APPELLATE TRIBUNAL
INLAND REVENUE (PAKISTAN)
SPEICIAL
BENCH, KARACHI
ITA No.774/KB/2015
(Tax
Year 2011)
u/s.
122(5A)
ITA No.764/KB/2015
(Tax
Year 2013)
u/s.
122(5A)
THE
COMMISSIONER-IR,
ZONE-1,
LTU,
KARACHI………….……………………………………………….………Appellant
Versus
M/S.
KASB BANK LIMITED,
KARACHI……………………………………………………………….Respondent
Appellant by : Mr. Abdul Salam, DR
Respondent
by :Mr. Safdar Imam, (ACMA)
Date of Hearing :28.01.2022
Date
of Order :07.02.2022
O R D E R
M.M.
AKRAM, JUDICIAL MEMBER: By this combined order, we
intend to dispose of the above-titled appeals filed by the Appellant/
Department challenging the validity of the Order No.126 & 127/A-I dated 27.03.2015,
passed by the learned Commissioner Inland Revenue (Appeals-I), Karachi, for the
tax years 2011 and 2013, on the grounds as set forth in the memos of appeals.
2. Brief facts
culled out from the record are that the returns of income for the tax years
2011 and 2013 were e-filed on 21.12.2011 and 31.12.2013 respectively showing a taxable
loss at Rs. (2,685,571,965) and Rs. (1,810,510,000) respectively. As per returns
of income, the taxpayer has worked out Nil tax liability and has claimed a refund
of Rs.(2,583,872) and Rs.(3,250,947) on account of taxes deducted/paid during
the tax years 2011 and 2013 respectively. Returns of income were treated as
statutory assessment orders under section 120(1)(b) of the Income Tax Ordinance,
2001(“the Ordinance”). However, the said assessments were considered to
be erroneous in so far as prejudicial to the interest of revenue which required
amendments under section 122(5A) of the Ordinance. Notices under section 122(9)/(5A)
of the Ordinance were accordingly issued on 28.09.2014 and 10.09.2014 on various
issues. In compliance, the counsel of the taxpayer M/s Anjum Shahid Rehman
(C.A) vides their letter Nos. T-2138/2014& T-21080/2014 dated 26.09.2021
and 19.09.2014 filed explanation. After issuing show-cause notices and
obtaining necessary details and documents, proceedings were culminated in
passing amended orders under section 122(5A) of the Ordinance by determining
revised amended income for both the tax years under consideration. Felt
aggrieved, the respondent/taxpayer preferred appeal before the learned
Commissioner-IR (Appeals), Karachi who vide order No. 126 & 127/A-I dated 27.03.2015partially
accepted the appeals of the respondent taxpayer. As a consequence, the
Appellant Department has preferred the present appeal before this Tribunal
against the order passed by the learned CIR (Appeals) Karachi and assailed the
impugned order on a number of grounds.
3. This case
came up for hearing on 28.01.2022. Mr. Abdul Salam, Departmental Representative
[DR] appeared on behalf of the appellant department while Mr. Safdar Imam, ACMA
appeared on behalf of the respondent/taxpayer. As per grounds of appeal, the
appellant department contended that the order passed by the learned CIR
(Appeals) Karachi is bad in law and against the facts of the case. It has been
further stated in the grounds that the learned CIR (A) has failed to appreciate
that Rule 6 of the Seventh Schedule to the Ordinance itself provided separate
tax treatment for income from dividend and capital gains, and this provision,
being special provision would override the general provision of section 113.
Further added that learned CIR(A) failed to appreciate that since the first
part of Rule 6 of the Seventh Schedule itself referred to the First Schedule to
the Income Tax Ordinance, 2001; therefore, the interpretation placed upon it by
the taxpayer would render the second part of the Rule, prescribing separate tax
rates for these two heads redundant, and redundancy cannot be attributed to the
legislature. Further stated that the learned CIR(A) was not justified to delete
the tax levied on Dividend income and Capital gain with the observations that
the officer has also taken the turnover of Rs. 5,468,163,000/- which is
inclusive of dividend income and income from capital gain for levy of minimum
tax when income under these heads was not included in the turnover of levy of
minimum tax under section 113 of the Ordinance, 2001.
4. On the other hand, the learned counsel for the respondent taxpayer strongly opposed the contentions submitted by the department in the grounds of appeal and supported the order passed by the learned CIR (Appeals). The learned counsel argued that the order passed by the learned CIR(A) is based on the various judgments of this Tribunal and therefore, the impugned order is well within the framework of law and carries no illegality, irregularity, and infirmity in it.
5. We have heard the arguments of both sides and
have perused the orders passed by the authorities below. The submissions made
on behalf of the respondent taxpayer have substance. The only issue raised by the
department in the present appeals is that both normal tax and minimum tax are
leviable under the law. We have noted that at present the aforesaid issue is,
however, quite irrelevant for the reason that the learned CIR(A) has agreed to
the Appellant’s stance that tax losses are to be adjusted against dividend
income and capital gain after which no taxable income remains to be taxed and
the appellant department has apparently not raised any objection in respect of
adjustment of loss against dividend income and capital gain in the grounds of
appeal. Notwithstanding the aforesaid, the learned assessing officer has
erred in understanding the basic concept of levy of minimum tax. To resolve the
controversy it would be expedient to first reproduce below the relevant
provisions of section 113 of the Ordinance as stood at the relevant time i.e tax
years 2011 and 2013:-
“Section 113.(1) This section shall apply to a resident
company, an individual (having turnover of fifty million rupees or above in the
tax year 2009 or in any subsequent tax year) and an association of persons
(having turnover of fifty million rupees or above in the tax year 2009 or in
any subsequent tax year) where, for any reason whatsoever allowed under this
Ordinance, including any other law for the time being in force—
(a)
loss
for the year;
(b)
the
setting off of a loss of an earlier year;
(c)
exemption
from tax;
(d)
the
application of credits or rebates; or
(e)
the
claiming of allowances or deductions (including depreciation and amortization
deductions) no tax is payable or paid by
the person for a tax year or the tax payable or paid by the person for a
tax year is less than one percent of the amount representing the person’s turnover
from all sources for that year:
Explanation: For the purpose of this
sub-section, the expression “tax payable or paid” does not include tax already
paid or payable in respect of deemed income which is assessed as the final
discharge of the tax liability under section 169 or under any other provision
of this Ordinance.
(2) Where
this section applies:
a)
the aggregate of the
person’s turnover as defined in sub-section (3) for the tax year shall be
treated as the income of the person for the year chargeable to tax;
b)
the person shall pay as
income tax for the tax year (instead of the actual tax payable under
this Ordinance),an amount equal to one percent of the person’s turnover for
the year”
The
above provision was also applicable to the tax year 2013 as well except that
the rate of minimum tax was reduced from one percent to half percent of the
turnover. It is clear from a plain reading of the above provisions of law
that where normal tax liability under the Ordinance is less than one percent or
half percent of the aggregate turnover from all sources, then one percent or
half percent of the aggregative turnover from all sources would be payable
instead of normal tax liability under the Ordinance and in case normal tax
liability under the Ordinance is higher than one percent or half percent of
aggregate turnover from all sources, then only the normal tax liability under
the Ordinance would be payable. The meanings of the words “instead of” or “in
lieu of” are explained by the Hon’ble Supreme Court in the case titled M/s
Elahi Cotton Mills Vs Federation of Pakistan and 6 others, (1997
PTD 1555) wherein it observed that:
Black's
Law Dictionary, page 787:
"In lieu of" Instead of; in place of; in substitution of. It does not
mean "in addition to".
Ballentine's Law Dictionary, page 628:
"in lieu of": In substitution for or in place of. Ordinarily implying
the existence of something to be replaced.
Legal Thesaurus, page 266:
"In lieu of": Proposition as a substitute for, as an alternative, by
proxy, or, in place of, instead of, on behalf of, rather than, representing.
35. A perusal of the above-quoted meanings of the above expression "in lieu of" indicates that the same connote, instead of, in place of, in substitution of, but it does not mean, in addition to.” (Emphasis supplied)
It clearly establishes that the expression “instead of”
used in section 113(2)(b) of the Ordinance clearly suggest that “alternative
to” or “as a substitute” or “in place of” and, therefore, by no stretch of
imagination it could mean that both one
percent of the aggregate turnover from all sources as well as normal tax
liability payable under the Ordinance would be payable in any situation. Reliance
may be placed on the judgment of the Hon’ble High Court titled Commissioner
of Income Tax/Wealth Tax Companies Zone, Faisalabad Vs M/s Masood Textile Mills
Ltd, (2017 PTD 1707) wherein it was observed that minimum tax cannot
be applied on every source of income individually but total turnover basis. The
relevant part of the judgment is reproduced below:
“25. An
accumulative reading of section 80D gives an impression that the said charge
has been created in respect of person including a company, a registered firm an
individual, etc. on his `turnover from all sources'. The provision does not end
there. The charge is on the aggregate of
declared turnover. The legislature has intendedly and advisedly used the word
`aggregate' as it can only be of more than one source. The legislature would
have never used this connotation if the intention was to charge it separately
in respect of each source of the individual or company etc. The Word
`aggregate' has been defined as follows: -
"Concise Oxford English Dictionary"
(1) "a whole formed by the combining several disparate elements;(2) a
total score of a player or team in a picture comprising more than one game or
round;
"Law Terms and Phrases"
`Meaning of Aggregate' means a collection of things in order to form a whole,
Mushtaq Textile Mills Limited v. Karachi Metropolitan Corporation 1994 CLC
1516.
26. The
use of language `amount representing its turnover from all sources' and then followed
by the words `the aggregate of the declared turnover shall be deemed to be
income' leaves no doubt that the sources like import, export, local supply, and
local sale, etc. all are to be aggregated and 1/2 percent minimum tax is to be
calculated on its total turnover declared by him from all his sources. Thus, if
after said calculation the tax deducted or paid in any of the sources falls
higher than 1/2 percent of the aggregate turnover from all sources no more tax
is required to be paid.
27. Obviously there was no restriction on the
legislature to use the language in the manner to provide this 1/2 percent
charge on each source separately.
28. The above discussion leaves no doubt that section 80D cannot be applied on each and every source of income of a taxpayer separately and it has to be on the aggregate of the turnover of the taxpayer from all sources. The direction of the Income Tax Appellate Tribunal to charge it on the aggregate of section 80C or 80CC after inclusion of the turnover from other sources like local sale etc., which is not subject to withholding tax, needs no exception.” (Emphasis supplied)
6. The above
judgment of the Hon’ble Lahore High Court was subsequently followed in certain other
judgments of this tribunal like ITA No.
231/LB/2012, 2011 PTD 168, ITA No. 212/LB/2013, and 2011 PTD 845. Reference
is also made of the decision of this Tribunal reported as 2016 SLD 1104 wherein taxation officer levied both taxes on dividend
income as well as a minimum tax on business turnover and this Tribunal affirmed
the deletion of levy of minimum tax as the normal tax was higher than minimum
tax. The relevant part of the decision is reproduced below:
“Department in this appeal contended that the CIR(A) was not justified in deleting the minimum tax u/s 113 amounting to Rs. 8,254,250/- on the basis of comparison of minimum tax u/s 113 on business turnover, with tax charged on income from other sources i.e. u/s 39 of the Income Tax Ordinance, 2001. It has been observed that the DCIR has charged a minimum tax u/s 113 at Rs. 8,254,220/- and then added it to normal tax @35% amounting to Rs. 27,897,339/- against income falling in NTR. The CIR(A) considered the action of the Assessing Officer against the provision of law with the following observations:-
“I have examined the tax computed
by the learned DCIR which is as follows:-
Tax u/s 113. 8,254,250 A
Tax on Dividend. 106,400 B
NTR Tax. 27,897,339 C
Total Tax. (A + B + C)
Obviously, the above treatment is not according to law. The learned DCIR can either charge minimum tax u/s 113 or normal tax law @ 35% but not both and it has then to be added to tax on dividends. In the above scenario the tax of Rs. 8,254,250 reflected as “A” has to be deleted because tax under NTR far exceeds minimum tax u/s 113.”
The findings recorded by the CIR(A) on the issue of charging minimum tax and normal tax simultaneously was in accordance with the provisions of law and calls for no interference.”
It is thus clear from the above discussion and case laws
that either normal tax or minimum tax on turnover is payable and there is no
concept of applying minimum tax under section 113 of the Ordinance for each
source of income separately.
7. Reference is
also made of the judgment of the Hon’ble Supreme Court in the case titled Commissioner
of Income Tax Legal Division, Lahore and others Vs Khurshid Ahmed and others,
(2016 PTD 1393) wherein the revenue department
has challenged various judgments of Hon’ble Lahore High Court on the issue of
minimum tax decided against the department and the Apex Court has dismissed the
appeals of the department and affirmed the position discussed in above paras.
The relevant part of the judgment is as under:
“7. In light of the above discussion, the aggregate of the declared turnover as defined in Section 80D of the Ordinance of 1979 from the sale of goods, rendering, giving or supplying of services or benefits or execution of contracts has to be taken into account for determining the minimum tax liability of 0.5% of the turnover. If no tax, for whatever reason, is payable/paid, then the amount worked out at the rate of 0.5% of the turnover will be the minimum tax payable. If the tax payable/paid is less than 0.5% of the turnover, then the minimum tax payable will be the difference/balance between the tax payable/paid and 0.5% of the turnover. A similar analysis will apply to Section 113 of the Ordinance of 2001, where the aggregate of the taxpayer’s turnover from the sale of goods, rendering of services, or giving of benefits including commissions and the execution of contracts has to be taken into account in order to determine the minimum liability of 0.5% of the turnover for each tax year (or 1% of the turnover for each tax year, depending on the tax year involved; as Section 113 was subsequently amended vide Finance Act, 2013 and the percentage of minimum liability prescribed therein was increased to 1%).” (Emphasis is ours)
It is established that the Hon’ble Supreme Court has,
therefore, laid at rest the question under both the repealed Ordinance as well
as the Ordinance as to whether minimum tax is leviable on each and every source
of income or the aggregate of turnover from all sources.
8. Notwithstanding the aforesaid, it is
clarified that the dividend income and capital gain of the Appellant being a
banking company taxable under the Seventh Schedule to the Ordinance is “Income
from business” and are not “Income from other sources” under Rule 6 of the
Seventh Schedule to the Ordinance which states that income computed under the
Seventh Schedule to the Ordinance are Income from the business. Rule 6 of the
Seventh Schedule to the Ordinance is reproduced below for ready reference:
“Income computed under this Schedule shall be chargeable to tax under the head “Income from Business.”
The aforesaid legal position i.e. that all incomes of
banking companies are in the nature of business income has been reiterated by this
Tribunal in a number of cases including 2012
PTD 1055, 2013 PTD 246, and 2013 PTD 1429. There is thus no dispute that all
incomes of Appellant fall under the head Income from the business. It is further
noted that the term “turnover” has been defined under section 113 of the
Ordinance to mean gross sales or
gross receipts for the sale of goods, gross fee for the rendering of services
including commission, gross receipts from the execution of the contract. As
such, by no stretch of imagination dividend income and capital gain falls under
the category of “turnover” which has been defined exhaustively. Reference is
again made of the judgment of Hon’ble Supreme Court in the case of CIT
v Khurshid Ahmed & others, cited supra, wherein it was affirmed
that the definition of “turnover” under section 113 of the Ordinance is
restrictive/exhaustive and does not include each and every source of income as
argued by the department but includes what has been specified under the
definition. The relevant part of the judgment is quoted below:
“When
a word has been defined to mean such and such, the definition is prima facie restrictive
and exhaustive. Upon a plain
reading of the definition of ‘turnover’ provided in Section 113(3) of the
Ordinance of 2001 it is manifest that it (turnover) means: (i) gross receipts
derived from the sale of goods; (ii) gross fees for the rendering of services
or giving benefits, including commissions; (iii) gross receipts from the
execution of contracts; and (iv) the company’s share of the amounts stated
above of any association of persons of which the company is a member. The meaning in the said subsection has been
assigned to the word ‘turnover’ used in Section 113 and therefore the phrase
‘turnover from all sources’ in subsection (1) is to be read in conjunction with
such definition which is exhaustive in nature and nothing further can be added
thereto, thus the argument of the appellants/petitioners’ that ‘turnover’
covers all sources under various heads of income is not tenable in law.”(Emphasis
is ours)
There
is thus no ambiguity that dividend income and capital gain are “income from
business” in the case of Appellant, however, these still do not fall under the
category of “turnover” for minimum tax.
9. In view of
the above facts and legal position, the judgment of Honourable Sindh High Court
reported as 92 TAX 235 relied on by
learned ACIR is not relevant as in that case dividend income of the taxpayer
has been held as liable to normal tax in addition to minimum tax because
dividend income was not like business income of the said taxpayer. The judgment
of Honourable Sindh High Court is discussed in detail by Honourable Lahore High
Court in the case titled CIR Vs Masood Textile Mills, cite
supra. It is pertinent to mention here that the learned assessing officer had
included both dividend income and capital gain in computing turnover for minimum
tax purposes in the instant case in appeal effect orders.
Be
that as it may, the judgment of Hon’ble Supreme Court discussed supra has
settled the issue at hand.
10. From what has been discussed above, it is
quite clear from the above-detailed discussion and case-laws referred that
minimum tax and normal tax cannot be levied simultaneously. Therefore, the
impugned order passed by the learned CIR(A) is maintained and the appeal of the
department is dismissed.
11. This order consists of (11) pages and each
page bears my signature.
Sd/-
(M. M. AKRAM)
Sd/- JUDICIAL MEMBER
(DR.
TAUQEER IRTIZA)
ACCOUNTANT MEMBER
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