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Petitioner: Messrs OVERSEAS PAKISTANIS FOUNDATION, ISLAMABAD VS Respondent: C.I.R., L.T.U., ISLAMABAD
Court Name: Appellate Tribunal Inland Revenue Judge(s): Munsif Khan Minhas, Ikram Ullah Ghauri Title:Messrs OVERSEAS PAKISTANIS FOUNDATION, ISLAMABAD vs C.I.R., L.T.U.,
ISLAMABAD Case No.: I.T.As. Nos.853/IB and 960/IB of 2012 Date of Judgment:2013-02-28 Reported As: 2013 PTD (Trib.) 1219 Result: Order accordingly Judgment ORDER ' These cross appeals have been filed by the Taxpayer as well as by the department against the order dated 27-9-2012 passed by the learned CIR(A-II), Islamabad for the Tax Year, 2009 on the following grounds:- (1) The appellant i,e, Overseas Pakistan Foundation (OPF) is a foundation with the status of Public Limited Company by guarantee which derives income from profit on investment of welfare fund, interest income, contributions, purchase and sale of immovable properties and consultancy fees received from persons going abroad. (2) Through this appeal the appellant agitated various legal issues as well the additions / disallowances made by the Assessing Officer i,e, Deputy Commissioner Inland Revenue (DCIR) vide amended assessm ent order dated 30-4-2012 which had been confirmed by the Commissioner Inland Revenue (Appeals) vide Order No,773/2011-1053 dated 27-9-2012 as under:-- (i) That the order passed by the learned Commissioner Inland Revenue, (Appeals-II), Islamabad under section 129 of the Income Tax Ordinance, 2001 dated 27-9-2012, is bad in law and on facts. (iii That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating the fact that the order under section 122(4) read with section 122(5) of the Income Tax Ordinance, 2001 dated 30-4-2012 was passed without waiting the information/detail requested to be provided vide letter dated 30-4-2012 as well was not justified in not appreciating that the amended assessm ent order was passed without providing the personal hearing to the appellant which was also requested by the appellant vide letter dated 30-4-2012.
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(3) That the learned. Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that order passed under section 122(4) read with section 122(5) of the Income Tax Ordinance, 2001 dated 30-4-2012 is void in law due to the fact that two simultaneous amendmend assessm ent proceedings cannot be taken up the first one under section 122(4) read with 122(5) of the Income Tax Ordinance, 2001 dated 30-6-2012 under sections 177/122(1) of the Income Tax Ordinance, 2001 initiated on 6-10-2010 and completed on 30-4-2012 and during such proceeding another amendmend assessm ent proceeding under section 122(5A) of the Income Tax Ordinance initiated on 29-1-2011 which stood completed on 16-5-2011. (4) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not giving due consideration to the fact that the order passed under section 122(5A) of the Income Tax Ordinance, 2001 dated 16-5-2011 was subject matter of appeals with Commissioner Inland Revenue (Appeals) and Appellate Tribunal Inland Revenue who set-aside finding upon issues of disallowance of provision for gratuity and provision for earned leave and as such the order passed under section 120(1)(b) of the Income Tax Ordinance, 2001 merged into the order under section 122(5A) of the Income Tax Ordinance, 2001 and finally in the order passed by the learned Appellate Tribunal Inland Revenue in I.T.A. No, 572/IB/2011 dated 17-2-2012 and was not in field to be' amended under sections 122(4)/122(5) of the Income Tax Ordinance, 2001. (5) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the order under section 122(4) read with section 122 (5) of the Income Tax Ordinance, 2001 has been passed without issuing any specific notice under section 122(5) of the Income Tax Ordinance, 2001 with reference to the. Following: (i) any income chargeable to tax has escaped assessment; or (ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or (iii) any amount under a head of income has been mis-classified. (6) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the order under section 122(4) read with the section 122(5) of the Income Tax Ordinance, 2001 has been passed without appreciating the requirement of law as envisaged in section 122(5) and section 122(8) of the Income Tax Ordinance, 2001. (7) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the Deputy Commissioner Inland Revenue (DCIR) was note possession of "definite information" within the meaning of section 122(8) of the Income Tax Ordinance, 2001 read with case of Messrs Central Insurance Co. And others v. The Central Board of Revenue, Islamabad and others (1993 PTD 766) [Supreme Court of Pakistan], Income Tax Officer and others v. Chappal Builders (1993) 86 Tax 1 (S. C. Pak) and Messrs Pakistan Educational Society v. The Government of Pakistan through Chairman and Secretary Revenue Division, Islamabad and 2 others 1993 PTD 804 (Karachi High Court). (8) That the, Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the Officer Inland Revenue has -not followed the criteria set out for Audit as mentioned by" Commissioner Inland Revenue Audit II LTU Islamabad vide Intimation of Selection of case dated 26- 7-2008. (9) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not 'appreciating that DCIR was not justified in the amending the assessment by deviating from the criteria set by the Commissioner Inland Revenue Audit vide Intimation of Selection of case for Audit dated 6-10-2010 and as such set out his own criteria which was not delegated to him. (10) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not given due consideration to the decisions:- (i) 2009 PTD 1392 (S. C. Pak)
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(ii) 2010 PTD 1506 (H. C.) (iii) 2010 PTD (Trib.) 1700 (iv) 2010 PTD (Trib.) 1709 (v) 2010 PTD (Trib.) 2162 (vi) 2011 PTD (Trib.) 321 (vii) I.T.A. No,1922/KB of 2007. (11) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in confirming the action of the Deputy Commissioner Inland Revenue in respect of following additions and/or disallowances:- Receipts from OPF Girls College, Islamabad141,133,988 Amortization of Premium 18,966,439 Service Charges UNCC 608,416,078 Application Money from Islamabad Zone- V plots340,220,858 Progress Billing Housing Schemes 1,136,732 Supervision and development of schemes already recognized79,367,235 Financial Aid 29,796,323 Bila sood qarz written off 870,903 Welfare activity like eye camp 1,514,267 Vehicle running and maintenance 10,700,125 Advertisement 1,530,964 Misc. Expense 5,134,236 (12) Without prejudice to the above grounds the learned Commissioner Inland Revenue (Appeals) has erred in not appreciating the fact that while disallowing the expenses the Officer Inland Revenue has ignored the fact that expenses as narrated in the statement of accounts includes the expenses of the operation of the appellant (OPF) in Azad Jamnu Kashmir (AJK) who is separate Income Tax assessee / Tax Payer in AJK" Judgment 3. Hearing of the Case came on 28-2-2013 Mr. Muhammad Jawaid Khurram, Advocate appeared on behalf of the appellant and Mr. Tahir Khan, learned D.R for the tax department. Brief facts of the case as discussed by the AR are that for the Tax Year 2009 the appellant filed its tax return declaring net loss of Rs,(87,755,553) which constituted a deemed assessment order within the meaning of section 120(1)(b) of the Income Tax Ordinance, 2001 (Income Tax Ordinance, 2001), subsequently the OPF revised its return of income declaring loss- of Rs,923,618,999 resultantly the revised return became the amended order with reference to section 122(3)(b) of the Income Tax Ordinance, 2001. The case of the appellant was Selected for Audit within the meaning of section 177 of the Income Tax Ordinance, 2001 by the Commissioner Inland Revenue, Audit, Islamabad vide intimation letter dated 6-10-2010; the reasons for selection of case to Audit were given as under:-- (a) The company has claimed exempt income of Rs,447,124,001 without mentioning the head of income or quoting any clause of exemption as per Second schedule of the Income Tax Ordinance, 2001. The issue of exempt income is required to be looked into from the books of accounts and other relevant details/documents. (b) A sum of Rs,476,207,627 has been received under Welfare Fund Receipts. The same has not been accounted for taxation purposes and claimed exemption from levy of tax which required' probe.
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(c) Operating expenses for the year under consideration have been claimed at Rs,567,139,967 as against Rs,459,251,911 in Tax Year 2008. Substantial increase in expenses viz-a-viz last year requires verification. (d) Provision for Earned Leave of Rs,18,649,730 and Gratuity Fund of Rs,39,337,201 warrants verification/examination from books of accounts. (e) Advances from allottees of plots of various Housing Schemes launched by Company also warrant examination on the point of taxation of the same under section 36 of the Income Tax Ordinance, 2001. Appellant's Legal Objections: 4. The learned counsel of the appellant submitted that during the Audit proceeding with reference to section 177 of the Income Tax Ordinance, 2001 Additional Commissioner, Audit-I, LTU, Islamabad initiated another proceeding within the meaning of the section 122(5A) of the Income Tax Ordinance, 2001 vide notice dated 29-1-2011 whereby the reasons for invoking provisions of section 122(5A) are narrated here under:-- Subject:;SHAW-CAUSE NOTICE UNDER SECTION 122(4) READ WITH SECTION 122 (5A) OF THE INCOME TAX ORDINANE, 2001 1N THE CASE OF Messrs OVERSEAS PAKISTAN FONDATION (OPF) ISLAMABAD - FOR THE TAX YEAR 2009. Kindly refer to the above noted subject. (2) The assessm ent of company for the tax year 2009 stands completed, by fiction of law, under section 120 of the Income Tax Ordinance, 2001. However, inspection of the assessment record revealed that the completed assessment is "Erroneous" as well as prejudicial to the interest of revenue, calling for action under section 122(5A) of the Income Tax Ordinance, 2001 for the following reasons: (3) In return for the tax year 2009, your company has declared the exempt income of Rs,447,124,001 without mentioning against it the relevant legal provision under which this income has been claimed as "Exempt" from levy of income tax. This action on the part of company is contrary to the legal provisions on the subject, in so far as the claim of exemption under reference is concerned. The Income Tax Ordinance, 2001 does not provide for any exemption coverage to any type the income of your company. Viewed in this context, your company was required to offer the income of Rs,447,124,001 (claimed as exempt) for the purpose of taxation under normal law of taxation which however has not been done by it. As a result, the governments exchequer sustained a substantial amount of loss of revenue of Rs . 156, 493 , 400 (Rs, 447, 124, 001 x 35 %). (4) In addition to that the return for the tax year 2009, your company claimed deductions of Rs,18,649,730 and Rs,39,337,201 on accounts of the provisions for Earned Leaves and the provisions for the Gratuity Fund respectively. These deductions from the income are inadmissible to your company simply for the reason that the Income Tax Ordinance, 2001 does not specifically provide for the allowability of such provisions as deduction from the income. However, both the deductions, as aforesaid erroneously stand allowed to your company in its assessment finalized under section 120 consequent to which the government's exchequer sustained a substantial amount of loss of revenue of Rs,20,295,426 (Rs,18,649,730 + 39,337201 Rs,57,986,931 x 35%). (5) In the return for the tax year 2009, company has claimed the credit of tax deducted at source amounting to Rs,22,572,074. In the light of provisions as contained in subsection (2) of section 164 (reproduced hereunder) company was required to attack along with the return a certificate (in support of deduction of tax at source) which however has not been done by it. Section 164. Certificate of collection or deduction of tax. Xx xxx xxx (2) A person required to furnish a return of taxable income for a tax year shall attach to the return any certificate provided to the person under this section in respect of tax collected or deducted in
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that year (and such certificate shall be treated as sufficient evidence of the collection or deduction for the purposes of section 168)". ' In such a scenario while passing the amended order, if warranted after the receipt of the reply of company and examination thereof, it will be hardly possible for this office to give the full tax credit of Rs,22,572,074 to company as claimed by it in its return. (6) In view of the foregoing facts, it is evident that the assessment of company for the Tax Year 2009 which already stands completed under section 120 is erroneous as well as prejudicial to the interest of revenue calling for action under section 122(5A) of the Income Tax Ordinance, 2001. (7) Viewed in the above context, the undersigned intends to amend the assessment of company for the tax year 2009 which already stands deemed assessment under section 120 of the Income Tax Ordinance, 2001 on the points as aforesaid. If you have any objection on this intended action, let the undersigned know on or before 12-2-2011. Prescribed notice under section 122 is enclosed. 5. The learned Authorized Representative submits that the appellant also cooperated with reference to proceeding under section 122(5A) with the Additional Commissioner (AC) and in the result the Additional Commissioner passed order under section 122(5A) on 16-5-2011 whereby he made the following addition:-- Welfare fund receipts 397,285,235 Provisions for Earned Leave 18,649,730 Provisions for Gratuity Fund 39,337,201 6. The order passed under section 122(5A) was subject matter of appeals with. CIR(A) and thereafter with Appellate Tribunal Inland Revenue (ATIR) and finally the Learned ATIR decided appeal vide order dated 17-2-2012 in I.T.A No,572/IB/2011, according to the said order the assessm ent made under section 122(5A) was set-aside. 7. The learned A.R submits that the after order passed by Tribunal the orders passed under sections 120(1)(b), 122(3)(b) and 122(5A) have been merged into the order passed by a superior authority i,e, the learned ATIR and as such the order passed under's sections 120(1)(b), I22(3)(b) and 122(5A) of the Income Tax Ordinance, 2001 do not exist anymore and not available for further amendment under sections 122(4)/ 122(5) of the Income Tax Ordinance, 2001 and on this subject he placed reliance on 2011 PTD (Trib.) 1807. In fiscal matter it is established law that assessment on one issue once amended and even decided at higher forum cannot be amended again under theory of merger but it can be amended on other issue. Under Income Tax Ordinance original assessment order can be amended as many times as it warrants but on different issues on new facts. 8. After hearing the arguments we are of considered view that after promulgation of Income Tax Ordinance, 2001 original assessm ent can be amended as many times as it is requisite but only on new issues and not on those issues which already became source of amendment or subject matter of appeal. 9. The learned counsel emphasized that another question arises whether that two simultaneous amendment assessm ent proceedings initiated under section 177 of the Income Tax Ordinance, 2001 vide notice dated 6-10-2010 and under section 122(5A) of the Income Tax Ordinance, 2001 initiated vide notice dated 29-1-2011 cannot be taken up together and cited two decisions of the learned appellate Tribunal (2010) 101 Tax 404 (Trib.) wherein the issue of the simultaneous assessm ent proceedings thoroughly discussed. Learned AR referred case, law ((2010) 101 Tax 404 (Trib.)). 10. After hearing the respective contentions of the parties we are of the view that above said case- law has no relevancy because section 121(i)(d) can only be applied if return is not filed or return is invalidated. In the presence of deemed assessment and without its invalidation 2nd amendment will amount to two assessm ents simultaneously in the field. Simultaneous application had been
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discussed in the scenario of sections 121(i)(d) and 122(5). This case-law does not fit in the facts of present case. 11. Besides above in respect of application of section 122(5) of the Income Tax Ordinance, 2001 the learned A.R of the appellant has submitted that section 177 of Income Tax Ordinance, 2001 deals with the audit of any person's tax affairs and after completion of the audit the Commissioner if considered necessary may amend the assessment under section 122(1) and/or 122(4) of the Income Tax Ordinance, 2001. It is further submitted by him that for the amendment of the assessm ent under section 122(1) and/or 122(4) of the Income Tax Ordinance, 2001 after completion of audit under section 177 of the Income Tax Ordinance, 2001 the Commissioner shall first assume jurisdiction within meaning of section 122(5) and/or 122(5A) of the Income Tax Ordinance, 2001 on fulfillinent of requirements narrated therein. 12. Now question is that how he has to assume jurisdiction? What is requirement of assuming jurisdiction? Definitely answer is through issuing a notice under section 122(9) of Income Tax Ordinance, 2001. Domain of Assessing authority and jurisdiction if not or in excess can also be challenged through reply of notice under section 122(9). RECEIPT FROM OPF GIRLS COLLEGE: 13. The learned counsel of the appellant submitted that the Assessing Officer taxed the entire receipts of OPF Girls College of Rs,141,133,988 appearing in the bank statement obtained directly from banks within the meaning of section 176 of the Income Tax Ordinance, 2001 considering being the integral part of the OPF activates on the strength of Note No,14 appearing in the Audited statement of Accounts of OPF, the said note is being reproduced for the sake of convenience:-- "Expenditure incurred by the Foundation on OPF Girls College Islamabad has been accounted for as long term investments and stated at cost the financial statements of college since inception has not been included in the financial statements of the Foundation Audit of the. College for the year ended 30 June 2008 is in progress. Appropriate adjustment will be incorporated in the financial statements of PF upon completion of audit." 14. It is further submitted by the counsel for the appellant that although the OPF had made investment of Rs,87,647,127 in the OPF Girls College but due to some controversies the Federal Government had appointed a separate Board for running the affairs of the college and OPF management had nothing to do and had no authority to run the affairs of the College, and as such the management / Board of director has incorporated Note 14 of the Audited Statement of accounts. 15. Learned A.R has emphasized that if the tax department is of the view that the OPF Degree College is an integral part of OPF then the Assessing Officer should have taken into consideration that the Overseas Pakistanis Foundation (OPF) was established in 1979 with the specific objective of undertaking, activities of a purely welfare nature for the benefit of overseas Pakistanis and their families in Pakistan. These activities include the establishment of schools, the grant of scholarships, the donation of funds and medical equipment / ambulances to hospitals and health 'centers, the arrangements of transportation of migrant workers' dead bodies from abroad, the grant of financial aid to widows, and the arrangement of various facilities for returning migrant workers. In view of its essentially welfare character, the OPF is registered under section 26 of the Companies Act, 1913 as a non-profit making Public Limited Company with charitable objects:-- "It is the admitted position that the Overseas Pakistani Foundation is a company limited by guarantee and a non-profit making organization. ' The whole of the working capital of company came from Federal Government in the shape of welfare fund. ' The Managing Director as well as the majority of Directors of the Company are nominees of the Federal Government.
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' Under the memorandum of association of the company, the income and property of the Company is required to be applied solely towards the promotion of the objects of the Company, and no portion thereof can be paid or transferred directly or indirectly by way of dividend, or bonus or otherwise by way of profits to the members of the Company. ' And upon winding up or dissolution of the Company and property which remains after satisfaction of debts and liabilities is transferable to the Federal Government or its nominee only, or is to be applied in such manner as the Federal Government may direct." 16. The learned A.R. Submitted that in view of above the income of the OPF Girls College is exempt from Tax within the meaning of clause (92) of the Second Schedule to the Income Tax Ordinance, 2001. On examination of the above your honour will appreciate that in order to claim exemption no approval under the provision of section 2(36) / or section clause 58 of the Second Schedule is mandatory. 17. It is submitted that the Assessing Officer while charging the income of the OPF Girls College for the purpose of taxation has taken entire credit entries appearing as income of the college without allowing the related expenditure. 18. On conscious examination of the issue we are of the considered view that the income related to OPF Girls College belongs to the appellant and the appellant has not claimed exemption on income related to education Division with reference to Note(s) 26 and 32 of the audited account and such not entitled for exemption under clause 92 of the second Schedule. However we tend to agree that all the related expenses of OPF Girls Collage should have been allowed, the matter is being remanded back to the Assessing Officer to allow such expanses as per law after providing opportunity of being heard to the appellant. AMORTIZATION OF PREMIUM: 19. The learned counsel for the appellant stated that thee assessing officer while disallowing the claim of amortization of premium the expenses on account of amortization of premium is an expense of capital nature and therefore, cannot be allowed as revenue expense as per section 21(n) of the Ordinance. Furthermore, section 20 of the Income Tax Ordinance, 2001 only allows expenditure incurred by the assessing, while making the above statement has misconceived the factual and as well legal position of such claim, the appellant had made investment in Pakistan Investment Bonds (PIB) at premium as per following detail: Date of PurchaseDate of MaturityFace Value of PIBPremium Paid Total Investment 2-1-2004 6-10-2013 175,000,000 19,926,725 19,926,725 7-8-2004 21-12-2011 100,000,000 20,401,800 20,401,800 6-8-2004 30-10-2011 100,000,000 26,368,181 26,368,181 15-01-2005 30-10-2011 250,000,000 69,964,750 69,964,750 Total 136,661,456 20. Total amount of premium is amortized over the period of maturity of bonds. So, there is no disposal of investment before maturity. State Bank of Pakistan has deducted Income Tax from interest paid on PIB to OPF. Therefore, the amortized amount is a deductible expense. 21. The learned counsel submitted before us that the learned Tribunal in the reported decisions (2004) 90 Tax 116 (Trib.) and (2012) 106 Tax 317 (Trib.) has thoroughly discussed the issue of allowability amortization of premium paid for purchasing PIB's and held that the said amortization is a prepaid expenditure and allowable. We therefore following the said the decision in letter and spirit delete the disallowance/ addition of Rs,18,966,439 made on this account. SERVICE CHARGES & INTEREST PAYABLE TO UNCC:
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22. While disallowing the claim of Rs,608,416,078 being the service charges and interest payable to UNCC the Assessing Officer was of the opinion because the interest income earned on UNCC funds service is not taxable with reference to this Tribunal order MA(R)Nos.54,55,56/IB/2008 dated 24-12- 2009 therefore the expenses incurred in respect of such income not allowable. 23. In this respect the learned A.R submitted that the United Nation in the year 1993 had created UNCC Fund to compensate Kuwait - Iraq war effectees and OPF had been appointed custodian / and manager of the said fund. The said fund lying the interest bearing accounts in various bank and there are two portions of the interest of UNCC fund, the first…
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