COMMISSIONER INLAND REVENUE, ZONE-I, RTO, KARACHI VS ALLIED RENTAL MODARABA, 2014 PTD-KARACHI-HIGH-COURT-SINDH 593 (2013)

Income Tax Ordinance (XLIX of 2001)---

----Ss.122(5A), 133 (1) & Second Sched., Part-I, Cl. (100)---Reference to High Court---Scope---Nature of business, determination of---Trading receipts---Concurrent findings of fact by two forums below---Controversy related to receipts which were earned by assessee on account of operational and maintenance of generators' service provided by it to its customers, without being involved into any trading activity---Neither there was any sale transaction involved nor any goods or property was transferred by assessee to its customers---Validity---Authorities did not assign any reason while treating the receipts earned from operation and maintenance of generators' services as trading activity and his order was based on mere presumption and mis-interpretation of a decision which did not relate to subject controversy---Finality was attached to all judicial and quasi-judicial orders and unless all conditions which might be provided under law to recall, amend and modify such order, such order could not be recalled, amended or modified on mere presumption or by merely given a different interpretation to facts of the case---Controversy was decided by recording concurrent finding on facts of the case and the same could not be interfered with by High Court while exercising its reference jurisdiction under S. 133(1) of Income Tax Ordinance, 2001, unless such concurrent finding on facts was perverse or some grave illegality had been pointed out---Authorities failed to point out any such error or illegality in order passed by Appellate Tribunal, which otherwise depicted correct factual and legal position and did not require any interference by High Court in its reference jurisdiction, as the same was limited only to the extent of deciding question of law which could arise from the order passed by Appellate Tribunal---Reference was dismissed in circumstances.

Messrs Tanveer Textile Mills Ltd. v. Commissioner of Income Tax, Central Zone 'C', Karachi 1989 PTD 1137 distinguished.

Messrs Ahmad Karachi Halva Merchants and Ahmad Food Products v. The Commissioner of Income-Tax, South Zone, Karachi 1982 SCMR 489 and Messrs Japan Storage Battery v. Commissioner of Income Tax 2003 PTD 2849 rel.

Amjad Javaid Hashmi for Applicant.

Arif Muhammad Khan and Riazuddin for Respondent.

Date of hearing: 11th December, 2013.

ORDER

AQEEL AHMED ABBASI, J.---By consent of both the learned counsel for the parties the above three reference applications, which arise from the same impugned order dated 24-7-2012 passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi, in I.T.A. No.517/KB-2011 (Tax Year 2007), I.T.A. No.518/KB of 2011 (Tax Year 2008) and I.T.A. No.519/KB-2011 (Tax Year 2009) are being disposed of at Katcha Peshi stage. Following questions have been proposed through instant reference applications, which according to learned counsel for the applicant, arise from the impugned order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi:--

(1)Whether on the facts and circumstances of the case the learned Tribunal was justified in law to hold that the receipts from "operation and maintenance of Generators" are "trading receipts" and covered under clause 100 of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 (Income Tax Ordinance, 2001)?

(2)Whether while reaching the conclusion that the nature of business of the taxpayer is a "trading"activitywithinthescope of clause 100 of Part-1 of the Second Schedule to the Income Tax Ordinance, 2001 (Income Tax Ordinance, 2001), the learnedTribunalhadanymaterialonrecordtosupportit.?

2.Learned counsel for the applicant submits that the Appellate Tribunal Inland Revenue (Pakistan) Karachi, while deciding the appeal has not correctly interpreted the provisions of Clause 100 of Part-1 of the Second Schedule to the Income Tax Ordinance, 2001, which has specifically excluded the "income from any trading activity of Modaraba" from the purview of the exemption as provided under such clause. Per learned counsel, the Taxation Officer in the instant case, after having duly confronted the respondent on the subject controversy, has held that receipts on account of operation and maintenance of the Generators constitute income from trading activity, hence does not constitute part of the income of the Modaraba which is exempt in terms of Clause 100 of Part-1 of the Second Schedule to the Income Tax Ordinance, 2001. It has been contended by the counsel for the applicant that a narrow meaning to the term trading activity has been given by the Appellate Tribunal Inland Revenue (Pakistan) Karachi as well as CIT (Appeals), as according to learned counsel, the term trading and trading activity as defined in the Black's Law Dictionary includes the receipts towards operation and maintenance of generator charges also. It has been further contended by the learned counsel that the provisions relating to exemption are to be construed strictly and against the claimants, whereas, in the instant matter the exemption has been granted to the applicant without following such principle. In support of his contention the learned counsel for the applicant has placed reliance on the case of Messrs Tanveer Textile Mills Ltd. v. Commissioner of Income Tax, Central Zone 'C' Karachi 1989 PTD 1137 and submits that interpretation of the term trading liability given by the Hon'ble Division Bench of this Court in the aforesaid case suggests that the trade and trading activity cannot be given narrow or restricted meaning and it does not include only the sale and transfer of tangible goods. Learned counsel further submits that the impugned order passed by the Appellate Tribunal Inland Revenue may be set-aside and the proposed questions may be answered in favour of the applicant.

3.Conversely, learned counsel for the respondent at the very outset has raised objection with regard to the questions as formulated by the applicant and submits that the questions have not been properly formulated as accordingly to learned counsel, there has been no finding recorded by any of the Appellate forum, whereby, it has been held that the receipts from operation and maintenance of the generators are trading receipts or part of trading activities. On the contrary, the CIT (Appeals) as well as the learned Appellate Tribunal Inland Revenue, have recorded a contrary finding in this regard. While, confronted with such position, learned counsel for the applicant concedes that the questions have not been properly formulated, however, it has been argued that since substantial legal controversy is involved in the instant reference applications, he may be allowed to reformulate the questions or this Hon'bleCourtmayreformulatethesamesothatthelegalissueinvolved in the instant reference application may be answered by this Court. Learned counsel for the respondent does not oppose to such request.

4.Accordingly, by consent of the learned counsel for the respondent, following question of law has been proposed at the instance of learned counsel for the applicant to be answered by this Court in the instant reference applications:--

Whether on the facts and circumstances of the case the Appellate Tribunal Inland Revenue (Pakistan) Karachi was justified in law to hold that the receipts from "operation and maintenance of Generators" do not constitute income from the trading activity, hence covered under clause 100 of Part-1 of the Second Schedule to the Income Tax Ordinance, 2001?

5.After having examined the aforesaid reformulated question, learned counsel for the respondent submits that even the aforesaid question is not a question of law as a factual controversy in the instant case has been decided by the Appellant Tribunal Inland Revenue (Pakistan) Karachi through impugned order. It has been contended by the learned counsel that the Additional Commissioner of Inland Revenue-A, Audit Division-I, Regional Tax Officer, Karachi, while invoking the provisions of section 122(5A) of the Income Tax Ordinance, 2001 in the instant case has himself acknowledged the nature of the business of the respondent by observing that "the respondent is enjoying income from operating and finance leases besides the operation and maintenance income from power generators". Per learned counsel, it is evident from the record that the respondent is not engaged in any sort of trading activity or sale and purchase of goods, nor any such finding has been recorded by the Additional Commissioner in his order passed under section 122(5A) of the Income Tax Ordinance, 2001, whereas, on the basis of mere presumptions and by misinterpretation of the case-law, which is entirely distinguishable on facts and law, the amount received on account of operation and maintenance of generators has been treated as trading activity. It has been further contended by the learned counsel that even the ownership of the generators provided by the respondent to its customers is not transferred as the same are given on rental and lease basis. Per learned counsel, in terms of clause 100 of Part-I of the Second Schedule to the Income Tax Ordinance, 2001, the income of a Modaraba from all sources is exempt, except income from trading activity and since the receipts from operation and maintenance of generators does not involve any trading activity, therefore, excluding the same from the purview of exemption by the department was erroneous in law and fact. Per learned counsel, the proceedings initiated by the Additional Commissioner under section 122(5A) in the instant case were based on malice, whereas, no material whatsoever was available, nor any error was pointed out by the Additional Commissioner while invoking section 122(5A) of the Income Tax Ordinance, 2001 in the instant case. Learned counsel further submits that in the instant case, the learned CIT (Appeals), after having examined all the factual and legal aspects of the matter as well as the case-law on the subject, has passed a well reasoned order and has rightly annulled the order passed by the Additional Commissioner under section I22(5A), whereafter, the Appellate Tribunal has also concurred with such finding as recorded by CIT (Appeals) vide impugned order, which does not suffer from any factual or legal error. Per learned counsel, the finding as recorded by both the appellate forums below is based and has decided a factual controversy in favour of the respondent which cannot otherwise, be agitated before this Court under its reference jurisdiction in terms of section 133(1) of the Income Tax Ordinance, 2001. It has been prayed that instant reference application being devoid of any merits may be dismissed in limine.

6.We have heard both the learned counsel and perused the impugned order and the record with their assistance. From perusal of the order passed by Additional Commissioner under section 122(5A), whereby, operational and maintenance receipts of the respondent have been treated as trading activity and excluded from the total exempt receipts of the respondent Modaraba, it appears that no factual finding has been recorded nor any material has been referred which could demonstrate that the respondent is engaged in any trading activity. On the contrary, nature of the income receipt of the respondent Modaraba has duly been acknowledged in the opening paragraph of the order passed under section 122(5A) of the Income Tax Ordinance, 2001, which reads as follows:--

"Allied Rental Modaraba is a Modaraba, Registered under Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980) and enjoying income from operating and finance leases besides operation and maintenance income from maintenance of power generators."

7.It has been further noted that the reason as stated in para 4 of the order passed by Additional Commissioner under section 122(5A), does not disclose as to how the order of the Commissioner under section 120 of the Income Tax Ordinance, 2001 in the case of the respondent is erroneous and prejudicial to the interest of revenue. It has been merely stated "that claim of exemption under clause 100 of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 is not in accordance to the strict interpretation of the exemption clause". It further appears that in order to justify the reopening of the case under section 122(5A) and treating operational and maintenance receipts as trading activity, the Additional Commissioner referred to a decision of this Court in the case of Messrs Tanveer Textile Mills Ltd. v. Commissioner of Income Tax, Central Zone 'C', Karachi reported as 1989 PTD 1137. From perusal of the aforesaid decision of this Court, it appears that the facts and circumstances of this case are entirely distinguishable from the facts of the case as referred to by the Additional Commissioner, as in the cited case, liability of excise duty which was shown as debited to the sale account in the account books of the applicant was not paid within three years which was treated as a trading liability of the taxpayer. Moreover, there was no dispute with regard to the nature of the business of the taxpayer, whereas the Hon'ble Court while considering the implication of the phrase "profits and gains of the business, profession and vocation" held that amount of excise duty is part of trading liability which was not paid within the period as prescribed by law, hence the same was treated as trading liability. In the instant case, the controversy relates to receipts which have been admittedly earned by the respondent on account of operational and maintenance of generators service provided by the respondent to its customers, without being involved into any trading activity as neither any sale transaction is involved nor any goods or property is transferred by the respondent to itscustomers.

8.Wehaveobservedthatnoreasonwhatsoeverhasbeenassigned by the Additional Commissioner of Inland Revenue-A, Audit Division-I, Regional Tax Office. Karachi, while treating the receipts from operation and maintenance of generators services as trading activity, whereas, the entire order is based on mere presumptions and misinterpretation of a decision which did not relate to subject controversy.

9.It will not be out of place to observe that finality is attached to all judicial and quasi-judicial orders and unless all the conditions which may be provided under the law to recall, amend and modify such order, such order cannot be recalled, amended or modified on mere presumptions or by merely given a different interpretation to the facts of a case. Moreover, the conclusions drawn by the Additional Commissioner Inland Revenue-A, Audit Division-I, Regional Tax Office, Karachi, in the instant case on the basis of a decision of a Division Bench of this Court, having distinguishable facts and different legal controversy, cannot be made basis for seeking amendment under section 122 (5A) of the Income Tax Ordinance, 2001.

10.We may further observe that the subject controversy in the instant reference applications has been decided by recording concurrent finding on the facts of the case, and the same cannot be interfered by this Court while exercising its reference jurisdiction under section 133(1) of the Income Tax Ordinance, 2001, unless such concurrent finding on the facts is perverse or some grave illegality has been pointed out by the applicant. The applicant has not been able to point out any such error or illegality in the impugned order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi, which otherwise depicts correct factual and legal position, hence does not require any interference by this Court in its reference jurisdiction which is limited only to the extent of deciding the question of law which may arise from the order passed by the Appellate Tribunal Inland Revenue (Pakistan) Karachi. Reliance in this regard can be placed on the case of Messrs Ahmad Karachi Halva Merchants and Ahmad Food Products v. The Commissioner of Income-Tax, South Zone, Karachi 1982 SCMR 489 and Messrs Japan Storage Battery v. Commissioner of Income Tax 2003 PTD 2849. Accordingly, we do not find any merits in the instant reference application which ishereby dismissed in limine.

MH/C-2/SindhReference dismissed.