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Petitioner: PAKISTAN PETROLEUM LTD., KARACHI VS Respondent: COMMISSIONER OF INCOME TAX JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Ather Saeed, Arshad Noor Khan Title:PAKISTAN PETROLEUM LTD., KARACHI vs COMMISSIONER OF INCOME TAX
JUDGMENT
Reported As: 2009 PTD 662 Result: Order accordingly Judgment JUDGMENT ' MUHAMMAD ATHAR SAEED, J.---These Income Tax Reference applications have been filed against the order of the Income Tax Appellate Tribunal, dated 22-3-2005 in I.T.A. No.1349/KB of 2004 to I.T.A. No.1353/KB of 2004, seeking the opinion of this Court on the following proposed questions, said to be arising from the impugned order. (A) Whether the Workers Welfare Fund Ordinance, 1971 ("the Ordinance") applies to an establishment that was owned by a corpora tion the majority shares whereof are owned by the Government? (B) Whether the majority Members bf the Hon'ble Tribunal erred in law by disregarding the clear language of section 2(f) of the said Ordinance which specifically excluded "concern or establishment which is owned by Government....Or by a corporation the majority of the shares of which is owned by Government? (C) Whether the majority Members of the Hon'ble Tribunal misread the language of section 2(f) of the said Ordinance by constructing the words "but does not include concern or establishment which is owned by Government or by a corporation established by Government or by a corporation the majority of the shares of which is owned by Government"---as a proviso whereas the same was part of the body of the said section? (D) Whether the majority Members of the Hon'ble Tribunal failed to appreciate that, wherever there is any ambiguity in a taxing/ financial statute the controversy has to be resolved in favour of the subject and or when two possible meanings can be drawn the one favourable to the subject has to be adopted?
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(E) Whether the majority Members of the Hon'ble Tribunal disregarded the fact that admittedly on overwhelming majority of shares of the applicant (93% of its total shares) were owned and held by the Government and thus the Ordinance had no application to the applicant? (F) Whether the majority Members of the Hon'ble Tribunal erred in law by drawing a distinction between 'company' (a term not used in the said Ordinance) and 'corporation' since the Ordinance neither drew such a distinction nor was the terms `corporation' defined therein? (G) Whether the majority Members of the Hon'ble Tribunal erred in law by holding that the category ("by a corporation the majority of the shares of which is owned by Government") "relates to a company owned by a corporation, the majority of the shares of which are owned by the Government" despite the fact that the Ordinance made no mention of the same of any such 'company'? 2. The brief facts of the case are that the assessment years involved are the assessment years 1998-99 to 2002-2003. For these years the applicant filed returns of income and on the basis of these returns of income the applicant voluntarily paid Workers' Welfare Fund and the Assessing Officer accordingly charged W.W.F. In the respective assessment orders. The applicant challenged the original assessm ents by way of appeals in various appellate forums including the quantum of - amount of W.W.F. However, the point of exemption of W.W.F. Was never raised in these appeals. Later on the applicant moved rectification applications for all the five years under section 156 of the Repealed Ordinance, 1979 contending that the applicant due to bona fide inadvertent mistake had made the payment of Workers' Welfare Fund, whereas the same was exempted under the provisions of exception to subsection (f) of section 2 of the Workers Welfare Fund Ordinance provided in clause 6 of this subsection and hence, the mistake being apparent from the record should be rectified. 3. All these rectification applications were dismissed by the Assessing Officer of Income Tax vide his order, dated 24-5-2004, wherein he held that this was not a mistake apparent from record. 4. Being aggrieved by the above orders by the applicant preferred appeals before CIT(Appeals), who vide his common order in appeal Nos.29 to 32, dated 24-8-2004, dismissed the appeals. 5. Being aggrieved by the above order the applicant filed appeals before the Income Tax Appellate Tribunal. The case was first heard by a division bench, wherein, there was a difference of opinion between the learned member and the following two questions were referred for adjudication to a third Member:-- (1) Whether the rectification application of the assessee applicant come within the ambit of section 221 of the Income Tax Ordinance, 2001 as the issue of levy of W.W.F. At the assessment stage had attained finality when it had not agitated the levy of W.W.F. In the related appeals filed with the appellate authorities? (2) Whether the assessee appellant was falling in the purview of the exclusionary clause of section 2(f)(vi) of the Workers Welfare Fund? 6. On both these questions the learned judicial member had adjudicated in favour of the present applicant, whereas, the learned accountant member had adjudicated in favour of the present respondent. 7. The learned third Member vide his order, dated 17-2-2007, answered first question in favour of the present applicant and against the respondent. However, he decided the second question against the applicant and in favour of the respondent and therefore, dismissed the appeal holding as under:-- "However, the present finding would not be helpful to the assessee for the reason that the assessee is not falling within the purview of the Exclusionary Clause of section 2(f)(vi) of the ' Workers Welfare Fund Ordinance, 1971 as the finding of the learned Accountant Member in this context finds support from my order".
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8. Hence, these reference applications. 9. We have heard Mr. Makhdoom Ali Khan learned counsel for the applicant and Mr. Aqeel Ahmed Abbasi learned counsel for the respondent. 10. The learned counsel read out before us the provisions of sections 2, 4 and 6 of the Act, stressing on the exception provided under clause (vi) of subsection (f) of section 2. The learned counsel submitted that these three exceptions, which have been exempted for the levy of the Workers Welfare Funds are as under:-- (i) establishment or concern owned by the Government. (ii) establishment or concern owned by a Corporation established by the Government. (iii) establishment or concern owned by the corporation the majority shares of which are owned by the Government. 11. In the light of these arguments the learned counsel took us through the orders in his favour authored by the Judicial Member Mr. Jawed Tahir Bhatti and the order against him authored by the Accountant Member Mr. Shaheen Iqbal. The learned counsel has specifically referred to the following extract from the order of the learned Accountant Member:-- "My learned brother Judicial Member has also accepted the appellant's contention that it also falls in category (iii) above, as it is owned by corporation in which the majority of its shares are owned by the Government. ' The related arguments raised in this respect was to the following effect:-- (a) The term "corporation" includes a private limited company; (b) The appellant is, therefore, a corporation in which majority of the share are held by the Government; and (c) The appellant company owns various units/concerns comprising of offices, business places and oil fields. These units can be termed as a concern or establishment owned by the assessee appellant-corporation and since the majority of the shares in the appellant corporation are owed by the Government, the aforecited establishments owned by it enjoy exemption from the levy of W.W.F. And since the respective units are exempt from levy of W.W.F., the appellant itself would not be liable to the payment of W.W.F. ' In my considered view, the logical conclusion drawn is contrary to the provisions of law as contained in section 2(f) of the Worker's Welfare Fund Ordinance, 1971 which defines "industrial establishment" and it is evident that the concerns named in this clause would be independent units and not offices or dependent units of the owner company. ' In my humble view, this interpretation is again incorrect and misconceived as the above-referred third exclusion is in respect of a company, which is owned by a corporation, the majority of shares of which are owned by the Government. The factual position remains that the appellant is not owned by any corporation in which majority of shares are held by the government and, therefore, it cannot claim that it falls in the above referred category (iii)." 12. The learned counsel argued that the basis on which the learned accountant member has held that the applicant's case does not fall under the third exception is flawed and leads to an illogical and absurd interpretation that the exemption is only applicable to a company owned by a corporation in which majority shares are owned by the government. According to the learned counsel while arriving at this conclusion, the learned counsel accountant member has added words to the statues, which is not permitted under the principles of interpretation of statutes. He argued that the only possible interpretation is that the establishment or concern should be owned by a company/corporation the majority shares of which are owned by the Government. He submitted that it is an 'admitted fact that in the periods under reference 93% of the shares of the applicant's corporation were owned by the Government and this fact has also been conceded by the learned counsel for the respondent. The learned counsel for applicant further argued that the
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word "or" appearing between the words "establishment" and "concern" is disjunctive in nature and not conjunctive and therefore, if either the establishment or the concern is owned by a corporation the majority shares of which are held by the government the same shall qualify for exemption under exception (iii) to section 2(vi)(f). 13. In this connection he relied on the following judgments:-- (1) Dildar and another v. The State, reported in PLD 1963 SC 47. (2) Raja Maula Dad Khan, Advocate v. West Pakistan Bar Council, Lahore, reported in PLD 1975 SC 469. (3) Hussain Bux and others v. The State, reported in PLD 2003 Karachi 127. (4) Pakistan through Secretary Finance and others v. Messrs. Lucky Cement and another reported in 2007 SCMR 1367. 14. He further submitted that another very important principle of interpretation is the principle of harmonious construction of the statute. In order to arrive at a harmonious interpretation it is necessary to restrict the interpretation to the words appearing in the statute and in exception (iii) the important words are "establishment" or "concern" "corporation" and thirdly the majority shares of which are held by the government. He therefore, submitted that by inserting another medium in between the words "establishment" or "concern" and the "corporation", i.e. Company, the learned accountant member has violated the principles of interpretation. In this connection he relied on the following judgment:- (1) Syed Matloob Hussan v. Brooke Bond Pakistan Limited reported in 1992 SCMR 227. (2) Syed Arif Raza Rizvi v. Messrs Pakistan. International Airlines reported in PLD 2001 SC 182. 15. The learned counsel for respondent strongly rebutted the arguments of the learned counsel for the applicant and vehemently supported the order of the learned accountant member on both the points. He submitted that the case fell beyond the ambit of section 221 of the Income Tax Ordinance, 2001 as it could not have been rectified because the applicant had himself declared and paid the Workers Welfares Fun, the assessments were finalized and all these assessment orders have been subjected to the appellate proceedings also and at no stage it was argued that the Workers' Welfare Fund was exempt and suddenly out of blues after the assessment orders had become past and closed transactions, the applicant filed application for rectification, which were rightly refused by the Income Tax Officer as according to him it was a matter of change of opinion and could not be rectified. However, on a query as to what is the impact of rectification left after two members of the three members bench had held that the applicant's case fell within the ambit of section 221 i.e. The orders were rectifiable and the learned first Judicial Member had held that refusal to rectify was not in accordance with law and also the applicant was exempt from the W.W.F., whereas, the second judicial member although he had held that the orders were rectifiable held that relief could not be granted to the applicant because his case did not fall within the exemption clause. The learned counsel read out paragraph 20 of the order of the referee Judge in support of his contention that the learned referee Judge had also held that the assessee also held that the assessee did not fall within the purview of the exclusionary Clause of section 2(f)(vi) of the Workers Welfare Fund Ordinance, 1971 and therefore, the order could not be rectified. 16. In support of his contention that the order could not be rectified as the applicant's case did not fall within the ambit of rectification section, the learned counsel relied on the following cases:-- (1) Messrs Bisvil Spinners Ltd. v. Superintendent, Central Excise and Land Customs Circle Sheikhupura reported in PLD 1988 SC 370. (2) Commissioner of Income Tax Company's II, Karachi v. Messrs National Food Laboratories reported in 1992 PTD 570. (3) Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan reported in 1992 SCMR 1652. (4) Iram Ghee Mills Ltd. v. Income Tax Appellate Tribunal reported in 1998 PTD 3835.
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(5) Islamuddin and 3 others v. The Income Tax Officer and 4 others reported in 2000 PTD 306. (6) Commissioner of Income Tax/Wealth Tax, Multan Zone, Multan v. Allah Yar Cotton Ginning and Pressing Mills (Pvt.) Limited, Multan Road, Vehari, reported in 2000 PTD 2958. 17. The learned counsel has also submitted that as far as the interpretation of an exemption clause is concerned the burden is always on the taxpayer to prove that they fall within the exemption clause and they have failed to discharge this burden. He further argued that the fact that the applicant voluntarily paid the Workers Welfare Funds and later on filed application for rectification under the above mentioned exemption clause leads to the conclusion that there are two interpretations of this exemption clause and it is a settled law that the exemption clause has to be construed strictly and if there are two interpretations then the one against the taxpayer will have to be given preference. The learned counsel further submitted that the case of the applicants is also hit by estoppel and the theory of Merger will also come in his way because according to this theory the order of the Income Tax Officer merges with the order of the Tribunal and the Income Tax Officer does not have the power to rectify the order of the Tribunal. The learned counsel has further submitted that the concept of ownership is completely alien to the company law. 18. We have examined the case in the light of the arguments of the learned counsel and have carefully perused the records of the case including the impugned judgments of the Members of the Tribunal, the relevant law on the subject and the judgments relied on by the learned counsel. 19. Before we adjudicate on the questions of law proposed by the applicant it will be pertinent to first adjudicate on the arguments raised by the learned counsel for the respondent on the maintainability of the rectification application filed by the applicant before the Income Tax Officer. 20. From a perusal of the records it is clear that the Deputy Commissioner of Income Tax and the Commissioner (Appeals) had held that the rectification application filed by the applicant was not maintainable. However, when the matter came before the Tribunal the learned Judicial Member and the learned Accountant Member had adjudicated on both the points, the learned Judicial Member holding that the rectification application was maintainable and the case of the applicant fell within the exclusion provided in section 2(f)(vi), whereas, the learned Accountant Member had disagreed with the Judicial Member on both these points and had held that neither the rectification application was maintainable nor the appellant's case fell within the exclusion mentioned in section 2(f)(vi) of the Workers' Welfare Funds Ordinance, 1971. 21. From a plain reading of the order of the learned referee. Judge it is seen that the learned referee Judge had held that the rectification was maintainable but the appellant's case did not fall within the exclusion provided in section 2(f)(vi) and he had, therefore, dismissed the appeal. 22. Learned counsel for the respondent has argued that by holding that the exclusion under section 2(f)(vi) does not apply to the applicant, the referee Judge has impliedly held that the rectification is not maintainable and therefore, since the question of rectification goes to the root of the case and no question on it has been raised by the applicant, therefore, this Court should frame a question on rectification and answer it before deciding the fate of this reference application. 23. In the light of the above arguments of the learned counsel we have again examined the order of the referee Judge on the point of rectification. 24. On such examination we have seen that the learned referee Judge had disposed of the two questions referred to him as mentioned earlier in this order in the following manner:-- (19) "So far as question No.1 regarding maintainability of rectification application is concerned, I find that the learned Judicial Member is correct, his finding on this issue is based on supporting case- law that in the circumstances there is no other course except to invoke jurisdiction either under section 156 of the Income Tax Ordinance, 1979 or section 221 of the Income Tax Ordinance, 2001. (20) However, the present finding would not be helpful to the assessee for the reason that the assessee is not falling within the purview of the exclusionary Clause of section 2(f)(vi) of the
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Workers Welfare Funds Ordinance, 1971 as the finding of the learned Accountant Member in this context finds support from my order." 25. From a perusal of the above, it is clear that as far as the maintainability of the rectification application is concerned the learned referee Judge had agreed with the finding of learned Judicial Member that the rectification application was maintainable and the applicant had no other course except to apply for the rectification of the original order. Since the learned referee Judge was of the view that the applicant's case did not qualify for exemption in accordance with exclusion provided in section 2(f)(vi) of the Workers Welfare Funds Ordinance, therefore, on merits the original order could not be rectified. 26. On the basis of the above examination of the order of the referee Judge we are completely clear in our minds that on the question of the maintainability of the rectification application, the referee Judge had agreed with the views of the learned Judicial Member and therefore, majority decision of the Tribunal was that rectification application was maintainable and since this majority decision has not been challenged by the respondent through a reference application before this Court, it has become final and this Court in its advisory jurisdiction under section 133(4) of the Income Tax Ordinance, 2001, does not have the jurisdiction to disturb this decision of the Tribunal in the reference application filed by the applicant in respect of the decision of the Tribunal on the question, whether the case of the applicant falls within exclusion of clause 2(f)(vi) of the Workers Welfare Funds Ordinance, 1971. This argument of the learned counsel for the respondent being misconceived, is repelled. 27. Now coming to the question on which this reference application has been filed as to whether the applicants were entitled to exemption under provisions of exclusions provided in section 2(f) (vi) of the Workers' Welfare Funds Ordinance, 1971, we feel that before we proceed further it will be pertinent to reproduce section 2(f)(vi) of the Workers' Welfare Funds Ordinance:-- Section 2 Definitions: In this Ordinance, unless there is anything repugnant in the subject context.-- (f) "Industrial establishment" means--- (i) any concern owning or managing a factory, workshop or other establishment in which articles are produced, adapted or manufacted with the aid of electrical, mechanical, thermal, nuclear or any other form of energy transmitted mechanically and not generated by human or animal agency:-- (ii) any concern working a mine or quarry or natural gas or oilfield; (iii) any concern running a public transport service; (iv) any concern engaged in the carriage of men and goods by inland mechanically propelled vessels; (iva)any establishment, to which the West Pakistan Shops and Establishment Ordinance, 1969 (W.P. Ordinance No.VIII of 1969), for the time being applies; (v) any concern engaged in the growing of tea, coffee, rubber or cinchona; and (vi) any other concern or establishment which the Federal Government may, by notification in the official Gazette, declare to be an industrial establishment for the purposes of this Ordinance, but does not include any concern or establishment, which is owned by Government or by a Corporation established by Government or by a Corporation the majority of the shares of which is owned by Government. 28. From a perusal of the above clause it is clear that all the learned Members of the Tribunal have rightly held that the following categories of taxpayers are exempt from the levy of Worker's Welfare Funds Ordinance, 1971:-- (i) where the concern or establishment is owned by the Government. (ii) where the concern or establishment is owned by a Corporation establishment by the Government.
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(iii) where the concern or establishment is owned by the corporation the majority shares of which are held by the Government. 29. Before the Tribunal the applicant had claimed that it fell under both the conditions i.e. Condition-I and condition-III specified above but before us the learned counsel had restricted his arguments to the exemption under condition (III) specified above and had not pressed his claim for exemption under condition (I). 30. The majority judgment on this point, rejecting the applicants claim of exemption under third category of exemption has been authored by the learned Accountant Member and he has given the following reasons in support of his decision:- "My learned brother Judicial Member has also accepted the appellant's contention that it also falls in category (iii) above, as it is owned by corporation in which the majority of its shares are owned by the Government. The related arguments raised in this respect was to the following effect:-- (a) The term "corporation" includes a private limited company; (b) The appellant is, therefore, a corporation in which majority of the shares are held by the Government; and (c) The appellant-company owns various units/concerns comprising of offices, business places and oil fields. These units can be termed as a concern or establishment owned by the assessee appellant corporation and since the majority of the shares in the appellant corporation are owned by the Government, the aforecited establishments owned by it enjoy exemption from the levy of W.W.F. And since the respective units are exempt from levy of W.W.F., the appellant itself would not be liable to the payment of W.W.F.. ' In my considered view, the logical conclusion drawn is contrary to the provisions of law as contained in section 2(f) of the Workers' Welfare Fund Ordinance, 1971, which defines "industrial establishment" and it is evident that the concerns named in this clause would be independent units and not offices or dependent units of the owner company. ' In my humble view, this interpretation is again incorrect and misconceived as the above referred third exclusion is in respect of a company which is owned by a corporation, the majority of shares of which are owned by the Government. The factual position remains that the appellant is not owned by any corporation in which majority of shares are held by the Government and, therefore, it cannot claim that it falls in the above referred category (iii)." 31. After a careful examination of the above reasons we have reached the conclusion that the decision of the Tribunal on this point cannot be sustained. 32. From a perusal of the above extract it seems that the learned D Accountant Member is of the opinion that the terms "concern and industrial…
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