APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.995/IB/2022
(Tax year, 2019)
ITA No.996/IB/2022
(Tax year, 2020)
MA (Stay) No.879/IB/2022
(Tax Year 2019)
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World
of Islam Trust, Masjid Al Huda, Jinnah Super Market Opposite Papasallis, F-7
Markaz, Islamabad. |
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Appellant |
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Vs |
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Commissioner
Inland Revenue, |
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Respondent
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Appellant
By: |
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Mr.
Zahid Mehmood, ITP |
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Respondent
By: |
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Mr. Shaheryar Akram, DR |
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Date
of Hearing: |
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02.10.2023 |
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Date
of Order: |
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02.10.2023 |
ORDER
M. M. AKRAM (Judicial Member): The titled appeals
along with the stay application have been filed by the appellant taxpayer
against Appeals Order Nos. 48 & 45/2022 both dated 04.03.2022 passed by the
learned Commissioner Inland Revenue (Appeals-IV), Islamabad for the tax years
2019 and 2020 on the grounds as set forth in the memo of
appeals. The facts of the case involved in these appeals are similar and
interlinked, therefore, these appeals are being decided through this common
order.
2. Brief facts giving rise to the instant appeals are that the income tax returns were filed declaring income of Rs.2,303,643/- & Rs.5,073,415/- for tax years 2019 & 2020 respectively. However, the Additional Commissioner IR examined the record and found that the taxpayer had claimed exemption from tax without obtaining mandatory approval u/s 2(36) of the Ordinance from Commissioner Inland Revenue which made the deemed assessment order erroneous as well as prejudicial to the interest of revenue constituted a deemed assessment order u/s 120 of the Income Tax Ordinance 2001 ((“the Ordinance”). The Additional Commissioner Inland Revenue issued notice u/s 122(9) read with section 122(5A) of the Ordinance on 02.06.2021 & 04.06.2021 for compliance by 07.06.2021 & 11.06.2021. On the due date, nobody attended the office nor any request for adjournment was received. Therefore, two reminders were issued. On 22.06.2021 the AR of the taxpayer requested adjournments which were granted till 25.06.2021 but the taxpayer failed to comply on the due dates. After this assessing officer examined the record provided by the taxpayer, the impugned orders were finalized u/s 122(5A) of the Ordinance on 29.06.2021 whereby incomes were assessed at Rs.664,417/- & Rs.5,073,415/- for the tax years 2019 and 2020 respectively.
Being aggrieved, the appellant
taxpayer filed
appeals
before the learned Commissioner Inland Revenue (Appeals), Islamabad who vide appeals Order Nos. 48 & 45/2022 both
dated 04.03.2022 confirmed the
orders passed by the Additional Commissioner
Inland Revenue. Aggrieved with these orders, the taxpayer has preferred
appeals
before this forum and assailed the impugned orders on a number of grounds.
3. This
case came up for hearing on 02.10.2023. Learned AR reiterated the contentions
already submitted in the grounds of appeal as set forth in the memo of appeal
and also filed the written submissions in support of his arguments. On the
contrary, the learned DR contended that the orders passed by the learned CIR(A)
are a speaking order and there is no infirmity under the law.
4. We have heard the parties and perused the
record. We first take up the appeal in respect of the tax year 2019.
APPEAL
IN RESPECT OF THE TAX YEAR 2019
Our
decision in this appeal relates to the question of taxability or 100% tax
credit of the income of a “non-profit organization” under Section 100C of the Ordinance
during the tax year under consideration. In this respect, we had the benefit of
written submissions made on behalf of the taxpayer and we summarize the
submissions relevant to the question in hand and the same are as follows: -
(i)
Section 100C(1) of the Income
Tax Ordinance, 2001 provides for conditions to be fulfilled to claim exemption
by Non-profit organizations, trusts, or welfare institutions.
(ii)
Once it is established that
the conditions mentioned in sub-section (1) are fulfilled, the Non-profit
organizations, trusts, or welfare institutions become eligible for a claim of
tax credit under Clause (a), (b), (e), or (f) of sub-section (2) of section
100C of the Ordinance. This is regardless of the approval of the said Non-profit
organizations, trusts, or welfare institutions by the Chief Commissioner under
Clause (c) of sub-section (2) of section 100C of the Ordinance.
(iii)
In the case of a welfare
institution, there was no requirement of approval from the Commissioner prior
to the addition of the same by way of the inclusion of clause (e) to subsection
(1) of Section 100C of the Ordinance and the same cannot be applied retrospectively.
(iv) The requirement of approval from the Chief Commissioner as required under clause (c) of subsection (2) of Section 100C of the Ordinance was invalid legislation and it was subsequently rectified by the introduction of clause (e) of Section 100C ibid.
We do not agree with any of the submissions made above. In
relation to the arguments mentioned above in serial Nos. (i), (ii), and (iii)
of the taxpayers, we are fortified by the dictum of the Division Bench on the Hon’ble
Islamabad High Court in the case of Al-Mizan Foundation v The
Commissioner of Inland Revenue, bearing ITR No. 94 of 2022, in
which it has been held that: -
“4. Section 100C was inserted in the 2001 Ordinance through the Finance Act, 2014, which came into force on 26.06.2014. Therefore, it was obligatory for the applicant to have obtained approval from the Chief Commissioner Inland Revenue in terms of Section 100C(2)(c) of the 2001 Ordinance in order to avail the benefit of tax credit equal to 100% percent of the tax payable. True, the conditions enumerated in Section 100C (1) for availing the said benefit of 100% tax credit do not include the approval of the Chief Commissioner Inland Revenue, but if this Court were to hold that approval of the Chief Commissioner Inland Revenue was not required by the applicant in order to avail the said benefit, it would amount to attributing redundancy to Section 100(2)(c) of the 2001 Ordinance. Unless the conditions of eligibility prescribed in Section 100(2) of the 2001 Ordinance are not fulfilled, a trust or welfare institution, or non-profit organization would not be considered as eligible for being granted the benefit of a tax credit equal to 100% of the tax payable. In the case at hand, it is an admitted position that prior to the filing of returns for the tax year 2015, the applicant had not obtained approval from the Chief Commissioner Inland Revenue in terms of Section 100C(2)(c) of the 2001 Ordinance. Therefore, sans the said approval the applicant cannot be held to be entitled to the benefit of a tax credit equal to 100% of the tax payable for the tax year 2015.” (Emphasis supplied)
In view of the above, it is clear that the requirement of
Section 100C(2)(c) is a stand-alone requirement and is of a mandatory nature,
without which a person cannot avail of the benefit of exemption from income tax
envisaged under Section 100C of the Ordinance. As a result, we reject the
submissions of the taxpayer mentioned in (i) to (iii) above.
5. Now turning
to the submissions made by the taxpayer in Serial No. (iv) above, we are afraid
that we do not agree with the interpretation put forward by the taxpayer. We
are constrained to hold so because, the legislative text does not reflect any
intention of the legislature to consider the substitution of the sub-clause (c)
of subsection (2) of Section 100C with sub-clause (e) of sub-section (1) of
Section 100C, as a curative or remedial measure. For example, it does not read
at the end of the sub-clause (e) of sub-section 1 of Section 100C that “it
shall always be deemed to have been so inserted.” Moreover, if we accept the
submissions of the taxpayer that the inclusion of sub-clause (e) of sub-section
(1) of Section 100C is a curative amendment, then this goes against the
submission at (iii), in as much as a curative measure is normally applied
retrospectively. In holding so, we are also strengthened by the finding of the Division
Bench in the above-noted case of Al-Mizan Foundation v The
Commissioner of Inland Revenue, ITR No. 94 of 2022, in which it has
been held that;-
“It
is not disputed that clause (c) of sub-section (2) of Section 100C was omitted
through the Finance Act, 2019 and therefore, after the said omission, the
approval of the Chief Commissioner Inland Revenue would not be required in
order for trust or welfare institution or non-profit organization to obtain the
benefit of a tax credit equal to 100% for the tax payable. However, the
amendment made in the 2001 Ordinance through the Finance Act, 2019 cannot be
given retrospective effect so as to absolve trust or welfare institutions or
non-profit organizations from obtaining an approval of the Chief Commissioner
Inland Revenue in order to be eligible for being granted the benefit of a tax
credit equal to 100% of the tax payable for the tax years prior to tax year
2019.”
In
view of the above, we reject the submission of the taxpayer mentioned in (iv)
above.
6. In
addition to the above, the provisions of section 100C provide the benefit of a
100% tax credit to the person who falls in the said section, therefore
according to the settled principle of interpretation; it has to be strictly
construed. Reliance may be placed to M/s Humayun Ltd. v. Pakistan and others
(PLD 1991 SC
963), the basic principles and rationale of
the exemption clause are emphasized by reproducing an excerpt from the case Bank
of Commerce v. Tennessee (161 US 134), which is as under:-
"Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of anyone to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well-founded doubt is fatal to the claim; no implication will be indulged in for the purpose of construing the language used as giving the claim for the exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power".
In
Karachi
Development Authority v. Central Board of Revenue through Members Central
Excise and Land Customs, Islamabad and others (2005 PTD 2131), the
Hon'ble Apex Court held,
"Taxing statutes
were construed strictly in favour of subjects whereas the provisions relating
to exemptions were construed in favour of Government as Taxing authority and
the Government while exercising the power of exemption of duty on a particular
article, might impose such condition, limitation, and restriction as it deemed
fit."
A
necessary corollary is that while interpreting an exemption clause, plain
language is to be considered; implications are not allowed; conditions
stipulated in the exemption clause must be fulfilled; and in case of any doubt
or two possible interpretations, the one favouring chargeability of tax is to
be employed. It is also a principle that exemption presupposes the
chargeability, the judgment in Collector of Customs and others Vs. Ravi
Spinning Ltd. and others (1999 SCMR 412) can be referred to.
Accordingly, the appeal of the appellant for the tax year 2019 is dismissed.
Since the main appeal of the appellant is decided, therefore, the stay
application has become infructuous.
APPEAL IN RESPECT OF THE TAX YEAR 2020
7. As far as the
tax year 2020 is concerned, the submissions made on behalf of the appellant
have substance to the effect that with respect to tax year 2020 there was no
need to get approval either from the Chief Commissioner IR or the Commissioner
IR as the provision of clause (c) of subsection (2)
of section 100C of the Ordinance was omitted through the Finance Act, 2019
w.e.f 01.07.2019 and simultaneously through the same Finance Act, 2019 the
following clause (e) of subsection (1) of section 100C was inserted, which
required approval of Commissioner IR with effect from 01.07.2020 relevant to
tax year 2021 and onwards: -
“(e)
approval of Commissioner has been obtained as per the requirement of clause
(36) of section 2:
Provided that this clause shall take effect from the first day of July 2020; and” (Emphasis supplied)
By virtue of the above amendments this clause is not
applicable for the tax year 2020 which starts from 01.07.2019 and ends on
30.06.2020. Thus, obtaining approval either from the Chief Commissioner Inland
Revenue or Commissioner Inland Revenue in order to be eligible for being
granted the benefit of a tax credit equal to 100% of the tax payable for the
tax year 2020 was not required at the relevant time. It is settled law that liability to pay tax arises
on the last day of the accounting year. The tax laws are a body of
rules and regulations under which the State has a claim on the taxpayers so
that they may pay to the State a part of their incomes at the specified rates.
This liability to pay income tax accrues on the taxpayer on the last day of the
income year/accounting year, though the tax becomes payable after it is
quantified in accordance with the procedures laid down in the Income Tax law.
Thus, a vested right in favour
of the State is created at the end of each accounting year, though the exercise
of (1) making an assessment on the basis of ascertainable data of income and
expenditure, or (ii) revising an assessment order where it is found that there
is sufficient material to hold that the original assessment was prejudicial to
the interest of the revenue, takes place at some later stage. These procedural
exercises are undertaken only with the object of reaching the correct
calculation of yearly income but the real liability to pay tax had already
accrued on the last day of the income year i.e. on the last day of the
accounting year thereby creating a vested right in favour of the State. Reliance may
be placed on the judgment titled CIT, Peshawar vs. Islamic Investment Bank Ltd, (2016 PTD 1339).
It
is also pertinent to mention that under the new scheme of Income Tax Ordinance,
2001 applicable amendments are supplied to the taxpayer in advance at the start
of the tax year usually effective on 1st day of July so that they can arrange
their affairs accordingly and can make proper provision for tax liability.
Under the repealed Ordinance, applicable amendments were made available to the
taxpayer after the close of the income year and that mischief has been
suppressed in the new scheme. Therefore, in accordance with the object and
purpose of the new scheme of the Income Tax Ordinance, 2001 amendment brought
by the Finance Acts from time to time should be given prospective effect to
advance the remedy and suppress the mischief. Reliance may be placed on the
judgment titled Muhammad Irfan Butt vs CIR, RTO Sargodha, (2015
PTD (Trib.) 589).
8. For
what has been discussed above, the appeal of the appellant for the tax year
2019 is dismissed and the appeal with respect to tax year 2020 is accepted by
annulling the orders passed by the lower authorities. Accordingly, the
application of stay is also disposed of.
Sd/-
(M. M. AKRAM)
JUDICIAL MEMBER
Sd/-
(SAJID NAZIR MALIK)
ACCOUNTANT
MEMBER
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