "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 forced.
(2) The company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided. family which, not being a company, does not qualify for assessment under the self-assessment scheme under subsection (1) of section 59] 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 cent of the said turnover, equal to the difference between the tax payable [or paid] and the amount 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.
80DD. Minimum tax on income of importers of edible oils etc.----Notwithstanding anything contained in this Ordinance, or any other law for the time being in force, the tax collected under subsection (5) of section 50 on import of edible oils as raw material by an industrial undertaking shall be deemed to be the minimum amount of tax payable under this Ordinance and where the final tax liability determined under this Ordinance exceeds the amount collected under the said subsection, the said amount shall be adjustable against such liability.
Clause (C) Part III, 1st Schedule
(C) In respect of the income year relevant to the assessment year commencing on or after the first day of July, 2000, a company, not being a banking company, shall pay surcharge equal to five per cent of the amount of income tax payable excluding the amount of presumptive income tax payable under sections 8OBB, 80C 8000?or 80CD:
Provided that no surcharge under this sub-paragraph shall be payable for the assessment year commencing on or after the first day of July, 2002.
22. From a perusal of the above sections of the Income Tax Ordinance, 1979 it is seen that section 9 is the charging section which provides for charging of income tax in respect of total income of the income year at the rate or rates specified in First Schedule. Section 10 is also a charging section which provides that in addition to the income tax charged for any year, an additional duty of income tax referred to as super tax and surcharge at the rate or rates specified in the First Schedule shall be charged in respect of total income. A perusal of subsection (2) of section 10 reveals that it has been specified that the total of income of any person for the purposes of super tax and surcharge shall be the total income as assessed for the purposes of income tax and where an assessment has become final for the purposes of income tax it shall also be final and conclusive for the purposes of super tax or surcharge as the case may be, for the same year.
23. Section 80D was incorporated by the Finance Act, 1991 and starts with a non-obstante clause. Another distinctive feature of section 80-D is that the rate of the minimum tax under section 80D has been provided in the section itself and no reference has been made to the First Schedule. Since the main argument of the learned counsel for the taxpayers has been that surcharge is leviable on the total income on which the income tax for that year has been levied, therefore, we have to first examine as to whether tax under section 80D is levied on total income or otherwise. The definition of total income is given in subsection (44) of section 2 which defines that "total income" means the total amount of income referred to in section 11 computed in the manner laid down in that section and includes any income which under any provisions of Ordinance, 1979, is to be included in the total income of an assessee. In the light of this definition when we examine section 80D we see that the word "total income" is not mentioned in subsection (1) but the declared turnover has only to be deemed the income of the said company. The concept of section 80D appears to be that where no tax is payable on the total income of a person for any reason whatsoever or the tax so paid is less than 0.5 percent of the turnover then the turnover shall be deemed to be the income of all such person and he will be required to pay a minimum tax of 0.5 percent on such income which gives credence to the arguments of the learned counsel for the taxpayers that first the tax if any payable on the total income of the person, shall be computed and if the total income of such person falls under the provisions of Part-III of the First Schedule then surcharge shall also be charged on such total income and it has to be seen whether such tax so computed is more than 0.5 percent of the turn over or is less than such turnover. If the tax on total income including surcharge and super tax is more than 0.5 percent of the turnover then such person shall fall outside the ambit of section 80D but, however, if the tax computed is less than 0.5 percent of the turnover then irrespective of the tax or total income such person who fall within the ambit of section 80D will be liable to pay tax at 0.5 percent of the turnover which will be the minimum tax. We are therefore of the view that since for the purposes of comparison tax including surcharge is computed and only if it is less than 0.5. percent of the turnover then the applicant falls under the ambit of section 80D therefore the tax paid under section 80D will be the minimum and final tax liability and no surcharge shall be levied on this tax, as on the basis of age-old maxim that apples have to be compared with the apples and oranges have to be compared with oranges it will have to be assumed that the minimum tax is to be compared with the tax computed in accordance with the provisions of the Ordinance, on the total income should be deemed to include all the categories of taxes which are included in the comparative tax computed on total income and since surcharge is already included in that comparison therefore it will be deemed that 0.5 percent also includes surcharge and no further surcharge under paragraph 'C' of Part-III of First Schedule can be levied. Although we have reached the above conclusion but before we finally dispose of these reference applications/ appeals we deem it necessary to rebut the three grounds on the basis of which the Tribunal in its earlier decision reported as 2002 PTD (Trib.) 2662 had dismissed the appeals of the taxpayers and had held that surcharge had to be levied over 'and above the minimum tax computed in accordance with the provisions of section 80D or 80DD.
24. As already stated above, the first point taken by the Tribunal in support of their above order was that despite the fact that taxes under sections 80B and 80C and 8000 have been specifically excluded from the ambit of levy of surcharge but the minimum tax under sections 80D and 80DD have not been excluded and therefore the Tribunal had presumed that such non-exclusion means that the minimum tax under sections 80D and 80DD have been included in the taxes on which surcharge is leviable. Complete answer and rebuttal to this observation of the Tribunal has been provided in paragraph 40 of the judgment of the Honourable Supreme Court in the case of Messrs ELAHI COTTON MILLS LTD. and others v. FEDERATION OF PAKISTAN (1997 PTD 1555) which reads as under:--
40. Adverting to the impugned newly-added section 80-D, it may be stated that we have already pointed out hereinabove that sections 80-C and 80-CC cannot be equated with section 80-D as the same is founded on different basis. It may again be observed that section 80-D is based on the theory of minimum tax. It envisages that every individual should pay a minimum tax towards the cost of the Government. The object of the minimum tax is to ensure that the taxpayers, who receive substantial amounts from exempt sources, pay at least some tax on their economic incomes of the year.
25. We would also like to add that the presumptive tax is the final tax liability in the case of the taxpayers who fall under the presumptive tax regime whereas minimum tax is not the final tax liability and even after assessment if it is seen that the tax of total assessed income exceeds the tax payable under section 80D then the case will be excluded from the ambit of section 80D and will be assessed under the normal tax rates. The second ground on which the earlier judgment of the Tribunal is based was that since tax includes fine and penalties and therefore the taxpayer will go scot-free as the minimum tax will also be deemed to include fines and, penalties if any levied in respect of defaults committed falling under various provisions of the income tax Ordinance. However, in our view this ground has been set at rest by the provisions of Finance Act, 1992 by which section 80D was declared to be a payment under section 54 of the Income Tax Ordinance which means that the default in payment of section 80D will become a default under section 54 and penalties and additional tax in consequence of such default can be levied under the relevant provisions of the Income Tax Ordinance, 1979.
26. The third ground taken by the Tribunal was that in sub-section (2) of section 80D it has been mentioned that the tax computed below shall be taken as the income tax of the taxpayer for the relevant year in question. We have examined subsection (2) very carefully and have read it along with the provisions of subsection (1) of section 9 and section 10. From a 'perusal of section 10 it is clear that surcharge is only chargeable on the total income of the taxpayer and if any tax is charged under the head `income tax' other than in accordance with the provisions of section 9, which has not been charged on the total income of taxpayer, surcharge shall not be leviable under the provisions of section 10. Even otherwise we are of the view that the word `income tax' as has been used in subsection (2) of section 80D is not in the same context as defined for the purpose of chargability in section 9 but only in respect of the minimum tax on turnover which has been defined as income and will therefore only apply to section 80D and not to sections 9 and 10 and therefore it is our considered view that no surcharge under paragraph `C' of Part III of the First Schedule shall be chargeable on the tax by any name called payable under sections 80D and 80DD.
27. Our above view is completely in consonance with the judgment of this Court in the case of Dawood Corporation Private Ltd. quoted supra. The relevant extract from the above judgment is reproduced below:--
"20. We fully agree with the interpretation of the learned ITAT. We would like to add that a perusal of Part-III of the First Schedule to the Income Tax Ordinance, 1979, shows that the rate of surcharge has been prescribed under this provision, which is 10% of the income tax and super tax, if any payable for the year: The Tribunal has rightly held that the charging section is section 10 of the Income Tax Ordinance, 1979, and therefore, it will control-and govern the provision contained in Part-III of the First Schedule to the Income Tax Ordinance, 1979. The Tribunal considered the provision contained in section 10, in sufficient length and has rightly held that under section 10(2) the legislature has expressly provided that the total income of any person shall, for the purposes of super tax and surcharge, be the total income as assessed for the purposes of income tax. A perusal of this provision further shows that the basis of charging surcharge is not the tax payable under section 85 but is total income as assessed for the purposes of income tax. When the provision contained in section 10(2) read-with Part-III of the First Schedule to the Income Tax Ordinance, 1979, nor ambiguity is left to the effect that the total income for the purpose of income tax and surcharge is assessed in the assessment order and the rate of surcharge would be 10% of the First Schedule to the Income Tax Ordinance, 1979."
28. On the basis of our above opinion and respectfully following the above judgment, we answer the question No.2 proposed in I.T.R.As Nos.494 and 495 of 2006 in negative in favour of the applicant and against the respondent. We answer the question proposed in I.T.R.As. Nos.341 and 342 of 2010 in affirmative in favour of the respondent and against the applicants. The questions Nos.3 and 4 in I.T.R.A. No.27 of 2007 are answered in negative in favour of the applicant and against the respondent.
29. So far question No.1 in I.T.R.As. Nos.494 and 495 of 2006 are concerned and questions Nos.1 and 2 in I.T.R.A. No.27 of 2007 are concerned the same will be deemed to be pending and these applications will be finally disposed of after hearing the learned counsel on this point.
30. These Income Tax Reference Applications are disposed of to the extent mentioned above in accordance with our above answers given to the questions.?
31. A copy of this order under the signature of the Registrar and seal of this Court be remitted to the Income Tax Appellate Tribunal for passing of order in conformity with this order.
S.A.K./A-134/K????????????????????????????????????????????????????????????????????????????????? Order accordingly.