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Petitioner: SUI NORTHERN GAS PIPELINES LTD., LAHORE VS Respondent: COMMISSIONER INCOME TAX, L.T.U., LAHORE
Court Name: Appellate Tribunal Inland Revenue Judge(s): Javed Iqbal, Syed Nadeem Saqlain, Amjad Ikram Ali Title:SUI NORTHERN GAS PIPELINES LTD., LAHORE vs COMMISSIONER INCOME TAX,
L.T.U., LAHORE Case No.: I.T.A. No.652/LB of 2009 Date of Judgment:2010-02-16 Reported As: 2012 PTD (Trib.) 801 Result: Order accordingly Judgment ORDER SYED NADEEM SAQLAIN (JUDICIAL MEMBER).---The captioned appeal, filed by a quoted public limited company engaged in the business of distribution and supply of natural gas to residential, domestic, commercial and industrial consumers, impugns appellate order dated 13-6-2009 passed by the first appellate authority in respect of tax year 2007. The impugned order emanates from an earlier -appeal filed by the taxpayer in respect of amendment order dated 25-4-2009 passed by the Additional Commissioner, Large Taxpayers Unit, Lahore under section 122(5A) of the Income Tax Ordinance, 2001 ('new Ordinance'). 2. This appeal was fixed for hearing on many occasions, however, on the requests of respective D.Rs. The appeal was adjourned for one reason or the other, so the same could not be disposed of. Finally, in view of directions of honourable Lahore High Court, contained in its decision (whereby this Tribunal was directed to dispose of the appeal by 26-2-2010) dated 9-2-2010, in respect of Writ Petition No. 2219 of 2010, the subject appeal was fixed for hearing on 16-2-2010. 3. On 16-2-2010, while the appellant was represented by Syed Shabbar Zaidi, FCA and Mr. Asim Zulfiqar Ali, FCA, the departmental position was defended by Mr. Sajjad Haider Rizvi, Advocate ('LA') along with Mr. Muhammad Asif, Additional Commissioner, Legal Division, Large Taxpayer Unit, Lahore ('DR'). At the inception of appeal proceedings, the learned DR submitted that since the author of the order, giving rise to the present appeal, had undertaken to supplement the departmental arguments and the submissions contained in the amendment order, by way of a personal appearance before this Tribunal, and since he is stuck up due to some official engagement, he would be available to argue the case around 11 a.m., therefore, the proceedings
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may kindly be adjourned for couple of hours. The learned AR did not oppose to such request made by the DR and confirmed his availability. The request was acceded to and the case was adjourned till 11-30 a.m. The same day. It is pertinent to mention here that in the interest of justice and to afford full opportunity of being heard and to put forth departmental view the court allowed extra half an hour against the time asked for by the learned D.R. The bench was reconvened at the said pre-agreed time, however, the learned DR informed that the author of the order would not be joining the proceedings and as such this Tribunal may proceed in the matter after hearing the arguments of both the parties and after considering the orders of the authorities below. 4. Since the honourable High Court has given deadline i.e. 26-2-2010 to dispose of the appeal, the court at the request of the learned L.A. And learned D.R. Gave ample opportunity so that author of the impugned order who wanted to defend his case would not feel deprived. However, the learned L.A. And learned D.R. Both were left in the lurch due to pre-engagement of the officer (author of the order). It seemed that the learned L.A. And D.R., both were caught unaware with regard to giving full assistance to the court since they had been given understanding that author of the order in question wished to argue the case himself Since, it is a direction cage, we have no option but to proceed with the case to decide the case as per deadline given by the honourable High Court i.e. 26-2-2010. 5. Initiating his arguments, the learned AR for the appellant sought permission to the grounds of Appeals Nos. 2 and 3 which is allowed and these grounds of appeal having become infructuous are not taken up for disposal. 6. The arguments of the respective parties have been heard and due consideration has been given to the facts of the case as well as the supportive decisions relied upon by the parties. The grounds of appeal, in the light of the pleadings of the learned representatives, are taken up and disposed of in terms of observation recorded as under. Ground of appeal No. 4 - Gas bills collection charges 7. Brief facts are the appellant company allegedly failed to deduct withholding tax under section 153 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) in respect of 'gas bill collection charges' incurred in connection with services rendered by various institutions/banks in collecting the gas-bills and hence under provisions of section 21(c) of the Ordinance were ,invoked by the Additional Commissioner to disallow such collection charges. The AR of the appellant informed that similar disallowances were made in respect of tax years 2003 through 2006 in the appellant's on case regarding which this Tribunal, through order dated 16-10-2009 in I.T.As. Nos. 871-874/LB of 2008, after analyzing the matter from various aspects, held that appellant was not obliged to withhold tax in respect of collection charges and as such the disallowances made in preceding years were annulled. 8. In view of the fact that there is no difference in facts and circumstances , as were prevailing in the preceding years and as are involved in the current year, and since the matter has already been decided in appellant's favour, disallowance on this account is deleted by following the already available decision of the this Tribunal on the matter cited supra. Ground of Appeal No. 5 - Post retirement employee benefits 9. The facts relevant to this issue are that during the year the appellant, in the financial statements, charged expense on account, of following:-- (i) Rs.250.279 million regarding post retirement employee benefit .Relating to medical facility; and (ii) Rs.81.475 million in respect of post retirement employee benefit regarding free provision of gas. 10. The Additional Commissioner, .In the amendment order, disallowed both the amounts by invoking the provisions of section 21(e) of the new Ordinance by holding that the accumulation of provisions under the aforesaid heads tantamount to creation of a 'fund' which not being an approved fund attracted the mischief of aforesaid provisions of law. In this respect, reliance was placed by the Additional Commissioner
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on 2006 PTD 460, a decision of Sindh High Court, in which the issue was determination of allowability of 'provision for gratuity'. 11. While objecting to the disallowance made by Additional Commissioner and upheld by the first appellate authority, the learned AR vehemently argued that the appellant did not create any fund and as such the claim, being in the nature of an ascertained liability, qualified to be an allowable deduction on the basis of principles categorically laid down by the apex Court in 1992 PTD 668 and as such reliance by the Additional Commissioner on the decision of Sindh High Court was not valid. The AR further submitted that reference to the cited decision of the apex court was also made before the Additional Commissioner, however, the Additional Commissioner still drew adverse inference by observing that the decision of the apex court is not a valid precedent as it was given in the context of repealed Income Tax Act, 1922 when the provisions of law did not contain any .Provision part materia to those contained in section 21(e) of the new Ordinance. 12. The AR added that while responding to this observation of the Additional Commissioner further reliance was placed on the decision of Lahore High Court, in 2001 PTD 443, in which the matter again was determination of allowability of 'provision for gratuity', and their lordships upheld the claim of deduction by following the principles laid by the apex court in the cited judgment. The AR further argued that in the case before their lordships of Lahore High Court, the legislation under consideration was the repealed Income Tax, Ordinance, 1979 ('repealed Ordinance') which contained section 24(g) (part materia to section 21(e) of the new Ordinance). On this basis, the AR submitted that when in the context of repealed Ordinance (containing part materia provisions) their lordships considered the decision of the apex Court as a relevant and valid precedent then the Additional Commissioner had no mandate to take any different view. It was the contention of the AR that regardless of any other consideration, under the principles of stare decisis the ruling of Lahore High Court would take precedence over the judgment of Sindh High Court referred by Additional Commissioner. The AR further submitted that even otherwise the judgment relied upon by the Additional Commissioner is not valid as Sindh High Court in a subsequent judgment, reported as 2008 PTD 647, has upheld the claim regarding provision of gratuity on the' same lines as was previously approved by Lahore High Court. On the basis of aforesaid arguments, the learned AR submitted that disallowance being based on improper application of law merits deletion. The learned DR on the other hand supported the orders of the authorities below. 13. We have considered the rival submissions, perused the available record and have given earnest consideration to the decisions relied upon by the parties. Interestingly, both the parties are relying upon' decisions relevant to 'provision for gratuity' and the real controversy remains as to which precedence is applicable in the present case. It does not take long for us to decide this issue. While AR's reference to principle of stare decisis, being already well settled, cannot be ignored, even if for argument's sake it is considered that decisions of Sindh High Court are relevant in the context of the present appeal, later decision i.e. 2008 PTD 647 would certainly take precedence over the earlier judgment i.e. 2006 PTD 460. We would further note that in fact this matter relates to claim of an ascertained liability regarding which the matter has already attained finality by virtue of decision of the apex court, cited supra and since this decision is being repeatedly followed by the higher courts there is no room for any other view. The disallowance made by the Additional Commissioner is held to be not tenable in the eyes of law. 14. We consider that the observation of the Additional Commissioner is strange when he states that the two judgments i.e. 2001 PTD 443 and 2008 PTD 647 relied upon by the AR, are not relevant as in both the cases their lordships of High Courts derived strength from the judgment of the apex Court which related to assessm ent year governed under Income Tax Act, 1922 when no provision pari materia to section 21(e) of the new Ordinance existed. It is suffice to state that no matter the repealed Act did not contain any pari materia provisions but provisions of section 24(g) of the
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repealed Ordinance were clearly pari materia to section 21(e) of the new Ordinance as is under consideration. When their lordships at High Courts regard the judgment of apex Court as being a valid precedent vis-a-vis the repealed Ordinance [which contained pari materia provisions], the Additional Commissioner is not competent to take any contrary view. The upshot of the discussion is that the provision claimed by the appellant qualify to be an admissible deduction in the light of ratio settled in 1992 PTD 668 (SC), 2001 PTD 443 (LHC) and 2008 PTD 647 and as such the disallowance made by the Additional Commissioner is deleted. Ground of Appeal No. 6 - Government Grants 15. The relevant facts are that the Additional Commissioner in the amendment order charged to the tax the grants aggregating to Rs.3,811.477 million received by the 'appellant from the Federal Government by invoking the provisions of section 18(1)(d) of the new Ordinance. The first appellate authority upheld the action of the Additional Commissioner. 16. Elaborating the facts, the AR submitted that the appellant company regularly receives grants from Federal Government, in the same way it receives contributions from consumers, which are solely utilized towards funding of transmission and distribution lines, which are utilized to transmit natural gas to consumers. It was explained that the accounting and tax treatment of both the consumer contributions and government grants is exactly the same in the case of the appellant. While in the financial statements these are recognized as 'deferred credit', in the tax computation these amounts are recorded as a reduction is written down value of the depreciable assets. This treatment, the AR clarified, is consistent for past many decades. 17. In this background, the AR submitted that although government grants have never been taxed in preceding years, the amounts received on account of consumer contribution was taxed for the first time in the assessm ent year 1981-1982 when the department treated the amount as a revenue receipt. The matter was finally settled in the appellant's favour when this Tribunal in its decision dated 17-1-1991 ruled that the appellant correctly reduced the, amount from the written down value of the depreciable assets and as such the amount was not a revenue receipt. It was observed by the Tribunal, the AR submitted, that where an amount is received towards sharing the cost of service lines i.e. The amount is utilized in creation of an asset which is a capital asset then the receipt, being in the nature of direct re-coupment or reimbursement of a capital expenditure, cannot be treated as a revenue/ taxable receipt. It was added that similar treatment was accorded to the appellant in all subsequent years upto and including assessment year 2002-2003 and in all the years the matter has been consistently decided in appellant's favour through judgments dated 10-6-1997, 26-2-2002, 19-6-2003 and 1-2-2005. The AR clarified that departmental reference for all the 21 years are pending before the Lahore High Court and as such the legal position stands settled so far as this forum is concerned. 18. The AR argued that it is an admitted position that the nature of both the consumer contribution and government grants is exactly the same, therefore, based on legal position already settled in the appellant's on case, not only the Additional Commissioner grossly erred in taxing the amount constituting the grants but also its confirmation by the first appellate authority is not legally sustainable. 19. It has been submitted by the AR that the fundamental reason advanced by the Additional Commissioner for not regarding the aforesaid decisions of this Tribunal as binding precedents is that in his view the earlier decisions were given in the context of the "repealed 1979 Ordinance" and as such the legal position has changed by virtue of insertion of section 18(1)(d) in the new 2001 Ordinance. Referring to this observation, the AR submitted that this argument of the Additional . Commissioner is faulty and contrary to the correct legal position. That is so because:
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(i) so far as the facts and circumstances applicable in the appellant's case, the provisions of section 22(c) of the repealed 1979 Ordinance are part materia to the provisions of section 18(1)(d) of the new 2001 Ordinance and as such it is wrong assumption of the Additional Commissioner that there is a change in law that warrants the action; (ii) in any case provisions of section 18(1)(d) of the new Ordinance are not applicable in respect of any benefit that is received in 'cash' [which admittedly is the case for subject government grants] and in this respect, relied upon decisions from Indian jurisdiction in 205 ITR 353 and 259 ITR 520 wherein by reference to expression "....Whether convertible into money or not..." it has been ruled that amounts received in cash fall outside the scope these provisions; and (i.e) though the Additional Commissioner has stated in the order that change in law rendered the earlier decisions irrelevant but still he did not charge to tax the amounts constituting consumer contributions which shows that he himself is aware of the position that there is no material variance in the two legislations and as such Additional Commissioner arbitrarily taxed the 'government grants'. 20. The learned LA/DR, though supported the taxability of government grants primarily on its 'recurrence' but conceded to the position that there is no material change in the two legislations vis-a-vis the underlying facts and with reference to provisions invoked by the Additional Commissioner. There is nothing in the amendment order either as to how the two amounts, have any different character. On our specific query as to in what respect the department differentiates between the two amounts viz. 'government grants' and 'consumer contributions', the LA/ DR could not render any explanation and conceded that both the amounts were received and utilized in procurement of capital/ depreciable assets. 21. In the admitted circumstances that there the subject amounts were received towards sharing the cost of service lines and were meant to reduce the capital cost of depreciable assets, we consider that the decision dated 17-1-1991, given in the appellant's on case, is squarely applicable in respect of present proceedings. As has already been settled in the appellant's case that where such amounts are utilized to create capital/depreciable assets, the amounts so received, being in the nature of re-coupment or reimbursement of capital expenditure, constitute 'capital receipts' in the hands of the recipients. The issue having already been conclusively decided, we hold that the Additional Commissioner erred in deviating from the principles enunciated in this Tribunal's earlier decisions and as such the amounts were illegally charged to tax. Similarly, no exception could be taken from the principle laid down in decisions cited from Indian jurisdiction that in any case amounts received in cash are not covered by the subject provisions. The position being admitted that in the present case the amounts were received by the appellant in cash, we have no hesitation in holding that these provisions were wrongly invoked by the Additional Commissioner and as such the amendment order, and its confirmation by the first appellate authority, are liable to be struck down. These are accordingly vacated. Resultantly, the appeal on this point is also accepted and addition is annulled. 22. The appeal succeeds in the manner and to the extent described above. Sd/- Sd/- (AMJAD IKRAM ALI) (SYED NADEEM SAQLAIN) ACCOUNTANT MEMBER) JUDICIAL MEMBER DISSENTING NOTE AMJAD IKRAM ALI (ACCOUNTANT MEMBER).---The taxpayer has charged expenses, which in my view are reserves, as they pertain to post retirement employees benefits relating to the medical facility and free provision of gas. I have chosen to call them reserves, as they are still retained by the company and utilized by the company. No separate fund whereby the company has dis- associated itself from the fund has been created. Even, if the company had disassociated itself by
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creating a separate fund and not utilized its fund, even then the statutory bar to admissibility of appropriations towards unapproved gratuity fund by virtue of mischief of section 21(e) would make them inadmissible. 2. The Additional Commissioner disallowed the claim under sections 122(5A)/21(e) of the Income Tax Ordinance, 2001 and the learned C1T(A) has also upheld the same. My learned brother gave following concluding remarks:- "The upshot of the discussion is that the provision claimed by the appellant qualify to be an admissible deduction in the light of ratio settled in 1992 PTD 668 (SC), 2001 PTD 443 (LHC) and 2008 PTD 647 and as such the disallowance made by the Additional Commissioner is deleted". 3. The judgment of the august Supreme Court reported as 1992 PTD 668 (SC) relied upon by my learned brother was a matter regarding refusal to grant of appeal and the following questions were before the apex court:-- "Whether in the facts and circumstances of the case, the Appellate Tribunal was justified in upholding the disallowance of the claim of gratuity payable to the employees." 4. The Apex Court referred to Karachi High Court's decision reported as 1985 PTD 413 and decided as under:- "For the facts and reasons stated above, we are of the considered view that no exception can be taken to the judgment of the High Court impugned in this petition for the reason that it has answered the question correctly to the effect that claim of gratuity payable to the employees cannot be disallowed in the light of and for the reasons stated in the case-law mentioned above. No interference is warranted, as such leave is refused". 5. It would be observed that the judgment which was relevant to 1922 Act did not take into account the statutory bar on such admissibility placed by section 24(g) of the repealed Ordinance as have been reiterated in section 21(e) of the new Ordinance. SECTION 21(e) READS AS FOLLOWS" "21. Deductions not allowed.---Except as otherwise provided - in this Ordinance, no deduction shall be allowed in computing the income of a person under the head "Income from Business". "(e) any contribution made by the person to a fund that is not a recognized provident fund (approved pension fund), approved superannuation fund, or approved gratuity fund". 6. The interpretation of allowing gratuity as provision would make section 21(e) redundant, which finding has not been given by any forum yet. 7. In the case reported as 2006 PTD 460, Mr. Mujibbullah Siddiqui as Judge of the Hon'ble High Court addressed the question of inadmissibility of provision for gratuity in terms of section 24(g) of the repealed Ordinance, 1979, which is para metria the same as 21(e) of the new Ordinance and also taking into account admissibility under the Income Tax Act, 1922. Following questions were put before the High Court:-- (1) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal was justified in confirming the order of the CIT(A) that provision of gratuity is an admissible expense ? (2) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal correctly relied on the judgment of High Court cited as 1989 PTD 579, when the judgment was based on provision of repealed Act of 1922 and the assessment in this case on the point of 'Provision' was covered by the section 24(g) of the Income Tax Ordinance, 1979". The High Court held as under:-- "Consequent to the above discussion, it is held that the Assessing Officer rightly disallowed the claim for provision of gratuity on account of clear bar contained in section 24(g) of the Income Tax Ordinance, 1979. It is further held that no such bar was contained in the Income Tax Act, 1922, and therefore, this Court while considering the provisions contained in the Income Tax Act, 1922, held in
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the case referred to above, that the provision of gratuity was admissible expenditure for the reason that it pertained to the ascertained liability. After introduction of bar contained in section 24(g) of the Income Tax Ordinance, 1979, the earlier judgments of this Court delivered on consideration of the provisions contained in the Income Tax Act, 1922, are no more applicable for the reason that no provision analogous to action 24(g) of the Income Tax Ordinance, 1979, was there in the Income Tax Act, 1922. It is therefore, held that the ITAT was not justified in confirming the order of CIT(A), whereby the provision for gratuity was held to be an inadmissible expense under the law contained in the Income Tax Ordinance, 1979." 8. In view of the High Court's judgment referred to above, the provision of gratuity is statutordy inadmissible expenditure. 9. The provisions of 1979 Ordinance as applicable to the assessment year 2002-2003 were para materia the same as those in the Income Tax Ordinance, 2001 and have been answered above. 10. It is imperative to mention here that in the latest Full Bench Judgment of this Tribunal reported as 2009 PTD (Trib) 1187, it has been held as under:-- "For assessm ent year 2002-2003, assessee as well as department both have contested the impugned order. Regarding the objection of assessee about the provision of gratuity, neither the gratuity has been got approved as per requirement of law nor actually it has been paid, therefore, the L/CTT(A) has rightly disallowed the same, hence, his finding is confirmed." 11. Therefore, in the interest of harmony, the provision for gratuity should be deleted. 12. The other judgments relied upon by my learned brother are 2001 PTD 443 (LHC) and 2008 PTD 647. The former judgment was regarding the assessment years 1977-1978 to 1986-1987, wherein statutory bar to admissibility…
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