1985 PLP 401 (PTD)

AJMAL MIAN, J.--By this common judgment, we intend to dispose of the following 51 Income‑tax References:

1. S. No. I.T.R. No. Name of the parties Assessment year 2. 187 of 1974 Commissioner of Income Tax (Investigation) Lahore v. Mr. Soli M. Cawasjee 1964-65 3. 189 of 1974 Mr. Ardeshir R. F Cawasjee 1964‑65 4. 190 of 1974 Mr. Cyrus R. Cawasjee 1961‑62 5. 193 of 1974 Mr. Rustam F. Cawasjee 1965‑66 6. 194 of 1974 Mr. Rustam F. Cawasjee 1967‑68 7. 195 of 1974 Mr. Cyrus R. Cawasjee 1966‑67 8. 196 of 1974 Mr. Cyrus R. Cawasjee 1970‑71 9. 197 of 1974 Mr. Jamshed M. Cawasjee 1964‑65 10. 198 of 1974 Mr. Jamshed M Cawasjee 1962‑65 11. 199 of 1974 Mr. Ardeshir R. F. 1 1968‑69 12. 200 of 1974 Mr. Cawasjee R. F. Cawasjee 1968‑69 13. 201 of 1974 Mr. Cyrus R. Cawasjee 1963‑64 14. 205 of 1974 Mr. Cawacjee R. F. Cawasjee 1969‑70 15. 206 of 1974 Mr. Cawasjee R. F. Cawasjee 1970‑71 16. 208 of 1974 Mr. Rustam S. Cawasjee 1961‑62 17. 209 of 1974 Mr. Soli M. Cawasjee 1963‑64 18. 220 of 1974 Mr. Rustam F. Cawasjee 1963‑64 19. 221 of 1974 Mr. Ardeshir R. F. Cawasjee 1962‑63 20. 222 of 1974 Mr. Cawasjee R. F. Cawasjee 1961‑62 21. 223 of 1974 Mr. Cyrus R. Cawasjee 1969‑70 22. 224 of 1979 Mr. Ardeshir R. F. Cawasjee 1961‑62 23. 225 of 1974 Mr. Ardeshir R. F. Cawasjee 1963‑64 24. 226 of 1974 Mr. Cyrus R. Cawasjee 1968‑69 25. 227 of 1974 Mr. Jamshed M. Cawasjee 1966‑67 26. 228 of 1974 Mr. Ardeshir R. F. Cawasjee 1966‑67 27. 229 of 1974 Mr. Jamshed M. Cawasjee 1967‑68 28. 230 of 1974 Mr. Cyrus R. Cawasjee 1964‑65 29. 231 of 1974 Cawasjee Mr. Jamshed M. Cawasjee 1961‑62 30. 232 of 1974 Mr. Jamshed M. Cawasjee 1963‑64 31. 233 of, 1974 Mr. Rustam F. Cawasjee 1968‑69 32. 34 of 1974 Mr. Cawasjee R. F. Cawasjee 1962‑63 33. 235 of 1974 Mr. Soli M. Cawasjee Cawasjee 1962‑63 34. 236 of 1974 Mr. Cawasjee R. F. Cawasjee 1964‑65 35. 237 of 1974 Mr. Rustam F. Cawasjee 1962‑63 36. 238 of 1974 Mr. Cyr‑as R. Cawasjee 1965‑66 37. 87 of 1974 Commissioner v. Mr. Soli M. Cawasjee 1964‑65 38. 240 of 1974 Mr. Cawasjee R. F. 1966‑68 39. 241 of 1974 Mr. Soli M. Cawasjee 1961‑62 40. 242 of 1974 Mr. Soil M. Cawasjee 1967‑68 41. 243 of 1974 Mr. Ardeshir R. F. Cawasjee 1965‑66 42. 244 of 1974 Mr. Jamshed Cawasjee M. 43. 245 of 1974 Mr. Rustam S. Cawasjee 1966‑67 44. 246 of 1974 Mr. Jamshed Cawasjee M. 45. 247 of 1974 Mr. Soli M. Cawasjee 46. 248 of 1974 Mr. Cyrus M. Cawasjee 1962‑63 47. 249 of 1974 Mr. Cawasjee R. F. 48. 250 of 1974 Mr. Rustam F. Cawasjee 1965‑66 49. 251 of 1974 Mr. Rustam F. Cawasjee 1964‑65 50. 252 of 1974 Mr. Soli M. Cawasjee 1966‑67 51 253 of 1974 Mr. Soli M. Cawasjee 1968‑69 52. 254 of 1974 Mr. Cyrus R. Cawasjee 1967‑68 These are direct references under section 66 (1) of the Income‑tax Act, 1922 (hereinafter referred to as the Act) and raise following question of law for the decision of this Court. "Whether under the facts and circumstances of the cask the learned Tribunal was justified in holding that wile working out proportionate share of the super‑tax attributable to each partner the total super tax should be allocated to the partners of the firm in the profit sharing capacity and not as laid down in section 16 (1) (b) of the Income‑tax Act, and whether in the event of partners having lower income or losses, the super‑tax paid by the registered firm, can be reduced or refunded to the partners ?"

2. The brief facts leading to the filing of the above references are that the respondents assessees are partners in various firms. Some of the firm, had paid super‑tax which was apportioned between the partners as per their respective shares after the payment of the same by the firms concerned. There was controversy as to the manner of the apportionment of the super‑tax among the partners and on the question, whether the partners who had suffered losses and who were not liable to pay any tax could have claimed the refund of their respective share of super‑tax paid by the firms and debited to them. Eventually the above questions were agitated before the learned Income‑tax Tribunal and a number of appeals were filed by the department against the orders of Appellate Assistant Commissioner, who had directed that in the first place the proportionate share of super‑tax should be allocated to the partners on the basis of total super‑tax payable by the firm in their profit sharing capacity, and secondly in the event of there being losses in the hands of the partners and no tax having been found payable by them their respective shares of super‑tax paid by the firm should be refunded. A few appeals were also filed by the respondents assessees, who were not given the above benefit." The learned Income‑tax Tribunal by its orders of even date namely, 3rd January 1974 has held that the above directions of the Appellate Assistant Commissioner were in consonance with law, consequently; it dismissed the appeals filed by the department but allowed the appeal filed by the respondent assessees. The department has, therefore, filed the present direct references and has solicited the opinion o this Court on the above quoted question.

3. In support of the above references Mr. Waheed Farooqi has con tended that an assessee cannot claim refund of the super‑tax on the ground that overall he has suffered loss in his business and that he was not liable to pay any income‑tax because of those losses. On the other hand it was contended by Mr. Ali Athar, learned counsel for the respondents assessees that by virtue of proviso (ii) of Part I of the Third Schedule to the Act (hereinafter referred to as proviso (ii)) read with section 48 of the Act the respondents assessees are entitled to claim refund of the super‑tax paid by the firms concerned on their behalf if they were not liable to pay any income‑tax on account of the overall losses sustained by them to the various business concerns,

4. In order to appreciate the respective contention of the learned counsel for the parties, it may be pertinent to refer to section 16(1) (b), section 48 (1) and relevant portion of section 55 of the Act and proviso (ii); which read as follows: Section

16. Exemptions and exclusions is determining the total income. (1) (a) ...... ...... ... (b) When the assessee is a partner of a firm, then, whether the firm has made a profit or a loss, his share (whether a net profit or a net loss) shall be taken to be any salary, interest, commission or other remuneration payable to him by the firm in respect of the previous year increased or decreased respectively by his share in the balance of the profit or loss of the firm after the deduction of any interest, salary, commission or other remuneration payable to any partner in respect of the previous year and also, in the case of a registered firm or a firm treated as a registered firm under clause (b) of subsection (5) of section 23, of the super‑tax and surcharge payable by it Provided that if his share so computed is a loss, such loss may be set off or carried forward and set off in accordance with the provi sions of section

24. Section

48. Refunds. ‑(1) If any individual, Hindu undivided family, company, local authority, firm or other association of persons, or any partner of a firm or member of an association individually satisfied the Income‑tax Officer or other authority appointed by the Central Government in this behalf that the amount of tax paid by him or on his behalf or treated as paid on his behalf for any year exceeds the amount with which he is properly chargeable under this Act for that year, he shall be entitled to a refund of any such excess. Section

55. Charge of super‑tax.‑(1) In addition to the income‑tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income of the previous year as the case may be, of any individual, Hindu undivided family, company, local authority, unregistered firm, registered firm or other association of persons or the partners of the firm or members of the association individually, an additional duty of income‑tax (in this Act referred to as super‑tax) at the rate or rates laid down for that year by the Central Act Provided that where under the provisions of clause (b) of subsection (5) of section 23 an unregistered firm has been assessed in the manner applicable to a registered firm super‑tax shall be payable by the firm and each partner of the firm individually on his share in the income, profits and gains of the firm. Proviso (ii) of Part I of the Third Schedule to the Income tax Act.- The income‑tax payable shall in no case exceed (a) the amount by which the total income exceeds Rs. 6,000 or (b) the amount representing seventy‑five per cent of the total income, whichever amount is the less, and, where such income includes any income from a share of the income, profits and gains of a firm to which para graph C of Part II applies, such portion of the super‑tax payable under the said paragraphs bears to the total amount of such super‑tax the same proportion as his share of income, profits and gains of the firm bears to the total income of the firm shall be added to the income‑tax payable by such partner under this paragraph and, if the sum so arrived at exceeds seventy‑five pet cent of the total income of such partner (including his share of income, profits and gains of the firm) the amount of income‑tax payable by him under this paragraph shall be reduced by the amount of such excess."

5. It may be noticed that sub‑clause,(b) of section 16 (1) of the Act provides the manner of computing the income of a partner in a firm. It also provides that if the share of a partner computed in the manner provided in the above clause shows a loss such loss may be set off or carried forward in accordance with the provisions of section 24 of the Act. It may further be noticed that section 48 provides that if any individual, Hindu undivided family, company, local authority, firm or other associa tion of persons or any partner of a firm, or member of an association individually satisfied the Income‑tax Officer or other authority appointed by the Central Government in this behalf that the amount of tax paid by him or on his behalf or treated as paid on his behalf for any year exceeds the amount with which he was chargeable under this Act for that year, he shall be entitled to a refund of any excess amount. It may also be pointed out that above‑quoted section 55 is the charging section for the levy of recovery of super‑tax inter alia from the firm. It may further be pointed out that proviso (ii) provides that the income‑tax payable shall in no case exceed (a) the amount by which the total income exceeds Rs. 6,000 or (b) the amount representing seventy‑five per cent of the total income whichever amount is the less. It further provides that where such income includes any income from share of the income, profits and gains of a firm to which paragraph C of Part II applies such portion of the super‑tax payable under the said paragraphs bears to the total amount of such super‑tax the same propor tion as his share of income profits and gains of the firm bears to the total income of the firm shall be added to the income‑tax payable by such partner under the above paragraph and if the sum so arrived at exceeds seventy‑five per cent of the total income of such partner (includ ing his share of income, profits and gains of the firm) the amount of income tax payable by him under the above paragraph shall be reduced by the amount of such excess.

6. It has been contended by Mr. Waheed Farooqi that since section 16 (1) (b) of the Act does not provide that a partner can claim refund of the super‑tax while computing his income under section 16 (1) (b) of the Act, the respondents assessees have no legal right to claim the refund of the super‑tax paid by the respective firms. It has been further contended by him that proviso (ii) can be pressed into service in case where the total liability of a partner to pay income‑tax including super‑tax exceeds seventy‑five per cent of his income and not for .the purpose of claiming refund in case of losses. On the other hand it was contended by Mr. Ali Athar that section 16 (1) (b) of the Act has no relevancy to the point in issue as it pertains to the computation of income and that the relevant provision is proviso (ii). It has been further contended by him that in case where on account of various losses in the various firms a partner is not liable to pay any income tax, he is entitled to claim the refund of the super‑tax paid on his behalf by the firm, which had earned profits.

7. It is true that section 16 (1) (b) provides the manner for computing the income of a partner for the purpose of payment of income‑tax whereas proviso (if) relates to the maximum liability of a partner to pay income‑tax which includes super tax for the purpose of above proviso. Mr. Ali Athar learned counsel for the respondents assessees has referred to a judgment of a Division Bench of this Court given in I. T. C. Nos. 90, 91 and 92 of 1969 (Commissioner of Income‑Tax (Central) Karachi v. Seth Saifuddin Ghulam Hussain) delivered on 22nd March, 1978 on the interpretation of the above proviso (ii) of the Finance Act, in support of his above contention. It may be pertinent to reproduce here-in below paras. 8 and 9 of the above judgment, which read as follows: (8) As analyzed, the above proviso provides inter alla, that (1) the income‑tax shall in no case exceed 75 per cent of the total income of the assessee, and (2) if the total income includes a share of the profits of a registered firm, there is to be added to the income‑tax payable by the partner under this paragraph, such portion of the super tax payable by the registered firm, as bears the same propor tion as his share of the profits of the firm bears to the total income of the firm, and (3) if, after so adding the portion of the super‑tax, the sum so arrived at exceeds 75'% of the total income of such partner (including his share of the profits of the firm) the amount of income‑tax payable by him under this paragraph shall be reduced by the amount on such excess. The formula for calculating the portion of the super‑tax of a partner under the said paragraph may conveniently be represented thus: Portion of the total amount His share of the income, profits of super‑tax payable by the

and gains of the firm. firm.

Total income of the firm The controversy in question relates to the number at or in the aforesaid fraction, viz. his share of the income, profits and gains of the firm. According to the respondent's contention, which found favour with the Appellate Tribunal, the partner's share of the profits of the firm is to be taken to be the amount of his share before deduction of super‑tax payable by the firm ; whereas the contention of Mr. Mansoor Ahmad Khan for the Department is that it should be taken to be the amount after deduction of super‑tax payable by the firm. Learned counsel relied on section 16 (1) (b) of the Act, which provides that in computing the total income of an assessee, who is a partner of a firm, his share of the net profit is to be determined after deducting the super‑tax payable by the firm. (9) In my opinion, section 16 (1) (b) is not relevant because that sub section lays down the mode of computing the quantum of a partner's share in the profit (or loss) of the firm, whether registered or un registered, for the purpose of determining the rate of income‑tax applicable to his taxable income; whereas the subject‑matter of the proviso under consideration is the computing of the maximum limit of the income‑tax payable by a person who is a partner or a registered firm, which is to be determined by adding a proportionate portion of the super‑tax to the income‑tax payable by such partner under the paragraph and the question of rebate of an amount of income‑tax, if the sum so added exceeds 75 % of the total income of such partner. As rightly submitted by Mr. Ali Athar, learned counsel for the respondent, the proviso under consideration does not refer to the quantum of the share of the profits of a partner as determined under section 16 (1) (b) which, under that subsection, is determined after deducting the super‑tax payable by the firm. The total income of a firm is assessed under section 23, like that of an individual person and thereafter the super‑tax payable by the firm is determined on the total income so assessed. In other words, the assessment or the total income of the firm is before deduction of super‑tax payable by the firm, the share of the partner in the total income of the firm so assessed (before deduction of super‑tax payable by the firm), is determined under section 23 (5) (a). I am, therefore, in agreement with the view expressed by the Appellate Tribunal that the partner's share of super‑tax payable by‑ the registered firm under the proviso is not to be apportioned with reference to the share of the partner 'as computed under section 16 (1) (b). It is, however not necessary to consider the additional reason given by the Appellate Tribunal that if the Department's contention is accepted, it would patently create a lacuna inasmuch as a portion of the super‑tax would remain unad justed against the income of any of the partners."

8. It may be noticed that in the above case inter alia it was held that in assessment of the total income of the firm for the purpose of payment f super‑tax is before the deduction of super‑tax payable by the firm. It as further held that the partner's share of super‑tax payable by the registered firm under the proviso is not to be apportioned with reference the share of the partner's income as computed under section 16 (1) (b). The above case has no direct bearing on the question of claiming of refund f super‑tax by an assessee partner on the ground that overall his business ,suit was in loss for the relevant year. It may be appropriate to refer to certain portion of the chart annexed to le order passed by the learned Income‑tax Appellate Tribunal in the case f Assessee v. Department reported in 1968, XVII Taxation 53 relevant t 57, (which order was upheld by the judgment of the Division Bench of this Court in the above‑unreported case), which reads as allows ‑ "Where income of the partner including exemption allowable under section 158 of the Income. Tax Act. Rs. 2,30,708 Add: Income from other sources Total Income

Rs. 2,30,708 Income‑tax on Rs. 2,30,708 Rs. 1,48,474 Add: Proportionate super‑tax paid by the firm. Rs. 56,592

Total Tax Rs. 2,05,066 It is more than 75% of the total income and as such restricted to 75% of the total income. It will come to: Rs. 1,73,031 In terms of and proviso to para I of Part I of the 3rd Schedule is the Finance Ordinance, 1960, super‑tax paid by the firm is deducted out of the tax demanded. Rs. 56,592 Net tax payable by the assessee. Rs. 1,16,439" In may be noticed that in the above case the income of the partner is Rs. 2,30,

708. The income‑tax payable on the above amount comes to Rs. 1,48,474, whereas the super‑tax paid by the firm on account of the above partner is Rs. 56,592 thus making a total of Rs. 2,05,

066. Since proviso (ii) provides that income‑tax which include super‑tax shall not exceed 75% of the total income of an assessee, and as the above sum of Rs. 2,05,066 exceeds the above maximum limit of 75 % of the income, the assessee's liability to pay tax has been reduced to the maximum limit of 75 % of his income, which works, out to Rs. 1,73.031. In the above quoted example the aforesaid sum of super‑tax namely Rs. 56,592 has been deducted from the above sum of Rs. 1,73,031 for the reason that this sum was already paid by the firm on behalf of the assessee partner and therefore he was allowed to pay Rs. 1,73,031 minus Rs. 56,592 equivalent to Rs. 1, 16,

439. The above example contained in the above quoted chart succinctly, explains the effect of proviso (ii). We may quote another example in order to highlight the contention of Mr. Ali Athar in proper perspective. Example‑An assessee who is a partner in various firms overall suffers loss amounting to Rs. 1,00,000 in the relevant assessment year. One of the firms in which he is a partner has paid certain amount as super tax in the said relevant assessment year, out of which Rs. 75,000 were debited to the aforesaid partner as his share of super‑tax in proportion of his share of the profits in the said firm. According to Mr. Ali Athar, the aforesaid partner by virtue of proviso (ii) is entitled to claim refund of Rs. 75,000 under section 48 of the Act, paid by the firm on his account as super‑tax as he has suffered overall loss of Rs. 1,00,000 in the relevant assessment year. We are unable to agree with the above contention of Mr. Ali Athar and with the view found favour with the learned Income‑tax Tribunal. In our view, the proviso provides maximum limit of the liability of a tax payer by providing that his total liability of income‑tax, which will include super‑tax shall not exceed 75 jo. It does not provide that an assessee will be entitled ‑to the refund of the super‑tax in case over all he suffers loss in a particular assessment year. It may be pointed out that section 24 of the Act provides the cases where an assessee can claim set off or carry forward the loss of one assessment year to the subsequent assessment year. The above section does not admit the claim of refund of super‑tax on the ground that the assessee partner has suffered overall loss in a particular year. We are also inclined to hold that section 48 of the Act has n application to the present case as under the above section any individual, Hindu undivided family, company, local authority, firth, or other associa tion or persons or any partner of a firm or member of an association may claim the refund if the amount of tax paid by him or on his behalf of treated as paid on his behalf for any year exceeds the amount with which he is properly chargeable under the Act. In the present case it is not disputed that the firm was charged with the proper super‑tax on the basis of computation of the income of the firm concerned and that there was no mistake in the calculation or otherwise. The claim for the refund is not made because the firm concerned was not liable to pay the super‑tax charged from it but for the reason that the partner overall had suffered loss in the particular assessment year and, therefore, was entitled to claim the refund of the super‑tax paid by the firm concerned on his behalf. It may be pertinent to observe that the liability to pay super‑tax is of the firm thought the amount of super‑tax paid by the firm is apportioned among the partners in proportion of their profits sharing capacity. In our view, section 48 has no application; to the present cases. , Mr. Waheed Farooqi has referred to the case of Commissioner of Income‑tax v. Messrs Philips Holzman A. G. Ameejee Valeejee & Sons, Karachi (P L D 1968 Kar. 95) wherein a Division Bench of the erstwhile High Court of West Pakistan, Karachi Bench quoted with approval the observations of Rowlatt, J in the case of Cape Brandy Syndicate v. Inland Revenue Commissioner ((1921) 1 K B 64) that "In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read ' in, nothing is to be implied. One can only look fairly at the language used." The above‑quoted observations are applicable to the present cases as ‑if we were to accept the contention of Mr. Ali Athar, learned counsel for the respondents assessee and the view of `the Tribunal, in fact it will amount to reading of some thing into the proviso for the purpose of granting the refund of super‑tax to the respondents assessees.

9. We are in respectful agreement with the view of the aforesaid Division Bench in the above‑unreported judgment dated 22nd March, 1978 (Commissioner of Income‑Tax (Central) Karachi v. Seth Saifuddin Ghulam Hussain that section 16 (1) (b) of the Act has no relevancy for the purpose of computing a partner's share of super‑tax but the same is ascertained on' the basis of a partner's share in the profit in the firm concerned which has paid super‑tax.

10. For the foregoing reasons, our answer to the first part of above quoted question is that the Tribunal was justified in holding that while working out proportionate share of the super‑tax attributable to each partner, super‑tax should be allocated to the partners of the firm in the profit sharing capacity and not with reference to section 16 (1) (b) of the Act. However, our answer to the second part of the above question is that under the proviso a partner can claim refund of the tax amount (which includes income‑tax and super‑tax) in excess of 75% or in excess of any other specified maximum percentage in the Finance Act of the relevant assessment year, of the income, for bringing down his total liability maximum to 75% or other specified percentage but he cannot claim the refund of the super‑tax on the ground that his overall income was low or that overall he has suffered loss. The above references stand disposed of in the above terms with no order as to costs. M. B. A. Reference answered accordingly.