I.T.AS. NOS. 1585/KB OF 1984-85, 2650/KB OF 1987-88 AND 2/KB OF 1985-86, DECIDED ON 18TH JULY, 1988. Versus I.T.AS. NOS. 1585/KB OF 1984-85, 2650/KB OF 1987-88 AND 2/KB OF 1985-86, DECIDED ON 18TH JULY, 1988.
ORDER
1. FARHAT ALI KHAN (CHAIRMAN) .-- These appeals are directed against 3 separate orders recorded by learned C.I.T. (A) on, 23-12-1984, 31-8-1987 and 13-4-1985 relating to assessment years 1983-84 and 1984-85: In first 2 appeals the point in issue is regarding the rate of super-tax to be applied or, dividends whereas the 3rd appeal is regarding the penalty imposed under section 91 in assessment year 1983-84.
2. The brief facts giving rise to these appeals are that the appellant, a non-resident company incorporated in U.S.A. declared its income from dividend received from M/s. Exxon Chemical Pakistan Ltd., in assessment years 1983-84 and 1984-85. The I. T. O. , however, levied super-tax at the rate of 15% for the reason that the appellant was not a Public Limited Co., as defined by the Income-Tax Ordinance. He disposed of the appeals of the appellant with the following observation:---
3. "The reply of the assessee was filed vide letter: dated 22-5-1984 which is not acceptable. The company as observed above has not been notified as a Public Ltd., Co., in the light of SRO 891(1)/1977."
4. Having been aggrieved and dissatisfied the appellant went up in appeal but the learned C.I.T.(A) rejected it with the following remarks:----
5. "Regarding the legal issues raised dealing with the application of tax rate at 15% by the I.T.O. instead of 5% applicable to a Public Limited Company with all due respect to the arguments and claims raised by the company through its authorised representative Mr. Rustumjee I find that the action of the I.T.O. in applying the rate of 15% and not 5% for the purpose of taxing dividend is justified because according to the provisions of law as defined in the Income-tax Ordinance, 1979 a public company means a company in which not less than 50% of the shares are held by the Government or whose shares were the subject of dealings in a registered-.Stock Exchange in Pakistan at any time during the income year and remained listed on the Stock Exchange till the close of that year.
6. The appellant still feels aggrieved and has come up in second appeal before us. Let us also mention here that the I.T.O. also imposed penalty under section 91 of the Income-tax Ordinance in assessment year 1983-84 and the same was also confirmed by the learned C. I. T. (A). The appellant also feels aggrieved by this order and has also brought it in dispute before us in second appal.
7. Mr. Rustum Jee, the learned authorised representative of the appellant, firstly invited our attention to clause 7.08 of the agreement entered into on 16th December, 1964 between the Government of Pakistan and the appellant which reads as under:----
8. "The Government confirms that Standard Oil Company, incorporated in the State of New Jersey is a company in which the public are substantially interested (such a company being hereinafter referred to as a public company) that the company, for as long as said Standard Oil Company shall be the owner of the company's foreign-held shares, shall be deemed to be a public Co. and that said Standard Oil Company and the Company shall, therefore, be eligible for the exemption and concessions accorded to public companies under the tax laws as in force from time to time."
9. Pointing out that Standard Oil Company subsequently carried the name and style of the appellant, the learned counsel for the appellant, further invited our attention to SRO 891(1)/1977 dated 25th September, 1977 which reads as under:-----
10. "In exercise of the powers conferred by subsection (1) of section 60 of the Income-tax Act, 1922 (XI of 1922), the Federal Government is pleased to reduce the rates of super-tax leviable on the income from dividend of a foreign association declared ,to be a company, under subsection (5-A) of section 2 of the said Act so as to make those rates equal to the rates applicable in the case of a 'public company' under (he relevant Finance Act if the Federal Government, under an agreement with such an association, had confirmed that the said association was eligible to be treated as a company in which the public are substantially interested within the meaning of section 23-A of the said Act as it stood immediately before the first day of July, 1972."
11. Elaborating his arguments further the learned A.R. submitted that aforesaid SRO was issued by the CBR at the instance of the appellant as the Finance Ordinance of 1972 introduced a new definition of Public Company and the doubt was raised as to whether the appellant was entitled to the reduced rate of super-tax. Mr. Rustum Jee further contended that since assessment year 1973-74 onward the department always applied reduced rate of 5$ to levy super-tax on the dividend received by the appellant till assessment year 1983-84. Mr. Rumtum Jee also submitted that when the ITO raised objection in assessment year 1983-84 he invited his attention to CBR Circular No.8 of 1981 dated 20th July, 1981 to point out that aforesaid SRO was held to have been protected by section 166(2)(m) of the Income-tax Ordinance, 1979. The text of aforesaid Circular is as under:----
12. "Clarification has been sought from the Central Board of Revenue regarding the status of such of the exemption Notifications issued under section 60(1) of the repealed Income-tax Act, 1922, as have neither found a place in the revised Second Schedule to the Income-tax Ordinance, 1979, nor have been rescinded.
13. It is clarified that these Notifications although not included in the revised Second Schedule are still operative in view of the protection given by section 166(2)(m) of the Income-tax Ordinance, 1979.
14. For the facility of reference these notifications are listed below:----
(xi) SRO 891(1)/1977 Reduced rate of super-tax as applicable to a public company on intercorporate dividends."
15. Thus, concluding his submissions Mr. Rustum Jee contended that in view of SRO 891(1)/1977 and Circular No.8 of 1981 the appellant was a Public Limited Company hence entitled to 5$ rate of super-tax to be applied to its dividend income. Mr. Mohammad Farid, the learned D.R., however, supported both the officers below. According to him both the officers rightly held that the appellant was not a Public Company as defined by the Income-tax Ordinance.
16. We have heard both the learned counsel for the appellant as well as the learned .D.R. From perusal of clause (2) of paragraph (B) of Part-IV of the 1st Schedule of the Income-tax Ordinance it appears that for the purposes of Schedule 1 which includes rates of super-tax as laid down in Part-II, the legislature not only has defined "Public Company" vide Finance Ordinance of 1983 but also made it effective from assessment year 1983-84. The definition now stands as under:----
17. "Public Company means ..........
(a) a company in which not less than fifty per cent of the shares are held by the Government:-
(b) a company whose shares were the subject of dealing in a registered stock exchange in Pakistan at any time during the income year and remained listed on the stock exchange till the close of that year; or
(c) a trust formed by or under any law for the time being in force."
18. Thus, if we keep into consideration the pertinent principle of interpretation of statutes that the legislature cannot be imputed with the ignorance of the statutes which it enacts, the legislative intent, in spite of all SROs and Circulars issued from time to time, becomes quite clear vis-a-vis the definition of a Public Company and the rate of super-tax. We find force in the submission of Mr. Rustum Jee in so far as the rates of super-tax are concerned for all the relevant assessment years upto assessment year 1982-83. But in assessment year 1983-84 the legislature has introduced the amendment as reproduced above and which certainly overrides all pieces of subordinate legislation like SROs or Circulars. We, therefore, respectively agree with' both the officers below that in view of the amended definition of a Public Company the benefit of reduced rate of super-tax for levying tax on the dividend income of the appellant remained no more available to it. Let us point out that the remedy of the appellant, if any, now lies in the same procedure which it followed when the Finance Ordinance of 1972 introduced new definitions of the, Public Company.
19. In view of discussion made above, we find no force in Moth the appeals and they stand rejected accordingly. Now as far as the 3rd appeal against the penalty order recorded under section 91 of the Income-tax Ordinance, 1979, is concerned, we also find no force in it and it also stands rejected accordingly.
20. I n view of discussion made above all the appeals stand rejected accordingly.
21. M.B.A./547/T Appeals rejected.