2019 PLP 2305 (PTD)

This Reference Application under section 133(1) of the Income Tax Ordinance, 2001 ("the Ordinance") is filed by the Applicant, being dissatisfied by the order passed by the Income Tax Appellate Tribunal, Lahore Bench, Lahore ("Appellate Tribunal") in I.T.A.No.850/LB/08 (Assessment Year 2001-2002) dated 11.11.2008. The following questions of law are said to arise out from the impugned order. QUESTIONS OF LAW I). "Whether under the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified to hold that provisions of section 2(c) of the WPPF Act, 1968 are special law, therefore, shall prevail over section 25(c) of the repealed Income Tax Ordinance, 1979? " II). "Whether WPPF provision claimed as admissible deduction on "provision" basis, and amount not transferred to the WPPF of the government but retained by the company, can be added under section 25(c) of the Income Tax Ordinance, 1979, if not paid within prescribed time?"

2. Brief facts are that the original assessment for the assessment year 2001-2002 of the Respondent company was completed under section 62 of the repealed Income Tax Ordinance, 1979 (the "repealed Ordinance") which was set-aside by Appellate Tribunal on 01.12.2007. Subsequently, Taxation Officer, besides making other additions, passed an order under sections 62/135 of the repealed Ordinance on 28.06.2008 whereby an amount of Rs.7,336,220/- was added under section 25(c) of the repealed Ordinance however, aforesaid additions were confirmed by Commissioner of Income Tax (Appeals), Lahore vide order dated 31.07.2008. Aggrieved of by the aforesaid order, the Respondent filed appeal before Appellate Tribunal which deleted the addition made under section 25(c) of the repealed Ordinance.

3. Learned counsel for the Applicant submitted that the impugned order is illegal and contrary to the law and facts of the case; that the Appellate Tribunal has not passed the above referred order in accordance with law and has fallen into error by deleting addition made under section 25(c) of the repealed Ordinance; that the Taxation Officer has rightly added addition of an amount in respect of WPPF made upto year 1998-99 and interest charge thereon which remained payable till 2001-2002; that the impugned order is liable to be set aside and order passed by the Commissioner of the Income/Wealth Tax as well as Taxation Officer may be held to be in field.

4. On the other side, learned counsel for the Respondent submitted that the impugned order has been passed strictly in accordance with law and does not require any interference by this Court. He also prayed for dismissal of Reference Application.

5. We have heard the arguments of learned counsel for the parties and perused the record. The Applicant in this Reference Application disputes the order passed by the Appellate Tribunal which allowed the appeal of the Respondent by deleting addition made by Taxation Officer under section 25(c) of the repealed Ordinance with observation that the payment of WPPF in the subsequent year does not absolve the taxpayer for default of provision of section 25(c) of the repealed Ordinance.

6. The relevant/operative part of learned Appellate Tribunal order is reproduced hereunder:- "We have heard the learned counsel for both the parties and have gone through the relevant orders. On the issue of application of section 25(c) of the repealed Ordinance, the deduction made by the assesses company on account of WPPF, we feel ourselves persuaded by the arguments addressed by learned A.R. it would not be out of place to reproduce section 2(c) of the Act and section 25(c) of the repealed Ordinance which are as follows:- Scheme under section 2(c) of the Companies Profits (Workers Participation) Act, 1968:--

1. Scope of Scheme:

The scheme applies to all companies engaged in industrial undertakings which satisfy any one of the following conditions-- i). The number of workers employed by the company at any time during a year is 50 or more; (ii) The paid-up capital of the company as on the last day of its accounting year is Rs.20 lakhs or more. (iii) The value of the fixed assets of the company (at cost) as on the last day of the accounting year is Rs. 40 lakhs or more.

2. Investment of Fund.

(1) The amount allocated or accruing to the Fund shall be available to the company for its business operations (2) The company shall pay to the Fund in respect of the amount in the Fund available to it for its business operations as aforesaid interest at the rate of 2-1/2% above the bank rate or 75 percent of the rate at which dividend is declared on its ordinary shares, whichever is higher. (3)

(4)

(5)

(6)

(7)

8. Fiscal concession to the Companies.

All companies to whom the scheme 1 2 3 4 5 1 2 3 4 1 2 3 4 applies shall be allowed the allocation made to the scheme as a deduction to arrive at the taxable income.

9. Tax treatment of the income of the Fund.

The income of the Fund including capital gains shall be exempt from income-tax.

10. Tax treatment of the income to the workers.

All sums paid out by the Fund shall be exempt from income-tax in the hand of the workers. Section 25(c) of the Repealed Ordinance:-- such trading liability or a portion thereof is found not to have been paid within three years of the expiration of the income year in which it was allowed, such liability or portion thereof as the case may be, shall be deemed to be income from business or profession of the year in which such finding is made or any other year (not being a year commencing after the expiration of five years from the end of the said three years) as the [Deputy Commissioner] may think fit Bare perusal of aforementioned sections as well as schedule attached thereto clearly show that income arising out of funds was declared exempt from the incidence of income tax therefore, assessing officer was not justified to make addition under section 25(c) of the repealed Ordinance".

7. First question agitated before us is with regard to applicability of special and general law. The argument of learned counsel for the applicant is that the department was quite justified to levy tax under section 25(c) of the repealed Ordinance whereas stance of learned counsel for the Respondent is that deduction made on account of Workers Profit Participation Fund (WPPF) does not fall within the ambit of section 25(c), referred above, because the companies are allowed to use WPPF for its business but the income arising out of the same was declared to be exempt under the Companies Profits (Workers' Participation) Act, 1968 (the "Act"). According to the Preamble to the Act, it was enacted to provide for participation of workers in the profits of companies" whereas the Preamble to the repealed Ordinance states that it is expedient to consolidate and amend the law relating to income tax and to provide for matters ancillary thereto or connected therewith". Section 2 of the Act deals with investment of funds whereas section 9 clearly provides an exemption on income of the fund including capital gain which the Respondent was granted through special law. Since the Respondent was granted exemption through special law i.e. the Act therefore, learned Appellate Tribunal has rightly observed that deduction made on account of WPPF does not fall within the ambit of section 25(c) of the repealed Ordinance. Reliance in this regard is placed on "Syed Mushahid Shah and others v. Federal Investment Agency and others" (2017 SCMR 1218).

8. So far as question No.2 is concerned, Commissioner of Income Tax in its order dated 31.07.2008 observed as under:- "The provisions of WPPF made up to the year 1998-99 and interest charged thereon remained payable till 2001-2002 and these were liable to be added under section 25(c) of the Income Tax Ordinance, 2002. Moreover, the Appellant has admitted that the WPPF liability had been paid in June, 2002".

9. The learned Appellate Tribunal in the impugned order observed that income arising out of funds was declared exempt from the incidence of income tax therefore, assessing officer was not justified to make addition under section 25(c) of the repealed Ordinance. It was further observed that companies falling under the scheme of the Act were allowed to use fund for their business operations, however, they were obliged to pay profit @ 2.5 % above the bank rate to compensate the use of these funds in the business operations.

10. We are of the considered opinion that the learned Appellate Tribunal has rightly decided the issues, which otherwise are based on the finding of facts, after detailed discussion, deliberation and interpretation of provisions of law and as such does not carry any mistake apparent on the record, therefore, does not require any interference by this Court in its referral jurisdiction under section 133(1) of the Income Tax Ordinance, 2001.

11. In view of above discussion, questions of law are answered in affirmative against the applicant department. Resultantly, instant reference application is dismissed.

12. Office shall send copy of this order under the seal of the Court to the learned Appellate Tribunal as per section 133(5) of the Ordinance, 2001. SA/C-13/L Reference dismissed.