2003 PLP (Trib (PTD)

"For the purposes of this subsection, clause (b) of section 24, subsection (2) of section 30, subsection (3‑A) of section 50 and section 80AA, "Fee for technical services" means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include the consideration for any construction, assembly or like project undertaken by the recipient of the consideration which would be income of the recipient chargeable under the head salary." Mr. Abbassi further explained that the very definition of the term "business" needs to establish that it is merely trade, commerce and manufacturing, whereas the assessee is not doing any trade and is also not involved in commerce or manufacturing activity, on the contrary, rendering services of managerial skills on a fixed consideration as "remuneration `which shall not accede 10% of net annual profit calculated on the basis of audited profit and loss account of the Modaraba. Owning to nature and character of such services, legislature allowed, Modaraba Formation of Companies, in order to change the character of rendition of services from mere employment of individuals by employee to that of a group of managers rendering services on contractual basis and this rendition of services does not in any manner tentamounts to carry on business, trade, commerce or manufacturing. The learned counsel also urged that statement of account will show that no trading activity is being carried on at all and the statement does not, therefore, constitute trading account emanating P&L, account and since it constitutes income and expenditure therefore, the income earned from such activity falls within the ambit of section 30(2)(b), as such Modaraba Management Companies are separate and distinct assessees for the purpose of Income Tax Ordinance, 1979, therefore, separate accounts are being maintained and are also assessed separately, the actual business is carried out by the Modaraba whereas the Modaraba Management Company, has the privacy of contract with the Modaraba to manage the affairs of the Modaraba and does provide managerial consultancy and technically services to the Modaraba.

10. We have considered the arguments and have gone through the case‑laws. "Modaraba", "Modaraba Company" and "Modaraba Certificate", have been defined as under:‑‑ "Modaraba" means a business in which a person participates with .his money and another with his efforts or skill or both his efforts and skill and shall include Unit Trust and Mutual Funds by whatever name called. Modaraba Company. "Modaraba Company' means a company engaged in the business of floating and managing Modaraba. "Modaraba Certificate" means a certificate of definite denomination issued to the subscriber of the Modaraba acknowledging receipt of money subscribed by him.

11. Besides above Modaraba Company has been assigned specific jobs to float a Modaraba. A Modaraba cannot operate unless a Modaraba Management. Company exists for its erection, the Modaraba Company has distinct legal entity as compared to Modaraba. One being incorporated under the Companies Law and the other being authorized by the Registrar of Modaraba Companies for floatation as a Modaraba vide section 12(1) and held to be a legal person (S. 11). A Modaraba company derives the following sources of income:‑‑ (a) Management fee, fixed percentage of the Modaraba profit, restricted to 10% out of net annual profits of Modaraba (section 18). In some cases this is stipulated to reimburse certain expenses incurred by the Modaraba Company for itself as well as the Modaraba. However, this position may not exist in all cases. (b) Profit on its compulsory investment in the Modaraba at 10 % of the certificates issued (section 17(3)).

12. So as to determine and conclude the issue in controversy, whether it is a business income falling under section 22 or income from other sources under section 30? It would be necessary to consider the character and nature of the management fee earned, keeping in view the above definitions and other relevant facts involved in constitution of Modarabad Company. It is the character of a receipt which determines, whether it is a business receipt or otherwise? In the case of a Modaraba Company, the fee is earned for performing the various services detailed in the Modaraba Ordinance. Since the receipt by its character is a fee for technical services as per provisions of 12(5) of the Income Tax Ordinance, 1979, hence would definitely fall under section 30, relevant section reads as under:‑‑ Section 12(5) Any income by way of fees for technical services payable by:‑‑ (a) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside Pakistan or for the purpose of making or earning any income from any source outside Pakistan; or (b) a person who is a non‑resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in Pakistan or for the purposes of making or earning any income from any sources in Pakistan, shall be deemed to accrue or arise in Pakistan. (1) Income of every kind which may be included in the total income of an assessee under this Ordinance shall be chargeable under the head "Income from other sources", if it is not included in his total income under any other head. (2) In particular and without prejudice to the generality of the provisions of subsection (1) the following incomes shall, save as otherwise provided in this Ordinance, be chargeable under the head "Income from other sources", namely:‑‑ (a) ..... (b) interest, royalties and fees for technical services: (c) ...... (d) ....... (e) .......

13. The term "fees for technical services' which finds place in subsection 2(b) of section 30, has been defined in Explanation to section 12(5) reproduced above, and leaves no doubt that "fees for technical services" means any consideration (including any lump sum consideration) for rendering of any managerial, technical or consultancy services, which also finds support from Modaraba Companies and Modaraba (Floatation and Control) Ordinance, 1980, apart from Memorandum of Article of Association of the Companies which has already been considered by the Tribunal in a decision cited above, we. therefore, have no hesitation to hold that the management fee defined in section 18, is qualifying the definition of "fee for technical services" to be charged under section 30 as income from other sources, in view of Explanation available to section 12(5)(a) of the Income Tax Ordinance. 1979 which by all means, is relevant so far section 30 of the Income Tax Ordinance, 1979 is concerned as the assessee‑company is admittedly rendering technical management and consultancy services to the Modaraba under the certificate of management company, in terms of management fee.

14. We have also considered the arguments of the learned counsel for the assessee that for a decade, the Assessing Officer assessed the income under section 22 of the Income Tax Ordinance, 1979 hence deviation from the history would amount to cause damage to the interest of the assessee and shall deprive him from a right created due to lapse of time making history.

15. There is no legal bar to deviate from the previous treatment followed regularly for a decade, even otherwise incorrect interpretation of law, cannot be taken as a gospel truth. If law permits to move in a correct direction, the officers implementing law, may follow the correct path ignoring the history and without taking into consideration the previous and continuous practice adopted for years together. The language of the statute remains unchanged even then the law grows through the judicial process. The Income Tax Law may afford wide scope for difference of judicial opinion on a variety of legal questions. In fact the learned IAC and DCIT have rightly attempted to elucidate the basis principles involved in the cases above. It must be remembered that forwarding step of the IAC and DCITs. is based on order of the learned Tribunal, as such they realize the profoundness of the observation of the Tribunal. The interpretation of law, therefore, must necessarily be inspired by the principle of growth, we, therefore, find that law cannot be standstill and never reached logical consistency being in the process of growth; hence history cannot sustain being, a sand wall in such circumstances.

16. The next version of learned A. R. also find no merit. We are not in agreement with his contention that under the new Income Tax Ordinance, 2001, though definition of technical fee remains unchanged and yet Modaraba Management Fee is specifically included in section 18(1)(c) under the business head for its chargeability which implies that even in the repealed Income Tax law it is conceived as chargeable under business head vide section 22.

17. We have taken into consideration the above argument at length It is worth‑mentioning that apart from Income Tax Ordinance, 2001 the similar provision of law finds place in Indian Income Tax Act vide subsection (2)(a) and (b) of section

28. The relevant sections are reproduced hereunder:‑‑ "

18. Income from business.‑(1) The following incomes of a person for a tax year other than income exempt from tax under this Ordinance, shall be chargeable to tax under the head "Income from business"‑ (a) ...... (b) ..:. (c) ........ (d) ......... (e) any management fee derived by a management company including a Modaraba." Income Tax Act 1961 (India) "

28. Profits and gains of business or profession. The following income shall be chargeable to income‑tax under the head `profits and gains of business or profession' (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation or other payment due to or received by,‑‑ (a) any person, by whatever named called managing the whole or substantially the whole of the affairs of an Indian company at or in connection with the termination of his management or the modification of the terms of conditions relating thereto. (b) .... .. (c) . (d) . (iii) . (iv) .

18. No doubt same provision of law has been provided as referred to above that any compensation or any other payment due to or received by a person managing the whole or substantially the whole of the affairs of a company, shall be computed under section 28 of Indian Income Tax Act and section 18(1)(c) of the 'Income Tax Ordinance, 2001 being related to profits and gains of business or profession. However, in Income Tax, Ordinance, 1979 we find something contrary to the argument' of the learned A.R. Inclusion of the management fee derived by a management company, floating Modaraba share in section 28 of Indian Income‑Tax. Act and section 18 of the Income Tax Ordinance, 2001, empowered the department to charge tax on such income under the head "Income from business", which does not mean that the department has been given free hand to charge the income under section 22 for the period not falling within the ambit of Indian Income Tax Act and Income Tax Ordinance, 2001. Apparently in the absence of arty such provision in ordinance I9'79, the department has no other course except to invoke the provision of section 30 of the Income Tax Ordinance, 1979, for computing the income of Modaraba Company carrying on business of floating Modarabas and to earn management fee. We also find that it would amount to give retrospective effect to the new provision of law embodied in Ordinance, 2001 presuming that the intention of adding this section implies to charge management fee under section 22.

19. While interpreting a fiscal statute, the Department. Tribunal or the Court; must look all the words of statutes and interpret the same in the light of what is clearly expressed, therefore, we do not find ay reason to imply anything which is not expressed. In this context, reliance is placed oh the case-law cited as 1971 SCMR 128 and 1997 SCMR 371.

20. It is worth‑mentioning that we cannot extend the scope of the statute by an analogy that scope of section 22 of the Ordinance, 1979 has been extended to management fee in the new law. It would amount to prevent a real, clear and supposed anomaly The Tribunal, should, therefore, depend upon the exact wordings of the Sections prevailing at the relevant time and not upon the subsequent changes in law.

21. Before parting, it would not be unaccustomed to point out that the earlier finding of the ITAT does not specifically elaborate provisions of Modaraba Ordinance, which, has been discussed now at length, however, it is evident that the Articles and Memorandum of Association of the Modaraba Company, were duly taken into consideration, by the Division Bench to arrive at the finding that, "it is Modaraba Company business to float Modarabas and, to earn management fee, hence receipt is assessable under section 30.

22. In the circumstances supra and after taking into consideration the case‑law and all relevant facts, we find no reason to distinguish the decision of the ITAT in case of Messrs D.G. Madaraba Management (Pvt.) Ltd., Karachi, bearing ITA No.618/KB 1995‑96, dated 9‑2-498 as inadvertent/per incuriam.

23. As a result thereof, we find that the income of the Modaraba Company is liable to be computed under the head income from other sources under Section 30 of the Income Tax Ordinance, 1979.

24. The remaining Issues involved in the appeals shall be decided by the respective Benches.

25. Order accordingly. C M A./850/Tax(Trib ) Order accordingly.