1990 PLP 178 (PTD)

NAZIR AHMAD BHATTI, J.‑‑N.‑W.F.P. Forest Development Corporation respondent herein is a Company, wholly owned by the Government of N.W.F.P. (hereinafter referred to as the Corporation) and derives income from the felling and sale of trees from the forests in the N.‑W.F.P. It also derives miscellaneous income from interest on investment, registration fee from contractors, rental charges of hiring, its machinery by the contractors, sale of scrap and repairing charges from its workshop. Income of the Corporation as assessed under section 62 of the Income‑tax Ordinance, 1979 (hereinafter referred to as the Ordinance) for the assessment year 1983‑84 by the Income‑tax Officer Companies Circle‑I Peshawar included all the aforesaid incomes for the purposes of Income‑tax. The said assessment was challenged by the Corporation before the Commissioner of Income‑tax but without any success, whereafter the Corporation filed an appeal before the Income‑tax Appellate Tribunal Peshawar (hereinafter referred to as the Tribunal). The latter by order dated 15‑6‑1987 partially accepted the appeal of the Corporation and except the interest derived by the Corporation on investment of its income in the Banks, allowed exemption to it in respect of the aforesaid other incomes. Feeling aggrieved by the aforesaid order of the Tribunal the Commissioner of Income‑tax Peshawar has made the reference in hand wherein he has posed the following questions for the consideration of this Court:‑‑ "Whether under the facts and circumstances of the case, the learned ITAT was right in extending exemption in respect of the following income:‑ (a) Rental charges received by the assessee from the contractors for using assessee's premises; (b) Workshop charges received for repairing the machinery. These receipts clearly come under the definition of rental income chargeable to tax; and exemption under clause 120‑A of the 2nd Schedule to this income:"

2. The Corporation also felt aggrieved by the order of the Tribunal in so far as it declined to grant exemption in respect of the interest accruing to the Corporation from the investment of its income in the Banks and also made Tax Reference No.1 of 1989. Since both the Tax References pertain to the same subject, judgment in the Tax Reference in hand will also dispose of Tax Reference No. 1 of 1989.

3. Both the learned Advocate‑General appearing for the Income‑tax Department and Mr. Mohammad Yaqub Khan counsel for the Corporation have brought to our notice that by exercising the powers conferred under section 14 of the Ordinance the Government of Pakistan had allowed exemption to the income of the Corporation as is attributable to the sale of timber where such limber is obtained from felling of trees in forests by, or on behalf of, the Corporation. This exemption was allowed by insertion of clause (120A) in the Second Schedule to the Ordinance by Notification No. SRO 272 (1) 84, dated 28‑3‑1984 (hereinafter referred to as the Notification). For the sake of convenience the Notification is reproduced below:‑ "Any income of a company, wholly owned by a Provincial Government, as is attributable to the sale of timber where such timber is obtained from felling of trees in forests by, or on behalf of, the said company. The exemption under this clause shall apply from the date of commencement of operations of the said company."

4. It shall, therefore, be seen that this Court has been called upon to examine whether; firstly, rental charges received by the Corporation from the contractors for using its premises; secondly, workshop charges received for repairing the machinery of the contractors; and thirdly, interest derived by the Corporation from the investment of its income in the Bank, are attributable to the sale of timber or not. The Tribunal arrived at the conclusion that the first two categories of income were attributable to the business of the Corporation for the reason that the said charges were income derived by the Corporation from its operations connected with the felling and sale of timber, whereas in respect of the aforesaid third item the Tribunal came to the conclusion that the interest derived by the Corporation from the investment of its income in the Banks could ‑not be connected with the operations of the Corporation confined to felling and sale of timber.

5. We have very seriously considered the term "attributable to" used in the Notification. The words "attributable" has been used in the Notification in contradistinction to the word "derived". If the word "derived" had been used in the Notification, then it would have restricted the income of the Corporation to the operations of the Corporation in so far as they were connected only with the felling and sale of timber. On the contrary the use of the word "attributable" clearly indicates the intention of the Government to exempt that income of the Corporation as well which is incidental to or connected with its operation of felling and sale of tress.

6. It was not denied that the Corporation was carrying on its operations of felling and sale of trees through contractors. There is no denying the fact that the contractors have to use the premises of the Corporation for the collection of the felled timber, which was subsequently to be, transported somewhere else after its sale to contractors. As such the hiring of the premises of the Corporation by the contractors for the collection of timber was an operation closely connected with the main business of the Corporation.

7. Similarly for the better and efficient exploitation of timber by the contractors from the forests some machinery has to be put into operation by the contractors and it is also a fact that machinery would require repairs etc. as there is a likelihood of its breakage and overhauling etc. It cannot be envisaged that the contractor would also install a workshop of his own for the repairs of the machinery for the simple fact that he would not be a perpetual contractor of the Corporation. Per force the workshop for such purposes has to be maintained by the Corporation, and it is but natural that it would also charge the contractor for repairing etc. his damaged machinery. Consequently this function of repairing etc. the damaged machinery of the contractor is also closely connected with the business of the Corporation.

8. The use of the words "attributable to" in the Notification granting exemption to the income of the Corporation would thus clearly include the income derived by the Corporation from its aforesaid two operations.

9. In so far as the question of receiving interest by the Corporation for its income invested in the Banks is concerned, we can say without any fear of contradiction that this process cannot be termed as income attributable to the sale of timber by the Corporation. This kind of income is received by the Corporation on the investment of its income and is not connected with the operation of felling and sale of trees. Actually the interest is derived by the Corporation by investment of its income, which it earns through its business of felling and sale of timber, and it has got nothing to do with the actual business of the Corporation.

10. The word "attributable" has been a subject‑matter of interpretation by the Higher Courts in many a case. In the Stroud's Judicial Dictionary, Fourth Edition, printed in 1971, at page 229, the word "attributable" is shown to mean "for a result to be attributable to anything it must be wholly, or in material part; caused by that thing". Thus the word "attributable" has been used in the Notification in a particular sense so as to include in the income of the Corporation all that income which is in any way connected with its business. On the contrary if it was intended to restrict exemption to the income of the Corporation which was connected with the sale of timber only, then the word "derived" could have been very conveniently used. In the Black's Law Dictionary, Fifth Edition, printed in 1979, the word "derived" has been defined at page 399 and it means "to receive from a specified source". These two words came up for interpretation before the. Supreme Court of India in the case of Company Electric Supply Industrial Company Limited v. Commissioner of Income‑tax Gujrat‑II in the year 1978. The Tribunal has quoted a portion of the said judgment, which has drawn distinction between the words "attributable to" and "derived from". We would also like to reproduce the said paragraph as follows:‑ "As regards the aspect emerging from the expression "attributable to" occurring in the phrase "profits and gains attributable to the business of the specified industry (here generation and distribution of electricity) on which the learned Solicitor General relied, it will be pertinent to observe that the legislature has deliberately used the expression "attributable to" and not the expression "derived from". It cannot be disputed that the expression "attributable to" is certainly wider in import than the expression "derived from". Had the expression "derived from" been used, it could have, with some force been contended that a balancing charge arising from the sale of old machinery and building cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of the electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor General, it has used the expression "derived from" as, for instance, in section 80‑J. In our view, since the expression of wider import, namely "attributable to" has been used, the legislature intended to cover receipts from sources other than the actual conduct of the business of generation and distribution of electricity:'

11. The above discussion will show that we have arrived at the conclusion that income of the Corporation received as rental charges from the contractors for using its premises and as workshop charges for repairing the machinery of the contractors is income of the Corporation attributable to its operation of sale of timber whereas the interest received by the Corporation from investment of its income in the Banks is not attributable to its operation of sale of timber. We would, therefore, agree with the findings of the Tribunal recorded in its judgment dated 15‑6‑1987 and would dismiss both the aforesaid Tax References with no order as to costs. M.B.A./944/P References dismissed.