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Petitioner: Commissioner of Income Tax Legal Division Lahore VS Respondent: Khul hid Ahmad
Court Name: Supreme Court of Pakistan Judge(s): Mian Saqib Nisar, Iqbal Hameed-ur-Rehman, Tariq Pervez Title: Commissioner of Income Tax Legal Division Lahore vs Khul hid Ahmad Case No.:Civil Appeals No, 1084 to 1098 of 2008, 1481 to 1529 of 2009, 254 and 255 of
JUDGMENT
Reported As:2016 P.S.C. 1069, PLD 2016 Supreme Court 545, 2016 P.S.C. 1288, PTCL 2016 CL. 574, 2016 PTD 1393 Result: Civil appeals/petitions dismissed Judgment JUDGMENT MIAN SAQIB NISAR, J. These appeals, by leave of the Court, and petitions involve similar question(s) of law, hence are being disposed of together. The key questions involved herein are:- (i) whether the minimum tax payable under Section 80D of the Income Tax Ordinance, 1979 (Ordinance of 1979) is leviable on the aggregate of declared turnover from all sources including receipts covered by Sections 800 arid 80CC of the Ordinance of 1979; (ii) whether the minimum tax payable under Section 113 of the Income Tax Ordinance, 2001 (Ordinance of 2001). As it existed prior to its omission by the Finance Act, 2008, is leviable on the aggregate turnover from all sources including receipts covered by the Presumptive Tax Regime or upon which the tax payable/paid is a final discharge of tax liability (note:- the subsequent Section 113 reinserted vide Finance Act, 2009 has no bearing on the present matters as no tax year after re-insertion'of the said section is involved thus all references to the 'Ordinance of 2001' are to as it existed prior to the amendments brought by the Finance Act. 2008, unless stated otherwise); (iii) whether 'services rendered pursuant to execution of a contract would fall within the Presumptive. Tax Regime by virtue of Section 800(2)(a)(i) of the Ordinance of 1979; whereas Section 50(4)(a) deals with 'services rendered' and 'execution of contracts' as separate categories alongwith 'supply of goods'; and (iv) whether cash purchase and/or purchase of raw material falls within the purview of 'supply, of goods' as envisaged by Section 50(4)(a) of the Ordinance of 1979?
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Out of the total of 105 cases (103 civil appeals and 2 civil petitions), 53 cases (Civil Appeals No,1481 to 1529/2009, 254 and 255/2011 and Civil Petitions No,2595 and 2596/2009) pertain to question No, (i); 36 cases (Civil Appals No,1235 to 1270/2015) relate to question No,(ii); 5 cases (Civil Appeals No,1084/L to 1088/122008) pertain to question No,(iii); and 10 cases (Civil Appeals No,1089 to 1098/2008) pertain.: to question No,(iv). During the analysis portion of this opinion, questions No,(i) and (ii) shall be dealt with together as they are' interlinked. 2. For the sake of convenience and brevity, one case for each of the categories shall be taken to be the lead case for the purposes of explaining the factual background. With respect to question No, (i), the brief facts of Civil Appeal No,1482/2009 are that the Deputy Commissioner of Income Tax assessed the total income and determined the tax payable by the respondent-company under Section 80D without taking into consideration Section 800. The assessment order was challenged by the respondent which (appeal) was accepted by the Commissioner of Income/Wealth Tax (Appeal) holding that income even though liable to tax under Section 800 should be taken into consideration by the Income Tax Officer While calcthating the turnover for the purposes of Section 80D. Aggrieved, the appellants approached the Income Tax Appellate Tribunal which vide order dated 18.11.1999 dismissed the appeal. Thereafter the appellants challenged such order before the learned High Court in an Income Tax Appeal which was dismissed vide order dated 27.5.2009 for the same reasons as enunciated in the judgment reported as Commissioner of Income Tax/Wealth Tax Companies Zone, Faisalabad Vs. Nric,ssrs Masood Textile Mills Ltd., Faisalabad (2009 PTD 1707) after which they approachel this Court. For the purposes of question No,(ii) the facts of Civil Appeal No,1235/2015, are that the respondent- company filed its Income Tax Return for the Tax Year 2006 which was treated to be an assessment in terms of Section 120 of the Ordinance of 2001. The amended assessment order passed under Section 122 of the said Ordinance and the subsequent order dated 23.10.2012 passed by the Commissioner of Inland Revenue, Appeals were successfully challenged by the respondent before the Appellate Tribunal Inland Revenue which vide order dated 15.9.2014 held that the minimum tax under Section 113 of the Ordinance of 2001 was to be calculated and charged on the basis of the aggregate turnover from all sources, including export receipts. Aggrieved, the appellants filed a reference petition under Section 133 of the said Ordinance before the Lahore High Court which upheld the decision of the Appellate Tribunal Inland Revenue vide order dated 24.12.2014 and decided it in the same terms as the judgment reported as Commissioner Inland Revenue Vs. Imperial Electric Company (Pvt.) Ltd. (2015 PTD 884). The order dated 24.12.2014 has been impugned before this Court. In respect of question No,(iii), the concise facts of Civil Appeal No,1084/L/2008 are that the respondent was a sanitation contractor of the, Capital Development Authority, Islamabad (CDA) who filed a return under Section 55 of the Ordinance of 1979 which though initially assessed under Section 59A, was subsequently revised and an order was passed by the Additional Commissioner under Section 66A 'to the effect that the payments received by the respondent from CDA were to be governed by the Presumptive Tax Regime of Section 80C which would be full and final discharge of tax liability. The order was successfully challenged by the respondent before the Income Tax Appellate Tribunal, subsequently the appellant filed applications under Section 136(1) of the said Ordinance before the Income Tax Appellate Tribunal which (applications) were dismissed. Thereafter, the appellant's tax reference before the learned High Court was also dismissed while holding, inter alia, that income derived from 'services rendered' was not subject to the Presumptive Tax Regime of Section 80C which stands specifically excluded from such section, hence the instant appeal. Finally with regard to question No,(iv), the facts of Civil Appeal No,1089/2008 are that the respondent was deriving income from the manufacturing and sale of vegetable oil and ghee
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items. The Assessing Officer found the respondent to be in default under Section 52 of the Ordinance of 1979 on the basis that the respondent failed to deduct tax under Section 50(4) on account of certain purchases. The respondent's appeal before the Commissioner Income Tax (Appeals) was accepted after which the appellant's appeal before the Income Tax Appellate Tribunal and their reference before the learned High Court were both dismissed primarily on the ground that on-the-spot cash purchases did not fall within the term 'supply of goods' as used in Section 50(4)(a) of the said Ordinance, thus the respondent was not in default in terms of Section 52, thus the appellants approached this Court. 3. Dr. Ishtiaq Ahmed, Commissioner Inland Revenue, appearing on behalf of the appellants/petitioners argued against the impugned judgments, With respect to questions No,(i) and (ii), he submitted that the phrases 'turnover from all sources' and 'aggregate of declared turnover' provided in Section 80D encompass income from all sources. He bifurcated the tax law regimes into the Presumptive Tax Regime and the Normal Tax Regime. The crux of his argument was that tax under the Presumptive Tax Regime is a final discharge of the tax liability of the taxpayer and thus should not be included for the purposes of calculation of 'turnovers in terms of Section 80D of the Ordinance of 1979. To bolster the above submission, he drew our attention to the fact that a statement under Section 143B is to be filed regarding income chargeable inter alia under Sections 800 and 80CC, i.e, the Presumptive Tax 'Regime, as opposed to a return under Section 55 which is for the Normal Tax Regime. He also made reference to Sections 168 and 169 of the Ordinance of 2001 to support his arguments. He referred to and read out extensively the relevant provisions of the Ordinance of, 1979 and quoted numerous practical examples as illustrations of tax calculation. 4. On the other hand, the crux of the' submissions of the learned counsel for, the respondents was that the income taxable under Sections 800 and 80CC should not be excluded from 'turnover' under Section 80D which (word) has been specifically defined in the explanation to Section 80D(2) to mean gross receipts derived from the sale of goods, or from rendering, giving or supplying services or benefits or from execution of contract; and that there is nothing in Section 80D which allows for tax on income under Sections 800 and 80CC to be adjusted or for such income to be excluded from the 'aggregate of declared turnover', so far as it falls within the definition of 'turnover'. Learned amicus curiae, Dr. Ikramul Hag, provided written submissions upon the .Court's request and his arguments shall reflect in the course of this opinion. However, it may be briefly mentioned at this stage that he argued to the same effect as the respondents with respect to the interpretation of Sections 800, 80CC and 80D. He further submitted that it was not the intention of the Legislature to include sales made to walk-in customers within the purview of 'supply of goods' as contemplated by Section 50(4)(a) of the Ordinance of 1979, as evidenced by Section 153(1)(a) of the Ordinance of 2001. 5. Heard. We intend to address questions No,(i) and (ii) (together) first. Under tax law, there are various taxation methods, including the two involved in the instant matters, i.e, presumptive and minimum tax. The nature, scope and raison d'etre of the said two types of tax find apt and elaborate- mention in the judgment reported as Messrs Elahi Cotton Mills Ltd and others Vs. Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 others (PLD 1997 SC 582) a relevant extract from which is reproduced herein below, in order to appreciate the analysis in the later part of this opinion:- 134. In our view, sections 80-C and 80-CC of the Ordinance fall within the category of presumptive tax as under the same the persons covered by them pay a pre-determined amount of presumptive tax in full and final discharge of their liability in respect of the transactions on which the above tax is levied. Whereas section 80-0 of the Ordinance is
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founded on the theory of minimum tax which has been elaborately dealt with in the treatises, the relevant portions of which have been quoted in extensor hereinabove. 40. Adverting to the impugned newly-added section 80- D, it may be stated that we have already pointed. Out hereinabove that sections 80-C and 8Q-CC cannot be equated with 'section 80-D as the same is founded on different basis. It may again be observed that section 80-D is based on the theory of-minimum tax. It envisages that every individual should pay, a minimum tax ,towards the cost of the Government ............... "(Emphasis added) 'The above quoted passage makes it clear that the taxes under Section 80D on the one hand and Sections 800 and 80CC on the other are distinct from each other. In order to answer questions No, (i) and (ii), the meaning and scope of the term 'turnover' needs to be examined. 'Turnover' as mentioned in the provisions of Section 80D of the Ordinance of 1979 and Section 113 of the Ordinance of 2001 has not been defined in the definition clause of the Ordinances. However, in the Ordinance of 1979, 'turnover' has been assigned a meaning in the explanation to Section 80D itself. Section 80D of the Ordinance of 1979 reads as follows:- "80D. Minimum tax on income of certain persons. (1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where no tax is payable or paid by a company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self assessment scheme under sub-section (1) of section 59 resident in Pakistan or the tax payable or paid is less than one-half per cent of the amount representing its turnover from all sources, the aggregate of the declared turnover shall be deemed to be the income of the said company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self assessment scheme under sub-section (1) of section 59 and tax thereon shall be charged in the manner specified in sub-section (2). Explanation. - For the removal of doubt, it is declared that the expression "where no tax is payable or paid" and "or the tax payable or paid" apply to all cases where tax is not payable or paid for any reason whatsoever including any loss of income, profits or gains or set off of loss of earlier years, exemption from tax, credits or rebates in tax, and allowances and deductions (including depreciation) admissible under any provision of this Ordinance or any other law for the time being in force. (2) The company or a registered firm, an individual, an association of persons, an unregistered firm or a Hindu undivided family which, not being a company, does not qualify for assessment under the self-assessm ent scheme under sub-section (1) of section 59 referred to in subsection (1) shall pay as income tax - (a)an amount, where no tax is payable or paid equal to one-half per cent of the said turnover; and (b)an amount, where the tax payable or paid is less than one-half per cent of the said turnover, equal to the difference between the tax payable or paid and the amount calculated in accordance with clause (a). Explanation: For the removal of doubt it is declared that "turnover" means the gross receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts. (3)................... (Emphasis supplied) What is the worth of an explanation to a section in a statute and how is it to be interpreted? An explanation is appended to a section of an enactment to stipulate the meaning of a word, term, or phrase, and becomes part and parcel of the enactment. Its function is to clear the ambiguity and
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explain the meanings of the words used in the section to which it is appended. It is an intrinsic aid available to the reader to understand and appreciate the statute and Particularly the section to which such explanation has been affixed. A plain reading of the meaning assigned to 'turnover' in the explanation to Section 80D of the Ordinance of 1979 clearly indicates that it (turnover) means gross receipts derived from: (i) the sale of goods; or (ii) rendering, giving or supplying services or benefits; or (iii) execution of contracts, and nothing more. That the meaning assigned to 'turnover' is comprehensive and does not include anything beyond what has been specified therein is bolstered by the fact that the explanation begins with the phrase "For the removal of doubt it is declared..." rendering the explanation a declaratory provision, and it is well-established that the very purpose of declaratory provisions or declaratory statutes is to remove doubts which exist, or may exist, in the meaning or effect of a provision or statute, as the case may be. Thus the phrases 'turnover from all sources' and 'aggregate of declared turnover' in Section 80D are to be necessarily read in conjunction with the explanation to Section 80D(2) of the Ordinance of 1979 for the purposes of determination of minimum tax liability. We find it relevant at this juncture to refer to the judgment reported as Nazir Hussain Shah Vs. The State (PLD 1965 SC 139) wherein, dilating upon the explanation appended to Section 6(5) of the Pakistan Criminal Law (Amendment) Act (XL of 1958), a five-member bench of this Court held that it was not open-to the Court to read into the said section a limitation which was not there by reference to extraneous circumstances. In similar vein, we are of the view that the word 'turnover' specifically defined in Section 80D cannot be interpreted in a way so as to widen or enlarge the scope of the said section by interpreting 'turnover' to include income from all sources as has been argued by the appellants/petitioners. 6. Now adverting to the meaning of 'turnover' in Section 113 of the Ordinance of 2001, which (meaning) has neither been provided in the definition clause of the said Ordinance or by way of explanation to the said section, instead a separate and exclusive sub-section, i.e, (3) of Section 113 has been dedicated to it, which (section) reads as under: - "113. Minimum tax on the income of certain persons.- (1) This section shall apply to a resident company where, for any reason whatsoever, including the sustaining of a loss, the setting off of a loss of an earlier year, exemption from tax, the application of credits or rebates, or the claiming of allowances or deductions (including depreciation and amortisation deductions) allowed under this Ordinance or any other law for the time being in force, no tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a tax year is less than one-half per cent of the amount representing the person's turnover from all sources for that year. (2) Where this section applies (a) the aggregate of the person's turnover for the tax year shall be treated as the income of the person for the years chargeable to tax; (b) ...................................... (c) ............................................ Provided that.................. (3) In this section, "turnover" means (a) the gross receipts, exclusive of sales tax and Federal excise duty or any trade discounts shown on invoices or bills, derived from the sale of goods; (b) the gross fees for the rendering of services or giving benefits, including commissions; (c) the gross receipts from the execution of contracts; and (d) the company's share of the amounts stated above of any association of persons of which the company is a member." (Emphasis supplied) Where the legislature defines, in the same statute, the meaning of a word used therein, such1
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definition most authoritatively expresses its intent which definition and construction is binding on the courts. When a word has been defined to mean such and such, the definition is prima facie restrictive. and exhaustive. Upon a plain reading of the definition of 'turnover' provided in Section 113(3) of the Ordinance of 2001 it is manifest that it (turnover) means: (i) gross receipts derived from the save of goods; (ii) gross fees for the rendering of services or giving benefits, including commissions; (iii) gross receipts from the execution of contracts; and (iv) the company's share of the amounts stated above of any association of persons of which the company is a member. The meaning in the said sub-section has been assigned to the word 'turnover' used in Section 113 and therefore the phrase 'turnover from all sources' in sub-section (1) is to be read in conjunction with such definition which is exhaustive in nature and nothing further can be added thereto, thus the argument of the appellants/petitioners' that 'turnover' covers all sources under various heads of income is not tenable in law. 7. In light of the above discussion, the aggregate of the declared turnover as defined in Section 80D of the Ordinance of 1979 from the sale of goods, rendering, giving or supplying of services or benefits or execution of contracts has to be taken into account for determining the minimum tax liability of 0.5% of the turnover. if no tax, for whatever reason, is payable/paid, then the amount worked out at the rate of 0.5% of the turnover will be the minimum tax payable. If the tax payable/paid is less than 0.5% of the turnover, then the minimum tax payable will be the difference/balance between the tax payable/paid and 0.5% of the turnover. A similar analysis will apply to Section 113 of the Ordinance of 2001, where the aggregate of the taxpayer's turnover from the sale of goods, rendering of services or giving of benefits including commissions and the execution of contracts has to be taken into account in order to determine the minimum liability of 0.5% of the turnover for each tax year (or 1% of the turnover for each tax year, depending on the tax year involved; as Section 113 was subsequently amended vide Finance Act, 2013 and the percentage of minimum liability prescribed therein was increased to 1%). 8. We now move on to consider the argument of the appellants/petitioners that tax payable/paid upon income under the Presumptive Tax Regime is a final discharge of tax liability and thus such income is liable to be excluded from the aggregate turnover under Sections 80D and 113 of the Ordinance of 1979 and 2001 respectively (collectively referred to as the Ordinances). As mentioned in the earlier portion of this opinion, 'turnover' has been clearly and comprehensively defined in the explanations to Section 80D(2) and Section 113(3) ibid. It is well settled that a strict and literal approach is to be adopted while interpreting fiscal or taxing statutes, and that the Court cannot read into or impute something when the provisions of a taxing statute are clear. These principle(s) have been reiterated by this Court in a number of judgments reported as Pearl Continental Hotel and another Vs. Government of N.W.F.P. and others (PLD 2010 SC 1004), Star Textile Ltd. and 5 others Vs. Government of Sindh through Secretary Excise and Taxation Department, Sindh Secretariat, Karachi and 3 others (2002 SCM R 356), Aslam Industries Ltd., Khanpur Vs. Pakistan Edible Corporation of Pakistan and others (1.993 SCMR 683), Messrs Mehran Associates Limited Vs. The Commissioner of Income-Tax, Karachi (1993 SCM R 274), A & B Food Industries Limited Vs. Commissioner of Income-Tax/Sales, Karachi (1992 SCM R 663)-, Collector of Customs (Preventative) and 2 others Vs. Muhammad Mahfooz (PLD 1991 SC 630) and Messrs Hirjina & Co. (Pakistan) Ltd., Karachi Vs. Commissioner of Sales Tax Central, Karachi (1971 PTD 200). A five member bench of this Court in Hirjina & Co. (supra) while interpreting the definition of 'Provincial Excise Duty' held: "Apart from this, we are unable to read the earlier definition in the manner suggested by the Department. It was said in the course, of argument that notwithstanding the amendment it must be assumed that the previous definition of 'sale price' included Provincial Excise Duty. The previous definition however, does not expressly say so. We may here observe that interpreting the taxing2 3
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statute the Courts must look to the words of the statute and interpret it in the light of what is clearly expressed. It cannot imply anything which is not expressed, it cannot import provisions in the statute so as to support assumed deficiency. On the other hand the fact that the Legislature made an express provision for including the excise duty indicates that the unamended definition of the 'sale price' did not include the provincial excise duty." (Emphasis supplied) At the cost of repetition, Section 80D of the Ordinance of 1979 includes within its ambit receipts, exclusive of trade discount shown on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services or benefits or from execution of contracts, whether or not such receipts fail under the Presumptive Tax Regime or Normal Tax Regime. In similar vein, Section 113 of the Ordinance of 2001 includes within its ambit receipts, exclusive of sales and Federal excise duty or any trade discounts shown on invoices or bills, derived from the sale of goods, rendering of services or giving of benefits including commissions, or from the execution of contracts, whether or not such receipts fall under the Presumptive Tax Regime or Normal Tax Regime. There is nothing in the wording of Sections 80D and 113 of the respective Ordinances to suggest that for the purposes of calculating the turnover for the said sections receipts of income subject to the Presumptive Tax Regime are excluded. Furthermore, Section 153(1)(c) of the Ordinance of 2001 provides that receipts from the execution of contracts would be subject to presumptive tax which would be final, and at the same time Section 113(3)(c) of the said Ordinance clearly includes gross receipts from the execution of contracts within 'turnover' for the purposes of determination of minimum tax under Section 113. Thus it certainly cannot be said that receipts of income subject…
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