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Petitioner: Department VS Respondent: Assessee
Court Name: Income Tax Appellate Tribunal Judge(s): Khawaja Farooq Saeed, Shafiq Mahmood Title: Department vs Assessee Case No.:W.T.As. Nos, 205/LB to 207/LB of 1982-83, 300/LB of 1986-87. 205/LB-II (DB)
of 1987-88, 356/LB and 357/LB of 1989-90 Date of Judgment:1998-02-13 Reported As: PTCL 2000 CL. 546 Result: Order accordingly Judgment ORDER KHAWAJA FAROOQ SAEED, JUDICIAL MEMBER.--(1). These seven appeals by the Department are directed against the orders passed by the learned Commissioner of Income-tax (Appeals) on different dates whereby the assessee/ respondent was granted exemption under section 5(1)(i) from levy of tax under Wealth Tax Act. 2. The respondent/assessee is a company incorporated under section 26 of the repealed Companies Act, 1913. On the basis of information that the assessee is owner of Property No, 11 at Race Course Road. Lahore; known as "Chamber of Commerce and Industry Building" Notices under section 17 of the Wealth Tax Act were issued. Returns were filed showing Nil wealth. Through notice under section 16(3) the WTO directed the assessee to file particulars of the tenants to whom the property was let out. These particulars were provided. However, the assessee contended that its assets are exempt under section 5(1)(i) of the Wealth Tax Act hence not chargeable to wealth tax. The learned WTO did not accept contention of the assessee regarding exemption on the following ground:- (1) Provision of section 2(e) (ii) are applicable as the assessee holds let out property. (2) On the ratio of Karachi High Court case reported as BP Biscuit Factory versus WTO (1982) 45 Tax 7, the assets are liable to wealth tax. (3) The membership is not open to public. (4) The assessee is not holding assets for charitable purpose. (5) Income of the Chamber is being charged to income-tax. (6) The request to Government for grant of exemption under section 5(2) was refused.
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(7) The objectives are not ' charitable' as defined in the dictionary and held in the case CWT v. Hyderabad Race Club (1978) 115 ITR 453. (8) That some other similar organizations have been charged to tax. On the basis of particulars provided by the assessee regarding rent realized, the assessments were framed on the total wealth as under:-- 1979- 80Rs. 69,77,630 1980- 81Rs. 77,66,700 1981- 82Rs. 85,56,610 1982- 83Rs. 107,17,800 1983- 84Rs. 120,00,000 1984- 85Rs. 120,00,000 1985- 86Rs. 120,00,000 3. Being aggrieved the assessee preferred first appeal for all the years contending that the assets of the assessee are exempt under section 5(1)(i) of the Wealth Tax Act and the assessment framed by the Assessing Officer are illegal. The First. Appellate Authority, vide his order, dated 30.05.1983 passed for assessm ent years 1979-80 to 1981-82 held that the assets of the assessee were exempt under the exemption provisions of section 5 hence was not chargeable to wealth tax. Appeals were also allowed by him for 1982-83 to 1985-86. Being aggrieved, the department has come in appeal before the Tribunal contending that the order of the learned CIT (A) is erroneous and contrary to factual position obtaining on the order. On the date of hearing the counsel of assessee filed preliminary objections on the maintainability of appeals, contending that the appeals preferred being violative of Rules 11 and 12 of the ITAT, 1981, are not maintainable 4.We have heard the learned representatives of the parties at length. The learned L.A. stressed that since the assets held by the Chamber are covered by definition as given under section 2(e) (ii) the exemption granted by the learned CIT(A) under section 5(1)(i) is unjustified. The thrust of the arguments of learned L.A. is that as per section 5(1) of the Wealth Tax Act, 1963 the word Public Purpose' is with reference to asset i,e, "It is property which is subject to tax and not the income of the said property". 5. He further argued that the other important fact which needs consideration is as to whether the act of letting out is covered in the definition of public purpose. The expression 'public purpose' he said, not being defined, shall take colour from the statute in which it occurs. He said that the exemption means taking. away something from the ambit of revenue hence the same cannot be claimed by analogy or with vague reasoning. It is a settled principle of interpretation of the statutes that an exemption provision is to be strictly construed and nothing should be presumed beyond the expression and intentments of the legislation. He further added that the burden of proving whether a person is exempt from a provision is upon the assessee and not on the department. Reliance in support of the arguments is on AIR 1954 Hyderabad 9, AIR 1955 Andhra 257, AIR 1933 Madras 489. 6. The learned L.A. added that failure to comply with the conditions prescribed in the section
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disentitles the assessee from the exemption. Reliance is on AIR 1965 Mad. 53. He added that the construction of statute with reference to exemption should be what one understands from its plain reading and that nothing should be presumed beyond the intentments. The cases relied upon are: PLD 1956 Lahore 45. PLD 1969 Dhaka 681. PLD 1966 Dhaka 266. 1989 PTD 909. 1971 SCMR 128. 1980 CLC 558. 7. The learned L.A. further relied upon the judgment of Supreme Court and High Court, Lahore in support of his other argument that where two constructions are possible, one favourable to the revenue should be adopted. He said that this principle of interpretation of statutes is applicable, only in the case of exemption clauses. He agreed that the general principle of the interpretation of fiscal statute is that the benefit of doubt is to be given to the assessee but the same, he said, is otherwise if the provision relates to an exemption clause. In his opinion the exemption is to be allowed in the cases which come within the fours of the meanings of legislation on plain reading and which are covered by the provision on strict interpretation. He added that wherever the doubt arises in case of exemption provision, beneficiary should be the department and not the assessee. His reliance in support of his arguments is PLD 1988 SC 370, PLD 1989 Lah. 337. In this regard he further produced a copy of an unreported judgment wherein the Hon'ble Mr. Justice Malik Muhammad Qayyum of Lahore High Court has opined: "It is by now well settled that provisions granting exemption must be strictly construed and doubt if any must be resolved in favour of revenue." Other judgments on the subject lay down following rules: PLD 1988 Supreme Court 370: "As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws--that the burdens of taxation should be distributed equally and fairly among the members of the society. However, exemptions claimed by the State or its sub-divisions are usually liberally construed and the same rule has frequently been applied to exemptions made in favour of charitable organization." The safest principle of interpretation of fiscal statutes which now is almost settled is narrated in following judgment:-- PLD 1988 Supreme Court 370: "Statutes which impose pecuniary burdens are subject to the same rule of strict construction. All charges upon the subject must be imposed by clear and unambiguous language. because in some degree they operate as penalties: the subject is not to be taxed unless the language of the statute clearly imposes the obligation and language must not be strained in order to tax a transaction which had the Legislature thought of it, would have been covered by appropriate words. One has to look merely at what is clearly said. There is no room for any intentment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used. But this strictness of interpretation may not always ensure to the subject's benefit, for if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. Maxwell on the Interpretation of Statutes, 12th Edn., p. 256 ref." 8. On the other hand the counsel for the respondent supported the orders of the learned CIT (A). The learned counsel for the assessee, Mr. Sirajuddin Khalid, Advocate strenuously argued that the assets of Chamber are not covered by the charging section 3 as the same is to yield before other provisions granting exemption hence the applicability of definition of assets as contained under
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section 2(e)(ii) is irrelevant. Mr. Siraj Khalid submitted that the analysis of sub-section (1)(i) of section 5 is that the 'asset' must fulfil four conditions for its entitlement to exemption i,e, (i) it should be property; (ii) it should be held by the assessee under-trust or other legal obligation; (iii) it should be held either for charitable or religious purpose of public character and (iv) it should be held in Pakistan. 9. Explaining the first condition the learned A.R. referred to the cases reported as Hamdard Dawakhana v. CIT PLD 1980 SC 84. Rehman Corporation t'. ITO 1985 PTD 787 (H. C. Kar.) and 1997 PTD (Trib.) 1034, that the word "property" is a term of widest. import and subject to no limitation in its nature. The other condition is holding of property under trust or other legal obligation and its utilization or of income therefrom should be for charitable purposes. According to the learned counsel, the 'assets charged to tax by the learned WTO fulfil all the conditions hence is exempt from wealth tax'. While explaining the exemptions under section 5(1) and 5(2), he remarked that the Legislature has provided a list for exemption from wealth tax, previously under section 5(1) and now under the Second Schedule of the Wealth Tax Act. Under section 5(2) through which the Federal Government has been authorised to exempt any class of assets or class of persons from the tax payable. Both the authorities have concurrent jurisdiction for grant of exemption. It means an exemption may fall under sub-section (1) and also sub-section (2) of section 5. 10. The counsel thus claimed that the exemption covered under section 5(1) or now under Second Schedule would not deprive an assessee from claiming an exemption under section 5(2) as well or vice versa. The A.A. contended that the Chamber is holding its property in Pakistan under legal obligation and the same is of charitable, and religious nature. In support of his contentions the learned counsel for the assessee submitted that the very status of the Chamber is of a charitable institution as the same is registered under section 26 of the Companies Act, 1913 (now section 42 of the Companies Ordinance, 1984) as an association not for profit. It is also registered under section 1(12) of the Trade Organizations Act, 1961. He contended that objects of the Chamber are of charitable nature and are almost identical to the facts of the case reported as CIT v. Narayangang Chamber of Commerce and Industry 1968 PTD 513, CIT v. Andhra Chamber of Commerce and Industry 1965 PTD 481, CIT v. Federation of Indian Chamber of Commerce and Industry (1981) 130 ITR 186 (SC Ind.). He informed that no dividend has ever been paid to the promoters, founders, or other members. In support of his first contention that the Chamber is a charitable institution, the learned A.R. further relied upon the following cases:-- Department v. Lahore Flying Club 1986 PTD (Trib.) 441. CIT v. Narayan Chamber of Commerce and Industry 1968 PTD 513. 11. While explaining public purpose of charitable nature, the learned counsel submitted that word "charitable purpose" is not defined in the Wealth Tax Act. The same however, has been defined in Income-tax Act/Ordinance. Needless to say, he said, the same is protected by S. 2(2) of the Wealth Tax Act", as inserted in 1997. The definition of income-tax is even otherwise applicable as held in the case of Managing Shebaits of Bhukailash v. W.T.O. (1977) 106 ITR 904. He argued that while using the words "charitable purpose" in section 5(1)(i) the Legislature was aware of the fact that this word stands defined in the repealed Income-tax Act, 1922, hence it was not separately defined under Wealth Tax Act. He placed reliance on the case reported as State v. Syed Mir Ahmed Shah PLD 1970 Quetta 49. 12. Besides, the learned counsel for the assessee also referred following six cases from Indian Territory of-various Chambers of Commerce and Industry where the word "charitable purpose" has been defined:-- (1) CIT v. Andhra Chamber of Commerce and Industry 1965 P7D 481. (2) CIT v. Narayanganj Chamber of Commerce and Industry 1968 PTD 513. (3) CIT v. Cochin Chamber of Commerce and Industry (1973) 87 ITR 83.
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(4) CIT v. Karachi Chamber of Commerce (1939) 7 ITR 575.CL. 556 Vol. XVIII, P.T.C.L., 2000 (Case Laws) (5) CIT v. Federation of Indian Chamber of Commerce and Industry (1981) 130 ITR 186 (SC India). (6) CIT Andhra Chamber of Commerce v. South India Chamber of Commerce v. South India Film Chamber of Commerce v. Stock Exchange (1981) 130 ITR 184 (SC India). 13. The A.R. further said that the only case against the assessee is reported as Indian Chamber of Commerce v. CIT (1975) 101 ITR 796 and that this very case was subsequently over ruled by the Supreme Court of India in the case reported as CIT v. Surat Silk Cloth (1981) 121 ITR I. 14. We have given our earnest considerations to the submissions made by the rival counsel. The claim of the assessee is that his property is exempt under section 5(1)(i) and that charging section 3 is subordinate to other provisions of the Wealth Tax Act including section 5(1)(i). He also claims that since the property of the assessee is outside the purview of the charging section, the definition of assets as given under section 2(e)(ii) read with explanation thereto inserted by the Finance Act, 1997 is not to be taken into consideration. For facility sake we reproduce below the relevant provisions of the Wealth Tax Act:-- "Section 5. Exemption in respect of certain assets.--(1) Wealth tax shall not be payable by an assessee in respect of the following assets. and such assets shall not be included in the net wealth of the assessee:-- (i) Any property held by him under trust or other legal obligation for any public purpose of charitable religious nature in Pakistan." "Section 3. Charge of wealth tax.--Subject to the other provisions contained in this Act, there shall be charged for everyfinancial year commencing on and from the first day of July, 1963, a tax (hereinafter referred to as wealth tax) in respect of the net wealth on the corresponding valuation date of every individual. Hindu undivided family, firm incorporated or not. and company at the rate or rates specified in the Schedule." "Section 2(e) "assets" includes- (ii) in the case of a firm, an association of persons or a body of individuals, whether incorporated or not, and a company. immovable property held for the purpose of the business of construction and sale, or letting out, of property; Explanation.--For removal of doubt, it is hereby declared that immovable property and the purpose, preferred to in this sub-clause, includes-- (i) immovable property held for the purpose of letting out, or business of letting out, of property; (ii) immovable property held for the purpose of construction and letting out, of property; and (iii) immovable property held for the purpose of construction and sale of property, and". The proposition involved, the learned A.R. says, is very simple. If it can be established that the assessee is exempt under section 5(1)(i) then charging section 3 would not be applicable and the definition section 2(e)(ii) would loose its relevance. Up to June 1977, the word "charitable purpose" was not defined under the Wealth Tax Act. However, the definition section 2 of the Wealth Tax Act has been replaced through Finance Act, 1997 and now under section 2(2) "the words and expression used but not defined in this Act shall have the same meanings assigned to them under the Income Tax Ordinance, 1979". The A.R. says that the provision has come by way of explanation hence is applicable on all cases where proceedings are pending, reliance is placed on PLD 1970 Quetta 49 "the general presumption that the Legislature must be presumed to have always known the laws of the country, and it would add more thoroughly as compared to the knowledge of any ordinary citizen". Further reliance is placed on (1977) 106 ITR 904 wherein while defining "charitable purpose" or "purpose of charitable or religious nature" the Court held that: "It has not been defined in the Wealth Tax Act, 1957, therefore, it must bear the same meaning as in
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the Income Tax Act but under the provisions of Income-tax Act not only should the income be derived from the trust or legal obligation of public purpose of a charitable or religious nature, but the income so derived must to a certain extent be so applied. The position under the Wealth Tax Act seems to be little different. Wealth Tax Act assessees the owning or having possession of the property under section 5(1) (i) of the Act as indicated before stipulated that the condition for exemption was that the property must be held by the assessee under a trust or other legal obligation for public purpose of a religious or charitable nature in India. Therefore, the holding of property by the assessee either under a trust or other legal obligation for public purpose of a charitable or religious nature is the statutory requirement entitling the assessee to exemption under the Act." 15. From the above case-laws we can validly seek assistance from the cases decided under the Income Tax Laws relating to definition and meanings of "charitable purpose". Besides the cases relied upon by the learned counsel for the assessee, as mentioned above, a long list of reported cases has been made available but the mentioning of all of them would 'amount to only overburdening this decision. 16. There is no doubt that the immovable assets let out by the Chamber fall under the word "property" as used in section 5(1). The word "property" has been elaborately discussed by the ' Supreme Court of Pakistan in its case Hamdard Dawakhana v. CIT PLD 1980 SC 84. A Full Bench of this Tribunal has also discussed at length the word "property" in its case reported as 1997 PTD (Trib.) 1034. 17. The A.R. further added that under section 2(14) of the Income Tax Ordinance, 1979, the word "charitable purpose" has been defined to "Includes relief of' the poor, education, medical relief and the advancement of any other object of general public utility". 18. The impugned Chamber as per clause 4 of the Memorandum of Association has provided that the income of the property of the assessee shall be applied solely towards promotion of its object as set forth therein and no portion thereof shall be paid or transferred directly or indirectly by way of dividend bonus or otherwise by way of profit to its members. 19. A situation of letting out the property whether an activityof charitable purpose came for consideration before the Supreme Court of India in the case reported as CIT v. Andhra Chamber of Commerce 1965 PTD 481 (where the object clauses are similar to the assessee here.) It has been held:- "That, therefore, the income of the Chamber of Commerce from its building was exempt from tax under section 4(3)(i) of the Income-tax Act as the building was held under the legal obligation wholly for charitable purpose." In another case of Supreme Court of India reported as Addl. CIT v. Surat Art Silk Cloth Manufacturers Association (1980) 121 ITR 1 (where the objects of the assessee were almost identical to .those of assessee before us) it was held by majority:- "If we apply this test in the present case, it is clear that the activity of obtaining licences for import of foreign yard and quotas for purchase of indigenous yarn, which was carried on by the assessee, was not an activity for profit. The predominant object of this activity was promotion of commerce and trade in art silk yarn few silk, cotton yarn, art silk cloth, silk cloth and cotton cloth, which was clearly an object of general public amity and profit was merely a byproduct which resulted incidentally in the process of carrying out the charitable purpose. It is significant to note that the assessee was a company recognized by the Central Government under section 25 of the Companies Act, 1956, and under its Memorandum of Association, the profit arising from any activity carried on by the assessee was liable to be applied solely and exclusively for the promotion of trade and commerce in various commodities which we have mentioned above and no part of such profit could be distributed amongst the members in any form or under any guise. The profit of
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the assessee could be utilized only for the purpose of feeding this charitable purpose and the dominant and real object of the activity of the assessee being the advancement of the charitable purpose, the mere fact that the activity yielded profit did not alter the charitable character of the assessee." 20. It may be that an activity of charitable nature may benefit a sect, caste, tribe and not the general public but by it being so, it would not loose the character of its charitable purpose. On going through the cases as cited by the learned counsel for the assessee, (1971) 81 ITR 230 (1973) 87 ITR 83, (1971) 80 ITR 646, we find that a section of public, as distinct from specified individuals, is also the public and object of public utility may not be one benefited the whole mankind or even all persons living a particular country or province. Similar were the findings given by Supreme Court of India in the case reported as Ahmadabad Rana Cast Association v. CIT (1974) 82 ITR 704 that: "An object beneficial to a section of public is an object of general public utility and to serve a charitable purpose, it is not necessary that the object should be to benefit the whole mankind or all persons in a country or State...the section of the community sought to be benefited must be sufficiently defined and identifiable by some common quality of public or impersonal nature." While claiming exemption under section 5(1)(i) of the Wealth Tax Act, the learned counsel for the assessee has further placed reliance on the wealth tax cases reported as:- (1) CWT v. HEH the Nizam's Trust (1973) 89 ITR 80. (2) Managing Shebaits of Phukailash Estates v. WTO (1977) 106 ITR 904. (3) Trustees of KBHM Bhiwandiwalle v. CWT (1977) 106 ITR 709. Particularly he invited our attention to the case relied upon by the learned CIT reported as CIT v. Andhra Chamber of Commerce (1965) 55 ITR 722 where the rent received from property let out was also held as activity of charitable purpose and was granted exemption from tax. 21. The facts and findings given in the cases of various Chambers, relied upon by the learned A.R. for the assessee, are briefly discussed here as under:-- CIT v. Andhra Chamber of Commerce and Industry 1965 Pm 481. The assessee was a company registered under the Companies Act, 1913. The primary objects of the assessee were to promote and protect trade, commerce and industry and to watch over and protect the general commercial interest of the country. The assessee purchased a building, and after alterations let out portions not required for its use. Claim of exemption under section 4(3)(i) of Income Tax Act was rejected by the I.T.O. This action was confirmed by the A.A.C. and Tribunal. On reference the High Court granted exemption. On appeal by Department affirming the judgment of the High Court, the Supreme Court held that:-- "The income of Chamber of Commerce from its building was exempt from tax under section 4(3)(i) of the Income Tax Act, as the building was held under a legal obligation wholly for charitable purposes." CIT v. Narayanganj Chamber of Commerce and Industry 1968 PTD 513. 22. The personal status and objects of this Chamber were identical to Andhra Chamber referred above. It derived income from subscription, arbitration, courier service, licence measurement and issue of certificates and house property. The claim of exemption under section 4(3)(i) was rejected by the I.T.O. and A .A A.A.C. The Tribunal granted relief. On a reference, the High Court affirming the order of the Tribunal: Held that:- "In the case before us it has not been found by any body at any stage that the income derived from house property and the business has been utilized for the purposes other than for which this association of persons has been registered under section 26 of the…
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