IN THE HIGH COURT OF SINDH AT KARACHI
ITRA No.966 Of 2008
Mr. Justice Muhammad Ather Saeed, and
Mr. Justice Irfan Saadat Khan.
For the Applicant: Mr. Iqbal Salman Pasha, Advocate.
For the Respondent: Mr. Nasrullah Awan, Advocate
Date of hearing: 22.3.2011.
J U D G M E N T
IRFAN SAADAT KHAN, J: This Income Tax Reference Application (ITRA) has been filed against the order passed by the Income Tax Appellate Tribunal (ITAT) in I.T.A 1394/KB/2003 pertaining to the assessment year 2001-2002 dated 06.03.2008 by raising the following questions of law:-
“i) The Memo of Appeal filed u/s 131 was signed by the Taxation Officer and not by the Commissioner of Income Tax, whether the Income Tax Appellate Tribunal was justified in admitting the Appeal instead of dismissing and rejecting the Appeal as not maintainable.
ii) That the Appeal filed u/s 131 before the Income Tax Appellate Tribunal was in clear violation of ITAT rules, nor the Commissioner Income Tax had certified that the power had been delegated u/s 210, whether the Income Tax Appellate Tribunal was justified in admitted the Appeal on a back dated Notification which was prepared after the dismissal of Appeals by the High Court and Supreme Court of Pakistan.
iii) Whether the Income Tax Appellate Tribunal was justified and had acted judicially and in accordance to law whereby inspite of legal objection in respect of violation of Section 131 of Income Tax Ordinance, 2001 and Rules of Income Tax Appellate Tribunal, the Appeal was admitted instead of dismissing the same as not maintainable.
iv) Whether the Income Tax Appellate Tribunal was justified in discarding the legal objection that the alleged Notification dated 01.07.2002 purported to have been issued u/s 210 by the Commissioner, was a back dated and fabricated document as no such document was available nor was produced before the Tribunal in September, 2005 whereby other cases on similar objections have been dismissed nor were produced upto 21-04-2007 in the case of the Appellant.
v) Whether the Income Tax Appellate Tribunal was justified and had acted judicially and in accordance to law whereby legal objection in respect of jurisdiction and request for Constitution of a Larger Bench to avoid controversial order as different Divisional Benches of the Tribunal have taken different and contrary views was correctly discarded and ignored. Whether the order passed is sustainable in law.
vi) Whether the Income Tax Appellate Tribunal was justified in confirming the order of DCIT whereby he had refused to allow adjustment of tax credit u/s 107AA against tax payable u/s 80D.
vii) Appellant had neither disputed the overriding provisions of section 80D, nor its levy as tax credit u/s 107AA is neither an allowance, nor deduction permissible under the Income Tax Ordinance, 1979 while computing the tax levied u/s 80D, whether the Income Tax Appellate Tribunal was justified is not allowing adjustment of tax credit u/s 107AA against tax payable U/s 80D.
viii) Whether the Income Tax Appellate Tribunal was justified and had acted judicially by confirming the disallowance of adjustment of tax credit u/s 107AA (1) & (2) amounting to Rs. 68,635,300/- after levy and against tax payable U/s 80D of Income Tax Ordinance, 1979 (now Repealed)
ix) Whether the Income Tax Appellate Tribunal had correctly interpreted the provisions of Section 80D and that the words “credit or rebate in tax” as defined in Explanation to Section 80D includes credit admissible U/s 107AA although the said interpretation is in clear violation to the interpretation by the Hon’ble High Court in the case reported as 2005 PTD 259 (KHC).
x) That the word “tax” as defined in Section 2(43) includes tax leviable and payable U/s 80D, the provisions of Section 80D defines and restrict the condition of its application only for the levy and charge of said tax, but there is no restriction or prohibition to the adjustment after its levy against tax credit u/s 107AA, whether the Income Tax Appellate Tribunal had correctly interpreted the provisions of section 80D and section 107AA and whether the order passed by the Tribunal is in accordance with law.
xi) That although there is no exclusion or prohibition in the Income Tax Ordinance, 1979 (now Repealed) for adjustment of tax credit U/s 107AA against tax payable U/s 80D, whether the Income Tax Appellate Tribunal was justified and had correctly interpreted the provisions of section 107AA and section 80D by stating, if such adjustments are allowed it will lead to incurable redundancy. Whether such interpretation is in accordance to law and in clear violation to legislative intention especially when there is neither any restriction or prohibition provided in Section 80D for adjustment of tax credit U/s 107AA after its levy.
2. Briefly stated the facts of the case are that the appellant is a Limited Company engaged in manufacturing and sale of automobiles in the brand name Hyundai and Kia in Pakistan. The return of total income was filed by declaring a loss of Rs. 382,018,502/-, which was later on revised by showing a loss of Rs. 4,70,118,066/- It was explained that in the original return depreciation on factory and non-factory building was not claimed. Proceedings under section 62 of the Income Tax Ordinance 1979 (The repealed Ordinance) were carried out and the Taxation Officer (TO) vide his order dated 29.04.2002 assessed the loss at Rs. 463,081,166/-, which was to be carried forward to the subsequent years. While assessing the income of the appellant the T.O observed that the present applicant had claimed a tax credit of Rs. 6863530/- on the investment made by them on plant and machinery under the provisions of Section 107AA of the repealed Ordinance, which in his opinion was not available to be set off against the minimum tax paid under section 80D of the repealed Ordinance, as this section has an overriding effect on all the other provisions of law, hence the tax credit claimed by the assessee is not available.
3. Being aggrieved with the order an appeal was filed before the Commissioner of Income Tax (Appeals) who agreed with view of the assessee and directed the T.O. to adjust the tax credit claimed by the assessee against the minimum tax of 80D. Being aggrieved with the order passed by the CIT (Appeals) the department preferred an appeal before the learned ITAT, which after an exhaustive discussion, allowed the appeal filed by the department by observing as under:-
“11. A careful reading of this section following the principle of literal interpretation of law, leave no ambiguity in our mind that Section 80D is a charging section and is non-obstente in nature with an overriding effect over other provisions of Income Tax Ordinance, 1979 as well as and over any other provisions of law for the time being in force. The said section was first introduced in 1992 which provided a concept of MINIMUM TAX leviable with a special tax rate of ˝% applicable on Declared Gross Turnover which, by fiction of law, is to be Deemed as an Income for the purpose of computation of minimum tax. Section 80D further provided that the minimum tax is payable only where no tax is “Payable or Paid” or the “tax payable or paid” is less than ˝% of the amount representing the declared turnover from all sources for any reason whatsoever including reasons of any loss of income, profits or gains or set off of losses of earlier years, exemption from tax credits or rebates in tax and allowances and deductions (including depreciation) admissible under any provisions of this ordinance or any other law for the time being in force. The words used by the legislature i.e. where no “tax is payable or paid” or “tax payable or paid” apply to “all cases” where tax is not payable or paid “for any reason whatsoever” being of a great import require to be read in conjunction with the subsequent words i.e. “including loss of Income, profit or gains or set off of losses of earlier years, exemption from tax and credit or rebates in tax and rebates allowances and deductions (including depreciation) admissible under this Ordinance or any other law for the time being in force.
12. It is transpired from cumulative reading of Section 80D that the law besides other reasons, not specified or recorded has listed only few reasons and has specifically recorded them as inclusive reasons, in addition to any other reasons whatsoever, as some of the causes whereby tax may not be payable or tax payable may work out to less than the amount of ˝% of declared gross turn over. In such a situation the provisions of minimum tax under Section 80D comes into operation immediately and the law by deeming the declared gross turn over as income creates a charge in order to secure an amount of tax which is the minimum amount of tax to be paid despite there being loss of income, profit or gain or set of losses, exemption from tax and credits or rebates in tax, any rebate, allowances and deductions including depreciation under this Ordinance or any other law for the time being enforced. Beside above discussed recorded set of reasons the explanation attached to the same section 80D has used words “for any other reasons whatsoever”. The use of words “for any reason whatsoever” by the legislature to our mind are not superfluous or meaningless as no such expression can be attributed to legislature as matter of proposition of law. The plain reading of these words “for any other reason whatsoever” did only suggest a generality or broader scope of reasons which also could be the reasons other than the reasons enlisted in Section 80D of the late Income Tax Ordinance, 1979 where tax paid or payable may come to less than of the declared turnover. Although the list of reasons produced in Section 80D included the reasons of credit or rebates in tax which also includes credits admissible under section 107AA yet for reasons of further explanation we find it appropriate to hold that by no reason whatsoever whether specified in Section 80D or otherwise the amount of minimum tax is neither reducible nor adjustable because of a bar imposed by legislature by using the words “for any other reason whatsoever including the reasons” as listed in section 80D ibid. Thus in our view the legislature has provided a legal sanctity to the minimum amount of tax which is inviolable or irreducible unless the law so provides expressly for reduction or adjustment.
13. We are also not at all convinced with the arguments of learned A.R. that subsequent amendment brought in the Income Tax statue in the shape of section 107AA shall have overriding effect on section of 80D. At the outset section 107AA inserted by Finance Ordinance, 2000 is not a non-obstante clause identical to provisions of section 80D of the late Ordinance, 1979. The impact of later insertion of clause 107AA standing legally stymied by word “Notwithstanding” used in section 80D and it shall continue to obstruct rather preclude via prior action the said impact of section 107AA so long as section 80D continues to be a non-obstante clause in the Income Tax Statue. Hence, in our considered view section 107AA shall not have over-riding effect non-obstante provision of Section 80D ibid. Secondly, in view of our discussions and findings that the amount representing minimum tax have been legally consecrated as not reducible or adjustable for any reasons whatsoever, the admissibility of credits under section 107AA in our considered view will be violative of the lawful sanctity of the amounts of minimum tax besides leading to incurable redundancy to legally computable or defined quantum or minimum tax u/s 80D which is not permissible under the law.
14. The learned Counsel for the assessee has raised objection to the decision of this Tribunal in the case of M/s MGM Corporation (Pvt) Limited, Karachi bearing ITA No. 1494/KB/2003 (assessment year 2001-2002) dated 15.08.2005 by arguing that the decision was pronounced in favour of the department by relying on the judgment which was not relevant to the provisions of section 107AA. The above discussed reasons in the case of the appellant are in addition to reasons given in the case of M/s MGM Corporation (Pvt.) Limited, Karachi which is being followed for the reasons assigned therein inter alia our reasons given in foregoing paras. Therefore, the credit of tax under section 107AA being not admissible under law, has to be stopped clearly short of the threshold of the sacrosanct amount of minimum tax computable under Section 80D. Accordingly, the order of learned CIT (A) which is not supported by law, is hereby vacated and the order of the Taxation Officer being legally sound is restored.
It is against this order that the present ITRA has been filed by raising the above mentioned questions of law.
4. Mr. Iqbal Salman Pasha learned Counsel appeared on behalf of the appellant and at the very outset submitted that he does not wish to press questions of law 1 to 5 of the present ITRA. In view of his submission the questions at serial No.1 to 5 are dismissed as withdrawn. So far as the questions No. 6 to 11 are concerned, the learned Counsel vehemently contended that the concession by way of giving tax credit has been allowed by the lawmakers in respect of the investment made by an assessee on its plant and machinery. In support of his contention he read out the provisions of section 80D and 107AA of the repealed Ordinance and stated that no doubt the provisions of section 80D over rides the other provisions but as the provisions of section 107AA of the repealed Ordinance being introduced subsequent to the promulgation of Section 80D and when there is no specific exclusion that the tax credit under section 107AA of the repealed Ordinance would not be allowed in respect of taxes payable under section 80D of the repealed Ordinance hence due tax credit ought to have been given against the tax payable under section 80D of the repealed Ordinance to the tax payer. He further submitted that this issue has been decided in his favour by the Tribunal itself while dealing with the cases of other tax payers and in support thereof produced before us a copy of said decisions reported as 2009 PTD 654 and 2009 PTD 1187.The learned counsel also relied upon a decision given by this Court in the case of Gulshan Shipping Mills Ltd and others V/s Government of Pakistan 2005 PTD 259. In the end the learned Counsel submitted that the questions of law agitated by him may be answered in negative i.e. in favour of the appellant and against the department.
5. Mr. Nasrullah Awan, learned senior Counsel, appeared on behalf of the department and supported the orders passed by the Tribunal and the T.O. and submitted that the provision of Section 80D has an overriding effect on all the other provisions of the Ordinance hence no tax credit is available to the tax payers as tax under section 80D is the minimum tax payable by a taxpayer and any tax credit on the said amount would certainly defeat the objects of the law. He submitted that the provision of 80D is clear and a perusal of which would reveal that while calculating this minimum tax under section 80D no claim with regard to loss or set off of loss of earlier years, exemption from tax, credit or rebates and allowance and taxes would be made. He further submitted that the order passed by the Tribunal does not suffer from any illegality or infirmity thus the same may be affirmed by dismissing the present ITRA and answering all the questions agitated in affirmative i.e. in favour of the department and against the Assessee/Respondent.
6. We have heard both the learned Counsel at some length and have perused the record and the decisions relied upon by them.
7. Before proceedings any further it would be infitness of things, if the law relied upon by the learned counsel be reproduced.
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 resident in Pakistan or the tax payable or paid is less than one-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 and tax thereon shall be charged in the manner specified in sub-section (2).
Explanation.- For the removal of doubt, it is declared that the expressions "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 referred to in sub-section (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.
107AA. Tax credit for investment.-
(1) Where an assessee being a Pakistani company invests any amount in the purchase of plant and machinery for installation, at any time between the first day of July, 2000 and the 30th day of June, 2002, in an industrial undertaking set up in Pakistan and owned by it, credit equal to ten per cent of the amount so invested shall be allowed against the tax payable by it in the manner hereinafter provided.
(2) The amount of credit admissible under this section shall be deducted from the tax payable by the assessee in respect of the income year in which the machinery or plant in the purchase of which the amount referred to in
Sub-section (1) is invested, is installed.
(3) Where no tax is payable by the assessee in respect of the assessment year relevant to the income year in which such plant or machinery is installed, or where the tax payable is less than the amount of the credit, the amount of the credit, or so much of it, as is in excess thereof, as the case may be, shall be carried forward and deducted from the tax payable by the assessee in respect of the immediately following assessment year only.
(4) Where any credit is allowed under this section and subsequently it is discovered by the Deputy Commissioner of Income Tax that any one or more of the conditions specified in this section was, or were, not fulfilled, as the case may be, the credit originally allowed shall be deemed to have been wrongly allowed and the Deputy Commissioner may, notwithstanding anything contained in this Ordinance, recompute the tax payable by the assessee for the relevant year and the provisions of section 65 shall, so far as may be, apply accordingly.
(5) The provisions of sub-section (1) and (2) shall also apply in the like manner to any plant and machinery installed, for the purposes of balancing, modernization and replacement.
(6) Nothing contained in rule 5A of the Third Schedule to the Ordinance, shall apply to an industrial undertaking which claims tax credit under sub-section (1).
8. A bare reading of the provision of Section 80D reveals that it is the minimum tax imposed on certain persons and starts with the non obstante clause “Notwithstanding in the Ordinance”. Wherever the lawmakers have used this terminology, the intention is to oust other provisions of the law which are inconsistent with the provisions of the section starting with a non obstante clause. In the present case the assessee company is claiming tax credit against the minimum tax payable by it on the premise that if any company makes any investment in the purchase of plant and machinery during a stipulated period the said company is entitled to tax credit on the amount so invested and the tax credit admissible shall be deducted from the tax payable by such company. Though the learned counsel emphasized on the amount of tax payable by stating that Section 80D being a minimum tax payable by a company hence tax credit has to be allowed and deducted against the said minimum tax. No doubt tax credit is allowable and deduct-able against the tax payable by a company but that tax payable should not be, in our considered view, a tax which is payable by a company under the provision of Section 80D of the repealed Ordinance which, as the name indicates, is the minimum tax payable by a company and any further deduction from the said minimum tax would certainly defeat the objects of the lawmaker, with which the said provision of Section 80D was introduced. At this juncture we would like to reproduce certain observations made in the landmark decision of the Hon’ble Supreme Court in the case of Elahi Cotton Mills Vs. CIT (PLD 1997 S.C. 582) as under:-
“It may be stated that non obstante clause in section 80D is for the purpose of liability to pay minimum tax of half per cent. on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. But the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80D.”
“The minimum tax is payable at the rate of 1/2% by those assessees who do not declare their income equivalent to the amount which can be subject to tax at the rate of half per cent. on the basis of turnover. Payment' at the rate of half per cent., by them under section 80D is in the total discharge of their minimum tax liability. However, the assessees who earn more than the above amount, remain liable to file income-tax returns or to get their assessment orders framed in terms of the provisions of the Ordinance.”
9. A perusal of the above decision given by the Hon’ble Apex Court would leave no room of doubt that Section 80D is the minimum tax payable by certain persons and any deduction of any allowance, rebate or credit from this minimum tax is definitely a defiance of law. The explanation given in Section 80D also specifically provides that the term “where no tax is payable or paid for any reason” includes any loss of income, profits or gains or set off of earlier years, exemptions from tax, credits and rebates in tax and allowances and deductions (including depreciation) admissible under the provisions of any Ordinance or any other law for time being in force. A careful reading of the above explanation would depict that the lawmakers were mindful of the fact that the term “where no tax is payable or paid” could create some confusion in the minds of the taxpayer therefore they specifically added an explanation of the said phrase and the term “credit or rebate” in tax mentioned in the said explanation in our view would include credit of tax pertaining to Section 107AA of the repealed Ordinance also. Hence tax credit claimed by the assessee is not available to the taxpayer.
10. So far as the decisions of Tribunal are concerned, we would like to state that firstly these are not binding upon us and secondly we do not find ourselves in agreement with the view subscribed in the said decisions. Moreover the decision relied upon by the learned in the case of Gulshan Spinning Mills is also found to be on different footings.
11. Section 80D of the repealed Ordinance was introduced with the object to generate revenue required for running the state and welfare of the people and to make those persons contribute their share in the ex chequer by paying a minimum tax. An exhaustive discussion with regard to the basis of introducing the Section 80D and its aftermath has elaborately been discussed in the above referred decision given by the Hon’ble Apex Court.
12. Now coming to the second limb of the argument of Mr. Salman Pasha that Section 107AA was subsequent in time hence it has an overriding effect on Section 80D. Suffice to observe that no doubt Section 107AA was introduced subsequent in time but there is no mention whatsoever either in Section 80D or in Section 107AA that a tax credit would be available to the companies against the minimum tax payable by those companies. Moreover the non-obstante clause used in Section 80D, until it was removed by an amendment or by subsequent legislation, would hold the field so long as it is part of the legislature and would apply to the subsequent amendments made in the law until and unless lawmakers design the law in such a manner to nullify or neutralize the effect of such non-obstante clause, which in the present is totally lacking. Therefore, we are of the considered view that Section 80D would still enjoy the overriding effect over the provisions of Section 107AA though the same was introduced subsequently, and no tax credit would be available on the minimum tax payable by certain persons.
13. In view of the above discussion, we are of the considered view that the Tribunal has reached to the correct conclusion that tax credit claimed under Section 107AA would not be allowed as a deduction by way of tax credit from a minimum tax payable by certain persons which would be totally against the spirit of law. Hence, we answer the questions of law raised in the present ITRA from 6 to 11 in affirmative i.e. in favour of the department and against the applicant/assessee.
14. Above are the reasons for our short order dated 22.03.2011 through which we had answered the questions raised in the present ITRA against the appellant/ assessee and in favour of the department