Versus Raja Sikandar Khan and Hussain Ahmad Sherazi , S.A. Masood Raza Qizalbash

ORDER

The seven appeals filed by taxpayer-company pertaining to assessment years 1999-2000 to 2002-2003, arise out of orders passed by the learned CIT (Appeals), Zone-II, Lahore, dated 24-8-2004 and order, dated 15-12-2004 respectively.

2. These taxpayer-company has assailed the following grounds which are mentioned hereunder;-

"Assessment Years 1999-2000 to 2002-2003:

(1) That the learned CIT(A) wrongly upheld and confirmed the order of the assessing officer that the activities of the appellant are not covered under the charitable purposes and thus are not exempt from tax.

(2) That the appellant is a charitable institution registered as a non-profit guarantee company under section 42 of the Companies Ordinance, 1984 and its memorandum of association strictly prohibits it to pay dividends to its members.

(3) That income of the appellant from voluntary contributions amounting to Rs.1,373,000, Rs.2,270,500, Rs.2,200,500 and Rs.1,900,000 for assessment years 1999-2000 to 2002-2003 respectively being a charitable institution is exempt under clause (94) of Part-1 of the Second Schedule of the I.T.

Ordinance, 1979.

(4) That the CIT (A) wrongly upheld order of the Assessing Officer denying exemption of income to the appellant.

(5) That the CIT(A) wrongly upheld the charge of tax at Rs.7977 in assessment year 1999-2000, and Rs.48,880 in assessment year 2002-2003, under section 80D of the I.T. Ordinance, 1979 as the voluntary contributions of appellant are not "turnover".

(6) That the order of the learned CIT(A) confirming the order of the assessing officer under sections 52/86 of the repealed I.T. Ordinance, 1979 read with section 161 of the I.T. Ordinance, 2001 is bad in law and against the facts of the case.

(7) That the appellant has been wrongly held to be assessee in default under section 52 in respect of the payments (as set forth in the memo of grounds of appeals before us) alleged to have been made without deduction of tax under section 50 of the I.T. Ordinance, 1979.

(8) That the figures of payments under the heads (as set forth in the memo of grounds of appeals before us) are not correct as no such figures exist in the accounts and that the assessing officer has wrongly taken up these figures and that the appellant has been wrongly held to be assessee in default in respect of these payments.

(9) That the payments were made after deductions of tax wherever tax was required to be deducted under the law.

(10) That the charge of additional tax under section 86 read with section 161 of the I.T. Ordinance, 2001 amounting to Rs.22,624 for assessment years 1999-2000 and 2000-2001 each and at Rs.3,73,294 during the assessment year 2001-2002 without a proper order is illegal and liable to be deleted."

3. Briefly stated the relevant facts are that for the three years under consideration, the appellant had declared income/loss, as per accounts, as under:---

Assessment year

Income/Loss

1999-2000

Rs. (108,872)

2000-2001

Rs.12,993,045

2001-2002

Rs.6,066,652

As per returns filed with the department, the appellant returned Nil taxable income after claiming exemption under clauses (62)/93/(94) of the Second Schedule to the repealed Ordinance. The Assessing Officer extensively dilated upon the scope of all the three clauses and found that appellant's case was not covered under any of the said clauses. To hold that appellant's income was not exempt, the Assessing Officer also gained strength from three judgments of Indian Jurisdiction cited as 36 ITR 222, 55 ITR 409 and 27 ITR 535. During the course of assessment proceedings, it was contended on behalf of the appellant that it had duly filed with the competent authority application for grant of exemption under clause (62) of the Second Schedule of the repealed Ordinance. Mere filing of an application for exemption was not acknowledged by the Assessing Officer as grant of exemption by the competent authority. Finally, appellant's tax liability was worked out as under:---

Assessment year 1999-2000:

Loss Declared

Rs. (108,872)

Loss Assessed

Rs. (108,872)

Income/Turnover

Rs. 1,599,407

Minimum Tax u/s 80D

Rs. 7997

Assessment year 2000-2001:

Income Declared

Rs.12,993,045

Income Assessed

Rs.12,993,045

Less B.F. Loss

Rs. 108,872

Taxable Income

Rs.12,884,173

Tax @ 43%

Rs. 5,540,194

Surcharge @ 5%

Rs. 277,009

Assessment year 2001-2002:

Income Declared

Rs.6,066,652

Income Assessed

Rs.6,066,652

Tax @ 43%

Rs.2,608,660

Surcharge @ 5%

Rs. 130,433

4. Being aggrieved, the assessee-taxpayer went in first appeal proceedings before the learned CIT(Appeals) who vide his order cited (supra), agreed with the logic and reasoning of the Assessing Officer as in the absence of availability of specific exemption, the rejection of appellant's contention was right because mere filing of an application does not amount to the grant of request made therein. The learned first appellate authority has also relied on an identical situation whereby his lordship Mr. Justice Nasim Sikandar held in Writ Petition No.10227 of 2002 dated 11-7-2002 that "mere fact that Ministry of Labour has recommended the grant of concession hardly means anything as long as it is not granted".

5. The learned First Appellate Authority has confirmed the impugned assessment order for all the three years being not suffered from any legal or factual deficiency.

6. As regards to the proceedings made under sections 52/86, it was stated that the appellant was called upon to exhibit the nature of compliance of section 50 of the repealed Ordinance. According to Assessing Officer's working, as contained in notices issued under section 52 of the repealed Ordinance read with section 161 of the Ordinance, the appellant's liability worked out to Rs.96,668, Rs.4,92,147 and Rs.6,55,612 respectively for the three years under consideration. During the course of proceedings, the A.R. of the appellant duly availed the opportunity of presenting appellant's point of view along with documentary evidence. The Assessing Officer after minutely examining the details and properly evaluating the evidence produced, held the "assessee-in-default under sections 52/86 for all the three years under consideration i.e. 1999-2000 to 2001-2002 respectively.

7. During the appeal stage regarding the proceedings made under section 52/86, the learned CIT(Appeals) observed that the contention of the appellant is not supported by any legal provision and there is also no substance in the arguments that the appellant's receipts did not constitute business income and the findings of the Assessing Officer remained uncontroverted. The learned First Appellate Authority accordingly confirmed the action of the assessing officer as elaborated on page-4 of the (sic).

8. We have heard both sides and have carefully gone through the orders passed by the authorities below and also examined/perused the available record/case-laws.

9. At the outset, the learned DR of the Department, raised a preliminary objection that the appeals filed by the appellant-company were barred by time as these had been filed after a delay of 1513 days. In this context, he referred to a letter addressed by the Assistant Registrar, ITAT, dated 30-3-2009 to the learned CIT (Appeal-Zone-III), Lahore in order to verify the date of service in the case of the appellant from the record of the learned CIT(Appeals). The learned CIT(A) in her reply has stated that the appellate order for the assessment year 1999-2000, 2000-2001, and 2001-2002 had originally been served upon the appellant on 17-9-2004, whereas the certified copy of the above mentioned orders were served on 17-3-2009 in response to the written request dated: 23-2-2009 made by the AR of the appellant.

10. At this stage, the learned DR argued that the Bench, should not entertain the appeals of the assessee in view of the evidence furnished by the learned CIT(Appeals) cited (supra) and if the appeals are allowed by the Bench, it shall set a "bad precedent" for other assesses to file an appeal before the ITAT at their own convenience without bothering for the time-frame as stipulated in law. The learned DR further added that the appeals should have been filed within the statutory limitation of 60 days after the appellate orders were served on the appellant.

11. The Bench asked the DR to produce the original record of the CIT(Appeals) in order to verify her contention that the appellate orders were originally served on the appellant but the original record was not produced by the DR as, according to him, the same was not traceable.

12. In reply, the learned AR of the appellant argued that the appellate orders were not served on the appellant. He referred to an affidavit filed by Vice-Chairman of Rice Exporters Association of Pakistan, in which the Deponent had submitted that the orders were never served on the appellant on the dates as stated by the CIT(A) and on being informed that the appellate orders were passed that they contacted the CIT(Appeals) in order to obtain the duplicate copies of the same.

13. We have considered the arguments made by both sides and we are of the considered view that as the original record of the learned CIT(A) was not made available by the DR, we are constrained to condone the delay in appeals filed by the appellant as being within time and we are also strengthened by a number of judgments of the superior courts which have held that in case of a "doubt" the benefit should go to the taxpayer who does not stand to gain from filing an appeal beyond the "limitation" as provided in law.

14. The learned AR submitted that the appellant in the instant case is a company limited by guarantee (not meant for profit) under section 42 of the Companies Ordinance, 1984 and enlisted vide Regist. No.L09587 of 98-99. It is argued by the AR that at assessment and first appeal stage "exemption" had been claimed by the appellant on "total income" under clauses (62), (93) and (94) of the 2nd Schedule to the repealed Ordinance. According to him, clause (63) deals with "business income" while clause (93) deals with "income from investment in government, securities and house properties" but clause (94) provides for exemption of `voluntary contributions of charitable institutions". In fact, the AR, argued that exemption was not being claimed under clause (63) nor under clause (93) but only in respect of "voluntary contributions" made under clause (94) which is apparent from bifurcation of receipts as reflected in the chart submitted by the AR in the course of hearing. The AR also made a reference to the Memorandum of Association of the appellant in which "voluntary contributions' are completely related to the performance of the charitable purposes. The AR also pointed out that the Assessing Officer had wrongly stated in the assessment order without brining anything `contrary' on record that "voluntary contributions' were not related to the charitable purposes. The learned AR also contested the reliance placed by the Assessing Officer on two reported cases in the asst. order i.e. 55 ITR 409 & 27 ITR 53, which were not on "all fours" with the case of the appellant. The AR also referred to a reported case 99 Tax 278 (Trib.), in which honourable ITAT has held that "contributions" received by the Chamber of Commerce and Industry, Lahore from its members under clause (94) are exempted from incidence of taxation.

15. In view of the above discussion, we are inclined to agree with the contentions of the learned AR that only "voluntary contributions" amounting to Rs.13,73,000 in the assessment year 1999-2000, Rs.22,70,500 in assessment year 2000-2001, Rs.22,00,500 in assessment year 2001-2002 and Rs.19,00.000 in assessment year 2002-2003 are exempt under clause (94) of the Second Schedule to the repealed Ordinance. The expenses related to voluntary contributions shall be deducted, while allowing exemption under clause (94). As regard, the objection raised by the Assessing Officer that the appellant had not obtained "exemption" certificate from CBR/FBR/Federal Government, we are of the view that no such exemption certificate was required in law to avail the privilege of exemption.

16. The learned AR of the appellant contested the finding of the assessing officer by holding the appellant as an "assessee in default" under sections 52/86 of the repealed Ordinance. In this context, the learned AR drew our attention to the C.B.R's Notification No.586(1)/91 dated 30-6-1991 and the relevant clauses (10), (11) and (12) sub-clauses `a' & `b' which provide for the non-deduction of payment under section 50(4) in respect of hotels, air tickets, cargo and small purchases not exceeding Rs.25,000. He also explained that most of the Profit and Loss account expenses were below Rs.25,000 and wherever section 50, subsection (94) was attracted deduction of tax had been made and necessary documentary evidences was furnished to the assessing officer who did not scrutinize the same and disallowed expenditure without citing any instances where deduction of tax had not been made.

17. We have looked into the matter and after due consideration of the matter, we are in agreement with the arguments of the learned AR, that initiation of proceedings for the assessment years 1999-2000 to 2001-2002, under sections 52/86, are not tenable in the eyes of law, as most of the expenses claimed P & L a/c which were brought to taxation under sections 52/86, are below the threshold limit of Rs.25,000. In this behalf, it is also noted that the Assessing Officer had failed to adhere to directions contained in C.B.R's Notification No.586, dated 30-6-1991. The' assessing officer has also failed to cite any instance where deduction of tax had not been made by the assessee. In a case reported as 2003 PTD (Trib) 1167, the honourable I.T.A.T. has held that section 52 cannot be invoked on mere presumptions, estimates or surmise. In another judgment of the honourable I.T.A.T. reported (2000) 82 Tax 289, it is held that the provisions of section 50 (4) come into play when a payment is made. It is, therefore, follows that when provisions of section 52 are invoked to declare a person to be an `assessee in default' the particular payments are `identified" which are attracted by the provisions of section 50(4). In the instant case, the Assessing Officer had failed to identify the parties to whom the assessee company has been treated as `assessee-in-default'.

18. It is also noted that in the year 2000-01, the assessing officer held the company as `assessee-in-default' with regard to payments disbursed under the head "Salary", but he clubbed the salary income of two independent employees and then charged it to tax which is illegal as the salary individual disbursed was below the taxable limit. Similarly, in the years 1990-00 and 2000-01, the appellant had been held assessee-in default under the heads, Office Rent (Rs.120,000 & 240,000), Printing and Stationery (41,400), Advertisement (243,500), Foreign Delegation (Rs.325,861) and Legal and Professional (Rs.283, 150), but the amounts as mentioned above, do not exist in the accounts of the years under consideration. The assessing officer had wrongly picked up these amounts. The assessing officer also picked up petty cash payments which were subjected to taxation under sections 52/86. As regards, non-deduction of tax upon payments made to foreign companies under the head "Aromatic Rice Conference"' (Rs.1,046,450), we are of the view that the issue needs re-appraisal and should be decided by the Assessing Authority in the light of documentary evidences available with the taxpayer. Order of the CIT (A) on the issue of Aromatic 'Rice Conference, in the year 2001-2002, is accordingly vacated and matter remanded back to the Taxation Officer, for de novo consideration.

19. In view of the above observation made by us and legal position settled by the appellate authorities, we are inclined to hold that the initiation of proceedings for the years 1999-00 to 2001-2002, under sections 52/86 of the repealed Ordinance read with sections 161/2005 of the Income Tax Ordinance, 2001, are not tenable in the eyes of law which are hereby cancelled, except for 2001-2002, in which year payments made under the heads "Aromatic Conference" was set aside by us, while rest of the treatment accorded for this year is cancelled.

20. As regards charge of tax under section 80D of the repealed Ordinance, we are of the firm opinion that section 80D is not attracted in the case of the assessee, as the voluntary contributions do not constitute "turnover" in terms of section 80-D of the repealed Ordinance.

21. Resultantly, the appeals of the assessee for all the years under consideration, are disposed of in the manner and to the extent as cited supra.

C.M.A./98/Tax (Trib.) Order accordingly.