2011 PLP (Trib (PTD)

This appeal has been filed by the Department against order dated December 6, 2008 passed by the Commissioner of Income Tax (Appeals-1) for the tax year 2007.

2. Brief facts of the case are that taxpayer is a listed public limited company. It derives income from manufacturing, purchase, import, and sale/supplies of fertilizers. The return for tax year 2007 was filed declaring net income at Rs.6,184,186,400.The Taxation Officer, Enforcement-IV, Large Taxpayers Unit, Islamabad vide notice dated February 19, 2008 and subsequent notices issued under section 221(2) of the Income Tax Ordinance, 2001 (Ordinance) stated that in view of the-definition of, total income in Workers' Welfare Fund Ordinance, -1971 (WWF Ordinance) as amended through Finance Act, 2006, the Company is liable to pay Workers' Welfare Fund (WWF) @ 2% of net profit (before taxation or provision of taxation) as per accounts or total income as per the return of income whichever is higher. However, examination of the assessment record for tax year 2007 revealed that Company paid WWF @ 2% of total income as per return of income for the said tax year. In this way WWF of Rs.16,019,152 was short paid by .the Company as under:- Total income for WWF purposes: Rs.6,985,144,000 WWF@ 2% Rs.139,702,880 WWF already paid on declared income Rs.123,683,728 Balance WWF payable Rs.16,019,152

3. Considering the replies of the Company unsatisfactory, assessment order dated July 22, 2008 was passed under section 221 of the Ordinance whereby demand of WWF of Rs.16,019,152 was raised. The Commissioner Income Tax (Appeals-I) vide order dated December 6, 2008 deleted the said demand. The CIT(Appeals) held that as per section 4 of WWF Ordinance, WWF is chargeable on total income as is assessable under the Ordinance which in the present case amounts to Rs.6,184,186,400 instead of accounting profit (before taxation) as assessed by the Taxation Officer. In this way order of Taxation Officer is against the provisions of charging section 4 of WWF Ordinance which would prevail over the definition of total income given in Clause (i) of section 2 of WWF Ordinance as amended by Finance Act, 2006.

4. The department being dissatisfied with this order filed second appeal before this forum on the following grounds: (1) That the order of the learned CIT(A) Islamabad is bad in law and against the facts of the case. (2) That the learned CIT(A) was not justified to delete additional amount of Workers Welfare Fund levied vide order under section 221 in light of amendment made in definition of total income vide Finance Act, 2006 in Section 2(i) of the Workers Welfare Fund Ordinance, 1971. During arguments learned DR argued that in view of the definition of total income in WWF Ordinance as amended through Finance Act, 2006, the Company is liable to pay Workers' Welfare Fund (WWF) @ 2% of net profit before taxation as per accounts or total income as per the return whichever is higher. However, the Company paid WWF 2% of total income as per return of income and therefore WWF of Rs.16,019,152 was short paid by the Company. The DR further argued that the Taxation Officer rightly levied WWF on the company and the Commissioner (appeals) incorrectly deleted the WWF demand raised by the Taxation Officer in the assessment order.

5. The AR in turn defended the order of the Commissioner (appeals). The AR has stated that.the order of the Taxation Officer dated July 22, 2008 issued under section 221 of the Ordinance is without jurisdiction since decision on a debateable point of law cannot be held to be a mistake apparent from the record. Reference is made to the case-law 1998 PTD (Trib.) 1379 and 2008 PTD 1988, whereby it has been held if two interpretations of law are possible when the original assessment order was made, it cannot be said that the mistake is apparent from the record. The AR argued that the section 2 of WWF Ordinance provides definitions whereas section 4 thereof lays down "Mode of payment by and recovery from industrial establishments". The relevant clauses of section 2 and section 4 of WWF Ordinance as amended by Finance Act, 2006 read. 2(i) "total income" means-- (i) where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and (ii) Where return of Income is not required to be filed, the profit (before taxation or provision for taxation) as per accounts or four per cent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher. (4) Mode of payment by, and recovery from industrial establishments

(1) Every industrial establishment, the total income of which in any year of account commencing on or after the date specified by the Federal Government in the official Gazette in this behalf is not less than five lakhs of rupees shall pay to the Fund in respect of that year a sum equal to two percent of so much of its total income as is assessable under the Ordinance (5) At the time of making an assessment under the Ordinance or as soon thereafter as may be, the Taxation Officer shall" by order in writing, determine the amount due from industrial establishment under subsection (1), if any, on the basis of the income so assessed after taking into account the amount paid by the industrial establishment under subsection (3) in respect of the year and the industrial establishment shall pay the amount so determined on or before the date specified in the order. (6) Any change by way of enhancement or reduction in the assessed income subsequent to the assessment made under the Ordinance shall be given effect to by adjustment of the amount due under subsection (1). The AR stated that word "Ordinance" used in subsection (1) of section 4 of WWF Ordinance has been defined in clause (ft) of section 2 "means the Income Tax Ordinance, 2001" whereas word "2001" were substituted in place of 1979 through Finance Act, 2006. The AR referred to a judgment of High Court 2002 PTD 14 it has been held that words "total income as is assessable" used in section 4(1) of WWF Ordinance refers to total income determined by the assessing officer as the amount on which the income tax would be charged. The relevant part of the said judgment reads. The contention advanced by Mr. Muhammad Fareed is not tenable. In advancing the abovesaid arguments, he had completely lost sight of subsection (4) of section 4 of the Worker's Welfare Fund Ordinance which provides the Assessing Officer by an order in writing to determine the amount of Worker's Welfare Fund due from an industrial establishment on the basis of the total income assessed by him whereafter in view of the provisions of subsection (5) of section 4 of the Worker's Welfare Fund Ordinance adjustment would be made by way of enhancement or reduction in the amount of Worker's Welfare Fund paid on the basis of the total income declared in the return and as assessed by the Assessing Officer. This contention, therefore, has no force and requires no consideration. Upon consideration of the respective arguments advanced by Mr. Muhammad Fareed and others, learned counsel for the department and Mr. Rehan Hasan Naqvi and other counsel on behalf of the assessees and the above discussion we are clearly of the view that from the meanings/definitions of the words "assess", "assessable" and "assessment" given in the various laws and ordinary dictionaries the words "total income as is assessable" used in section 4(1) of Worker's Welfare Fund Ordinance would mean the total income which has been arrived at by the Assessing Officer after computation and determination of the declared total income after providing for allowances and exemptions, benefits of determined losses, loans or payment of interest claimed by the assessee. In other words Worker's Welfare Fund will be charged/levied on the total income, taxable income, or the net Income, whatever it may be called, which has been determined by the Assessing Officer as the amount on which the income-tax would be charged. The learned AR contends that through Finance Act, 2008, section 4 of WWF Ordinance have been amended to provide for charge of WWF with reference to total income as defined in clause (1) of section 2 of the said Ordinance instead of total income as is assessable under the Ordinance. Accordingly, the words "of so much" and "as is assessable under the Ordinance" as used in subsection (1) of section 4 were omitted through the said Act along with bringing consequential amendments in other subsections of section 4 of WWF Ordinance. The relevant part of the substituted provisions of section 4 of WWF Ordinance read:

(4) Mode of payment by and recovery from industrial establishments

(1) Every industrial establishment, the total income of which in any year of account commencing on or after the date specified by the Federal Government in the official Gazette in this behalf is not less than five lacs of rupees shall pay to the Fund in respect of that year a suns equal to two percent of its total income (4) The Taxation Officer shall" by order in writing, determine the amount due from industrial establishment under subsection (1), if any after taking into account the amount paid by the industrial establishment under subsection (3) in respect of the year and the industrial establishment shall pay the amount so determined on or before the date specified in the order. (5) Any change by way of enhancement or reduction in the total income shall be given effect to by adjustment of the amount due under subsection (1). Learned AR further argued that the Federal Board of Revenue (F.B.R.) vide Circular No.13 of 2008 dated October 23, 2008 admitted the lacuna in section 4 of WWF Ordinance with respect to charge of WWF for the tax years, 2007 and 2008. In the said circular which was issued with reference to charge of WWF in cases of presumptive tax regime, it was clarified that WWF in such cases may not be pressed for tax years 2007 and 2008 because of lacuna in section 4 of WWF Ordinance which was removed through Finance Act, 2008. Learned AR referred to a judgment of the Tribunal reported as 2009 PTD (Trib.) 738 whereby the Tribunal deleted the demand on account of WWF for tax year 2007 keeping in view the above F.B.R. circular and a judgment of a High Court on this issue in the following words:-- Regarding the Tax Year, 2007 we have found that the Taxation Officer has levied the Workers Welfare Fund. For this year the learned counsel representing the appellant has placed before us a Circular No.13 of 2008 dated 23rd October, issued by the Federal Board of Revenue wherein in para. 2 of this circular it has been said that:-- "The F.B.R. has taken up the matter with the Labour and Manpower Division (WWF Wing) and has pointed the deficiency. The aforesaid Division has accordingly agreed that the status quo be maintained in PTR cases and demand of WWF for the tax years 2007 and 2008 may not be created, as it will not be maintainable by the appellate authority." In the next para. 3 it has further been said that "the said lacuna, however, has been removed vide the Finance Act, 2008. In the wake of this amendment levy of WWF may be pressed, wherever eligible in Tax year, 2009. Even otherwise, we have found that the Honourable Lahore High Court in its decision reported as 2003 PTD 1530 has already held that the Assessing Officer is not authorized to charge WWF unless corresponding amendments are made in section 4 of the WWF Ordinance and undisputedly the amendments in this regard have been made through Finance Act, 2008 effective with effect from 1-7-2008 which is not applicable for the year under review. Keeping in view these facts and circumstances of the case the impugned order of the learned CIT(A) in respect of WWF is vacated and the WWF charged by the Taxation Officer is deleted. The appeal filed by the assessee for the Tax year, 2007 is allowed. Learned AR contends that the amendments made in section 4 of WWF Ordinance through Finance Act, 2008 are effective from financial Year commencing July 1, 2008 and cannot operate retrospectively since it is trite law that substantive amendments in the fiscal statute shall have Prospective effect. Reference is made to the case-law 1999 PTD (Trib.) 3226, 2005 PTD 259 (H.C. Kar) and (2010) PTD 755 (H.C. Kar.). Learned AR concluded that it is settled principle of law that all charges upon the subject must be imposed by clear and unambiguous language. A fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of substantial doubt the same is to be resolved in favour of the citizens. Reference is made to judgments of the Supreme Court of Pakistan reported as 1996 SCMR 1470 and 1993 SCMR 274 = 1993 PTD 69.

6. We have considered the arguments of learned DR and AR and perused the assessment order of Taxation Officer and the appellate order of Commissioner (Appeals). The Supreme Court of Pakistan in their judgment dated 1996 SCMR 1470 in case titled B.P. Biscuit Factory Ltd., Karachi v. Wealth Tax Officer and other referred by learned AR held "It is equally well settled that when the language of a fiscal statute is ambiguous and several interpretations of the same provision are possible, the doubt should be resolved in favour of the citizens." Similarly in other judgment 1993 SCMR 274 = 1993 PTD 69 inn case titled Mehran Associates Limited v. CIT Karachi, the Supreme Court held "The cardinal principles of interpretation of fiscal statute seem to be that all charges upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. A fiscal provision of a statute is to be construed liberally in favour of the tax payer and in case of any substantial doubt; the same is to be resolved in favour of the citizen." The legislature through Finance Act, 2006 has substituted definition of total income in clause (i) of section 2 of WWF Ordinance which previously provided "total income has the same meaning as in the Ordinance" with the definition "total income means (i) where Return of Income is required to be filed under this Ordinance, the profit (before taxation or provision for taxation) as per accounts or the declared income as per the return of income, whichever is higher; and (ii) Where return of Income is not required to be filed, the profit (before taxation or provision for taxation) as per accounts of four per cent of the receipt as per the statement filed under section 115 of the Ordinance, whichever is higher." However, at the time of amendment in definition of total income in section 2, corresponding amendments have not been made in section 4(i) of WWF Ordinance which at that time provided that industrial establishment shall pay to the Fund equal to two percent "of so much of its total income as is assessable under the Ordinance." Similarly subsection 4 of section 4 at that time provided "At the time of making all assessment under the Ordinance or as soon thereafter as may be, the Taxation Officer shall" by order in writing, determine the amount due from industrial establishment under subsection (1), if any, on the basis of the income so assessed". The word Ordinance has been defined to be Income Tax Ordinance, 2001 in clause (ft) of section 2 of WWF Ordinance through Finance Act, 2006 which previously refers to Income Tax Ordinance, 1979. It is also found that Honourable Sindh High Court inn a judgment 2002 PTD 14 in case titled Commissioner of Income Tax v. Kalman Model Factory held that words "total income as is assessable" refers to net amount which has been determined by the Assessing Officer as the amount on which the income tax would be charged.

7. The contention of the learned AR that words "of so much of its total income as is assessable under the Ordinance" clinches the issue in favour of the taxpayer is convincing. It is also noted that legislature through Finance Act, 2008 omitted words "of so much" and "as is assessable under the Ordinance" which cannot operate retrospectively in way of the judgments of the superior courts referred by AR. Further, F.B.R. Circular No. 13, 2008 dated October 23, 2008 also admitted the lacunas in section 4 of WWF Ordinance at the time amendment through Finance Act, 2006. The AR case also find support from the judgment of the Tribunal 2009 PTD (Trib.) 738 whereby WWF demand for the Tax year 2007 was deleted by the Tribunal due to lacunas in section 4 of WWF Ordinance.

8. The upshot of above discussion is that order passed by the Taxation Officer suffers from legal infirmity. For the foregoing reasons and other reasoning of the learned AR we hold that first appellate authority correctly deleted the WWF demand raised by Taxation Officer and confirm the order of Commissioner (Appeals). The appeal of the Department is without merit and accordingly dismissed. C.M.A./42/Tax/(Trib.)????????????????????????????????????????????????????????????? Appeal dismissed.