2010 PLP (Trib (PTD)

This appeal has been filed by the department against the impugned Order 28-10-2009 passed by the CIR(A) for the tax year 2008 on the following ground: 'That the Commissioner (Appeals) was not justified to delete tax imposed under section 161/205 on account of default of non-deduction of withholding tax on commutation paid to employees. ".

2. Brief facts of the case are that the assessee, a public limited company, derives income from providing basic telephone services to its subscribers. Pakistan Telecommunication Corporation (PTC) took over operations and functions from Pakistan Telephone and Telegraph Department under Pakistan Telecommunication Corporation Act, 1991 and a body corporate was established. The Federal Government in 1991 announced its plan to privatize PTC and in 1995 Pakistan Telecommunication (Re-organization) Ordinance formed the basis for Pakistan Telecommunication Company Ltd., through Pakistan Telecommunication Reorganization Act, 1996, the provisions of the Ordinance were implemented in October, 1996. The Taxation Officer treated Pakistan Telecommunication Company Ltd., the taxpayer, in default for the non-deduction of income tax, amounting to Rs. 15,38,89,773 on the payments made on account of VSS (Voluntary Separation Scheme). She observed the reasons for default as under: "Withholding agent (Pakistan Telecommunication Company Ltd.) did not include the amount of "Commutation" in taxable income of the employees claiming its exempt, under clause (12) of the Part-I of the 2nd Schedule of the Income Tax Ordinance, 2001." The Taxation Officer, during the course of monitoring statement, filed by the taxpayer detected non-deduction and the same was confronted to the withholding agent i.e. Pakistan Telecommunication Company Ltd., Statutory notice under section 161 was issued and confronted to the taxpayer. Reply was considered as unsatisfactory. The Taxation Officer treated the taxpayer as taxpayer in default due to non-deduction of tax on the pension/payments made to the employees retired under VSS (Voluntary Separation Scheme). The Taxation Officer did not agree with the stand taken that Taxpayer Company was exempt in the Second Schedule to the Income Tax Ordinance, 2001 under Clause (8) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001. As per Taxation Officer Clause (8) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001 was wrongly quoted and right clause which exempts the commutation of pension is Clause (12) of the Part-I of the Second Schedule which is hereby reproduced here under:- "(12) Any payment in the nature of commutation of pension received from Government or under any pension scheme approved by the Central Board of Revenue for the purpose of this clause." Explanation furnished by the assessee-company was turned down by the Taxation Officer due to following reasons:- (i) The pension fund of the company is not approved by the C.B.R. (now F.B.R.), as required for the claim of exemption, under clause (12) of Part-I of the 2nd. Schedule to the Income Tax Ordinance, 2001." (ii) Pakistan Telecommunication Company Ltd., is not Government from whom the payments on account of commutation is received and the claim of exemption for the reason of being Government employer is also rejected. The other pleas of the Taxpayer were also not found sustainable in the backdrop of Pakistan Telecommunication Corporation Act, 1991 and Pakistan Telecommunication (Re-organization) Act, 1996 which described the history of transformation of the withholding agent from a government entity (TNT department) to a public limited company (Pakistan Telecommunication Company Ltd.,) and the gradual change in status of employees of Pakistan Telecommunication Company Ltd., from being Government employees to that of a public limited company. Furthermore, this version of the taxpayer that the employees were transferred to Pakistan Telecommunication Company Ltd., and their status was changed from a Government employee to an employee of a public limited company was also turned down. As per view of the Taxation Officer; the provisions quoted in Pakistan Telecommunication (Re-organization) Act, 1996 Establishment of Pakistan Telecommuni cation Company Ltd., were to protect the terms and conditions of the Employees to their disadvantages but did not protect the issue of taxability of their income, which was only determined by the Income Tax Ordinance, 2001. She was also of view that after creation of the trust, all types of issues of payments and recruitments of the employees are dealt by the trust and Federal Government have no involvement in any issue pertaining to the payments to the employees in any head of account. All the contributions in the Pension fund are funded by the company and no amount is contributed by the Government then how it is argued that the payment made to the employees is paid by the Government and amount mentioned as the "commutation" is exempt from tax being paid by the Government. In first appeal the learned CIT(A) deleted the charge amounting to Rs. 15,38,89,773 on the issue of commutation/pension observing as under:-- "As far as the issue of commutation is concerned it is negligence on the part of department that the application of the appellant has not been entertained timely and the pension fund has not got approved timely. Although during the course of proceedings it was not brought to the knowledge of the concerned Taxation Officer that the application is pending before the F.B.R. but it was the responsibility of the F.B.R. to dispose of the application of the appellant timely. The default established by the Taxation Officer amounting to Rs.153,889,773 on the issue of commutation is therefore deleted." Being dissatisfied with the treatment of the learned CIT(A) the department preferred an appeal before the Tribunal.

3. The learned DR has supported the .order of the Taxation Officer and has stated that the Taxation Officer's order is in accordance with law. The learned DR has stated that she has passed the order against the default established due to non/wrong provisions of Income Tax Ordinance specifically dealing withholding taxes. The learned DR has stated that she has treated the taxpayer in default due to non-deduction of tax on the payments made to the employees retired under VSS (Voluntary Separation Scheme). For the tax deductions, there are certain procedures, rules and specific provisions given in the Income Tax Ordinance, 2001 required to be followed for proper and effective tax withholdings which if are not followed by the withholding agents the chances of occurring mistakes enhances and defaults of wrong/short deduction is established. The DR's version is that it is established fact that the rules and procedures given in the Income Tax Law for the tax withholdings are applicable at the time of payment under any head and if the provisions/rules/procedures for withholding tax are not followed at the time of payment, default of section 161 is established. He has stated that it is universal principle of withholding that tax is deducted always at the time of making payments, and it is necessary to check the status of the payment at that time and deduct tax according to the provisions prevailing at that specific point of time. He states that taxpayer has rightly been treated as taxpayer in default for the non-deduction of income tax on the payments made- on account of commutation of pension. The payments of commutation/pension do not qualify the provision of exemption under clause (12). Exemption under clause (25) of Part-I of Second Schedule to the Income Tax Ordinance, 2001 has no applicability in this case. Moreso, exemption is either statutory or subject to fulfilment of a certain procedure by a competent authority. In this case request for exemption under clause (12) was specifically moved to the F.B.R. and F.B.R. has not granted the exemption. The Tribunal is not an authority to grant exemption. The learned CIT(A) has not taken into t account this fact that if the exemption is not specifically granted he cannot presume grant of exemption by a competent authority merely that it has not been decided within a reasonable time. In the court of law each and every respect is to be interpreted in accordance with law and the Taxpayer cannot be allowed to stretch the various provisions of law just to fall in the ambit of anyone.

4. The learned AR of the assessee appearing on behalf of the taxpayer has submitted that the provisions of clause (25) of Part-I of Second Schedule to the 2001 Ordinance applicable to tax year, 2008 which is reproduced for ease of reference:-- "(25) Any payment from an approved superannuation fund made on the death of a beneficiary or in lieu of or in commutation of any annuity, or by way of refund of contribution on the death of a beneficiary; (i) in the case of an employee of the Government or a local authority or a statutory body or corporation established by any law for the time being in force, the amount receivable in accordance with the rules and conditions of his service; (ii) any amount receivable from any gratuity fund approved by the Commissioner in accordance with the rules contained in Part-III of the Sixth Schedule; (iii) in the case of any other employee, the amount not exceeding two hundred thousand rupees receivable under any scheme applicable to all employees of the employer and approved by the Central Board of Revenue for the purposes of this sub-clause; and (iv) in the case of any employee to whom sub-clauses (i), (ii) and (iii) do not apply, fifty per cent of the amount receivable or seventy-five thousand rupees, whichever is the less: Provided that nothing in this sub-clause shall apply-- (a) to any payment which is not received in Pakistan; (b) to any payment received from a company by a director of such company who is not regular employee of such company; (c) to any payment received by an employee who is not a resident of Pakistan ; and (d) to any gratuity received by an employee who has already received any gratuity from the same or any other employer." (Underlining / emphasis ours) "employee of the Government or."...corporation established by any law" The learned AR has also contended that it is apparent that payments in lieu of or commutation of annuity made by an approved superannuation fund (pension fund) as is the case of Pension Fund/PTET is exempt from tax in the hands of the employees of PTCL since as stated above, PTCL is a company/corporation established under 1996 Act. In this respect the employees of PTCL, who were appointed before January 1, 1996 (i.e. T&T Department) were appointed as Civil Servants under the Civil Servants Act, 1973. Further, the honourable Supreme Court of Pakistan in the several cases of PTCL's employees have held that employees of T&T Department transferred to PTC and later to PTCL are Civil Servants under the Civil Servants Act, 1973. He has relied upon the reported judgments of the Supreme Court of Pakistan reported as PLD 1996 SC 222 = 1996 PLC (C.S.) 545 and 1999 SCMR 1526. The relevant extracts are reproduced below for ease of reference. i) PLD 1996 SC 222 = 1996 PLC (C.S.) 545 (Pakistan Telecommunication Corporation v. Riaz Ahmad and others) "Insofar as the status of respondents 1 to 5 as civil servant is concerned, the learned counsel for the appellants has cited an unreported decision of this Court passed in Civil Petition No.334 of 1993 dated 10-11-1993. The contention whether the employees of Pakistan Telecommunication Corporation are civil servants or not was disposed of as follows: (3) Aggrieved against the order of the departmental authority showing junior officers as seniors in the seniority list he filed Appeal No.46(k)90 before the Tribunal, for restoration of his inter se seniority to the higher post of Director. The petitioner raised preliminary objection to the effect, that the respondent No.1 being an employee of the Pakistan Telecommunication Corporation, established under the Pakistan Telecommunication Corporation Ordinance, 1990 (No XVI of 1990), is not a civil servant so as to approach the Tribunal for the relief prayed for. The learned Tribunal repelled the objection and relying on the law laid down by this court in Abdul Rahim v. Pakistan Broadcasting Corporation and other (1992 SCMR 2113) held the respondent a civil servant amenable to jurisdiction of the Tribunal,' nevertheless, dismissed his appeal on merit. Hence thin petition. Learned counsel for petitioner mainly tried to distinguish the present case with Abdul Rahim's case relied by the Service Tribunal in the impugned judgment. (4) The provisions of section 9 of the Pakistan Telecommunication Ordinance (XVI of 1990) and section 12 of the Pakistan broadcasting Corporation Act, 1973, are almost identical the observations of this Court in the aforesaid case on the embloc transfer of the employees to the Corporation did not change their status a civil servants fully cover the jurisdiction of the Tribunal to entertain their appeals and adjudicate the same on merits.' In view of the above stated legal position, we agree with the contention of the learned counsel for the appellants that respondents Nos. 1 to are civil servants with the meaning of Civil Servants Act, 1973." (ii) (Divisional Engineer Phones, Phones Division, Sukkur v. Muhammad Shahid) 1999 SCMR 1526 In cases of Corporation created by the Government through statutory instruments if existing employees are transferred to the Corporation in the absence of any provision to the contrary, the transferred employees continue to remain in the service of Corporation on the same terms and conditions under which they were working before their transfer to the Corporation. Therefore, if an employee of the corporation before his transfer to the Corporation was a civil servant, he continues to be a civil servant. In all other cases, There is a clear provision in section 9 of the Ordinance of 1990 and Act of 1991 that the transfer of employees to the Corporation will be deemed to be on the same terms and in view of the law declared by this Court, their status as civil servant could not be affected. Therefore, apart from the category of persons who were already civil servants and transferred to the Corporation upon coming into being of the Corporation, all other employees who were appointed by the Corporation after the date of its inception, shall be deemed to be employees of the Corporation and, therefore, their services will be governed in accordance with the terms and conditions of their appointment." The learned AR has also submitted that in the judgment reported at PLD 1973 Supreme Court 514, the honourable Supreme Court of Pakistan has held that: " .A person who enters Government service has also something to look forward after his retirement, to what are called retirement benefits, grant of pension being the most valuable of such benefits. Pension like salary of a civil servant is no longer a bounty but is a right acquired after putting in satisfactory service for the prescribed minimum period. A fortiori, it cannot be reduced or refused arbitrarily except to the extent and in the manner provided in the relevant rules. Amount receivable in accordance with the rules and conditions of his service. The learned AR has argued that it is important to note that following rules of "Rules of Pakistan Telecommunication Corporation Employees Pension Fund" were approved by the Commissioner of Income Tax/Wealth Tax for the purposes of Part II of Sixth Schedule vide Order No. CIT-16(10)/93-94/J.Br/91 dated July 11, 1994 to the Ordinance, * Rule 9 of the Rules, commutation upon 50% of the gross pension shall be admissible in accordance with the Civil Pensions (Commutations Regulations) as applicable to Federal Government employees; and * Rule 15 of the Rules, the regulations/rules are automatically modified/amended in respect of all such changes, modifications or amendments made by the Federal Government for the improvement of pension benefits to its own employees through circulars or notifications or administrative orders issued from time to time. The rules and conditions of service of PTCL's employees appointed prior to the January 1, 1996 are governed under Civil Servants Act, 1973 and Rules and Regulations applicable to Civil Services including, inter alia, Pension and Commutation under Revised Pay Scales, 2001. Further, the employees of PTCL have been retired on superannuation under section 13 of the Civil Servants Act, 1973 on completion of 20 years of service. Needless to state that the earlier judgments on Golden Handshake in the case of Bank employees relate to period prior to 2001 and at that time superannuation service was 25 years and not 20 years as amended in 2001 vide Civil Servants (Amendment) Ordinance, 2001. Rule 5 of Part II of Sixth Schedule to the 2001 Ordinance The learned AR has further contended that in terms of Rule 5 of the Part-II of Sixth Schedule to the 2001 Ordinance pension fund is required to deduct tax from payment to an employee of contributions made by an employer during his life-time in circumstances other than those referred to in clause (25) of Part-I of the Second Schedule to the 2001 Ordinance which is reproduced below for ease of reference. "(5) Deduction of tax on contributions paid to an employee.

Where any contributions made by an employer (including interest on contributions, if any), are repaid to an employee during his life-time in circumstances other than those referred to in clause (25) of Part-I of the Second Schedule, tax on the amount so repaid shall be deducted by the trustees at the average rate of tax at which the employee was liable to tax during the preceding three years or during such period, if less than three years, as he was a member of the fund, and shall be paid by the trustees to the credit of the Federal Government within such time and in such manner as may be prescribed." The learned AR has prayed that the commutation of pension/annuity paid by PTCL on behalf of the Pension Fund/PTET is exempt from tax under clause (25) of Part-I of Second Schedule to the 2001 Ordinance since: * Payment was made on behalf of the Pension Fund/PTET approved by the Commissioner for the purposes of Part-II of, Sixth Schedule to the 2001 Ordinance; * Payment was made to retiring employees in accordance with the regulations applicable to Civil Servants under the related regulations of the GOP, since the retiring employees have been held by the honourable Supreme Court of Pakistan as Civil Servants under. Civil Servants Act, 1973 and the GOP has contributed Rs. 17,429,000,000 towards VSS cost thereby accepting the fact that the cost being incurred by PTCL relates to Civil Servants who are entitled to the benefits allowed to other GOP employees; * Even otherwise, the payment was made in compliance with regulations of the corporation, majority shares (in excess of 60%) are held by the Federal Government and the corporation was established by a Federal Government's legislation i.e. Pakistan Telecommunication (Re-organization) Act, 1996; and * Rule 5 of Part-II of Sixth Schedule to the 2001 Ordinance only requires withholding of tax from payments made other than eligible under clause (25) of Part I of Second Schedule to the 2001 Ordinance. Clause (12) of Part-I of Second Schedule to the 2001 Ordinance: During the argument the learned AR has submitted the provision of clause (12) of Part-I of Second Schedule to the 2001 Ordinance which is reproduced as under; "(12) Any payment in the nature of commutation of pension received from Government or under any pension scheme approved by the Board for the purpose of this clause." In this respect, the learned AR has reiterated that PTCL before making payment of commutation of pension applied to F.B.R. in terms of tax consultants letter P-27 dated October 22, 2007 addressed to Member (Direct taxes), F.B.R. and letter dated November 3, 2007 addressed to the Chairman, F.B.R., PTCL again requested FBR for early resolution of its application in view of urgency of the matter, inter alia, informing FBR of * Voluntary Separation Scheme's approval by the Cabinet Committee on Privatization; * Commutation of pension is exempt from tax in the hands of the employees under clause (12) of Part I of Second Schedule to the 2001 Ordinance; * Payment of commutation of pension would be made on behalf of the approved Pension Fund managed by PTET; and * Pension Fund has been granted approval/recognition by the Commissioner under Part II of Sixth Schedule to the Ordinance vide order dated July 11, 1994. * The application made by PTCL was a matter of abundant caution since it was not required to do so in view of payment to be made by approved Pension Fund under Sixth Schedule to the Ordinance and clause (25) of Part-I of Second Schedule to the 2001 Ordinance. This position has been verified and accepted by the learned Commissioner Inland Revenue (Appeals), Zone 1, Islamabad vide his impugned appellate order. The learned AR states that the Department in earlier orders in cases of other taxpayers has held that commutation of pension paid by a pension fund, approved for Part-II of Sixth Schedule to the 2001 Ordinance, is exempt from tax under clause (12) of Part-I of Second Schedule to the 2001 Ordinance. One such example was provided in the case of Unilever Pakistan Limited (Unilever Pension Fund) by Large Taxpayers Unit, Karachi vide letter dated January 10, 2008. The PTCL cannot be held responsible for failure of F.B.R. to give requisite directions despite its repeated requests in the matter. The learned AR has relied upon the following judgments of the Appellate Authorities which are reproduced for ease of reference: (i) 69 Tax 176 (H.C. India) "In this case, four applications were made by the assessee for extension of time. The Income-tax Office neither dealt with those applications nor disposed of such applications. The assessee was not communicated any decision of the Income-tax Officer on these applications. But, at the time of assessment, the Income-tax Officer proceeded to deny the benefit of carry forward of loss determined in the assessment presumably on the ground that no extension was granted. When an application is made by the assessee for extension of time and no decision is rendered on such application, it must be presumed that the Assessing Officer has allowed time to the assessee to file the return within the extended period as asked for by the assessee. Even if the application for extension is rejected but the order of rejection is not communicated, such order will be treated as non est and the assessee will be entitled to presume that the application for extension has been allowed." (ii) 67 Tax 23 (H.C. India) "The assessee may be prevented from filing the return by several causes and it is not necessary for the assessee to state all the causes in its explanation. The absence of one or more causes in the explanation would not mean that such cause did not exist at all. It cannot be inferred that since the assessee did not take up the plea that he was under a bona fide belief that since no communication. rejecting the application for extension had been received, the same stood granted, this ground did not exist at all or in any case that such a cause could not be taken into consideration by the Tribunal specially in view of the law laid down by this court in Karam Singh's case (1977) 110 ITR 726 and Roshan Lal Kuthiala's case (1975) 100 ITR 329 (P&H). Question No 3 is accordingly answered in the affirmative, i.e., in favour of the assessee and against the Revenue." Based on the above settled legal principle that a taxpayer cannot be held responsible for the inefficiencies and delays of the Department, the learned Commissioner Inland Revenue, Appeals-I, Islamabad has allowed the exemption under clause (12) of Part-I of Second Schedule to the 2001 Ordinance.

5. The learned AR has argued that the order rejecting PTCL's request for approval under clause (12) of Part-I of Second Schedule to the 2001 Ordinance was communicated by the Commissioner Legal, Large Taxpayers Unit, Islamabad, who is responsible for defending the impugned order in appeals before the Commissioner Inland Revenue (Appeals) and the honourable Tribunal, vide letter dated January 20, 2010 i.e. 43 days after having herself signed this appeal being argued before the honourable Tribunal. The learned AR 's version is that the reasons given in the said rejection order dated January 20, 2010 are stated to be: * Benefits of clause (12) cannot be stretched retrospectively; * PTCL has disbursed the amount of commutation of Pension without first getting it approved from the Board; and * The employees of PTCL benefiting from the commutation do not even qualify to be employees of the Federal Government. In this respect, the learned AR reiterates that PTCL applied for exemption/approval under clause (12) before making payment of commutation and the learned Commissioner herself has admitted that the amount in question is commutation of pension. PTCL's contributions to the Pension Fund/PTET are based on actuarial valuation and in compliance with the related regulations of the International Accounting Standards No 19, Companies Ordinance, 1984'and sections 20 and 21(e) of the read with Part-II of Sixth Schedule to the 2001 Ordinance.

6. Having heard arguments of both the rival parties and perused the relevant record available on file. It is a principle of withholding that tax is to be deducted at the time of payment and whatever the status of the payment, deduction is made according to the procedure and rules laid down in the Income Tax Ordinance, 2001. Each and every provision of the Ordinance is required to be followed in letter and spirit to avoid any type of default or loss of revenue. As far as the issue of commutation is concerned, it is on the part of the department that the application of the appellant was not decided timely and the approval had not been granted or rejected timely. The application was pending before the F.B.R. but it was responsibility of the F.B.R. to dispose of the application of the appellant timely. Now the ground of rejection is quite against the logic that benefits of clause (12) cannot be stretched retrospectively. Fact of the matter is hat application was moved much earlier. By not disposing the application; if the authority while passing order says that benefits cannot be extended retrospectively. What is the fault of taxpayer? Fault lies with authority who did not pass the order in yes or no.

7. Stand of Taxpayer to claim exemption was clause (25) of Part-1 of 2nd Schedule is an afterthought because Taxpayer itself applied to F.B.R. for exemption under clause (12) of Part-1 of 2nd Schedule which was not granted. This order of refusing exemption cannot be assailed before this forum. It might have been challenged by invoking extraordinary jurisdiction of honourable High Court. Here controversy is only as to whether Taxpayer in default can seek refuge under clause (25) of Part-1 of 2nd Schedule. It is again admitted before us that payment was not made for this approved fund under this clause, rather to cover the position it is stated that PTCL has made the payment on the behalf of this approved fund. This stance has been raised for the first time before the Tribunal, so impact of payment by PTCL on the behalf of approved fund was not looked into either by Taxation Officer or learned First Appellate Authority. In a query relating to same factum as to why this ground was not raised earlier; learned AR states that legal ground can be raised before any forum because mistake of law even if not in the knowledge of either parties is to be corrected by court/adjudicating authority. Now we would like to reproduce clause (25) of Part-1 of 2nd Schedule as follow: (25) Any payment from an approved superannuation fund made on the death of a beneficiary or in lieu of or in commutation of any annuity, or by way of refund of contribution on the death of a beneficiary. The learned DR argues that this clause relates to superannuation Fund as is evident from the name itself it is meant for the making this payment to employees who retires on 60 years of age after rendering maximum services or to the payments in case of death of employee or in lieu of these payments anything else can be given. This clause has neither any applicability for the pension payments of employee retiring under VSS. Rule of interpretation is any words embodying in the later part of section are to be interpreted in the light of main theme of the word "superannuation fund". Hence relevant clause is clause (12) and not (25) of Part-1 of 2nd Schedule. In fact clause (25) embodying superannuation fund covers payment of pension in case of death or commutation of annuity after rendering maximum length of service. Annuity is defined as under; "The term annuity means a stated sum payable to an individual periodically at stated times during his life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and fall consideration in money or money's worth." Case in hand is covered by first portion of the definition as the later part relates to various pension schemes offered by insurance companies or other Concerns. Undoubtedly pension is paid in consideration of past employment. A pension also includes an annuity is however distinguished from a "lump sum, gratuity or other like benefit". In Johnson v. Holleran of English Court, money received from trustees of a pension fund after the cessation of employment in recognition of previous employment and because of disability was a pension. The fact that payments were made on account of disability rather than for past services was immaterial. It was argued that to constitute a pension, the payments must be made (i) after retirement, (ii) to a former employee, (iii) for past services, and (iv) must continue for life. The taxpayer argued that he was not retired because if his disability ceased, the payments would cease and he would have to seek employment. It was held that it was sufficient that the particular employment must have ceased, but that this need not have been due to retirement rather than any other cause. The court, noting the absence of a judicial definition of pension, did not attempt one. The court confirmed that it was sufficient that the taxpayer became a member of the pension scheme because he was an employee and remained a member until he ceased to be an employee. It was not necessary for the payment to be for past services in the sense of being fully earned and a form of deferred salary. This approach suggests that, if past employment is one of the originating causes, this is sufficient. "Past employment" would appear to refer to employment which has terminated and any reason for termination should suffice Golden shake hand or V.S.S may be the cause of retirement. Only requirement is that an employee who is a member of a pension/fund scheme which has been approved or is being considered for approval. It is under the universal principle of taxation that Payments made to the scheme by or on behalf of his employer during that period: (i) shall not be treated as part of the employee's taxable income, and (ii) shall be allowed as a deduction in computing the profits of his employer, Pension Scheme is where employer has right to change the policy while in case of Pension Fund, Rules once framed cannot be altered without the consent of employees. That's why that employee's Representation is made available in case of pension fund. In this case employees have approved fund. Again a query has been raised by learned DR that pension fund also 'has beneficial ownership of other employees who have not opted for V.S.S. The learned AR states that it is not so because every employee has its own account in which contribution is added and it does not affect the right/interest of other employees who have not opted for V.S.S. In order to resolve the controversy rule 5 of pension rules comes to the rescue of the Taxpayer. Rule 5 is hereby reproduced as under:- (a) An employee shall be deemed to have retired from service of the corporation when he attains the age of 60 years or is rendered unfit for service on medical grounds or dies while in service, or his services are terminated on any grounds except as a result of disciplinary action on account of misconduct, fraud, defalcation or corruption. It covers the situation of Taxpayer by saying that employees whose services are ceased due to any reason except termination by way of disciplinary action. Rule 6 of Employees Pension Fund also suggests for premature retirement after completion of 25 years qualifying service.

8. Moreso the learned AR has produced following letter issued by the departmental officer in case of Unilever wherein departmental officer is of the view that separate approval under clause (12) is not required. For ready reference contents of the letter are reproduced as under:-- LARGE TAXPAYERS UNIT No. LTU/Legal/2008 Dated: 10-01-2008 The Trustee, Unilever Pakistan Limited, Unilever Pension Plan, c/o. A. F. Ferguson & Co, Chartered Accountants, State Life Building No. 1-C, I.I. Chundrigar Road, Karachi- 74000 SUBJECT: UNILEVER PAKISTAN LIMITED (UNILEVER PENSION PLAN) Ref: Letter No. BT 1331 dated 7-1-2008 received from A. F. Ferguson & Co., I am directed to state that approval earlier granted is also valid for Clause (12) Part-I of the Second Schedule to the Income Tax Ordinance, 2001. (MUHAMMAD SALEEM) Taxation Officer (Legal Division) LARGE TAXPAYERS UNIT, KARACHI However the department itself admits that separate approval under Clause (12) is not requisite and earlier approved fund will suffice to serve the purpose. Another important aspect to be kept in view is that majority out of thousands people employees are still receiving remaining pension periodically. Withholding agent has option to deduct the Tax while making remaining payments. So huge number of employees whose pension payments are to fall under exemption shall suffer either due to the fault of Company. Needless to mention here that exemption has been provided through legislation but subject to approval which is just a procedural aspect for analyzing certain requirement. Approval is judicious exercise of discretion. As has already been pinpointed that payments out of approved fund under clause (25) of Part-I of 2nd Schedule to the Income Tax Ordinance, 2001 has been alleged by the assessee for the first time before the Tribunal. More so it is again admitted that payments were not made by this approved fund but the PTCL has made the payments on behalf of the approved fund. So we deem it appropriate to remand the case to the Taxation Officer to analyze the details and record is impacts after providing an opportunity of being heard to the assessee. C.M.A./135/Tax(Trib.) Order accordingly.