Present
Mr.
Justice Faisal Arab
Mr. Justice Aqeel Ahmed Abbasi.
Date
of hearing : 14.12.2011
Date
of judgment : 14.12.2011
Applicants : M/s Karachi Electric Supply Corporation through Mr.Iqbal Salman Pasha, Advocate.
Versus
Respondent The Commissioner of Income Tax through
Mr. Chaman Lal, Advocate
J U D G M E N T
Aqeel
Ahmed Abbasi, J. Being aggrieved and dissatisfied with
the order dated 31.07.2009 passed by the Income Tax Appellate Tribunal
(Pakistan) Karachi in ITA No.169/KB/2006 (Assessment Year 2000-2001) and ITA
No.170/KB/2006 (Assessment Year 2001-2002, the applicants have filed the above ITRAs
under Section 133 (1) of the Income Tax
Ordinance, 2001. Since the facts and questions of law involved in the above
ITRAs are common, therefore, we intend to dispose of the above ITRAs through a
common judgment.
2. Initially
the applicants raised 5 questions for opinion of this Court, however, during
the course of arguments, counsel for the applicants has pressed the following
two questions, which are said to have arisen from the order of Tribunal, for
opinion of this Court.
“1. Whether the Income Tax Appellate Tribunal had correctly
interpreted the application of Section 80-D of Repealed Ordinance, 1979, now
Section 113 of Ordinance, 2001 in the case of the appellant company?
2. Whether the provisions of minimum tax U/S 80-D of Repealed
Ordinance now Section 113 of Ordinance, 2001 is applicable on the following
receipts having no nexus to turnover and whether the Income Tax Appellate
Tribunal had correctly appreciated and interpreted the said provision and its
application:-
(a) Rental
of meters and equipments.
(b) Late payment surcharge (Interest for delayed payment).
(c) Profit against service connection and
maintenance.”
3. Brief
facts as noted by the Tribunal in its impugned order are that the applicant a
Public Limited Company enjoys income from generation, transmission and
distribution of electricity and purchase from various power generation units.
The applicant also earned various other incomes besides from sale of power
generated and purchased like, rental of meters and equipments, late payment
surcharge, profit against service connect and maintenance, special discount
received from Insurance Cos., rebate on electricity duty, scrap sales, fire and
breakdown insurance fund investment income and other income (tender fee).
4. The
Taxation Officer included the receipts from all sources of other incomes in
turnover of the appellant while levying turnover tax under section 80-D of the
Income Tax Ordinance, 1979. The respondent taxpayer being aggrieved by inclusion
of such receipts in its turnover filed appeals before the learned CIT (A),
which were set aside by the CIT (A), Zone-1, vide his order No. CIT
(Appeals-1)/ 2004/24 dated 15.04.2004, on this issue for denovo consideration.
In the re-assessment proceeding, the above mentioned sources of other incomes
were again included in the turnover of the appellant and levied minimum tax u/s
80-D of the Income Tax Ordinance, 1979.
5. Aggrieved
by this re-assessments proceeding of the Taxation Officer, taxpayer filed
appeals before the learned CIT (A), who vide his combined order dated 15.12.2005,
held that the other receipts do not represent turnover as defined in section
80-D of the Income Tax Ordinance, 1979 by observing so, he relied on the
decision of this Tribunal reported as (1996) 73 YAX 10 (Trib) and directed the
Taxation Officer to levy tax u/s 80-D on actual turnover without including the
receipts declared under the head other income as per Note No.31 to audited
account.
6. Being
aggrieved by the above order of the Commissioner of Income Tax Appeals, Karachi
of Income Tax (Legal Division) L.T. Karachi filed appeals i.e. ITA
No.169/KB/2006 (Assessment Year 2000-2001) and ITA No.170/KB/2006 (Assessment
Year 2001-2002) before the Income Tax appellate Tribunal (Pakistan) Karachi,
who vide his combined impugned order dated 31.7.2009 has partly allowed the
departmental appeal in the following manner:
“14. Seen in this perspective we are of the
considered opinion that those sources of other income should be included in
turnover of the appellant for the purpose of levy of minimum tax u/s 80-D which
accrue in ordinary course of business and are regular in nature and following
source of other income should form part of turnover.
1. Rental
of meters and equipments.
2. Late
payment surcharge.
3. Profit
against service connect and maintenance.
15. Remaining
receipts of other income being not in ordinary course of business and also not
regular in nature would not form part of turnover, therefore should be excluded
these are:
1. Special
discount received from Insurance Cos.
2. Rebate
on electricity duty.
3. Scrape
sale.
4. Fire
and break down Insurance fund investment income and
5. Other
income.
16. As result of above discussion, both
the appeals of the department are partly allowed to the extent as indicated
above.”
7. On
being aggrieved by the above finding of the Tribunal, applicant has filed
instant reference applications and has sought an opinion of this Court in
respect of questions as mentioned in para 2 hereinabove.
8. Learned
counsel for the applicants has submitted that for the last several years the
applicant has been showing the similar receipts as shown for the assessment
years under reference as income from other sources and has been duly assessed
to tax by the department as such. Per learned counsel, it is for the first time
that the applicant was confronted by the respondent to include such receipts in
the total turnover from business and profession of the applicant’s company. It
is contended by the learned counsel for the applicant that the turnover as
defined under Section 80-D includes the turnover from the business and
profession only and not the turnover or receipts from any other head of income.
In support of his contention, learned counsel has placed reliance on the case
of Messrs Pakistan Refinery Ltd. v.
Commissioner of Income Tax, Companies-V, Karachi 2005 P.T.D 2216.
9. Conversely,
learned counsel for the respondent has opposed the contention of the counsel
for the applicant and submitted that the Tribunal has given the finding of fact,
whereby it has been held that the amount
of turnover shown as income from other sources is part of the business of the
applicant’s company and the same is liable to be included in the entire
turnover of the applicant. It is further contended that rental receipts
towards rental of meters and equipments, late payment surcharge and profit
against service connect and maintenance are collected from the consumer by the
applicant, whereas the receipts shown in para 15 i.e. Special discount received
from Insurance Cos., Rebate on electricity duty, scrap sales, fire and break
down Insurance fund investment income and other income of the order passed by
the Tribunal are not receipts from the consumers part of their regular business
hence the same are distinguishable and are to be assessed under the head income
from other sources. Learned counsel finally concluded that the instant
reference applications are liable to be dismissed as no question of law arises
from the impugned order.
10. We
have heard the learned counsel and perused the record and also examined the
facts of the case with the assistance of the learned counsel for the parties.
The moot point for consideration in the instant case is to examine as to
whether the amount received by the applicant towards rental meters and
equipments, late payment surcharge and profit against service connect and
maintenance collected by the applicant from consumer constitute the turnover of
the applicant from business and profession and can be subjected to levy of
minimum tax under Section 80-D of the Income Tax Ordinance, 1979. In order to
appreciate the scope and applicability of the term turnover as defined in
Section 80-D, it will be advantageous to reproduce the provision of section
80-D, which read as follows:
“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.
11. From
perusal of the term turnover as defined in explanation to sub-section (2) of
Section 80-D of the Income Tax Ordinance, 1979, it is clear that the term
turnover has been defined in the context of business proceeds only and does not
relate to receipts of dividend, interest, profits and other sources of
non-business income. In other words, the entire gross receipts of a person from
all sources, which may constitute his normal business or profession and do not
fall within any other head of income as defined under Section 15 of the Income
Tax Ordinance, 1979 would be considered as turnover from all sources falling
under the head income from business or profession and shall be subjected to
withholding tax under Section 80-D of the Income Tax Ordinance, 1979.
12. In
the case of Messrs Pakistan Refinery Ltd
v. Commissioner of Income Tax, Companies-V, Karachi 2005 PT 2216, cited by
the learned counsel for applicant, a
Division Bench of this Court while examining the similar controversy has held
as under :-
“15. Besides,
the Tribunal in its subsequent order, dated 27.3.2001 has rightly held that the
questions of law proposed on behalf of the applicant were not fit to be
referred to the High Court for its opinion within the ambit of section 136 (1)
of the Ordinance as the entire scheme of the Ordinance and the provisions of
section 80-D have been discussed by the Hon’ble Supreme Court (in the case of
Elahi Cotton Mills Ltd.) in the context of business proceeds, otherwise such
discussion has no relevancy to the receipts of dividend, interest, profits and
other sources of non-business income. Mr. Vellani has not been able to
controvert that the questions of law proposed by the applicant in their
applications under section 136(1) of the Ordinance in the strict sense, were not
the questions of law arising out of the order of ITAT. In our view even the
re-framed/re-proposed questions of law submitted by Mr. Vellani, in the facts
and circumstances of the case, when the applicant had initially not claimed
dividend income as part of their income from business, do not fall within the
ambit of question of law arising out of impugned order. If any case-law is
needed to fortify this view reference may be made to the case of Messrs Japan Shortage
Battery Ltd. v. Commissioner of Income Tax, Companies Zone-1, Karachi 2003 PTD 2849.”
13. Now
adverting to the merits of the instant case, it may be seen that the facts of
this case are distinguishable from the cited case as in that case the applicant
company namely Pakistan Refinery itself was aggrieved by levy of turnover tax
under Section 80-D on its dividend income, which, infact was separately taxable
under Section 30 of the Income Tax Ordinance, 1979 under the head “income from
other sources”. The company claimed the dividend receipts to be included in its
total turnover from business and to be taxed under Section 80-D instead of
being assessed under Section 30 of the Income Tax Ordinance, 1979 at higher
rates. Such claim of the company was declined by the Division Bench of this
court on the ground that since dividend income of the company was not the part
of their normal business, hence the same was required to be assessed under
Section 30 (income from other sources) of the Income Tax Ordinance, 1979. Whereas, in the instant case, it has been
categorically held by the Taxation Officer that the receipts towards rental of meters and equipments, late
payment surcharge and profit against service connect and maintenance are
part of the regular business of the applicant, hence the said receipts were
included in the total turnover of the applicant from all sources of business. The
Appellate Tribunal has also concurred with such finding of fact and has held
that the entire receipts towards rental of meters and equipments, late payment
surcharge and profit against service connect and maintenance are to be treated
as turnover from all sources of business of the applicant and shall be included
in the turnover of the applicant for the purpose of levy of minimum tax under
Section 80-D of the Income Tax Ordinance, 1979.
14. We
are in respectful agreement with the finding of Division Bench of this Court in
the above cited case and hold that the gross receipts of a person from all
sources, constituting his regular business and profession are to be included in
the total turnover for the purposes of levy of turnover tax under Section 80-D
of the Income Tax Ordinance, 1979.
15. It
will not be out of place to refer to the famous judgment of the Hon’ble Supreme
Court in the case of Elahi Cotton Mills
Ltd. v. Federation of Pakistan P.L.D 1997 SC 582, wherein the Hon’ble
Supreme Court while examining and approving the constitutionality of section
80C and 80D introduced in the Income Tax Ordinance, 1979 through Finance Act, 1991
(Act No.XII of 1991), dealt with provision of Section 80D in connection with business gross receipts from all sources.
We would refer to following findings and observations of the Hon’ble Supreme
court whereby it would be seen that the provision of Section 80D and the term “turnover”
has been dealt with as gross receipts from all sources of business.
“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 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 tax-payers, who
receive substantial amounts from exempt sources, pay at least some tax on their
economic incomes of the year. This is achieved by reducing or disallowing
certain itemized deductions. We may again observe that that a large number
of assesses though generally earn profits but on account of various tax
concessions including tax holidays, depreciation allowance etc., under Schedule
II and deductions allowed under the various provisions of the Ordinance, show
loss instead of any net profit, with the result that they do not contribute any
income-tax towards the public exchequer.
41. We
may observe that during the course of arguments, the question arose, as to
whether in view of non obstante clause in section 80-D, an assesses can carry
forward loss under section 35 of the Ordinance from year to year. Mr.Ilyas Khan,
the learned counsel for the Income Tax Department, has orally as well as in his
written submission answered the above query in the affirmative. It appears to
be correct legal position. It may be stated that non obstante clause in section
80-D 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. It the same does not exclude the application of other provisions of
the Ordinance which are not inconsistent with section 80-D. There seems to be
no conflict between above section 80-D and section 35 of the Ordinance, and hence
the same remains available to assesses. To claim business loss or to carry
forward the same under section 35 of the Ordinance from year to year, is not
affected by the above levy of half per cent on the annual turnover under
section 80-D as was submitted by the learned counsel for the Income Tax
Department, Mr. Ilyas Khan, orally as well as in his written submissions.”
16. As
regards reference to the previous assessment years and the alleged past
practice of the department whereby, according to the learned counsel, for the
applicant the above receipts were assessed under the head income from other
sources, we may observe that no such question has been proposed by the
applicant through instant reference applications, whereas before the Appellate
Tribunal also the applicant did not raise such objection hence there is no
finding by the tribunal to this effect. However, without prejudice to
hereinabove we may clarify that any alleged past practice which is contrary to
law cannot be treated as sacrosanct. Suffice to state that the principle of res-judicata is not applicable in income-tax
cases as every assessment year is an independent proceeding and is decided on
its own merits. Reference in this
regard can be made to the case of C.I.T
v. Farrokh Chemical Industries 1992 SCMR 523 and Roche Pakistan Ltd. V. Deputy
Commissioner of Income Tax and others 2001 P.T.D 3090.
17. We
are of the opinion that such finding of fact and the application of provision
of Section 80-D under the circumstances of this case is in line with decision
of the learned Division Bench of this Court in the case of Messrs Pakistan
Refinery Ltd (supra), hence does not require any interference by this Court.
Accordingly, we do not find any merits in the instant reference applications,
which were dismissed by our short order dated 14.12.2011 and these are the
reasons for such short order. Consequently, we answer the proposed questions as
mentioned in para 2 hereinabove in affirmative against the applicants.
JUDGE
JUDGE