IN THE HIGH COURT OF SINDH, KARACHI

 

I.T.R.A Nos. 599 and 600 of 2009

 

   Present

                                                    Mr. Justice Faisal Arab

    Mr. Justice Aqeel Ahmed Abbasi.

 

Date of hearing                 :                   14.12.2011

Date of judgment              :                   14.12.2011

Applicants                                :                        M/s Karachi Electric Supply Corporation through Mr.Iqbal Salman Pasha, Advocate.

                                                                                                                                   

Versus

 

Respondent                                                  The Commissioner of Income Tax through Mr. Chaman Lal, Advocate

 

J U D G M E N T

 

Aqeel Ahmed Abbasi, J. Being aggrieved and dissatisfied with the order dated 31.07.2009 passed by the Income Tax Appellate Tribunal (Pakistan) Karachi in ITA No.169/KB/2006 (Assessment Year 2000-2001) and ITA No.170/KB/2006 (Assessment Year 2001-2002, the applicants have filed the above ITRAs under Section 133 (1) of the  Income Tax Ordinance, 2001. Since the facts and questions of law involved in the above ITRAs are common, therefore, we intend to dispose of the above ITRAs through a common judgment.

 

2.          Initially the applicants raised 5 questions for opinion of this Court, however, during the course of arguments, counsel for the applicants has pressed the following two questions, which are said to have arisen from the order of Tribunal, for opinion of this Court.

 

“1.     Whether the Income Tax Appellate Tribunal had correctly interpreted the application of Section 80-D of Repealed Ordinance, 1979, now Section 113 of Ordinance, 2001 in the case of the appellant company?

 

2.       Whether the provisions of minimum tax U/S 80-D of Repealed Ordinance now Section 113 of Ordinance, 2001 is applicable on the following receipts having no nexus to turnover and whether the Income Tax Appellate Tribunal had correctly appreciated and interpreted the said provision and its application:-

 

(a) Rental of meters and equipments.

 

(b) Late payment surcharge (Interest for delayed payment).

 

(c) Profit against service connection and maintenance.”

 

 

3.       Brief facts as noted by the Tribunal in its impugned order are that the applicant a Public Limited Company enjoys income from generation, transmission and distribution of electricity and purchase from various power generation units. The applicant also earned various other incomes besides from sale of power generated and purchased like, rental of meters and equipments, late payment surcharge, profit against service connect and maintenance, special discount received from Insurance Cos., rebate on electricity duty, scrap sales, fire and breakdown insurance fund investment income and other income (tender fee).

 

4.       The Taxation Officer included the receipts from all sources of other incomes in turnover of the appellant while levying turnover tax under section 80-D of the Income Tax Ordinance, 1979. The respondent taxpayer being aggrieved by inclusion of such receipts in its turnover filed appeals before the learned CIT (A), which were set aside by the CIT (A), Zone-1, vide his order No. CIT (Appeals-1)/ 2004/24 dated 15.04.2004, on this issue for denovo consideration. In the re-assessment proceeding, the above mentioned sources of other incomes were again included in the turnover of the appellant and levied minimum tax u/s 80-D of the Income Tax Ordinance, 1979.

 

5.          Aggrieved by this re-assessments proceeding of the Taxation Officer, taxpayer filed appeals before the learned CIT (A), who vide his combined order dated 15.12.2005, held that the other receipts do not represent turnover as defined in section 80-D of the Income Tax Ordinance, 1979 by observing so, he relied on the decision of this Tribunal reported as (1996) 73 YAX 10 (Trib) and directed the Taxation Officer to levy tax u/s 80-D on actual turnover without including the receipts declared under the head other income as per Note No.31 to audited account.

 

6.       Being aggrieved by the above order of the Commissioner of Income Tax Appeals, Karachi of Income Tax (Legal Division) L.T. Karachi filed appeals i.e. ITA No.169/KB/2006 (Assessment Year 2000-2001) and ITA No.170/KB/2006 (Assessment Year 2001-2002) before the Income Tax appellate Tribunal (Pakistan) Karachi, who vide his combined impugned order dated 31.7.2009 has partly allowed the departmental appeal in the following manner:

 

“14.   Seen in this perspective we are of the considered opinion that those sources of other income should be included in turnover of the appellant for the purpose of levy of minimum tax u/s 80-D which accrue in ordinary course of business and are regular in nature and following source of other income should form part of turnover.

 

1.          Rental of meters and equipments.

2.          Late payment surcharge.

3.          Profit against service connect and maintenance.

 

15.          Remaining receipts of other income being not in ordinary course of business and also not regular in nature would not form part of turnover, therefore should be excluded these are:

 

1.          Special discount received from Insurance Cos.

2.          Rebate on electricity duty.

3.          Scrape sale.

4.          Fire and break down Insurance fund investment income and

5.          Other income.

 

16.          As result of above discussion, both the appeals of the department are partly allowed to the extent as indicated above.”

 

7.       On being aggrieved by the above finding of the Tribunal, applicant has filed instant reference applications and has sought an opinion of this Court in respect of questions as mentioned in para 2 hereinabove.

 

8.          Learned counsel for the applicants has submitted that for the last several years the applicant has been showing the similar receipts as shown for the assessment years under reference as income from other sources and has been duly assessed to tax by the department as such. Per learned counsel, it is for the first time that the applicant was confronted by the respondent to include such receipts in the total turnover from business and profession of the applicant’s company. It is contended by the learned counsel for the applicant that the turnover as defined under Section 80-D includes the turnover from the business and profession only and not the turnover or receipts from any other head of income. In support of his contention, learned counsel has placed reliance on the case of Messrs Pakistan Refinery Ltd. v. Commissioner of Income Tax, Companies-V, Karachi 2005 P.T.D 2216.

 

9.          Conversely, learned counsel for the respondent has opposed the contention of the counsel for the applicant and submitted that the Tribunal has given the finding of fact, whereby it has been held that the amount of turnover shown as income from other sources is part of the business of the applicant’s company and the same is liable to be included in the entire turnover of the applicant. It is further contended that rental receipts towards rental of meters and equipments, late payment surcharge and profit against service connect and maintenance are collected from the consumer by the applicant, whereas the receipts shown in para 15 i.e. Special discount received from Insurance Cos., Rebate on electricity duty, scrap sales, fire and break down Insurance fund investment income and other income of the order passed by the Tribunal are not receipts from the consumers part of their regular business hence the same are distinguishable and are to be assessed under the head income from other sources. Learned counsel finally concluded that the instant reference applications are liable to be dismissed as no question of law arises from the impugned order.

 

10.     We have heard the learned counsel and perused the record and also examined the facts of the case with the assistance of the learned counsel for the parties. The moot point for consideration in the instant case is to examine as to whether the amount received by the applicant towards rental meters and equipments, late payment surcharge and profit against service connect and maintenance collected by the applicant from consumer constitute the turnover of the applicant from business and profession and can be subjected to levy of minimum tax under Section 80-D of the Income Tax Ordinance, 1979. In order to appreciate the scope and applicability of the term turnover as defined in Section 80-D, it will be advantageous to reproduce the provision of section 80-D, which read as follows:

80D.    Minimum tax on income of certain [persons]  (1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable [or paid] by a company [or a registered firm], an individual, an association of persons, an unregistered firm or a Hindu undivided family resident in Pakistan or the tax payable or paid is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family and tax thereon shall be charged in the manner specified in sub-section (2).

 

{Explanation.- For the removal of doubt, it is declared that the expressions “where no tax is payable or paid” and “or the tax payable or paid” apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in forced.}

 

(2) The company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family referred to in sub-section (1) shall pay as income tax-

 

(a)   an amount, where no tax is payable [or paid], equal to one-half per cent of the said turnover, and

 

(b)  an amount, where the tax payable [or paid], is less than one-half per cent of the said turnover, equal to the difference between the tax payable [or paid] and the amount calculated in accordance with clause (a).

 

{Explanation:          For the removal of doubt it is declared that “turnover” means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts.}

 

(3)          Nothing in this section shall apply to an individual, an association of persons, an unregistered firm or a Hindu undivided family in respect of any assessment year commencing on, or after, the first day of July, 2001.

 

11.     From perusal of the term turnover as defined in explanation to sub-section (2) of Section 80-D of the Income Tax Ordinance, 1979, it is clear that the term turnover has been defined in the context of business proceeds only and does not relate to receipts of dividend, interest, profits and other sources of non-business income. In other words, the entire gross receipts of a person from all sources, which may constitute his normal business or profession and do not fall within any other head of income as defined under Section 15 of the Income Tax Ordinance, 1979 would be considered as turnover from all sources falling under the head income from business or profession and shall be subjected to withholding tax under Section 80-D of the Income Tax Ordinance, 1979.

 

12.     In the case of Messrs Pakistan Refinery Ltd v. Commissioner of Income Tax, Companies-V, Karachi 2005 PT 2216, cited by the learned counsel for applicant,  a Division Bench of this Court while examining the similar controversy has held as under :-

 

“15.          Besides, the Tribunal in its subsequent order, dated 27.3.2001 has rightly held that the questions of law proposed on behalf of the applicant were not fit to be referred to the High Court for its opinion within the ambit of section 136 (1) of the Ordinance as the entire scheme of the Ordinance and the provisions of section 80-D have been discussed by the Hon’ble Supreme Court (in the case of Elahi Cotton Mills Ltd.) in the context of business proceeds, otherwise such discussion has no relevancy to the receipts of dividend, interest, profits and other sources of non-business income. Mr. Vellani has not been able to controvert that the questions of law proposed by the applicant in their applications under section 136(1) of the Ordinance in the strict sense, were not the questions of law arising out of the order of ITAT. In our view even the re-framed/re-proposed questions of law submitted by Mr. Vellani, in the facts and circumstances of the case, when the applicant had initially not claimed dividend income as part of their income from business, do not fall within the ambit of question of law arising out of impugned order. If any case-law is needed to fortify this view reference may be made to the case of Messrs Japan Shortage Battery Ltd. v. Commissioner of Income Tax, Companies Zone-1, Karachi 2003 PTD 2849.”

 

13.     Now adverting to the merits of the instant case, it may be seen that the facts of this case are distinguishable from the cited case as in that case the applicant company namely Pakistan Refinery itself was aggrieved by levy of turnover tax under Section 80-D on its dividend income, which, infact was separately taxable under Section 30 of the Income Tax Ordinance, 1979 under the head “income from other sources”. The company claimed the dividend receipts to be included in its total turnover from business and to be taxed under Section 80-D instead of being assessed under Section 30 of the Income Tax Ordinance, 1979 at higher rates. Such claim of the company was declined by the Division Bench of this court on the ground that since dividend income of the company was not the part of their normal business, hence the same was required to be assessed under Section 30 (income from other sources) of the Income Tax Ordinance, 1979.  Whereas, in the instant case, it has been categorically held by the Taxation Officer that the receipts towards rental of meters and equipments, late payment surcharge and profit against service connect and maintenance are part of the regular business of the applicant, hence the said receipts were included in the total turnover of the applicant from all sources of business. The Appellate Tribunal has also concurred with such finding of fact and has held that the entire receipts towards rental of meters and equipments, late payment surcharge and profit against service connect and maintenance are to be treated as turnover from all sources of business of the applicant and shall be included in the turnover of the applicant for the purpose of levy of minimum tax under Section 80-D of the Income Tax Ordinance, 1979.

 

14.     We are in respectful agreement with the finding of Division Bench of this Court in the above cited case and hold that the gross receipts of a person from all sources, constituting his regular business and profession are to be included in the total turnover for the purposes of levy of turnover tax under Section 80-D of the Income Tax Ordinance, 1979.

 

15.     It will not be out of place to refer to the famous judgment of the Hon’ble Supreme Court in the case of Elahi Cotton Mills Ltd. v. Federation of Pakistan P.L.D 1997 SC 582, wherein the Hon’ble Supreme Court while examining and approving the constitutionality of section 80C and 80D introduced in the Income Tax Ordinance, 1979 through Finance Act, 1991 (Act No.XII of 1991), dealt with provision of Section 80D in connection with business gross receipts from all sources. We would refer to following findings and observations of the Hon’ble Supreme court whereby it would be seen that the provision of Section 80D and the term “turnover” has been dealt with as gross receipts from all sources of business.

“40.          Adverting to the impugned newly added section 80-D, it may be stated that we have already pointed out hereinabove that sections 80-C and 80-CC cannot be equated with section 80-D as the same is founded on different basis. It may again be observed that section 80-D is based on the theory of minimum tax. It envisages that that every individual should pay a minimum tax towards the cost of the Government. The object of the minimum tax is to ensure that the tax-payers, who receive substantial amounts from exempt sources, pay at least some tax on their economic incomes of the year. This is achieved by reducing or disallowing certain itemized deductions. We may again observe that that a large number of assesses though generally earn profits but on account of various tax concessions including tax holidays, depreciation allowance etc., under Schedule II and deductions allowed under the various provisions of the Ordinance, show loss instead of any net profit, with the result that they do not contribute any income-tax towards the public exchequer.

41.          We may observe that during the course of arguments, the question arose, as to whether in view of non obstante clause in section 80-D, an assesses can carry forward loss under section 35 of the Ordinance from year to year. Mr.Ilyas Khan, the learned counsel for the Income Tax Department, has orally as well as in his written submission answered the above query in the affirmative. It appears to be correct legal position. It may be stated that non obstante clause in section 80-D is for the purpose of liability to pay minimum tax of half per cent on the annual turnover. This will exclude any provision of the Ordinance which may be inconsistent with it. It the same does not exclude the application of other provisions of the Ordinance which are not inconsistent with section 80-D. There seems to be no conflict between above section 80-D and section 35 of the Ordinance, and hence the same remains available to assesses. To claim business loss or to carry forward the same under section 35 of the Ordinance from year to year, is not affected by the above levy of half per cent on the annual turnover under section 80-D as was submitted by the learned counsel for the Income Tax Department, Mr. Ilyas Khan, orally as well as in his written submissions.”

 

 

16.     As regards reference to the previous assessment years and the alleged past practice of the department whereby, according to the learned counsel, for the applicant the above receipts were assessed under the head income from other sources, we may observe that no such question has been proposed by the applicant through instant reference applications, whereas before the Appellate Tribunal also the applicant did not raise such objection hence there is no finding by the tribunal to this effect. However, without prejudice to hereinabove we may clarify that any alleged past practice which is contrary to law cannot be treated as sacrosanct. Suffice to state that the principle of  res-judicata is not applicable in income-tax cases as every assessment year is an independent proceeding and is decided on its own merits.  Reference in this regard can be made to the case of C.I.T v. Farrokh Chemical Industries 1992 SCMR 523 and Roche Pakistan Ltd. V. Deputy Commissioner of Income Tax and others 2001 P.T.D 3090.

 

17.     We are of the opinion that such finding of fact and the application of provision of Section 80-D under the circumstances of this case is in line with decision of the learned Division Bench of this Court in the case of Messrs Pakistan Refinery Ltd (supra), hence does not require any interference by this Court. Accordingly, we do not find any merits in the instant reference applications, which were dismissed by our short order dated 14.12.2011 and these are the reasons for such short order. Consequently, we answer the proposed questions as mentioned in para 2 hereinabove in affirmative against the applicants.  

 

                                                                                           JUDGE

 

                                           JUDGE