1988 PLP (Trib (PTD)

3. It appears the assessee, Mr. Ahmad Shuja Khan, wrote to the I.-T.O. claiming refund of Rs.2,240 in respect of assessment year 1979-80. The I.-T.O. informed him vide his Letter No. 839/P-II, dated 13-5-1980 that on checking the I.-T-30 Form he has found that the calculation of tax made is correct. Instead of straight deductions, rebate for the investment claimed by him, has been allowed, under the new formula and that the calculation of tax made by the assessee in the computation chart furnished by him was incorrect, since it is based on the old formula by virtue of its straight deductions used to be made in the past.

4. The assessee not being satisfied with the reasoning of the I.-T.O. went in appeal to the first appellate authority claiming that the I.T.O. had erred in law in not allowing the invested amount as straight deduction but has instead allowed only a rebate. The learned A.A.C. disallowed the appeal on this issue saying that the treatment accorded by the I.-T.O. is correct. The allowances under the Income-tax Ordinance, 1979, are not to be allowed as straight deductions, but only a rebate is admissible at the average rate.

5. The assessee has pleaded before us that his claim for straight deductions of the amounts of investments from the total income is based on the provision of section 49 of the Income-tax Ordinance, which is in the following language: "Save as otherwise provided in this Ordinance, any allowance admissible or any sum exempt from tax under any provision contained in this Ordinance shall be included in the total income, but may be deducted from such income for the purposes of computing the tax payable by an assessee."

6. His plea was that he has to be charged on the taxable income after deducting the amounts invested and any sums exempt from tax. In other words any allowance or any sum, which is exempt from the tax has to be deducted from such income for the purposes of computing the tax payable, though it may be included in the total income. In regard to provision of charging section 9 of the Income-tax Ordinance, 1979, which speaks of levy of tax on "the total income of the income year" his argument was that even the old charging section 3 of the Income-tax Act, 1922, also referred to the tax on the total income but straight deduction on such exempt sums was allowed it the past. His attention was drawn to the proviso (d) to Para 'A' 01 part I of the First Schedule to the Income-tax Ordinance, 1979 which reads as follows:-- "(d) Provided that-- Notwithstanding anything contained in this Ordinance, the rebate for any allowance under sections 39, 40, 41, 42, 43, 44, 44-A, 46 or 47 shall be computed at the average rate of tax and allowed accordingly." In regard to this, his plea was that the First Schedule has travelled beyond the Income-tax Ordinance, 1979. If straight deduction is not given under section 49 of the Income-tax Ordinance, 1979, the provision would be redundant.

7. On the other hand the learned D.R. invited our attention to the different language in which the charging section 9 of the Income-tax Ordinance and section 3 of the Income-tax Act, 1922 have been couched. Section 9 of the Income-tax Ordinance reads as under: 9. (1) Subject to the provisions of this Ordinance there shall be charged, levied and paid for each assessment year commencing on or after the first day of July, 1979, Income-tax in respect of the total income of the income year or years, as the case may be, of every person at the rate or rates specified in the First Schedule." Section 3 of the, Income-tax Act, 1922, is in the following language: "

3. Where any (Central Act) enacts that income-tax shall be charged for any year at any rate or rates, tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of, this Act in respect of the total income, of the previous year or the previous years, as the case may be, of every person."

8. Accordingly his plea was that the total income has to be subjected to tax and not the taxable income. If, what the learned Advocate has pleaded is accepted, it would amount to levying tax only on the taxable income. So far as the provision of section 49 of the Income-tax Ordinance, 1979 is concerned, it only says that the) deduction has to be made for the exempt allowances or sums for the purposes of computing the tax and not for reducing the total income.) Further, section 49 begins with the words: "Save as otherwise provided in this Ordinance". This section is, therefore subject to other provisions of the Ordinance and the deduction of exempt sums from the total income is not an unqualified straight deduction. Further, the First Schedule is a part of the Income-tax Ordinance as mentioned in section 9 of the Income-tax Ordinance, 1979. Therefore, it cannot be ignored nor has the First Schedule travelled beyond the Income-tax Ordinance, 1979. It may also be added that the First Schedule to the Income-tax Ordinance, 1979 is as much made by the legislature the Income-tax Ordinance, 1979, itself. We may further mention the section 14 of the Income-tax Ordinance indicates that whereas Chang, in the Second Schedule could be made by the Federal Government but not so in the First Schedule where modifications, if any, are carried out by the legislature itself. The First Schedule is, therefore, as much a part of the Income-tax Ordinance as section

49. The later, in fact, is subject to the provisions of the Ordinance, and it cannot be validly pleaded that the First Schedule has travelled beyond the provision o: section

49. At this stage the learned A.R. pointed out that where there is a reasonable confusion, the law may be interpreted in favour of the tax payer.

9. We have given careful consideration to the issue and are of the view that there is no confusion or conflict between the Statute and the First Schedule since the Income-tax Ordinance, 1979, itself provides that the tax is to be charged at the rate or rates specified in the First Schedule and the Schedule is a part of the Income-tax Ordinance, 1979, therefore, the tax has to be calculated at the rates specified in the First Schedule. The First Schedule has clearly laid down in Proviso (d) to para. 'A' of Part I that the rebate under sections 39 and 41, inter alia, will be computed at the average rate of tax. The assessee's claim falls under sections 39 and 41 of the Income-tax Ordinance and it is, therefore, covered by the said proviso. It may be mentioned that the procedure of computation of tax on the basis of straight deduction or rebate in respect of certain allowances or exempt sums depends upon a structure of the rate of tax, which is required to be operative. Earlier the rate structure, barring a few intervening years, prior to 1979, was also prescribed which permitted rebate on allowances and exempt sums as against the straight deductions operative during the intervening period. Since both the procedures are prescribed under the law, therefore, straight deductions cannot be claimed as a matter of right, but it can only be allowed where it is so provided in any enactment. The position being what it is in the Income-tax Ordinance, 1979, straight deductions of exempt investments cannot be allowed. 10.?????? In the result the appeal of the assessee is rejected.

11. FARHAT ALI KHAN (JUDICIAL MEMBER).--I have very carefully gone through the order proposed by any learned brother and respectfully agree with his conclusion. However, with due respect to him, I think that I should dilate a bit more on the subject so as to elaborate his observation as it may help in fortifying his conclusion with some more reasons.

12. Starting with the repealed Income-tax Act we find that sections 16(1)(a) and proviso to paragraph A of Part I of the First Schedule dealt with the allowances and their straight deduction from total income. It appears that the word "shall" be used at all relevant places in the repealed Income-tax Act. However, when section 49 of the Income-tax Ordinance, 1979, hereinafter referred to as "the Ordinance, was enacted, the legislature made two departures. Firstly, in the opening part of section 49 the words "Save as otherwise provided in this Ordinance "were introduced and, secondly, in the later part the word "may" was used. This departure appears to be deliberated if we go through various provisions of the Ordinance, we find that sections 43 and 48 of the Ordinance allow straight deductions but firstly income falling within those sections is to be included in the total income. On the other hand, sections 39, 40, 41, 42, 43, 44, 44-A, 46 and 47 deal with such type of allowances on which rebate computed at the average rate of tax is allowable. Here, these allowances though included in the total income are not allowed as straight deductions. Moreover, under item No. 110 of Second Schedule any sum which the assessee is entitled to receive out of the income of association of persons (other than a Hindu undivided family, a company or firm) on which tax has already been paid by the association is to be first excluded from the total income. However, by virtue of proviso appended to Item 110, such sum is again to be included in the total income of the assessee for computing the average rate of tax applicable to the total income excluding such sum. It is, therefore, obvious that the legislature used the words "may" in later part of section 491 of the Ordinance so that it could meet different type of situations. Thus, it is clear that there is no conflict at all between proviso (d) of paragraph A of Part I of the First Schedule and section 49 of the Ordinance. The allowances admissible under sections 39 to 44, 44-A, 46 and 47 would, therefore, be included in the total income under section 49 of the Ordinance. Had there not been proviso (d) as mentioned above, such allowances would have been subjected to tax also. But as aforesaid proviso (d) lays down a relief of rebate computed at the average rate of tax, the same would be provided by way of rebate only and not by straight deductions. At this juncture let me also mention that the word "may" as used in later part of section 49 of the Ordinance should not be read as word "shall" because it would not only defeat the very purpose of legislation and all allowances and exemptions would have to be deducted from total income for the purposes of computing the tax but those provisions which are covered by the words "Save as otherwise provided in this Ordinance" would also become redundant. Apparently this does not appear to be the intention of the legislature.

13. I, therefore, concur with the observation of my learned brother that straight deductions may not be claimed as a matter of right butt they can only be allowed where it is so provided by law. Since both of us agree, the appeal is hereby rejected. M. B. A./481/T??????????????????????????????????????????????????????????????????????????????????? Appeal rejected.