FOUNDATION FOR HIGHER EDUCATION, KARACHI VS COMMISSIONER, REGIONAL TAX OFFICE, KARACHI, 2014 PTD-KARACHI-HIGH-COURT-SINDH 1094 (2014)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 80(2)(b) & 153(9)---Interpretation of S. 80(2) of the Income Tax Ordinance, 2001---"Company" definition of---Society formed by individuals and only thereafter registered under any law for the time being in force, did not fall within the definition of "company" or "prescribed person" under the Income Tax Ordinance, 2001---Assessee Society impugned the order of Appellate Tribunal whereby it was held to be a company within the definition given in S. 80(2) of the Income Tax Ordinance, 2001---Appellate Tribunal had observed that since the words "any society" in S. 80(2) Of the Income Tax Ordinance, 2001 had been included in the definition of the company, therefore the assessee Society fell within definition of "company" and "prescribed person" under the Income Tax Ordinance, 2001---Held, that the Appellate Tribunal failed to examine the controlling words "established or constituted by or any law for the time being in force" attached with the words "any society" in S. 80(2) of the Income Tax Ordinance, 2001---Distinction existed between a body corporate/society formed, established or constituted by or under any law for the time being in force and a body corporate/society which may be formed by individuals and thereafter may be registered under some law for the time being in force---Assessee Society in the present case was established by individuals and only thereafter had been duly registered under the Societies Act, 1860 and therefore did not fall within the definition of"company" and "prescribed person" under the Income Tax Ordinance, 2001 and hence was not liable to withholding tax in terms of S.153(9)(b) of the Income Tax Ordinance, 2001---Reference was answered accordingly.

Commissioner of Income Tax v. Messrs Lahore Cantt. Cooperative Housing Society 2009 SCMR 715; The Commissioner of Income Tax/Wealth Tax v. Messrs Engineering Cooperative Housing Society,Lahore 2000 PTD 3388 and Commissioner of Income Tax v. Messrs Spring Field Secondary School, Karachi 2003 PTD 1264 ref.

Commissioner of Income Tax v. Messrs Lahore Cantt. Cooperative Housing Society 2009 SCMR 715 rel.

Arshad Siraj for Applicant.

Amjad Javaid Hashmi for Respondent.

Date of hearing: 31st March, 2014.

JUDGMENT

AQEEL AHMED ABBASI, J.---Through this common judgment, we intend to dispose of the above reference applications arising out of the common order dated 4-11-2009, passed by the Income Tax Appellate Tribunal (Pakistan) Karachi in I.T.As. Nos. 195 to 198/KB of 2009 pertaining to tax years 2003, 2005, 2006 and 2007 filed by the respondent as the common questions have been decided by the Tribunal. The applicant has proposed the following common questions in the aforesaid reference applications, which according to learned counsel for the applicant are questions of law arising out of the impugned order passed by the Tribunal:--

"(i)Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal has correctly interpreted the provisions of sub-clause (v) of the clause (b) of subsection (2) of section 80 of the Income Tax Ordinance, 2001?

(ii)Whether in the facts and circumstances of the case, the learned Income Tax Appellate Tribunal was justified to treat the applicant as a "company" under clause (v) of Sub-clause (b) of subsection (2) of section 80 of the Income Tax Ordinance, 2001 when applicant is a Registered Society?

(iii)Whether in the facts and circumstances of the case, the learned Tribunal has not erred in law in ignoring the import of the words "by or under any law for the time being in force"?

(iv)Whether in the facts and circumstances of the case, the learned Tribunal has erred in law in not following the earlier legal precedents?

2.Both the learned counsel for the parties argued that since common questions have been proposed in the aforesaid four reference applications, the same may be decided at Katcha Peshi stage by a common order/judgment.

3.Mr. Arshad Siraj, the learned counsel for the applicant submits that the Income Tax Tribunal has erredinlawandfactwhiletreatingthe applicant as a Company under sub-clause (v) of clause (b) of sub-section (2) of section 80 of the Income Tax Ordinance, 2001, whereas, according to learned counsel, the applicant is a Society registered under Societies Registration Act, 1860. Per learned counsel, learned Income Tax Appellate Tribunal has misconstrued the definition of the term 'Company' as provided under the aforesaid clause of section 80, as the society registered under Societies Registration Act, 1860, cannot be termed as a company, hence does not fall within the definition of 'prescribed person' as defined in term of section 153(9) of the Income Tax Ordinance, 2001, therefore, not liable to withholding tax. Learned counsel for the applicant has argued that there is distinction between the body corporate which are formed by law and, under any law for time being in force. Per learned counsel, the body corporate which is created by law or through some enactment such as Pakistan International Corporation, Pakistan Insurance Corporation, Karachi Port Trust etc. are different and distinct from the body corporate formed by individuals and thereafter registered under any law in force for the time being. It has been contended by the learned counsel that this distinction has already been recognized by Division Bench of this Court as well as by the Hon'ble Supreme Court in the case of Commissioner of Income Tax/ Wealth Tax v. Messrs Lahore Cantt. reported as 2009 SCMR 715, The Commissioner of Income Tax/Wealth Tax v. Messrs Engineering Cooperative Housing Society,Lahore reported as 2000 PTD 3388 and, Commissioner of Income Tax v. Messrs Spring Field Secondary School, Karachi reported as 2003 PTD 1264. Per learned counsel, in the case of Commissioner Income-Tax v. Messrs Spring Field Secondary School, Karachi 2003 PTD 1264 a Division Bench of this Court has held that a Society registered under Societies Registration Act, 1860 is not covered within the definition of 'Company' as provided in terms of section 2(16)(b) of the Income Tax Ordinance, 1979, hence, according to learned counsel, by applying the same analogy to the facts of this case, the applicant who is a registered society under Societies Registration Act, 1860 does not fall within the definition of `Company' and cannot be termed as a 'prescribed person' as defined under section sub-clause (v) clause (b) subsection (2) of section 80 and section 153(9) respectively of the Income Tax Ordinance, 2001.

4.Conversely, Mr. Amjad Javaid Hashmi, the learned counsel for the respondent submits that the impugned order does not suffer from any error or illegality as the controversy has been decided by the Appellate Tribunal strictly in accordance with law and intermsofthedefinitionofthecompanygivenunderthenewIncome Tax Ordinance, 2001.Perlearnedcounsel,provisionsofsection 2(16)(b)oftheIncomeTax Ordinance, 1979 are not comparable with the provisions of section 80(2)(b)(v), which is applicable in the instant matter, whereas the said provisions of the Repealed Income Tax Ordinance, 1979 are peri-materia to the provisions of section 80(2)(b)(ii). It has been contended by the learned counsel that the definition of 'person' and 'company' as provided under the Income Tax Ordinance, 2001 has extended the scope of 'prescribed person' and has also brought into its ambit a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force. Per learned counsel, from perusal of hereinabove highlighted provisions of clause (v) of subsection (2) of section 80 it may be seen that all types of societies established or constituted by or under any law for the time being in force have also been included in the definition of 'company' as well as 'prescribed person' in terms of section 153(9)(b) of Income Tax Ordinance, 2001. Learned counsel for the respondent has further argued that reference to the provisions of section 2(16)(b) of Income Tax Ordinance, 1979 and the case-law cited by the learned counsel for the applicant is misconceived as the same relate to the provisions of the Repealed Income Tax Ordinance, 1979, which are not peri-materia to the provisions of Income Tax Ordinance, 2001. It has been contended by the learned counsel that the provisions of section 80(2)(b)(v) of Ordinance, 2001 are self-explanatory, whereas, the plain reading of such provisions makes it abundantly clear that all types of societies established or constituted by or under any law for the time being in force fall within the definition of 'company', hence required to withhold tax as a 'prescribed person' in terms of section 153(9) (b) of the Income Tax Ordinance, 2001. Learned counsel further argued that the provisions of law as referred to hereinabove relate to procedural law, which require liberal interpretation and not restrictive interpretation, whereas the intention of the legislature is also manifest from the express words used in the aforesaid clause. While concluding his arguments, learned counsel for the respondent has submitted that common questions proposed through instant reference applications by the applicant may be answered against the applicant, in favour of the respondent, and the reference application (s) may be dismissed.

5.We have heard learned counsel for both the parties, perused the record and the impugned order passed by the Income Tax Appellate Tribunal (Pakistan) Karachi in the instant reference applications and have also gone through the judgments relied upon by the learned counsel in support of their contentions. The common controversy involved in the instant reference applications revolves around the interpretation of the provisions of section 80(2)(b)(v) and its comparison with the provisions of section 2(16)(b) of the Repealed Income Tax Ordinance, 1979, which read as follows:--

(Section 80(2)(b)(v) of Income Tax Ordinance, 2001)

(a)a trust, a co-operative society or a finance society [or any other society established or constituted by or under any law for the time being in force];

(Section 2(16)(b) of Income Tax Ordinance, 1979 (Repealed)

(b)a body corporate formed by or under any law for the time being in force; or

6.From bare perusal of herein above provisions of law, it emerges that the same are not peri-materia to each other, whereas, provisions of section 2(16)(b) of the Ordinance, 1979 are identical to provisions of section 80(2)(b)(ii) and not comparable to the provisions of section 80(2)(b)(v) of the Ordinance, 2001. It may be noted that in terms of provisions of section 80(2)(b)(v) of the Ordinance, 2001, in addition to a trust, a co-cooperative society or a finance society, any other society established or constituted by or under any law for the time being in force, has also been included in the definition of terms "Company", whereas, in terms of section 2(16)(b) of Ordinance, 1979, there was reference only to a body corporate formed by or under any law for the time being in force in Pakistan. It is pertinent to note that the identical provisions as referred to in section 2(16)(b) of the Income Tax Ordinance, 1979 are also available under the new Income Tax Ordinance, 2001, in terms of section 80(2)(b)(ii), whereas, the provisions of section 80(2)(b)(v) are in addition to, and over and above the said provisions, which require independent application and interpretation.

7.In the instant case, admittedly the applicant is a Society registered under the Societies Registration Act, 1860, whereas, it has not been created by or under any law. In other words, it is not a body corporate, which has been formed by or under any law. On the contrary, it is formed by individuals in the name and style of "Foundation For Higher Education" and thereafter has been registered under the Societies Registration Act, 1860. While comparing the provisions of clause (v) (b) of subsection (2) of section 80 of the Income Tax Ordinance, 2001 with the provisions of clause (b) subsection (16) of section 2 of the Income Tax Ordinance, 1979, it has been noted that the same are not peri-materia to each other, however, the terms "or any other society established or constituted by or under any law for the time being in force", when compared with the term "a body corporate formed by or under any law for the time being in force" reflect that the controlling words in both the provisions are formed, established or constituted by or under any law for the time being in force. In the case of Commissioner of Income Tax v. Messrs Lahore Cantt. Cooperative Housing Society reported as 2009 SCMR 715, the Hon'ble Supreme Court while interpreting the provisions of section 2(16)(b) of the Income Tax Ordinance, 1979 was pleased to hold as under:--

"8. The word "formed by" means; to make, shape, to put together, to mould, to develop, to conceive or to constitute. Thus, we are clear in our mind while agreeing with the learned High Court, that clause (b) of the Ordinance brings into its ambit only those body corporates which are created by some law for the time being in force. Such are only those societies which are directly established, constituted and created by the relevant statute itself. While, on the other hand, a body formed by private individuals and subsequently registered under some law would not be a body formed under that law, rather, it would be a body formed otherwise but registered under the law. The formation, creation and constitution of a body under the law is, therefore, altogether different from a body required merely to be registered under some law.

9. In order to elaborate, the learned High Court has given certain examples of the Companies constituted under the law. Pakistan Insurance Corporation is a Company established by Act XXXVIII of 1952 and finds its origin in section 2(b) of the Act providing that Pakistan Insurance Corporation is established by the Act aforesaid. Similar is the example of National Bank of Pakistan which would not have been in existence if sub-section 2(a) of Ordinance XIX of 1949 had not provided "that the Bank means National Bank of Pakistan, constituted by this Ordinance". Pakistan International Airlines Corporation finds its origin and source of creation in section 2(b) of Act XIX of 1956 according to which "Corporation means the Pakistan International Airlines Corporation established under this Act." Last one is the example of Agricultural Bank established under Agricultural Bank Act of 1957. If one follows the dictionary meaning of "formed by" and "under" and the aforementioned examples, one comes to an unescapable conclusion that the respondent-societies are not the creation of any law but whatever be their mode of creation, they are required to be registered with the Registrar of Cooperative Societies under the Cooperative Societies Act. We, therefore, have no two opinions that the respondent-societies are not covered by the definition of Company as provided in section 2(16)(b) of the Ordinance."

8.Keeping in view the ratio of hereinabove judgment of the Hon'ble Supreme Court, whereby the Hon'ble Supreme Court has interpreted the term formed, established or constituted by or under any law for the time being in force, we may examine the relevant finding of the Appellate Tribunal, which reads as under:--

"Perusal of definition of the word "Company" as contained in Income Tax Ordinance, 2001 reveals that in section 80(2)(b)(v); the words "or any other societyestablished or constituted by or under any law for the time being in force" have been inserted vide Finance Ordinance, 2002. With the insertion of above words, any Society established by or under any law has been given status of a Company. So in any opinion with the insertion of above quoted words by Finance Ordinance, 2002, in section 80(2)(b)(v), the tax payer society is to be treated as a Company and all the provisions of law will apply to the instant case and it is liable to deduct tax wherever required under the law. Accordingly, findings of CIT (Appeals) on this issue are vacated accordingly."

9.From perusal of hereinabove finding of the Appellate Tribunal, it appears that the Tribunal has only examined the insertion of clause (v)(b) of subsection (2) of section 80 of the Ordinance, 2001 i.e. "or any other society established or constituted by or under any law for the time being in force" and was pleased to observe that since with the insertion of above words any society has been included in the definition of a company, therefore, the applicant society falls within the definition of term company and prescribed person hence liable to deduct tax under section 153 of the Income Tax Ordinance, 2001. However, the Appellate Tribunal failed to examine the controlling words i.e. established or constituted by or under any law for the time being in force attached with the word 'any society' and did not record its finding in this regard inspite of the fact that the Hon'ble Supreme Court in the afore-cited judgment, after having examined the provisions of section 2(16)(b) of the Ordinance, 1979 as well as the provisions of section 80(2)(b)(v) of the Income Tax Ordinance, 2001 has categorically held that there is distinction between a body corporate/society formed, established, constituted by or under any law for the time being in force and a body corporate/society which may be proved by individuals and thereafter may be registered under some law for the time being in force, such as in the instant case of the applicant which is infact a body corporate/society which is formed, created, established by individuals in the name and style of "Foundation For Higher Education", and thereafter has been duly registered as a Society under Societies Registration Act, XXI of 1860.

10.In view of hereinabove facts and by applying the same analogy and the ratio of the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Messrs Lahore Cantt. Cooperative Housing Society (2009 SCMR 715) as referred to hereinabove, we are of the opinion that the applicant Society does not fall within the definition of "Company" and "prescribed person", hence not liable to withhold tax in terms of Section 153 (9) (b) of the Income Tax Ordinance, 2001.

11.Accordingly, the order passed by the Appellate Tribunal in this regard while treating the applicant as a Company is hereby set-aside and the questions as proposed through instant reference application at S. Nos. (i) and (ii) are answered in negative and question No.(iii) is answered in affirmative all in favour of the applicant and against the respondent, whereas, in view of the finding in respect of questions Nos. (i) to (iii) hereinabove, question No.(iv) does not require any response by this Court.

Let copy of this judgment under the seal of this Court may be sent to the Registrar, who shall place the same before the Appellate Tribunal, Karachi, for passing appropriate order in conformity with the judgment of this Court.

KMZ/F-7/SindhOrder accordingly.