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Petitioner: MESSRS KHAWAJA TEXTILE MILLS LTIS., KHALIQNAR BHIMBER VS Respondent: DEPUTY COMMISSIONER INCOME TAX, MIRPUR CIRCLE, MIRPUR
1998 P T D 245
1998 P T D 245
[High Court (Azad J&K)]
Before Khawaja Muhammad Saeed, CJ., Ch. Muhammad Taj and Muhammad Siddique Farooqi JJ
Messrs KHAWAJA TEXTILE MILLS LTIS., KHALIQNAR BHIMBER through Khawaja Aneesur Rehman, Director and others
versus
DEPUTY COMMISSIONER INCOME TAX, MIRPUR CIRCLE, MIRPUR and others
Writ Petitions Nos.99, 115, 102, 96, 95 of 1994, 81, 79, 77, 80, 78, 82 of 1991, 56, 16, 15 of 1992, 39, 37, 38, 36, 10 of 1993, 1 of 1995, 1, 2, 22, 20, 7.1,-42, 41 and 43 of 1997, decided on 16th September, 1997.
(a) Azad Jammu and Kashmir Income Tax Ordinance, 1979----
----S. 80-D---Azad Jammu and Kashmir Interim Constitution Act (VIII of 1974), Third Sched., Entires 42 & 45---Vires of S. 80-D, Azad Jammu and Kashmir Income Tax Ordinance, 1979---Provision of S. 80-D, Azad Jammu and Kashmir Income Tax Ordinance, 1979 are not ultra vires the Constitutional provisions and teachings of Islam.
Provisions of section 80-D of the Azad Jammu and Kashmir Income Tax Ordinance, 1979 are not ultra vires the Constitutional provisions. There is no discrimination made through the said provision of law. These provisions in no way, impose any restriction on the business or status of the assessees as businessmen. The imposition of taxes through the aforesaid provision inserted in the Income Tax Ordinance is lawful. The tax levied through these provisions is not interest/ribba, therefore, there is no violation of the Constitutional provisions.
Provisions of section 80-D and similar other provisions of the Income Tax Ordinance are not against the teaching of Islam.
PLD 1997 SC 582 fol.
AIR 1961 SC 522; PLD 1979 SC (AJ&K) 148; PLD 1979 SC (AJ&K) 193; PLD 1979 SC (AJ&K) 217; 1961 (1961) 41 ITR 393; (1965) 56 ITR 141; (1965) 56 ITR 597; AIR 1963 Mad. 183; PLD 1981 SC 95; PLD 1990 SC 990; 1951 SCR 735; AIR 1941 FC 16; AIR 1955 SC 58; AIR 1964 SC 922; AIR 1968 SC,59; AIR 1955 FC 1667; AIR 1961 SC 1602; AIR 1961 SC 1733; AIR 1960 SC 457; AIR 1957 SC 9; AIR 1957 SC 157; AIR 1952 SC 75; AIR 1961 SC 552; AIR 1967 SC 1895; PLD 1980 SC 44; (1989) 178 ITR 31 (AP); PLD 1979 SC (AJ&K) 147; PLD 1992 FSC 329; PLD 1997 SC 582; Corpus Juris Secundum, Vol. LXXXIV; Assistant Commissioner of Land, Madras and others v. Buckingham and Carnatic Co. Ltd. (1970) 75 ITR 603; Elel Hotels and Investments Ltd. and another v. Union of India AIR 1990 SC 1964; Federation of Hotel and Pestaurant v. Union of India and others 1990 SC 1637; Express Hotels Ltd. v. State of Gujarat (1989) 178 ITR 151; M/s. Hoechst Pharmaceuticals Ltd. v. State of Bihar AIR 1938 SC 1019; (1943) 11 ITR 515; AIR 1943 PC 153; AIR 1965 SC 1375; P. Kunhammed Kutty Haji and others v. Union of India and others (1989) 176 ITR 481; T.K. Aboobacker and others v. Union of India and others (1989) 177 ITR 358; Sat Pal & Co. v. Excise and Taxation Commissioner and others (1990) 185 ITR 375; Sri Venkateswara Timber Depot v. Union of India and others (1991) 189 ITR 741; Union of India and another v. Sanyasi Rao and others (1996) 219 ITR 330; AIR 1941 FC 72, AIR 1980 SC 1042; AIR 1974 SC 555; AIR 1978 SC 597; Commissioner of Income Tax/Excise Profits Tax. Bombay City v. Messrs Bhogilal Batlibai &, Co., Bombay AIR 1954 SC 155; Khandige Sham Bhat and another v. Agricultural Income-Tax Officer, Kasaragod and another AIR 1963 SC 591; Travancore Rubber and Tea Co. Ltd., Alleppey and another v. State of Kerala and another AIR 1964 SC 572; Commissioner of Income-tax, Bombay City-I v. Amarchand N. Shroff (1963) 48 ITR 592; Navnit Lal C. Javeri v. K.K. Sen, Assistant Commissioner of Income-tax, Bombay AIR 1965 SC 1375; Deputy Commercial Tax Officer, Saidapet, Madras and another v. Enfield India Ltd., Cooperative Conteen Ltd. AIR 1968 SC 838; The State of Kerala v. Haji K. Kutty Kaha and others etc. AIR 1969 SC 378; The Madurai District Central Cooperative Bank Ltd. v. The Third Income Tax Officer, Madural AIR 1975 SC 2016; Pathumma and others v. State of Kerala and others AIR 1978 SC 771; Avinder Singh and others v. State of Punjab and others (1979) 1 S CC 137; Bhagwan Dass Jain v. Union of India and others (1981) 128 ITR 315; AIR 1961 SC 604; (1948) 16 ITR 240; (1955) 2 SCR 603; (1963) 50 ITR 171; AIR 1966 SC 1370; (1955) 27 ITR 389, 36 ITR 65; AIR 1959 SC 771; Attorney-General for British Columbia v. Canadian Pacific Railway Company 42 TLR 750 (PC); Attorney-General for British Columbia v. Kingdom Navigation Company Limited 150 LT 81 (PC); King F. Caledonia Collieries Ltd. AIR 1928 PC 282; Begum B.H. Syed v. Mst. Afzal Jahan Begum and another PLD 1970 SC 29; Mrs. Samina Shaukat Ayub Khan v. Commissioner of Income-Tax, Rawalpindi PLD 1981 SC 85; The Commissioner of Income Tax, Rawalpindi Zone, Rawalpindi v. Messrs Haji Maula Bux Corporation Limited, Sargodha PLD 1990 SC 990; Messrs Noon Sugar Mills Limited v. The Commissioner of Income-lax, Rawalpindi 1990 PTD 768; I.A. Sharwani and others v. Government of Pakistan through Secretary, Finance Division, Islamabad and others 1991 SCMR 1041; Inamur Rehman v. Federation of Pakistan and others 1992 SCMR 563; Pakistan Industrial Development Corporation v. Pakistan through the Secretary, Ministry Finance 1992 SCMR 891; Government of Pakistan and others v. Muhammad. Ashraf and others PLD I993 SC 176; Haji Ibrahim Ishaq Johri v. The Commissioner of Income Tax (West), Karachi 1993 SCMR 287; Altaf Construction Company v. Central Board of Revenue and others 1996 PTD 804 and Fazalur Rehman Bin Muhammad v. Federation of Pakistan and others PLD 1992 FSC 329 ref.
(b) Azad Jammu and Kashmir Income Tax Ordinance, 1979----
----S. 80-D---Tax under S. 80-D, Azad Jammu and Kashmir Income Tax Ordinance, 1979 has bean imposed with reference to the assessment year and not the accounting year.
(c) Azad Jammu and Kashmir Income Tax Ordinance, 1979----
----S. 80-D---No ambiguity exists in S. 80-D of the Ordinance---Tax under 5.80-D, Azad Jammu and Kashmir Income Tax Ordinance, 1979 has been imposed on the turn over basis at the rate of 0.50 per cent. and has been levied in case of companies and registered firms.
(d) Azad Jammu and Kashmir Income Tax Ordinance, 1979----
----S. 80-D---Provisions of S. 80-D, Azad Jammu and Kashmir Income Tax Ordinance, 1979 are not subject to any restriction whatsoever.
(e) Islamic Jurisprudence----
---- Taxation---Islam does not prohibit the collection of taxes from any particular class of persons in the society---Categorization of the people for the purpose of realizing the tax is not against Injunctions of Islam---Levy of taxes for the just needs of the people is allowed in Islam.
In Islam, the imposition of taxes has a background; Zakat, Ushr and Jizya area the various forms of taxes. Zakat is not realized only on new income of the individuals rather it is levied on the entire belongings of an individual even if there is no income. The tax on the turnover of a business is, thus, of a lesser gravity than that of Zakat. Jizya is. realized from non -Muslims, for defence services rendered by the State. In the present day world, the State is managing various affairs and also provides different services to the people in the shape of defcnce, health, education and so many other developments for the benefit of the citizens. All this requires a huge sum of money which has to be collected from the people. Without taxes it is not possible for a Government to defend the country and to provide other services and facilities or perform certain functions for the welfare and well being of the people. Thus, the taxes have to be levied for different purposes in different shapes on different classes of persons. The Islamic Shariah does not prohibit the collection of taxes from any particular class of persons in the Islamic society.
The levy of taxes for the just and righteous needs of the, people, is allowed in Islam.
(f) Azad Jammu and Kashmir Income Tax Ordinance, 1979-
----S. 80-D---Assessee a travelling agent---Total amount of sale proceeds of tickets cannot be treated as turn-over for the purpose of S. 80-D, Azad Jammu and Kashmir Income Tax Ordinance 1979 as the travelling agency received only commission on the sale proceeds of the tickets and not the money which goes to the Air Line.
Haji Muhammad Afzal for Petitioners (except in Writ Petition No. 10 of 1993).
Zahid Hussain for Petitioner (in Writ Petition No-10 of 1993).
Bilal Ahmed for Respondents (in all the Petitions except in Petition No. 10 of 1993).
Abdul Majeed Mallick for Respondents (in Writ Petition No. 10 of 1993)
JUDGMENT
MUHAMMAD SIDDIQUE FAROOQI, J. ---The petitioners, through the above title writ petitions, have challenged the provisions of section 80-D of the Income Tax Ordinance 1979, whereby the turn over tax was levied in Azad Kashmir.
2. The facts briefly are that through Finance Act (Act XII of 1991), section 80-D was inserted in the Income Tax Ordinance which provides that notwithstanding anything contained in the said Ordinance, or any other law, for the time being in force, where no tax was payable by a company resident in Pakistan or the tax payable is less than one-half per cent of the amount representing its turn over from all sources, the aggregate of declared turn over shall be deemed to be the income of the said company and tax thereon shall be charged in the manner specified in subsection (2), wherein it was provided that where no tax was payable, a tax equal to one-half per cent of the turn over would be the amount payable and where the amount of tax is less than one-half per cent of the turn over, the amount equal to the difference between the tax payable and the amount calculated in accordance with clause (a) shall be payable as tax under that provision. The words "turn over" were also explained as gross receipts exclusive of trade discount show on invoices or bills, derived from the sale of goods or from rendering, giving or supplying services, or benefits or from execution of the contracts.
3. The grounds taken up in the petitions assailing the provisions of law are as under:--
(a) The provisions of section 80-D of the Income Tax Ordinance are ultra-vires of the Constitutional authority of the AJ&K Council;
(b) The provisions of section 80-D are discriminatory and infringe the fundamental right (4.12) as provided in the Azad Jammu and Kashmir Interim Constitution Act;
(c) The imposition of the taxes through these provisions is a restriction imposed on business and the business status of the petitioners and as such violative of fundamental rights (4. 8 and 4.14);
(d) The provisions are violative of Injunctions of Islam;
(e) The tax levied through these provisions amounts to interest/Ribha and as such violative of the Constitution; and (f) The imposition of tax is without lawful authority.
Apart from the Constitutional position, further; grounds of attack are as under:---‑
(a) If, at all, the tax levied under section 80‑D is applicable, it will be effective from the assessment year 1992‑93 in the case of "Ghazi Ghee Mills";
(b) The provisions being ambiguous are to be resolved in favour of the tax payers/petitioners;
(c) The mode of legislation is violative of the Interim Constitution, in the sense that a provision cannot be made in a statute for the adoptation of laws of Pakistan which may come into existence in future, because through such a provision made in the Income Tax Laws, all the future amendments in Pakistan become applicable in Azad Kashmir. This type of legislation has the effect of transferring the powers of the AJ&K Council to the Legislative Authority of Pakistan which is not permissible under the Interim Constitution Act, 1974.
4. It may be noted that Income Tax Ordinance of 1979 of Pakistan has been adopted by the AJ&K Council which is the authority, competent to legislate upon the subject of Income Tax in view of Item 42 of Third Schedule read with section 31(2) of the Interim Constitution Act. The adaptation of Income Tax Ordinance made in Pakistan in the Income Tax Ordinance from time to time, shall become applicable in Azad Jammu and Kashmir, automatically. On the strength of this provision, section 80‑D inserted in the Income Tax Ordinance of Pakistan became applicable in Azad Kashmir.
5. Levy of tax under the aforesaid law, by the income tax authorities, was also challenged on the further grounds that some of the petitioners/industrial units stand exempted under various provisions of law, therefore, any tax under section 80‑D, could not be realized from the exempted units. It was also urged that the Protection of Economic Reforms Act, 1992 (hereinafter called the Reforms Act), was applicable in the cases of the petitioners in the matter of exemptions. In the petition brought by "Spintax Ltd., the main ground is that even if section 80‑D inserted in the Income Tax Ordinance is held valid, in spite of that, the exemption granted to various units shall be affective, therefore, this company is not liable to pay any tax.
6. The respondents denied all the assertions of the petitioners and pleaded that the law has been validly enacted in Pakistan and has come in force` in Azad Kashmir. According to the respondents, provisions of Constitution is Pakistan, empower the Federal Legislative body to enact law respecting the income tax and similar power have been conferred on the AJ&K Council, in such matters through the Interim Constitution Act. It has been pleaded that law is not against the provisions of Islam.
7. On facts, it has been pleaded that the industrial units in which exemption has been claimed, are not covered by the various statutory orders granting the exemptions. It has been further pleaded that Reforms Act, 1992 was not adopted by AJ&K Council, therefore, the exemption provided in this law is no longer applicable in Azad Jammu and Kashmir. It has been pleaded that the Azad Jammu and Kashmir Legislative Assembly had no power to enact a law respecting the Income Tax Act, therefore, the provisions of section 80‑D of the Ordinance are not affected by any Act of this Assembly.
8. The arguments in this case were heard on May 13 and 14, 1997 and the case was again taken up on June 15, 1997 and then the arguments were concluded by the learned counsel for the parties.
9. Haji Muhammad Afzal, the learned counsel for the petitioners argued that provisions of section 80‑D are violative of the Constitution on the following grounds:‑‑‑
(i) It is confiscatory in nature;
(ii) it is outside the frame‑work of the Income Tax Laws and is not covered by the principle, determining the levy of income tax;
(iii) it is not within the scope of Item 42 of the AJ&K Council Legislative List;
(iv) it is not covered by the definition of income. Turn over tax is not permissible under the provisions of the Constitution; and
(v) turn over tax is just like sale tax which cannot be levied through legislation of AJ&K Council.
10. The second ground taken up is that the impugned provision of law is discriminatory and offends the provisions of fundamental rights of equality before law. The class legislation of this nature is not a classification. It is a discrimination which is not allowed by the Constitution.
11. The third ground is that this provision imposes a restriction on the business as well as the petitioners status as businessmen thus infringes the Fundamental Rights (4.8 and 4.14).
12. The fourth ground is that the law is violative of Injunctions of Islam.
13. The fifth ground relates to additional tax levied under sections 88 and 89 of the Ordinance, therefore, the additional tax is also assailed as violative of Injunctions of Islam and Sharia. The charging of additional tax retrospectively, has been also challenged.
14. The sixth ground is that law relating to the turn over tax is ambiguous.
15. The seventh ground is that provision in the Income Tax Act for adopting automatically the amendments made in Pakistan, amount to transferring the legislative powers to the Federal Legislative authority which is not permissible under the Constitution.
16. The learned counsel prepared the table of the income relating to the various assessment years in respect of 17 units and tried to show that the tax levied, is not on any income derived by these units. Some of the units were suffering losses, nevertheless, those are being required to pay tax. Under the scheme of law relating to income tax, no person can be asked to pay tax who has no income or is sustaining loss. The impugned provision of law is, thus, outside the scope of the Constitutional provision, authorising the legislation for tax on income. The learned counsel relied on the following cases:‑‑‑
AIR 1961 SC 522 and
PLD 1979 SC (AJK) 148, 193 and 217,
The learned Counsel discussed the cases from Indo‑Pakistan jurisdiction relating to the provision of section 80‑D. Reference was made to: ‑
1961 (41), ITR 393,
1965 (56), ITR 141, ITR 597
AIR 1963, Mad. 183,
1951 SCR 735,
AIR 1964 SC 922, and
The learned counsel discussed the provisions of sections 1, 3(1)(a), 2(b), 3, 13, (i), (ii), (iii) and sections 9, 14, 23, 24, 32(4), 35, 61 and 62 of the Income Tax Ordinance, 1979.
17. On ground No.2 relating to discrimination, the‑ learned Counsel argued that reference to all companies in the impugned legislation, is not a classification of persons rather it is a class legislation which being discriminatory offends against the Constitutional provisions providing equality and equal protection before law to all the citizens. He mentioned various categories of persons and business and trade and profession, not made liable to pay the tax.
18. Regarding class legislation, reference was made to the following authorities:‑‑
AIR 1957 SC 9/157,
19. In the matter of discrimination, reference was made to the following cases:‑-
(1989) 178, ITR 31 AP.
20. In the matter of restriction of the business, it has been argued that turn over tax levied at the rate of Rs. 0.50 per cent, affects the status of a company and it violates the Fundamental Rights, therefore, the same is void. This tax also deprives a person of his property, therefore, it offends the provisions of Fundamental Right‑14 because a person is deprived of the property without the authority of law. Reference was made to a case reported as PLD 1979 SC (AJK) 147. The learned counsel for the petitioners argued that levy of tax at the rate of Re. 0.50 per cent on the turn over is an illegal deprivation from the property which is not permitted in Islam. Therefore, this provision is violative of teaching of Islam. He discussed some individual cases and stated that some industrial units have the different accounting years. Therefore, the turn over tax could only be levied from the assessment years 1992‑93. The legislation even if held valid, does not authorise the tax realization from any previous date.
21. Mr. Zahid Hussain, Advocate who represented "Spintex Limited" argued that the tax exemption was allowed to various industries for a period of 8 years through Notification No. SRO/283 (1)/90, issued on 13‑12‑1990 which reads as under:‑‑‑
"MINISTRY OF FINANCE AND ECONOMIC AFFAIRS. Islamabad, the 13th December, 1990.
Income Tax
S.R.O. 1283 (1)/90.‑‑‑In exercise of the powers conferred by subsection (2) of section 14 of the Income Tax Ordinance, 1979, (XXXI of 1979) the Federal Government is pleased to direct that the following further amendments shall be made in the Second Schedule to the said Ordinance, namely:‑
In the aforesaid Schedule,‑
(1) in para. 4 after clause (118‑B), the following new clause shall be inserted, namely:‑‑‑
(118B). (1) Profits and gains derived by an assessee from an industrial undertaking set up between the first day of December, 1990, and the thirtieth day of June, 1995, both days inclusive, for a period of eight years beginning with the month in which the undertaking is set up commercial production is commenced. Whichever is the later;
(2) The exemption under this clause shall apply to an industrial undertaking which fulfils the following conditions:‑‑‑
(a) that it is set up in the Province of Balochistan (excluding sub- Chowki Area), the North‑West Frontier Province the Federally Administered Tribal Areas, the Northern Areas, Azad Kashmir, the divisions of Dera Ghazi Khan and Bahawalpur in the Province of the Punjab or the divisions of Sukkur and Larkana in the Province of Sindh;
(b) that it is owned and managed by a company formed exclusively for operating the said industrial undertaking and registered under the Companies Ordinance, 1984 (XLVII of 1984) and having its registered office in Pakistan;
(c) that it is not formed by the splitting up or the reconstruction or reconstitution of business already in existence or by transfer to a new business of any machinery or plant used in a business which was being carried on in Pakistan at any time before the commencement of the new business: and
(d) that it is engaged in the manufacture of goods or materials, or the subjections of goods or materials to a manufacturing process, or mining (excluding petroleum and gas) or extraction of timber. "
According to the learned Counsel, the exemption was allowed to industries in Balochistan, N.‑W.F.P., FATA, Northern Areas, Azad Kashmir and Dera Ismail Khan etc., therefore, turn over tax cannot be realized from Spintex which is established in Azad Kashmir. The learned Counsel made reference to Protection of Economic Reforms Act, 1994 dated 25‑1‑1994, enacted by Azad Kashmir whereby the protections allowed through the aforesaid Act of 1992 in Pakistan, were extended to Azad Kashmir. According to him, the Legislative Assembly of Azad Kashmir was competent to legislate on the subject of concessions/exemptions in the matter of taxes as well as for providing the protection to the industries. The Legislation by the AJK Legislative Assembly extends to the provisions of SRO No. 1283 to Azad Jammu Kashmir, therefore, if the enforcement of provisions of law embodied in section 80‑D are held valid, the exemption already given are not affected. Resultantly, the industrial units benefited by SRO 1283, dated 13‑12‑1990 shall continue to enjoy the concession for the period prescribed thereunder.
22. Mr. Bilal Ahmed, Advocate argued that the provisions of law embodied in Item 42 Schedule. Third of Azad Jammu and Kashmir Interim Constitution Act, is similar to one as per Item 47 Part‑I of the Federal Legislation List in Schedule IV of Pakistan Constitution. According to the learned Counsel, the provisions of the Constitution are wide enough to cover the turn over tax. He argued that a number of taxes have been levied through the Income Tax Ordinance. One form of the tax is actually the income derived by a person from different sources. The other is additional tax and then the taxes are levied, under the provisions of sections 80‑C, 80‑CC and BO‑D etc. He referred to the definition of "income" provided in the Income Tax Ordinance. It was argued by him that the word "income" does not refer to the actual income. It includes any amount deemed as income. According to the learned Counsel, the deeming Clause appearing in any statute. makes a thing to be assumed to be existing which factually may not exist. The learned Counsel argued that the Reforms Act is not applicable in 'Azad Kashmir. According to him, the petitions pertain to the industries which came into operation before 1‑12‑1990, whereas SRO 1283 applies to the units which came into production after 13‑12‑1990. Even otherwise, this law was not enacted by the AJ&K Council, hence not applicable in Azad Kashmir. Mr. Bilal Ahmed, Advocate further argued that the instant case is not a Shariat petition, therefore, the question of violation of any Injunction of Islam, cannot be considered by this Court. Alternatively, he argued that even in the Islamic States, Kharaj and Ghanemat etc. were the sources of income, therefore, levy of any tax through legislation in the shape of section 80‑D, could not be treated as violative of Islamic Sharia. The State has to meet certain expenses for which it should have some resources. The taxes are the only way through which the State can realize the sum of money for meeting the expenses. The learned counsel placed reliance on PLD 1992 FSC 329 and argued that levy of tax has been held justified by the Federal Shariat Court. It was further argued that the State also realises Zakat and Usher which is permissible in Islam. According to him, it is not correct to suggest that realization of tax is the deprivations of the property. The reference was made to decisions of Karachi, and Quetta High Courts. When the case was lastly argued, the judgment of Supreme Court of Pakistan delivered by Full Bench comprising five…
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