2006PTD137 (PLP)

SALIM KHAN, J.

This judgment will dispose of S.A.O. No.4 of 1999, S.A.O. No.5 of 1999 and S.A.O. No.6 of 1999 because the order, dated 14-11-1998 impugned in all the three appeals is one and the same, and has been passed by the learned Income-Tax Appellate Tribunal, Peshawar Bench, Peshawar.

2. The main question requiring determination was whether the provisions of Clause (118-A) to the Second Schedule of the Income Tax Ordinance, 1979, were applicable in the circumstances of the cases and whether the company was exempt from payment of income tax for the industrial undertaking which had multifarious objects. In order to fully appreciate the meaning and purpose of Clause 118-A of the said Ordinance of 1979 and its applicability, it will be useful to reproduce the same as under: "(118-A) Profits and gains derived by an assessee from an industrial undertaking set up between the first day of July, 1988, and the thirtieth day of Jurte, 1993, both days inclusive, for a period of eight years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever is the later. The exemption under this clause shall apply to an industrial undertaking which is: (i) Set up in the Province of Balochistan (excluding Hub Chowki area), North-West Frontier Province, the Federally Administered Tribal Areas, the Northern Areas and Azad Kashmir; (aa) set up in divisions of Dera Ghazi Khan and Bahawalpur in the Province of the Punjab and the Divisions of Sukkur and Larkana in the Province of Sindh; (b) not formed by the splitting up, or the reconstruction or reconstitution, of a business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business; (c) owned and managed by a company formed exclusively for operating the said industrial undertaking, and registered under the Companies Ordinance, 1984 (XLVII of 1984), and having its registered office in Pakistan; (d) engaged in the manufacture of goods or materials or the subjection of goods or material to such process; and (e) an undertaking the income, profits and gains, of which are not liable to be computed in accordance with the rules contained in the Fifth Schedule."

3. The learned Inspecting Additional Commissioner was of the view that the company was not exempt from the payment of income-tax when there were more than one objects of an undertaking, but an industrial undertaking managed by a company was exempt from the payment of income-tax when the object was definite and singular. The learned Income-Tax Appellate Tribunal did not concur with the mentioned view of the learned Inspecting Additional Commissioner. The learned Tribunal was of the view that it is the formation of company during certain period given in the above referred Clause, which counts for the purposes of industrial undertaking, and the main object of the said Clause is that a company must have been exclusively established for the purposes of the undertaking whose objects have been clearly mentioned at the time of establishment of such under-taking.

4. The plain reading of the above quoted Clause (118-A) to the Second Schedule of the Income-Tax Ordinance, 1979, shows that the company owning and managing the industrial undertaking should have been formed exclusively for operating the industrial undertaking. It means that the company and the industrial undertaking should have been formed for the purposes and objects of the undertaking. There is nothing in that Clause to show that the object of the undertaking should not be more than one, or these objects should be related to one type of industrial units.

5. The legal questions raised by the appellant in all the three mentioned appeals are as under: (a) Whether the learned ITAT was legally right to hold in terms of Clause (118-A)(c) of Part I of the Second Schedule to the Income Tax Ordinance, 1979, that the assessee company was formed exclusively for operating the industrial undertaking when the Memorandum of the assessee company contains multifarious objects which, besides manufacturing of all descriptions in Pakistan or elsewhere as well as imports and exports of goods? (b) Whether on the facts and in the circumstances of the case L/ITAT was justified in allowing exemption to the assessee under Clause 118-A, when the assessee had multifarioul; objective as per its memorandum and articles of association and as such did not qualify for exemption? (c) Whether the L/ITAT was justified in adjudicating upon an issue which was neither taken up in the grounds of appeal nor pressed by the assessee in proceedings before the L/ITAT? (d) Whether on facts and in the circumstances L/ITAT was justified to hold that the `company should exclusively own one industrial undertaking irrespective of the fact that it is pursuing single objective or not' and that the exemption under Clause 118-A is allowed to the industrial undertaking and not the company? The provisions of Clause (118-A) to the Second Schedule of the Income Tax Ordinance, 1979, are applicable to the circumstances of the present cases which have been properly applied and sufficiently explained by the learned Income-Tax Appellate Tribunal. Clause (118-A)(c) of the said Ordinance of 1979 has been quoted in the formulated questions either due to some misconception or misunderstanding. It is not the multifariousness of objects of an industrial undertaking, but is the formation of the company exclusively for such undertaking, which is important for explanation of Clause 118-A of the Ordinance mentioned above. The learned Income-Tax Appellate Tribunal had the authority to apply the provisions of correct law to the circumstances of the cases.

6. In the light of the above, all the questions, quoted above, are answered in the negative. Resultantly, all the three appeals are dismissed. S.A.K./547/P?????????????????????????????????????????????????????????????? Appeals dismissed.