COMMISSIONER INLAND REVENUE ZONE-I, REGIONAL TAX OFFICE, KARACHI VS LAKHANI SECURITIES (PVT.) LTD., 2015 PTD-KARACHI-HIGH-COURT-SINDH 401 (2014)

(a) Constitution of Pakistan---

----Arts. 189 & 201---Judgments of superior Courts---Applicability---In terms of Art.201 of the Constitution, subject to Art. 189 of the Constitution, decision of High Court, to the extent it decides a question of law or is based upon or enunciates a principle of law, is binding on all Courts, subordinate to it, including Tribunals and Authorities etc. performing their functions within its territorial jurisdiction.

(b) Workers' Welfare Fund Ordinance (XXXVI of 1971)---

----Ss.2 & 4 [as amended by Finance Act (III of 2006) and Finance Act (I of 2008)]---Income Tax Ordinance (XLIX of 2001), Ss.2(i)(l), 133(1) & 221(1)---Workers' Welfare Fund---Charging of such fund from net profit---Grievance of authorities was that Appellate Tribunal Inland Revenue wrongly held that Workers' Welfare Fund was not chargeable in taxpayer's case on Net Profit declared for the year in view of clause 2(i)(l) of Workers' Welfare Fund Ordinance, 1971---Validity---Order passed by Commissioner (Appeals) as well as by Appellate Tribunal Inland Revenue suffered from factual and legal error and the same were set aside---Both the forums below failed to take cognizance of amendments introduced through Finance Act, 2006 and Finance Act, 2008, respectively in Ss. 2 & 4 of Workers' Welfare Funds Ordinance, 1971---High Court declined to dilate upon merits of case while exercising reference jurisdiction in terms of S. 133 (1) of Income Tax Ordinance, 2001, as the time was restricted to the extent of deciding a question of law which could arise from the order of Appellate Tribunal---High Court remanded the matter to Appellate Tribunal Inland Revenue to decide the controversy afresh after providing opportunity of hearing to both the parties keeping in view the observations made by High Court and after taking cognizance of amendments in law of Workers' Welfare Fund Ordinance, 1971, or amendments in Income Tax Ordinance, 2001---Reference was disposed of accordingly.

Commissioner of Income Tax v. Messrs Kamran Model Factory 2002 PTD 14; Messrs E.P.C.T. (Pvt.) Ltd.'s case 2011 PTD 2643; Shahbaz Garments (Pvt.) Ltd. v. Pakistan PLD 2013 Sindh 449 and Messrs Mutual Funds Association of Pakistan v. Federation of Pakistan 2010 PTD 306 ref.

Chaudhry Nazir Ahmad for Applicant.

Chief Executive Muhammad Yaseen Lakhani for Respondent.

Date of hearing: 16th April, 2014.

ORDER

AQEEL AHMED ABBASI, J.---Being aggrieved and dissatisfied with the order of the Appellate Tribunal Inland Revenue of Pakistan, Karachi, in I.T.A No.111/KB-2012 (Tax Year-2009) and I.T.A No.69/KB-2012 (Tax Year-2009) dated 10-12-2012 the applicant i.e. the Commissioner Inland Revenue, Zone-I, RTO. Karachi filed application under section 133(1) of the Income Tax Ordinance, 2001, has proposed the following questions to be answered by this Court:--

(1)Whether on the facts and circumstances of the case, the learned ATIR was justified in holding that Workers Welfare Fund is not chargeable in taxpayer's case?

(2)Whether on the facts and circumstances of the case, the learned ATIR, was justified in holding that WWF is not chargeable on Net Profit declared for the year in view of the clause 2(i)(1) of the Workers Welfare Fund Ordinance, 1971?

(3)Whether on the facts and circumstances of case the learned ATIR was justified in holding that WWF is to be charged (if applicable) after adjusted Brought Forward losses in view of the clause 2(i)(1) of the Workers Welfare Fund Ordinance, 1971?

2.The brief facts as stated in the statement of facts by the applicant are that respondent is a Private Limited Company and engaged in the business of Stock Brokerage House, who filed its Return of Income for the tax year under consideration by declaring Net Profit at Rs.4.962,467. The respondent was liable to pay WWF @ 2% at the time of filing Return, which the respondent failed to do so. Where-after the Assessing Officer issued show-cause notice dated 29-11-2010 to the respondent in the following terms:--

"Examination of your tax record shows that you are an "Industrial Establishment" as defined in section 2(f) of Workers Welfare Fund Ordinance, 1971. You have filed return of income for the tax year 2009 declaring income of Rs.4,962,467. Assessment was deemed to have been finalized under section 120 of the Income Tax Ordinance, 2001.

The perusal of your return reveals the following discrepancy:

You were liable to pay WWF amounting to Rs.99,249 being @ 2% of the declared income of Rs.4,962,467. But you failed to discharge the liability at the time of filing of return.

The working of WWF chargeable as under:

Declared incomeRs.4,962,467

2% of the aboveRs 99,249.

You are requested to offer your explanation/objection if any as to why the deemed assessment order under section 120 should not be rectified under section 221(1) by charging WWF as indicated above.

Compliance may please be made on or before 4-12-2010."

3.In response to such show-cause, the respondent through their A.R. furnished reply, wherein, it was contended that since the taxpayer has declared loss at Rs.40,777,476 and not liable to pay WWF. The Taxation Office was not satisfied with such reply and passed the order under section 221(1) of the Income Tax Ordinance, 2001 read with section 4 of Workers Welfare Fund Ordinance, 1971 in the following terms:--

"The contention of the taxpayer is not found correct in view, of clause (i) of subsection (i) of section 2 of the W.W.F. Ordinance, 1971, reproduced as under:-

"Where return of income is required to be filed under this Ordinance, the profit (before taxation of provision of taxation) as per accounts or the declared income as per the return of income, whichever is higher"

Therefore, the contention of the taxpayer is rejected and the deemed assessment order is rectified under section 221(1) by charging WWF worked out in the show-cause notice above, amounting to Rs.274,841 as per section 4 of Workers Welfare Funds Ordinance, 1971.

Total Income declared as per returnRs.4,962,467

WWF @ 2% as discussed above.Rs.274,841

Issue order and demand notice accordingly."

4.Being aggrieved by aforesaid order passed by the Taxation Officer, the respondent preferred an Appeal under section 129 of the Income Tax Ordinance, 2001, before Commissioner Inland Revenue (Appeals-II), Karachi, who vide order dated 23-11-2011, after placing reliance on the case of Commissioner of Income-tax v. Messrs Kamran Model Factory 2002 PTD 14, allowed the appeal of the respondent in the following terms:--

"I am inclined to agree with the submissions of the AR of the appellant that the action of the Officer Inland Revenue in charging Workers Welfare Fund without considering the loss of (Rs.40,777,476) to the tune of Rs.99,249 by virtue of rectification order passed under section 221(1) of the Income Tax Ordinance, 2001 is not justified. The WWF charged on net profit is not correct and against the law. This view gains support from the decision of the Hon'ble High Court Karachi reported as 2002 PTD 14 (HC. Kar), wherein it was held as under:-

"2. we are of the view that there is not dispute with regard to the contention advanced on behalf of the assessee/respondents as the learned counsel appearing on behalf of the department/ appellant had conceded that the assessee would be entitled to the benefit or claim of set off in respect of the losses, which they had declared in the earlier years and which had been determined/settled/computed as losses by the Assessing Officers in accordance with section 34 and carried forward in accordance with section 35 of the Income Tax Ordinance. Accordingly, this question stands decided/answered in the affirmative..."

Therefore, I feel no hesitation to hold that the Officer Inland Revenue was not justified to charge Worker Welfare Fund at Rs.274,841 by taking into account the net profit and ignoring the Brought forward losses. Therefore, the levy of Worker Welfare Fund on the net profit is not sustainable and is hereby deleted.

The appeal stands disposed of in the manner discussed above."

5.The applicant/department being aggrieved by such order of the Commissioner (Appeals) preferred an appeal before the Appellate Tribunal Inland Revenue of Pakistan, Karachi under section 131 of the Income Tax Ordinance, 2001, who vide impugned order dated 10-12-2012 dismissed the appeal of the applicant/department in the following terms:--

"2. We have considered the arguments of both the parties and have also perused the relevant orders as well as case-law available on record. From perusal of the impugned orders of the learned CIR(A) we have found that he has vacated the order passed by the Officer Inland Revenue keeping in view the decision of Hon'ble High Court Karachi reported as 2002 PTD 14 (H.C. Kar). Before us learned representative of the respondent/assessee has placed another judgment of Hon'ble High Court Lahore. Messrs E.P.C.T (Pvt.) Ltd., reported as 2011 PTD 2643, wherein the amendment introduced in WWF Ordinance, through Finance Act, 2006 and 2008 has been held to be unconstitutional and therefore stuck down the levy of WWF. Learned D.R. failed to rebut the case-law relied by the learned A.R. In this view of the matter, the deletion levy of WWF is maintained."

6.Learned counsel for the applicant has contended that the impugned order passed by the Appellate Tribunal Inland Revenue by placing reliance on the case of Messrs E.P.C.T (Pvt.) Ltd., reported as 2011 PTD 2643 is erroneous in law for the reason that in the cited decision of the Hon'ble Single Judge of Lahore High Court, the controversy raised through instant reference application was not decided on merits and Workers Welfare Fund was deleted by declaring the amendments introduced in Workers Welfare Fund Ordinance, 1971 through Finance Act, 2006 and 2008, as unconstitutional. It is further contended by the learned counsel that reliance placed by the respondent as well as the Appellate Tribunal on the case of Commissioner of Income-tax v. Messrs Kamran Model Factory 2002 PTD 14 (Karachi High Court) was also misplaced in view of the amendments brought through Finance Act, 2006 and 2008 in the definition of income under section 2(i) and section 4 of the Workers Welfare Fund Ordinance, 1971. Moreover, per learned counsel, a Full Bench of this Court in the case of Shahbaz Garments (Pvt.) Ltd. v. Pakistan (PLD 2013 Sindh 449) has already declared the amendments introduced through Finance Act, 2006 and 2008 in the Workers Welfare Fund Ordinance, 1971 referred to hereinabove to be constitutional and not ultra-vires, therefore, per learned counsel, impugned order is liable to be set-aside and the questions proposed through reference application may be answered in negative in favour of the applicant.

7.Conversely, the respondent, who chose to proceed with the case in person, and did not engage any counsel, has submitted that the order of C.I.T (Appeals) as well as Appellate Tribunal Inland Revenue are based on the decision of a Division Bench of this Court in the case of Commissioner of Income-tax v. Messrs Kamran Model Factory 2002 PTD 14 (Karachi High Court) as well as the decision of Hon'ble Single Judge of Lahore High Court in the case of Messrs E.P.C.T (Pvt.) Ltd. reported as 2011 PTD 2643 therefore, there is no error in the order of the Appellate Tribunal, which shall be maintained. However, while confronted with the factual and legal position with regard to the Constitutionality of the amendments introduced in the Workers Welfare Fund Ordinance, 1971 though Finance Act, 2006 and 2008 in view of the decision of Full Bench of this Court as referred to hereinabove, the respondent could not controvert such legal position, nor could distinguish the facts of this case from the facts of the case of Shahbaz Garments (Supra).

8.We have heard the learned counsel for the applicant and the respondent in person, perused the record, the order passed by all the forums in the instant case and also examined the case-laws relied upon by the learned counsel for the applicant and the respondent in support of their contention in the instant case.

9.It is pertinent to note that the tax year involved in the instant case is 2009, whereas, certain amendments were introduced in section 2 and section 4 of Workers Welfare Fund Ordinance, 1971, hence relevant and applicable in the instant case. It will be advantageous to reproduce the amended provisions of section 2(1)(i) and section 4(i) of the Workers Welfare Fund Ordinance, 1971 which are relevant for the purposes of such controversy in the instant case:--

"2(i) "total income" means--

(i)where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and

4. Mode of payment by, and recovery from industrial establishments.---(1) Every industrial establishment, the total income of which in any year of account commencing on or after the date specified by the [Federal Government] in the official Gazette in this behalf is not less than [five] lakhs of rupees shall pay to the Fund in respect of that year a sum equal to two percent of its total income."

10.From perusal of hereinabove amended provisions, it is manifest that in view of the definition of total income after amendments introduced through Finance Act, 2006 and 2008 applicable to the case of the applicant for tax year 2009, "the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher, is taken to be income "for the purpose of charging Workers Welfare Fund." Similarly, through amendment vide Finance Act, 2008 and corresponding change in section 4 has also been made, wherein words "as assessable under the Ordinance" have been omitted, hence the term "total income" is to be construed as per the amendments introduced through Finance Act, 2006 and 2008 as referred to hereinabove. In view of hereinabove changed legal position, the reliance placed by both the CIT (Appeals) as well as by the Appellate Tribunal in the case of Commissioner of Income-tax v. Messrs Kamran Model Factory 2002 PTD 14 (Karachi High Court) appears to be misplaced. Whereas, no finding has been recorded by both the forums below with regard to effect of the amendments introduced in the Workers Welfare Fund Ordinance, 1971 through Finance Act, 2006 and 2008 as referred to hereinabove. We have further observed that the Appellate Tribunal Inland Revenue, while deciding the appeal of the applicant has simply concurred with the decision of the Commissioner (Appeals) by placing reliance in the case of Commissioner of Income Tax v. Messrs Kamran Model Factory 2002 PTD 14 (Karachi High Court) as well as in the case of E.P.C.T (Pvt.) Ltd. reported as 2011 PTD 2643 whereas, the Appellate Tribunal Inland Revenue at Karachi, did not take cognizance of a binding decision of a Division Bench of this Court in the case of Messrs Mutual Funds Association of Pakistan v. Federation of Pakistan 2010 PTD 306, wherein, a Division Bench of this Court had already declared the amendments introduced in sections 2 and 4 of the Workers Welfare Fund Ordinance, 1971 through Finance Act, 2006 and 2008 as valid and Constitutional. It will not be out of place to observe that in terms of Article 201 of the Constitution of Islamic Re-Publication of Pakistan, 1973, subject to Article 189 of the Constitution, the decision of High Court, to the extent it decides a question of law or is based upon or enunciates a principle of law, is binding on all Courts, subordinate to it, including Tribunals and Authorities etc. performing their functions within its territorial jurisdiction. Accordingly, the Appellate Tribunal Inland Revenue at Karachi, functioning within the territorial jurisdiction of Sindh was bound by the decision of the Division Bench of this Court as referred to hereinabove. Since the decision of a Division Bench of this Court in the case of Messrs Mutual Funds Association of Pakistan v. Federation of Pakistan 2010 PTD 306 appears to have not been referred by either party before the Appellate Tribunal Inland Revenue, as there is no reference found in the impugned order passed by the Appellate Tribunal, therefore, we will not draw any adverse inference in this regard. However, we may clarify that the decision of a Division Bench of this Court as referred to hereinabove has the binding effect upon the Appellate Tribunal Inland Revenue Karachi Bench performing its functions within the territorial jurisdiction of Sindh, whereas, the decision of the learned Single Judge of Lahore High Court. Moreover, in the instant case the decision of a Division Bench of this Court on the subject controversy was earlier in time, whereas, Full Bench decision of this Court has also approved such decision of the Division Bench of this court and the decision of the learned Single Judge of Lahore High Court in this regard was disapproved.

11.In view of hereinabove, we are of the opinion that the impugned order passed by the Commissioner (Appeals) as well as by the Appellate Tribunal Inland Revenue in the instant case suffer from factual and legal error, hence the same are hereby set-aside. Since both the forums below have failed to take cognizance of the amendments introduced through Finance Act, 2006 and 2008 respectively in sections 2 and 4 of the Workers Welfare Fund Ordinance, 1971, we will not dilate upon the merits of the case while exercising reference jurisdiction in terms of section 133(1) of the Income Tax Ordinance, 2001, which is restricted to the extent of deciding a question of law which may arise from the order of the Appellate Tribunal. As we have already observed that in the instant case no finding has been recorded by the forums below with regard to application of the amended provisions of the Workers Welfare Fund Ordinance, 1971 pursuant to amendments introduced through Finance Act, 2006 and 2008, therefore, neither there is any decision in this regard nor any question of law arises from the order of the Appellate Tribunal Inland Revenue relating to the merits of the case. Accordingly, we would remand this case to the Appellate Tribunal Inland Revenue of Pakistan, Karachi, to decide the subject controversy afresh after providing opportunity of being heard to both the parties keeping in view the observations made by this Court in the instant order and after taking cognizance of the amendments in the law of Workers Welfare Fund Ordinance, 1971 or amendments in the Income Tax Ordinance, 2001, if any, relating to subject controversy, in accordance with law.

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

MH/C-7/SindhCase remanded.