M/s Dongfang Electric Corporation.

APPELLATE TRIBUNAL INLAND REVENUE, DIVISIONAL BENCH-1,

ISLAMABAD

ITA No.54/IB/2016

(Tax Year 2013)

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M/s Dongfang Electric Corporation, School Road, Super Market, F-6 Markaz, Islamabad.		Appellant
	VS
Commissioner Inland Revenue, Zone-IV, LTU, Islamabad		Respondent
Appellant by		Mr. Ejaz Hussain Rathore, FCA
Respondent by		Mr. Muhammad Khurram, DR
Date of hearing		18.12.2019
Date of order		18.12.2019

O R D E R

M. M. AKRAM (Judicial Member):   The titled appeal has been filed by the appellant/taxpayer against an Order No.141/2015 dated 28.10.2015 passed by the learned Commissioner Inland Revenue (Appeals-I), Islamabad for the Tax Year 2013 on the grounds as set forth in the memo of appeal.           

2.         Brief facts giving rise to the appeal are that the appellant, a non-resident company incorporated in the Peoples Republic of China operating in Pakistan through its Permanent Establishment (PE), engaged in the business of construction activities. The appellant filed its income tax return for the Tax Year 2013 declaring taxable income at Rs.2,200,267,611/-. According to the respondent/department, the appellant was liable to pay WWF @ 2% at the time of filing of the return, which the appellant failed to do so. Where-after the Deputy Commissioner Inland Revenue (“the DCIR”)issued a show-cause notice dated 04.12.2014 under section 221 of the Income Tax Ordinance, 2001 (“the Ordinance”) to the appellant in the following terms:-

"During the examination of your tax record, it has been observed that Worker’s Welfare Fund amounting to Rs.44,005,352/- was not recovered in case of M/s Dong Fang Electric Corporation as the accounting profit was higher than taxable income declared as per return. Details as under:-

Tax Year	Income as per accounts	W.W.F Leviable @ 2%	W.W.F levied	W.W.F Short levied
2013	2,200,267,611	44,005,352	Nil	44,005,352

 

You are requested to explain your position on the observation cited above on or before 12.12.2014 positively. Please note that in case of non-compliance or unsatisfactory reply rectification u/s 221 of the Income Tax Ordinance, 2001 for the tax year 2013 will be carried out.” 

3.         In response to such show cause, the appellant through their A.R. furnished reply, wherein, it was inter alia contended that the appellant, a non-resident company is owned by the Government of Peoples Republic of China, so it does not fall within the definition of the “Industrial Establishment” as given in clause (f) of section 2 of Workers Welfare Fund Ordinance, 1971(“WWF Ordinance”). The Assessing Officer was not satisfied with such reply and passed the order under section 221(1) of the Ordinance by observing that the word “Government” used in the definition clause means the Government of Pakistan rather any foreign Government. 

4.         Being aggrieved by aforesaid order passed by the Taxation Officer, the respondent preferred an appeal under section 127 of the Ordinance before Commissioner Inland Revenue (Appeals-I), Islamabad, who vide order dated 28.10.2015 inter alia after placing reliance on the judgment reported as 2012 SCMR 371 rejected the appeal of the appellant. The appellant being aggrieved by such order of the Commissioner (Appeals) preferred an appeal before this Tribunal under section 131 of the Ordinance and has assailed the order on a number of grounds.

5.         The case came up for hearing on 18.12.2019. The learned AR of the appellant reiterated the same grounds as contemplated in the memo of appeal. However, the learned AR contends that the order passed by the DCIR under section 221 of the Ordinance and confirmed by the learned CIR(A) is unsustainable in law as the demand of WWF could not be created under the said provision as there was no mistake apparent from the face of record rather it could only be charged and assessed under section 4 of the WWF Ordinance. Further according to the AR, the reliance placed by the learned CIR(A) on the judgment of the Hon’ble Supreme Court of Pakistan reported as 2012 SCMR 371 is also misplaced as the facts of the said case are different from the instant case. He states that under section 4 of the WWF Ordinance, only the Taxation Officer is entitled to charge and recover WWF therefore, the show cause notice and order passed by the DCIR is without jurisdiction as no income tax authority with the title of Taxation Officer is specified in section 207 of the Ordinance. Further argues that the appellant falls in the exclusion given in clause (f) of section 2 of WWF Ordinance which provides that any concern or establishment which is owned by Government or by Corporation established by Government or by a Corporation the majority of the shares of which is owned by Government. The appellant is owned by the Government of the Peoples Republic of China and thus, it does not fall in the definition of “Industrial Establishment”. Thus, the levy of WWF is contrary to law.

6.         On the other hand, the learned DR opposed the arguments advanced by the learned AR and submits that the learned CIR(A) has rightly rejected the appeal of the appellant and passed a speaking order after dilating upon the issue raised before him. Thus, there is no infirmity in the impugned appellate order. He, therefore, prays for the rejection of the appeal.

7.         We have considered the arguments of both the parties and have also perused the relevant orders as well as case-law available on record. The contention of the learned AR is that the WWF can only be charged and recovered through “Taxation Officer” under section 4 of the WWF Ordinance and no such authority is recognized under section 207 of the Income Tax Ordinance. Thus, according to him, proceedings initiated by the DCIR are illegal and without jurisdiction. Therefore, as per contention of the AR, unless and until the corresponding amendments in the WWF Ordinance are not made in the relevant provisions, the charge of WWF cannot be assessed and demanded by the DCIR. This contention of the learned AR of the appellant is flawed and not tenable. This issue has been settled and dilated upon the Hon'ble High Court in the case titled as Commissioner Inland Revenue, Multan Vs M/s Allah WasayaTextile and Finishing Mills Ltd. (PLD 2013 Lahore 617) wherein it was held that:-

“8. Perusal of the WWF Ordinance reveals that an amendment was brought about in section 2(ff) through Finance Act, 2006, and the nomenclature of the Repealed Income Tax Ordinance, 1979 was replaced by the Income Tax Ordinance, 2001. Partial amendment was made in the definition of the term "Taxation Officer" given in section 2(ha) to mean a Taxation Officer under the new Ordinance however, section 4(4) of the WWF Ordinance remained unchanged.
9. Section 8 of the General Clauses Act, 1897, provides a solution. Section 8(1) is reproduced hereunder:-

“Section 8 Construction of the references to repealed enactments:-(1) Where this Act, or any Central Act or in any Regulation made after the commencement of this Act, repeals and re-enacts, with or without modification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as references to the provision so re-enacted."

10. According to the above section, it is clear that after the repeal of the Income Tax Ordinance, 1979 by Income Tax Ordinance, 2001 reference in any other enactment of the repealed Ordinance or its provisions will be read as the new Ordinance i.e., Income Tax Ordinance, 2001 along with the new provisions. Hence for all practical purposes, the term "Taxation Officer" appearing in section 2(ha) will be read as "Officer Inland Revenue" as appearing in the Income Tax Ordinance, 2001. Therefore, the repeal of the Income Tax Ordinance, 1979 does not absolve the respondent-assessee of his liability under the WWF Ordinance, simply on the pretext that appropriate amendment was not made in the nomenclature of the "Taxation Officer" in section 2(ha) or section 4(4) of the WWF Ordinance.”(Emphasis provided) 

By following the above judgment, the contention of the learned AR is overruled. The other contention of the AR that the appellant being a Government-owned Corporation does not fall within the definition of “Industrial Establishment” given in clause (f) of section 2 of the WWF Ordinance is also misconceived and not tenable. The word “Government” used in the said clause clearly means Government of Pakistan rather than any foreign Government when this expression is read with section 1(2) of the WWF Ordinance which provides that it extends to the whole of Pakistan meaning thereby it cannot go beyond the territory of Pakistan.

8.         The submission of the learned AR that levy of WWF could have only been charged and assessed under section 4 of the WWF Ordinance have substance. For this purpose, invoking the provisions of section 221 is unsustainable in law. If the WWF had not been paid by the appellant along with the return then it could have only be charged and assessed under section 4 of the WWF Ordinance. Further, we have noted that by virtue of amendments made through Finance Acts 2006 and 2008 in the WWF Ordinance, the appellant was liable to pay WWF. The vires of these amendments were challenged before different High Courts by the taxpayers. At the time of issuance of show cause notice dated 04.12.2014 in the instant case, three Hon’ble High Courts had already considered and delivered exhaustive judgments on the question of the vires of the amendments made through the Finance Acts, 2006 and 2008. The Full Bench of the Hon’ble Sindh High Court in the case titled as M/s Shahbaz Garments (Pvt.) Ltd Vs Pakistan (2013 PTD 969), after exhaustively examining the law adjudged the impugned levy to be a tax and, therefore, validated the introduction and enactment thereof through a Money Bill. The Hon’ble Lahore High Court, on the other hand, in Pakistan Chrome Tannery’s case reported as (2011 PTD 2643) and M/s Azgard Nine Ltd, v. Pakistan through Secretary and others” PLD 2013 Lahore 282, has declared the impugned levy, made through the amendments in the WWF Ordinance of 1971 vide the Finance Acts, 2006 and 2008 as a fee and not a tax, and thus struck down the legislation as being ultra vires. The Peshawar High Court, through judgment dated 29-05-2014 in Associated Industries Limited, Amangarh Industrial Area, Nowshera and others v. Federation of Pakistan in W.P. No. 1425/2010, after discussing in detail the judgments of the Sindh High Court and the Lahore High Court and other precedent law, declared the amendments made through Money Bills as ultra vires.

It is, therefore, obvious that three distinct High Courts had delivered exhaustive and well-reasoned judgments regarding the vires of the amendments made in the Workers’ Welfare Fund Ordinance, 1971 through Finance Acts, 2006 and 2008. Thus, the divergent views of the Hon’ble High Courts were in the field, when the show cause notice was issued to the appellant under section 221 of the Ordinance. However, it is settled law that where there is a different view on the point of law amongst the Courts, the provisions of section 221 of the Ordinance cannot be pressed into service. Reliance may be placed on the judgment of the Hon’ble Division Bench of the Islamabad High Court titled CIR Vs Dewan Salman Fibre Limited (2008 PTD 1988). In the said judgment it was held that:-

“10. In our view, “mistake apparent from the record'' would not cover a “mistake'' committed at a time when the law was not clear. If two interpretations of law were possible when the original assessment order was made and the Assessing Officer adopted one of those interpretations, it cannot be said that the mistakes are apparent from the record.” 

However, finally, the amendments made through Finance Acts, 2006 and 2008 in the WWF Ordinance were taken into consideration and dilated upon by the Hon’ble Supreme Court of Pakistan in the case titled Workers Welfare Funds, M/s Human Resources Development, Islamabad and others Vs East Pakistan Chrome Tannery (Pvt.) Ltd and others(PLD 2017 SC 28) wherein the amendments were declared ultra vires. The relevant extract of the judgment is reproduced hereunder:-

“22. As we have established from the discussion above that none of the subject contributions/payments made under the Ordinance of 1971, the Act of 1976, the Act of 1923, the Ordinance of 1968, the Act of 1968, and the Ordinance of 1969 possess the distinguishing feature of a tax, i.e. a common burden to generate revenue for the State for general purposes, instead, they all have some specific purpose, as made apparent by their respective statutes, which removes them from the ambit of a tax. Consequently, the amendments sought to be made by the various Finance Acts of 2006, 2007, and 2008 pertaining to the subject contributions/ payments do not relate to the imposition, abolition, remission, alteration, or regulation of any tax, or any matter incidental thereto (tax). We would like to point out at this juncture that the word ‘finance’ used in Finance Act undoubtedly is a term having a wide connotation, encompassing tax. However, not everything that pertains to finance would necessarily be related to tax. Therefore, merely inserting amendments, albeit relating to finance but which have no nexus to tax, in a Finance Act does not mean that such Act is a Money Bill as defined in Article 73(2) of the Constitution. The tendency to tag all matters pertaining to finance with tax matters (in the true sense of the word) in Finance Acts must be discouraged, for it allows the legislature to pass laws as Money Bills by bypassing the regular legislative procedure under Article 70 of the Constitution by resorting to Article 73 thereof which must only be done in exceptional circumstances as and when permitted by the Constitution. The special legislative procedure is an exception and should be construed strictly and its operation restricted. Therefore, we are of the candid view that since the amendments relating to the subject contributions/ payments do not fall within the parameters of Article 73(2) of the Constitution, the impugned amendments in the respective Finance Acts are declared to be unlawful and ultra vires the Constitution.”

9.         In view of hereinabove, by following the judgment of the Hon’ble Supreme Court of Pakistan, the appeal of the appellant is accepted and the orders passed by the lower authorities are annulled.

10.       This order consists of (06) pages and each page bears my signature.

  

Sd/-	Sd/- (M.M. AKRAM) JUDICIAL MEMBER
(NADIR MUMTAZ WARRAICH) ACCOUNTANT MEMBER

  

CERTIFICATE U/S 5 OF THE LAW REPORT ACT 

                    This case is fit for reporting as it settles the principles highlighted above.

  

                                                                                                 (M. M. AKRAM)

                                                                                            JUDICIAL MEMBER