I. T. AS. NOS. 1635 (KB) TO 1637 (KB) OF 1979-80, DECIDED ON 13TH MARCH, 1980. Versus I. T. AS. NOS. 1635 (KB) TO 1637 (KB) OF 1979-80, DECIDED ON 13TH MARCH, 1980.
ORDER
1. MUHAMMAD MAZHAR ALI (PRESIDENT). -Being aggrieved by the consoli dated order dated 13-3-1980 passed by the learned Appellate Assistant Commissioner, B-Range, Karachi, on appeals filed by the assessee-respondent, pertaining to charge years 1973-74, 1974-75, 1976-77, 1977-78 and 1976-79, the Income-tax Officer, Companies Circle B-4, Karachi, has brought these five appeals on the following common ground :-
2. "That the learned Appellate Assistant Commissioner was not justified in directing to calculate the Workers' Welfare Fund on net profit derived at after deducting this amount as the Workers' Welfare Fund was calculated @ 2 % on total income determined as per Board's Circular."
3. The Income-tax Officer through an order under section 35 of the re pealed Income-tax Act, 1922, pertaining to charge years 1973-74 and 1978-79 rectified the original assessments to work out and charge to tax, inter alia the Workers' Welfare Fund at Rs.85,040 and Rs.75,450 respectively. While giving effect to the first appellate order under section 31 of the re pealed Income-tax Act. 1n respect of the remaining charge years under appeal i.e. 1976-77 and 1977-78 he charged to tax the Workers' Welfare Fund at Rs.45,45,816 and Rs. 1,97,996 respectively. The assessee felt aggrieved with this action of the Income-tax Officer in respect of all the five years in question, He, therefore, carried appeals to the learned Appellate Assistant Commissioner assailing only the method of calculation of Workers' Welfare Fund. It was contended on his behalf before the first appellate authority that the Workers' Welfare Fund should have been calculated on NP arrives at after deducting the amount of Workers' Welfare Fund, whereas the Income-tax Officer had worked it out without deducting it from the total income. The learned Appellate Assistant Commissioner by a short order accepted the assessee's contention and allowed the appeals with a direction to the Income-tax Officer "to calculate the Workers' Welfare Fund accordingly". Hence these second appeals. The Workers Welfare Fund was established by the President of Pakistan through an ordi nance, called the Workers' Welfare Fund. Ordinance 1971 (Ordinance XXXVI of 1971, published in the Gazette of Pakistan Extraordinary, dated 11-12-1971). Section 4 of the said Ordinance which it is relevant for our purpose is reproduced hereunder
4. "4. Mode of payment by, and recovery from, industrial establishments.--(I) Every industrial establishment the total income of which in any year of account commencing on or after the date specified by the Central Government in the official Gazette in this behalf is not less than one lakh of rupees shall pay to the Fund in respect of that year a sum equal to two per cent. of so much of its total income as is assessable under the Act or would have been so assessable but for the exemption made by section 15-BB thereof.
(2) Every industrial establishment which is liable under subsection (1) shall pay the amount due from it to the Income-tax' Officer having jurisdiction over the industrial establishment for purpose of the Act.
(3) The industrial establishment shall, on or before the date on which it is required to furnish a return of income under subsection (1) of section 22 of the Act, pay the amount due from it under sub section (1) calculated with reference to the total income reporting in the said return.
(4) At the time of making an assessment under section 23 of the Act or as soon thereafter as may be, the Income-tax officer, shall by order in writing, determine the amount due from the industrial establishment under subsection (1), if any, on the basis of the in come 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.
(5) Any change by way of enhancement or reduction in the assessed income subsequent to the assessment made under section 23 of the Act shall be given effect to by adjustment of the amount due under subsection (1).
(6) Any amount paid by an industrial establishment under. subsection (3) which is found, on the basis of an order in appeal or revision under the Act, to have been paid in excess shall be refunded to it by the income-tax Officer.
(7) The payment made by an industrial establishment to the Fund under subsection (1) shall be treated as an expenditure for pur poses of assessment of the income-tax.
(8) Where any industrial establishment fails to pay the amount due from it as required under this section it shall, without prejudice to any other liability to which it may be subject under this Ordinance or any other law, be liable to pay an additional amount equal to eight percent per annum of the amount due from it froth the date on which it was original payable to the date on which it is paid.
(9) The provision of sections 46 and 46-A of the Act relating to the mode and tune of recovery of the Income-tax. leviable under the Act shall, so far as may be apply to the recovery of the amount due under subsection (1).
5. Mr. Yousuf Sharih the learned Departmental Representative, who appeared to press the appeal before us, drew our attention to the Central Board of Revenue's Circular No. C.1(7)-IT/1/72 dated 5-3-1973 and submitted that the order of the learned Appellate Assistant Commissioner does not seem to be contrary to what has been laid down in the Central Board of Revenue's aforesaid Circular. In his opinion. therefore, then; was no justification for the department to have filed these appeals. The learned Authorised Representative for the assessee- respondent also supported the order of the learned Appellate Assistant Commissioner. He contended that unless the amount to be paid to the fund is deducted from the total income the assessable income will not be available. The counsel therefore submitted that the purposes of the Ordinance will be achieved only if the following formula is adopted to work out the amount of Workers' Welfare Furd at the rate of 2 % of the total income :
6. Formula :
7. (Total income X-2) / 102
8. We have given our earnest consideration to the submissions made at the bar and we are of the opinion that the department's grievance is well-founded Under subsection (1) of section 4 of the Ordinance a sum equal to 2% of the Total income of an assessee as assessable under the Act is to paid. The amount of the Workers' Welfare Fund is thus to be calculated with reference to the total income set forth in the return of income to be furnished under section 22 (1) of the Act. The amount of Welfare Fun thus worked out shall then be treated as an expenditure for the purpose of assessment of Income-tax not under the provisions of the Income-tax Act, but by virtue of subsection (7) of section 4 of the Workers' Welfare Fund Ordinance, 1971. Hence the intention of the Legislature is that an allow ance or rebate is to be given to an assessee for the amount he pays to the Workers' Welfare Fund. Hence on the one hand Workers' Welfare Fund is to be paid @ 2 % of so much of the total income of an industrial concern as is assessable under the Act, i. e. before the amount of welfare fund is taken into account. The Legislature wanted to give the benefits of the pay ment so made to the assessee as well and that is why it has specially provided that the payment made by an industrial establishment to the fund under subsection (1) shall be treated ac an expense for purpose of assess meat of income-tax. The intention of the Legislature is manifestly clew that the income-tax shall be charged on the amount of total income arrived apt after deducting the amount of the Workers' Welfare Fund from the total income, as was assessible under the Act, without taking into account the provision of the Workers' Welfare Fund Ordinance in regard to its being treated as an expense fu; the purpose of assessment of Income-tax. Here the expression `for the purposes of assessment of Income-tax' is to be under stood in the sense of computation of Income-tax on the total income as arrived at after deducting the amount of the Workers' Welfare Fund Under the Income-tax Act an assessee is liable to be charged to income-tax, subject to the provision of the Act, in respect of his total income of the previous year or the years as the case may be, and the words "total. income" is defined by section 2 (15) of the tact as under :-
9. "(15) "total income" means total amount all income, profits and gains referred to in subsection (1) of section 4 computed in the manner laid down in this Act and "total world income" includes all income, profits and grins wherever accruing or arising except income to which, tinder the provisions of subsection (3) of section 4, this Act does not apply and except and capital gain which is not includible in the total income of an assessee."
10. Now the respondent's total income is assessable under section 10 of Act. Once the total income is arrived at in terms of the said section o under any other section of the Act which is applicable in this case, it is assessable to tax under the Act. By virtue of section 4 (1) of the Workers' Welfare Fund Ordinance, 1971 it was obliged to pay to the Fund (as defined by section 2 (c) of this Ordinance), a sum equal to 20 of its total income as arrived at and was assessable under the Act. Once total income is arrived at by the assessing officer, no further deduction therefrom on the account of the payment to the Fund under the Workers' Welfare Fund Ordinance, 1971 could be allowed because the payment to the said Fund would have been treated as an application of the income assessed under the Act. It was for this obvious reason that the Legislature in the Workers' Welfare Fund Ordinance, 1971, made a specific provision to the effect that, "the payment made by an industrial establishment to the fund under sub section (1) shall be treated as an expenditure for the purpose of assessment of income-tax" (see section 4 (7) of the Ordinance).
11. Having reached the above conclusion there is no course open to us but to bold that the learned appellate Assistant Commissioner committed an error in allowing the assessee's appeal for all these years by accepting con tention of the counsel for the appellant before him, that Workers' Welfare Fund should have been calculated on net profit derived at after deducting the amount paid to the fund. The grievance of the Department, is there fore, well-founded inasmuch as the Income-tax Officer had rightly deter mined the amount due from the assessee respondent under subsection (1) of section 4 of the W. W. F. Ordinance, 1971 on the basis of its total income as it was assessable under the Act. In this view of the matter, the Order of the learned Appellate Assistant Commissioner, notwithstanding the con cession made by the learned Departmental Representative cannot be sustain ed. We would vacate it accordingly and restore the respective Order of the Income-tax Officer as made in this behalf.
12. Before parting with the case we would like to put on record our firm disapproval of the slipshod manner in which the Appellate Assistant Com missioner has decided the appeals which involved an important question of law and that too of the first impression.
13. In the result, all the five appeals succeed and are allowed as indicated above.
14. Appeals allowed.