1969 PLP 908 (PTD)

MUSHTAQ HUSSAIN, J. Messrs K. S. B. Pumps Company Limited, petitioner, is an industrial undertaking which was incorporated as a private limited company on 18th July 1959 under the Companies Act, 1913, with a subscribed and paid up capital of Rs. 40,00,000.00. Its business was to manufacture Centrifugal and Deepwell Turbine Pumps. The Company obtained the lease of a building within the precincts of the Pakistan Ordinance Factory, Wah, and installed its machinery in it. This step was taken to expedite the production of the pumps as the construction of a building presented certain impediments and would have taken quite some time. The result was that the Company went into commercial production on 15th October 1960.

2. On 14th May 1962 the petitioner company made an application through Messrs A. F. Ferguson & Company, Chartered Accountants to the Central Board of Revenue, Government of Pakistan for exemption from income tax under section 15-BB(2)(e) of the Income tax Act. The matter remained under the consideration of the Board for more than two years. Meanwhile the petitioner completed the construction of a factory building at Hasan Abdal and shifted the plant and machinery from the leased building within the precincts of the Pakistan Ordinance Factory, Wah, to this newly constructed building in July 1964.

3. The Board remained seized of the application till 12th November 1964 when by an order (copy Annexure `G') exemption from income tax for the period from 1st July 1964 to 15th October 1964 only was communicated to the petitioner. The petitioner had applied for exemption for the statutory period of four years. The relevant portion of the order passed by the Board ran as follows: "The period of exemption in respect of the unit at Wah is for the period from 1st July 1964 to October 1964 only as the condition relating to the use of new building has been relaxed only with effect from that date." The petitioner felt aggrieved by that order and moved this Court for redress under Article 98 of the 1962 Constitution.

4. Section 15-BB inserted into the Income tax Act, 1922, by section 11 of the Finance Ordinance, 1959. Subsection (1) of it rats as follows: "Tax holiday for new industries. (1) Subject to the provisions of this section, the income, profits and gains of an industrial undertaking set up in Pakistan on or after the first day of April 1959, shall be exempt from the tax payable under this Act for a period of two years beginning with the month in which the undertaking is set up or the commercial production is commenced, whichever is the later." This subsection was to be applicable to an industrial undertaking only if it fulfilled certain conditions, and subsection (4) laid down that

"Nothing contained in this section shall apply to an industrial undertaking which is formed by the splitting up or the reconstruction or reconstitution of business already in existence or by the transfer to a new business of any building, machinery or plant used in a business which was being carried in Pakistan on or before the first day of April 1959."

5. This subsection (4), which falls for interpretation in the present case, suffered two amendments before the passing of the impugned order. The first was made by section 6 of the Finance Ordinance of 1961 which substituted the following for the subsection, referred to above : "(4) The provisions of this section shall also apply to an industrial undertaking consisting of an expansion of an existing industrial unit for production of similar or other goods or class of goods, or (b) a similar unit for the carrying out of an identifiable industrial process and such identifiable or similar unit is owned and managed by a company registered under the Companies Act, 1913 (VII of 1913), all the voting shares of which are owned by the company owning the said existing industrial undertaking, or such system of accounting based on recognised accounting practices is adopted for the determination of the income, profits and gains of such identifiable or similar unit as may be approved by the Central Board of Revenue for the purposes of this section, but nothing contained in this section shall apply to an industrial undertaking which is formed by the splitting up or the reconstruction or reconstitution of business already in existence or by the transfer to a new business or any building, machinery or plant used in a business which was being carried on in Pakistan on or before the first day of April 1959." While by still another Amendment made in July 1964 by the Finance Act of that year, the word "building" occurring after the words "a new business of any" was deleted. The Board, as is evident from the impugned order, seems to be under the impression that the petitioner was not entitled to any exemption from income tax up to 1st July 1964 because the word "building" continued to exist in this section and it became entitled after that period only because this word was deleted in July 1964, the reason being that from October 1960 up to the end of June 1964 the petitioner company continued to operate its industry in a building let out by the Pakistan Ordnance Factory, Wah, i.e., a building which had been in use even before the 1st of April 1959. Instead of granting the full period of four years of exemption the same was restricted only to three months for the reason that the Board thought the Company was entitled to exemption only for a period of four years or less, as the case may be, within the first four years of its existence as a commercial producer.

6. Before proceeding with the case, we may point out that although in the original subsection, inserted in 1959, the words "new business" were followed by the word "of", the amended subsection substituted by the Finance Ordinance of 1961 contained the word "or" instead of this "of". The Amendment made in 1964 made no change in this position. Since we thought that by use of word "or" instead of "of" the sentence, lost all meaning, we enquired from learned counsel for the respondent if he agreed that the word "or" was a misprint for the word "of". Initially, he did not agree with it but when we asked him to interpret the section, he ultimately agreed with us that the existence of the word "or" rendered the sentence meaningless. In his opinion also, the word had to be "of" and not "or". As a matter of abundant caution we asked the Registrar of this Court to establish contact with Mr. A. R. Chaudhry, the draftsman of the Ministry of Law, Government of Pakistan, and to find out from him if the assumption made by us was correct. After consulting his records at Karachi he informed the Registrar that the Court was correct in thinking that the word was "of" and not "or" and that the latter was simply a misprint. We have, therefore, used the correct word wherever we have quoted the subsection and do not feel it necessary to go into details of the reasons why we had even initially thought that the correct word was "of" and not "or". Suffice it to say that one of the reasons which impelled us to this conclusion was that the entire sentence became grammatically incorrect and incomplete and, in fact, lost all meaning if it was read with the word "or" and not "of".

7. Let us see if the petitioner was not entitled to exemption during the period that the word "building" formed part of the last portion of section 15-BB(4). For the sake of convenience this portion may be quoted again as follows:- "but nothing contained in this section shall apply to an industrial undertaking which is formed . . . . . . by the transfer to a new business of any building, machinery or plant used in a business which was being carried on in Pakistan on or before the 1st day of April 1959." The question, therefore, would be whether the business of the petitioner was `formed' by the transfer to it of a building.

8. In the instant case petitioner company had obtained the lease of the building from the Pakistan Ordnance Factory. As defined by section 105 of the Transfer of Property Act, a lease of immovable property "is a transfer of a right to enjoy such property, made for a certain time . . . . . . . ". In other words, the transfer is not the transfer of the property itself but of just a right to enjoy it. Now the right to enjoy such property may itself be property and in this view of the matter a lease of immovable property may be construed as a transfer of "property". This, however, shall have to be remembered that the word "property" would in such a case be used in the strictly juristic sense. The word "building" is not a term used in legal philosophy and is, in any case, not synonymous with the word "property" as used above. Even if, therefore, a lease of immovable property may in a particular sense described above be termed as a transfer of property it cannot be synonymous with the expression "transfer of a building". In the subsection, quoted above, what is envisaged is the "transfer of a building". The words used are "transfer of a building", and not "transfer of a property". The petitioner's obtaining the premises on lease from the Pakistan Ordnance Factory, Wah, can, therefore, not be construed as the "transfer of a building" to the petitioner for the purpose of forming a new business.

9. Similarly on the first of July 1964 no new business was formed by the petitioner by the construction and availability of the new building in Hasan Abdal. In fact, no building was transferred to the new business because the aforesaid new building had been constructed by the petitioner itself who was carrying on that business. The business was already in existence and the factory was very much in production and it cannot, by any stretch of the language, be said that a new business was formed by the petitioner by its shifting to a new building constructed by it for this purpose. The mere fact, therefore, that the petitioner did so would not entitle it to exemption if it were already not so entitled.

10. One may, however, at this stage take into account the fact that the word "building" was deleted from the subsection with effect from 1st July 1964 and thereafter the formation of a new business by the transfer of an existing building to it could not be of any consequence so far as the subsection goes.

11. Be that as it may, the Board in its letter (Copy Annexure `G') took up a strange position when it observed : "The period of exemption in respect of the unit at Wah is for the period from 1st July 1964 to October 1964 only as the condition relating to the use of new building has been relaxed only with effect from that date." As already explained above, there was no condition for the use of a new building to entitle a person to exemption under section 15-BB. The condition was that a business undertaking asking for exemption shall not be formed by the transfer of a, building which was in use before the First of April 1959. We have already seen that the petitioner was not claiming relief in respect of any such business since not building was transferred to it at any relevant time.

12. We, therefore, declare that the order of the Board of Revenue refusing exemption to the petitioner from payment of income tax under section 15-BB (4) was without lawful authority and of no legal effect. The result is that the petitioner is entitled to be so exempted for the entire period from October 1960 when the petitioner started commercial production up to October 1964 when the period of four years prescribed by the law expired.

13. The petition is accepted with costs. Petition accepted.