1988 PLP (Trib (PTD)

ZAFAR HUSSAIN (ACCOUNTANT MEMBER).--In this appeal from the order of the learned Commissioner of Income-tax (Appeals), Lahore , three objections have been raised relating to:- (i) the value of the house which was purchased on 30th June, 1980, (ii) the disallowance of the export rebate, and (iii) the non-adjustment of large amount of refunds available to the assessee in respect of preceding assessments in order to compute the liability of advance tax and the levy of penalty for non-payment thereof. The learned counsel has also taken the ground of appeal that commissioner of Income-tax (Appeals) has no jurisdiction to hear the case. This last ground has not been pressed and is, therefore, withdrawn,

2. The assessee is a partner in M/s. J.C.C.L. and derives income from salary and share from the firm. The assessee had purchased a house at 23 Aurangzeb Block, New Garden Town, Lahore and declared investment valued at Rs.6,15,

000. The Income-tax Officer, on the other hand took the value of 2 Kanals at Rs.5, 00, 000 at tile rate of Rs.2,50,000 per Kanal and the value of construction at the rate of Rs.100 per sq. ft. The total cost of construction was adopted at Rs.3,69,380 and the total value of the house at Rs.8,69,

180. Taking the declared value of Rs.6,15, 000 he added the difference of Rs.2,54,180 to income under section 13(l)(d) of the Income-tax Act. 1922 as unexplained investment with the approval of the Inspecting Assistant Commissioner

3. The learned counsel for the assessee drew our attention to some of the instances quoted by the Income-tax Officer relating to the sale of plots in the Shadman Colony and New Muslim Town and pleaded that they are not parallel cases. In these areas the value of land per Kanal in 1979-80 was near about Rs.4 lacs per Kanal. We agree that these are not parallel cases. On the other hand the Income-tax Officer also referred to the sale of Plot No.79 in the same Block in New Garden town, near the plot of the assessee which was sold at the rate of Rs.30,000 per Marla on 10th February, 1981. The value of 2 Kanals at Rs.5,00,000 adopted by the Income-tax Officer which gives a rate of Rs.12, 500 per Marla would thus apparently be a lenient treatment in regard to valuation of the plot. We would not, therefore, like to interfere so far as the value of the plot is concerned. Coming to the question of construction, which was made in 1974 the Income-tax Officer s estimate of Rs.100 per sq. ft. is on the high side. Besides, if the construction had taken place in 1974 the house would also have undergone some depreciation since it was purchased on 28th January, 1980. Keeping these facts in view we feel that the cost of construction can be taken reasonably at Rs.60 per sq. ft. both for the main house as well as the quarters. For the total covered area of 3,840 sq. ft. the cost would aggregate to Rs.2,28,240). This would amount to a reduction of Rs.1,40,940 (Rs.3,69,180, Rs.2,28,2401. The counsel for the assessee has also taken the plea that approval of the Inspecting Assistant Commissioner is required both under section 13(1)(d) as well as under section 13(2). We do not subscribe to this view and hold that approval taken from the Inspecting Assistant Commissioner with regard to the amount to be added to the income is sufficient. Export Rebate:

4. The learned counsel for the assessee next pleaded that the h benefit of export rebate in respect of carpets exported by the firm should be extended to the partners of the firm. 'His plea was that export rebate in respect of super-tax was allowed to the firm but not to partners in respect of income-tax though it was the same income which was distributed amongst partners. Therefore, the export rebate should also be extended in respect of income of the individual partners. The plea of the Authorised Representative is fallacious and cannot be accepted for the simple reason that the export rebate as is admissible under Part I V of the First Schedule to the Income-tax Ordinance, 1979, Para. A(2)(a), restricts the rebate in tax payable by the assessee. The assessee in this case being a registered firm could only ask for rebate against super-tax and not income-tax payable ` in respect of individual partners. It may further be stated that the term 'assessee' as defined in section 2(6) of the Income-tax Ordinance, 1979 means a person by whom any tax is payable. Now a 'person' has further been defined to mean an individual or a firm an A.O.P. etc. Obviously the term person would refer to one assessee and in this case the registered firm, and would not include the individual partners alongwith the firm. For this reason the export rebate cannot be extended to the income of the partners notwithstanding the fact that the nature of the income does not change complexion, when it reaches the hands of the partners.

5. As to the plea of the assessee that before levying penal interest, the Income-tax officer should have allowed appeal effects to the earlier assessment years which would have resulted in reducing the liability of the assessee in respect of payment of advance tax for the assessment year under consideration, has Borne force and we hereby direct that the Income-tax Officer should take the refund due, into consideration, before calculating the liability of advance tax and the penal interest leviable in default thereof.

6. ABRAR HUSSAIN NAQVI JUDICIAL (MEMBER).-- I have gone through the proposed order of the learned A . M. I agree with the reasons and conclusions or, all but one point. In regard to the admissibility of export rebate to the assessee I have a different view. Before proceeding further it will be of advantage to reproduce the relevant provision in regard to the export rebate. Relevant portion of para. A of Part IV of the First Schedule of the Ordnance is reproduced below: "Part IV: (A) Notwithstanding anything contained in this Schedule,-- (1) ........................................................ (2) Where the total income of an assessee includes any profits and gains derived from export of goods manufactured in Pakistan,-- (a) Income-tax or super-tax, if any, payable in respect of such profits and gains shall, subject to the other provisions of this clause, be reduced by an amount equal to 55% of the amount of income-tax and super-tax if any, attributable to sale proceeds of such goods."

7. On careful reading of the aforesaid provisions it is clear that export rebate is available where the total income of an assessee includes any profits and gains derived from export of goods manufactured in Pakistan. Now the question is where a firm has derived income from export of goods manufactured in Pakistan, what would be the nature of income of the partners of that firm? In order to answer the question we have to revert back to various heads of income enumerated by Section 15 of the Ordinance, one of which is income from business or profession. The assessee had to be assessed under any one of the heads of income. There is no dispute that the assessee has income from business or profession and is assessed under clause (d) of section 15, which deals with income from business or profession. Thus the total income of the individual partner includes the profits and gains derived from export of goods manufactured in Pakistan. It is immaterial whether the business has been conducted as individual or through the firm. Therefore, every partner's income has to be held to be profits and gains derived from export of goods through the firm. In clause (a), reproduced above the words "income-tax and super-tax" are significant. It has not been said income-tax or super-tax. This means that both income-tax and super-tax is to be0"js reduced by an amount equal to 55% of the amount of income-tax and super-tax. Had the word 'or' instead of 'and' between 'income-tax' and 'super-tax, been there, it could be said that the relief could be given in either of the tax. The use of the word 'and' further supports the contention that both the income-tax and super-tax are to be reduced by way of export rebate. The aforesaid clause (a) cannot be read to mean that either income-tax or super-tax is to be reduced by way of export rebate. Both the income-tax as well as the super-tax is reducible by the plain meaning of the clause. Where the legislature wanted to create an exception it has done so by specifically providing clause (b) where it has been stated that clause (a) would not be applicable to a company, which is not a domestic company.

8. Even otherwise the view I have taken is at leas: one of the two possible views. It is settled law that where two interpretations 1 are possible then one favourable to the assessee should be adopted. As discussed above the income of the assessee being profits and gains derived from export of goods manufactured in Pakistan, the assessee as a partner is entitled to the export rebate in respect of the income-tax payable by her. The learned Departmental Representative had contended that the nature of the income of the assessee is share from the firm. I am afraid this is not a legal term nor supported by any provision of law. Section 15 of the Ordinance has given all the possible heads of income from which an assessee can be said to have derived income but none of them supports the contention of the learned Departmental Representative.

9. That the term 'assessee' has been defined to mean a person by whom tax is payable. However, it does not exclude any individual nor can it be said either that the assessee is that person who either paid the income-tax or super-tax or in other words either a firm or an individual. Admittedly a partner of the firm is also an assessee. It is nowhere laid down in clause 2 of para (a) of Part IV that an assessee only means either a firm or an individual or an A.O.P. On the contrary there is a provision, which supports the view, which I am taking. Under Section 69(1)(a)(ii) of the Ordinance it is provided that while making an assessment of the firm, the total income of each partner has also to be assessed 'including therein his share of its income ....'Thus the nature of the income of a partner in a firm is the same as that of the firm.

10. For the foregoing reasons I direct that the assessee should also be allowed export rebate proportionately to the sale proceeds of the export of goods in accordance with the share of the assessee in the firm.

11. MIAN ABDUL KHALIQ (JUDICIAL MEMBER).-- On account of difference of opinion amongst the learned Members of a Division Bench in ITA No.2813 of 1982-83 pertaining to assessment year 1980-81 on the issue of allowance of rebate, following point was referred to me for decision as a third Member:- "Whether the export rebate under para A of Part IV of the First Schedule of the Income-tax Ordinance is available to only exporting firm or also to a partner of such a firm".

12. In the Division Bench order, the learned Accountant Member held that benefit of export rebate in respect of carpets exported by the firm could be given to the firm only and was not extendable to the partners of the firm. The learned Judicial Member was of the view that the assessee being a partner of the firm was also entitled to export rebate proportionate to the sale proceeds of the export of goods in accordance with his share in the firm in addition to the export rebate allowed to the firm. This appeal was heard by the Division Bench on 30th July, 1984. Prior to that another Division Bench in Karachi in ITA Nos. 1556/ KB through 1558/ KB of 1980-81 decided on 10th July, 1984 had held that the registered firm as well as its partners are entitled to export rebate according to the proportion of their shares in the firm to the extent of value of the exports. At the time of hearing of the assessee's appeal on 30th July, 1984,. Division Bench decision of Karachi Bench was not available as the same was subsequently reported in 1985 P T D (Trib.) 869.

13. At the time- of hearing of this appeal on 23rd March 1986 Mr. Ahmad Shuja Khan, the assessee's AR in addition to reliance placed on decision of Karachi Division Bench (Supra) filed written arguments, a copy of which was supplied to the Legal Advisor of the Department. Instead of arguing the case on behalf of the Department, it was stated that a written reply will be filed to rebut the reasons given in the decision of the Karachi Division Bench. Despite various reminders, no reply has been filed by the Department so far. In these circumstances, I feel that the department has happily accepted the decision of Karachi Division Bench on the issue involved. In the absence of any pleadings from the departmental side, I am left with no option but to concur with the view, expressed by the learned Judicial Member as well as the reasons assigned in the reported decision of the Division Bench of the Tribunal. I have come to this conclusion because of disinterestedness shown by the department and without expressing any opinion on the point that while hearing this appeal as a Third Member for resolving the difference of opinion amongst the two Members of a Division Bench on a disputed question, decision of another Division Bench is binding on me. As per majority decision issue of allowance of export rebate is decided in favour of the assessee holding that export rebate was available to the firm as well as its partners.