THE COMMISSIONER-IR, ZONE-1, LTU, KARACHI Vs M/S. KASB BANK LIMITED, KARACHI

 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