2003 PLP (Trib (PTD)

13. Therefore, we are of the considered view that the proceeds obtained on encashment of F.E.B.Cs. are not entitled to exemption as contemplated in the said sub‑clauses of section 5(i)(xv) of the Wealth Tax Act, 1963. Both the above reported decision as also the reasons on which these were based do not call for any re‑consideration as prayed for the assessee. The submissions made at the bar for the assessee in the circumstances must fail as the above referred unreported decision, dated 7‑12‑1995 relied upon by the assessee does not state correct law.

14. These contentions raised by the learned counsel for appellant shall fail accordingly and as a result therein the appeal filed by the assessee will also fail.

26. In a recent case reported as 1999 PTD (Trib.) 1494, by a Division Bench of the Tribunal headed by the learned Chairman of the Tribunal, the provisions of section 5(i)(xv) of the Act read with clause 7(i)(ii) of the Second Schedule to the Act were discussed in the matter of claim of exemption for F.E.B.Cs. and creation of assets and extension of loan by the assessee out of encashment of F.E.B.Cs. The Tribunal in the said case in para 41 to 43 at pages 187 and 188 observed and held as under:‑‑ "41 .We have already held that the F.E.B.C. being a promissory note is currency as defined in section 2(b) of the Foreign Exchange Regulation Act, 1947 and since it is a promissory note purchasable in foreign exchange and encashable in foreign exchange at the option and discretion of the bearer and the principal as well as interest both are encashable in foreign exchange and certificates are transferable by delivery and there are no restrictions on possession, import or export of these certificates, therefore, beyond any shadow of doubt the F.E.B.C. is foreign exchange. Thus it is further held that if any assessee gets foreign remittances through normal banking channels he receives foreign exchange which enjoys exemption from levy of wealth tax under para (i) of clause (7) of the Second Schedule to the Wealth Tax Act, 1963 and further on purchases of F.E.B.C. the assessee continues to hold the same assets i.e. foreign exchange and continues to enjoy exemption under the same provision from the levy of wealth tax. This exemption shall continue for the period specified in clause (7)(i) so long an assessee retains the assets as foreign exchange as defined in section 2(d) of the Foreign Exchange Regulation Act, 1947. However, as soon as the foreign exchange is converted into any other asset whether in cash or kind or any asset is acquired out of the said foreign exchange brought through normal banking channels in the form of any movable or immovable property it would amount to creation of an assets which is a new class of asset. This brings into existence a newly created asset in .the hands of assessee. This newly‑created asset shall enjoy exemption under para (ii) of clause (7) of the Second Schedule to 'the Wealth Tax Act, 1963 and under section 5(i)(xv)(ii) as it stood before Finance Act, 1996. Thereafter, if any new asset is acquired by the assessee it shall not be entitled for exemption as it would not be crated out of foreign remittances but it would amount to creation of asset out of an asset which was already created out of foreign remittances and this such newly‑created asset will not fall within the purview of clause 7(ii) of the Second Schedule of the Wealth Tax Act, 1963. (42) Now applying the above principles, findings and conclusions to the facts of the present case, we find substance in the contention of Mr. Rehan Hassan Naqvi that when the appellants purchased F.E.B.Cs. out of the foreign exchange received through normal banking channels, it did not amount to conversion of foreign exchange in any other asset, and the foreign exchange was converted for the first time or in other word assessee created an asset out of foreign remittances when F.E.B.Cs. were encashed in Pak. Rupee, as encashment F.E.B.Cs. in Pak, rupee is the first conversion of foreign exchange which was received through normal banking channels, therefore, it is held that such asset is entitled for exemption, under para (ii) of clause (7) of the Second Schedule to the Wealth Tax Act, 1963 and section 5(i)(xv)(ii) of the Wealth Tax Act, as it stood prior to the Finance Act, 1996. (43) For the foregoing reasons it is held that the Assessing Officers in the appeals under consideration had rightly allowed exemption from levy of wealth tax to the Pak. Rupees acquired by the appellant as a result of encashment of F.E.B.Cs. which were purchased out of foreign remittances received through normal banking channels. To this extent the impugned orders of the learned IACs. in these appeals are hereby vacated and the appeals are allowed accordingly."

27. If we see to the text of the relevant part of the order of the Division Bench of the Tribunal in the above case, there appeared an interpretation of the provisions of sub‑clause (i) and (ii) of clause (7) of Second Schedule to the Act and the then section 5(i)(xv) of the Act that if any new asset has been acquired by an assessee then he shall not be entitled for exemption because it would not be considered to have been created out of foreign remittances but it would amount to acquiring of an asset from an asset which was originally created out of foreign remittances and such new asset will not fall within the purview of exemption allowed under clause (7) (ii) of Second Schedule to the Act but at the same time the amount received in Pak‑rupees through encashment of F.E.B.Cs. purchased out of foreign remittances through normal banking channel was allowed exemption from the levy of wealth in the said case. Whereas in the other case reported as 1997 PTD (Trib.) 1928, the Full Bench of the Tribunal was of the view that the proceeds obtained on encashment of F.E.B.Cs were not entitled to exemption as contemplated in sub‑clauses of section 5 (i)(xv) of the Wealth Tax Act, 1963, the other case reported as 1995 P.TD (Trib.) 1162 the conversion of foreign remittance into other forum like fixed deposit receipts and has Deposit Certificates was altered exception under S.5(1)(xv) of the Wealth Tax Act, 1963.

28. In the case reported as 1991 PTD (Trib.) 135, the Tribunal was of the view that the exemption could be granted to an asset which was created for the first time out of remittances received or brought in Pakistan through proper banking channels and not to subsequently created assets. It was held that the exemption has been granted to an asset which comes into existence after conversion of the already created asset. It was further held that if we apply exemption to subsequently created assets then every asset obtained on conversion of previously created asset would be exempted and thus the wealth tax would never be chargeable on it, which of course, does not appear to be the intention of the legislature.

29. Now the following are the extracts from the C.B.R.'s Circular No.8/42‑WT/84, dated 30-6‑1985, with regard to multiple conversion:‑‑ "The existing clause (xv) of section 5(1) required the person claiming exemption of assets brought into Pakistan to remain a non‑resident for the exemption period. Under the existing provisions assets brought from abroad enjoyed exemption so long as they remained in the same form, except for the remittance invested in purchase of shares of public companies. Under the revised clause (xv) there is no restriction regarding the residential status of the assessee and the assets would remain exempt for 6 years even if any changed form.

2. However, the following precautions need to be taken by the Assessing Officer, namely:‑‑ (i) the owner of the remittances be determined as he would be an assessee who would alone enjoy the exemption for the subsequent five years; (ii) the value of the remittances be determined in the first year and the exemption period of the following five years be incorporated in the body of the assessment order; (iii) as provided for in the new proviso to clause (xv), in the case of conversions the portion of the foreign remittances be determined and only that portion be allowed during the exemption period."

30. With regard to the above referred Circular, the main stress of the learned AR of the assessee was that the prescribed period of the exemption for such‑like asset is to be seen and change in the form of asset was immaterial because the asset in the form of shares was in fact created out of foreign remittances and then the shares were sold and the amount so received was advanced as loan and accordingly claimed exemption under the said provisions of law.

31. In order to have a clear view of the terms and phrases involved and used in the instant case for resolving the issue in hand, it is necessary to reproduce the definitions of such terms and phrases as given in the relevant law.

32. First of all, we reproduce here the definition of assets as given in the Wealth Tax Act, 1963:‑‑ Section 2 (5) "assets" includes (i) in the case of an individual and Hindu undivided family, property of every description movable or immovable, except (a) ......................................... (b) . Provided............................ (ii) in the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company, immovable property held for the purpose of. the business for construction and sale, or letting out, of property. Examination

33. From the above definition it meant that the definition of assets is an inclusive and exhaustive definition also containing exception of certain properties and falling in the said definition and also explanation in respect of properties falling within the said definition.

34. Now the provisions of Exemptions as contained is section 5(i) (xv) of the Act prior to the substitution by the Finance Act, 1996 are reproduced here for reference purpose:‑‑ Section 5(1) (xv) assets (i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought; remitted or received and the following five years; (ii) created by an assessee out of remittances received in, or brought into Pakistan through normal banking channels during the period referred to in sub‑clause (i): Provided that where investment in the assets is not made entirely out of remittances received in, or brought into Pakistan through normal banking channels, the exemption shall apply in the same ratio as the foreign remittances bear to the total investment."

35. The above provisions was later on substituted through Finance Act, 1996 and the exemptions provided in section 5 were similarly inserted in clause (7) of Part‑I of the Second Schedule to the Wealth Tax Act, 1963 which read s under:‑‑ Clause (7) assets.‑ (i) brought or remitted by an assessee into Pakistan, or received by an assessee from outside Pakistan, in the year in which they are brought, remitted or received and the following five years; (ii) created by an assessee out of remittances received in, or brought into Pakistan through normal banking channels during the period referred to in sub‑clause (i): Provided ."

36. From the above substitution of provisions of section 5(i)(xv) and insertion of clause (7) in Part‑I of the Second Schedule to the Wealth Tax Act, 1963, it was obvious that whatever was earlier provided in section 5(1)(xv) was placed in clause (7) of Part‑I of the Second Schedule to the Act.

37. If we see to the above provisions of exemption in respect of assets, it becomes obvious that sub‑clause (i) of clause (7) of the Second Schedule which was originally sub‑clause (i) of clause (xv) of sub section (1) of section 5 of the Act was specifically dealing with the grant of exemption to assets brought or remitted by an assessee into Pakistan or received by an assessee from outside Pakistan for a period as specified therein and the assets have been defined in section 2(5)/ section 2(e) of the Act through an inclusive definition also containing exceptions and explanation of certain properties in that regard. However, the proposition in hand obviously was not in respect of exemption of asset dealt with under the then provisions of sub‑clauses (i) of clause (xv) of section 5(1) or under sub‑clause (i) clause (7) of Second Schedule to the Act but it was to be dealt with under the then sub clause (ii) of clause (xv) of section 5(1) or under sub‑clause (ii) of Clause (7) of the Second Schedule to the Act. Obviously, we have to see as to how long an asset created out of foreign remittance would be enjoying exemption under the then provisions of sub‑clause (ii) of clause (xv) of section 5(1) or sub‑clause (ii) of clause (7) of Part‑I of the Second Schedule to the Act with specific reference to the difference stages of change in the form of such asset during the statutory period of exemption as prescribed in the law.

38. In the instant case admittedly, firstly the foreign remittances were brought in Pakistan by the assessee which in that form stood exempted under sub‑clause (i) of the aforementioned provision of law and then the assessee utilized the said foreign remittances by procuring/purchasing shares of a company which too directly enjoyed exemption under the provisions of clause (ii) of the above stated provisions of law being an asset created out of said foreign remittances and thereafter the assessee disposed of/sold the said shares and the amount of Rs.2,500,000 so received was advanced by him as a loan and claimed exemption on account of liability of the said loan under the said provisions of sub‑clause (ii) of section 5(i)(xv) sub‑clause (ii) of clause 7 of Part‑I of the Second Schedule to the Act and now we have to take into consideration the above stage and have to give an answer to the proposition in the context of legal provisions to that effect.

39. Now we have to see the different stages from the receipt of foreign remittances in Pakistan to the assets created there from. Obviously, a close nexus is to, be established to the time factor and other formalities for creation of an asset out of the foreign remittances. Generally, every transaction of sale and purchase in Pakistan is made or effected in Pak‑rupees/currency which is considered as a valid tender of the consideration amount of price of the property so sold and purchased. Obviously, the purchase of shares by the assessee may have taken place by converting foreign remittances into Pak. rupees/currency firstly and then the price/consideration amount of the shares may have been tendered to the seller/vendor in Pak. currency and thereafter the second transaction of sale of said shares took place. In the above course of transactions, the first one relating to purchase of shares out of foreign remittances may safely be covered under the provisions of sub‑clause (ii) of section 5(i)(xv)/sub‑clause (ii) of clause (7) of Part‑I of the Second Schedule to the Act because the words used in the said sub‑clause were providing for such assets which have been created by an assessee out of remittances received in or brought into Pakistan through banking channel during the period referred to in sub‑clause (i). For looking to the import of the words used in the provisions of sub‑clause (ii) referred to above, to go into the principles of interpretation of fiscal statutes as laid down by superior Courts and discussed the books of law in that context. Therefore, we would refer paras‑163 and 164 of the book on Principles of Interpretation of Statutes" authored by Shiekh Shaukat Mahmood and Sheikh Nadeem Shaukat (First Edition‑1990) which are as under:‑‑ "(4) Fiscal Statutes: There are three distinct types of provisions generally in every fiscal enactment. The charging provisions, which relate to the levy or charge of the tax, which usually state that tax is to be levied and on what matter, or goods or income and in which manner and at what rate and matters relevant thereto. The assessment provisions, which deal with the assessment, calculation or quantification of the tax for the purposes of determining the amount of tax due and payable or which has escaped collection or has been under assessed or assessed at a lower rate or on which excessive relief or refund has been allowed. The collection provisions, which relate to the mode and manner of receipt or collection of the tax. The charging sections have to be strictly construed and any benefit found therein has to be given to the taxpayer. However, the assessment and collection provisions are merely the machinery sections and they can be liberally construed. Tax must be levied by express provision.‑‑‑When the State requires the subject to pay a tax any kind, that must be done by definite enactment strictly interpreted. In a Taxing Act one has to look at what, is clearly said. There is no room for intendment. There is no equity about a tax. There is no presumption as to a 'tax. Nothing is to be read and nothing is to be implied. One can only look fairly at the language used. The subject is not to be taxed unless the language of the statute clearly imposes the obligation; and in cases of reasonable doubt the construction which is most beneficial to the subject is to be adopted. Ordinary meaning should be given to the words used.‑‑‑In a Taxing Statute, as in other statutes, there should be no departure from general rule that words used in a statute must first be given their ordinary and natural meaning. (see PLD 1990 SC 68). It is only when such an ordinary meaning does not make sense that resort can be had to discovering other appropriate meanings. (see PLD 1963 SC 137). As a rule, when the Courts are construing a Fiscal rule, which imposes a liability on a subject, they have got to give a meaning to these words which would be consistent with the principles of natural justice recognized in other similar Fiscal enactments. The onus is on those who seek to put the most onerous meaning on words used in Taxing Statutes, to show clearly what meaning was intended. Advantage given by construction not to be dented on ground of intention of Legislature. A Taxing Statute must be construed strictly, and if an assessee gets an advantage which the Legislature may not have intended, but which he is entitled to on the construction of the statute the Court should not deprive him of that advantage. Where an intention to levy a tax is apparent on the face of the enactment it is not open to. Courts to cut down the general words imposing the tax by reference to extraneous considerations or possible intention of the Legislature."

41. The superior Courts of Pakistan and the Tribunal have also laid down guiding principles and the rules for the interpretation of fiscal/ taxing statutes in cases reported as; (i) 1993 PTD 69 = 1993 SCMR 274, (ii) 1999 PTD 4126, (Case of Maple Leaf Factory) (iii) 1989 PTD 909, (iv) 1971 PTD 200 and (v) 1977 PTD (Trib.)

43. The basic principle which has enunciated in the said case‑laws was that the expressed language of law maker and not the intendment should be looked into and the Courts have not to circumvent or expand the meaning of charging sections and nothing was to be read in or A nothing was to be implied into the provisions of law and there was no room for equity about a tax or about a presumption with regard to a tax.

42. Now, if we minutely look into the provisions of sub‑clause (ii) of section 5(1)(xv) or subsection (ii) clause (7) of part‑I of the Second Schedule to the Act, and analyse the situation, then out rightly there appeared to be a one time exemption to an asset created out of foreign remittances received in or brought into Pakistan by an assessee because expressly the word assets created by an assessee out of remittances have been used and as such the asset which is not directly created out of the remittances perhaps would stand excluded from the purview 6f exemption provisions under the said law. The observations of the Tribunal in the recent case reported as 1999 PTD (Trib.) 1494, which have also been reproduced above are worth‑mentioning at this stage while dealing with the relevant provisions of law with regard to the exemption as provided under the sub‑clause (ii) of section 5(1)(xv) section (ii) clause (7) of Part‑I of the Second Schedule to the Act. It has been observed therein that "if any new asset is acquired by the assessee it shall not be entitled for exemption as it would not be created out of foreign remittances and it would amount to creation of asset out of an asset which was already created out of foreign remittances and this such new asset will not fall within the purview of clause (7) (ii) of the Second Schedule to the Wealth Tax Act, 1963."

43. In the, above situation, there appeared no sense or any logic to have a second opinion to the opinions expressed by the learned Members of the Division Bench through the observations as made in the said reported case and we as such are of the considered view that the legislature whatever has directly expressed in the language of the said provisions of law the same are to be followed in letter and spirit and in its literal sense and neither any other meaning can be given or implied through any presumptions to the said express provisions of the law. It is of course a one time exemption which has been allowed to an asset created out of foreign remittances and cannot be extended to the assets acquired or procured subsequently by disposing of he first asset which was created out of foreign remittances while interpreting the said provisions of law with regard to claim of exemption, of course, there is a logic in this opinion in the context of the provisions of the law. However, a close nexus will have to be developed or drawn between the creation of an asset out of foreign remittances in order to bring the same within the ambit of exemption clause and after that also the time factor and other related formalities of the transaction would be relevant factor to be looked into when an asset is firstly created out of the foreign remittances and then subsequently another asset is acquired through the disposal of asset firstly created out of foreign remittances in order to bring such subsequently created asset within the exemption clause even if that subsequent asset has been acquired within the time period as prescribed in the said provisions of law. If we allow the exemption to such a subsequently created asset then there would be no end to check the external elements which may likely to creep into the utter disadvantage of the Revenue and the object of the fiscal statute. This, situation has been expressly guarded by the statute while using the words "assets created by an assessee out of remittances" and that such assets have been created out of foreign remittances within the period as prescribed in the said provisions of law.

44. Therefore, we are of the firm view that the assessee was not entitled to claim exemption under the aforesaid provisions of law in respect of asset which was not created directly out of foreign remittances and which in fact was an asset acquired subsequently from the asset which was originally created out of foreign remittances and that the law has not allowed exemption to the subsequent asset procured from the sale or disposal of first asset created out of foreign remittances. Hence the issue in question is answered accordingly in favour of the Revenue and against the assessee.

45. Resultantly, the departmental appeal succeeds as indicated above. C.M.A./791/Tax (Trib.) Appeal accepted.