MR. RASHEED AHMED SHEIKH, JUDICIAL MEMBER.-(1). By this single order I proceed to adjudge the two titled appeals which are directed against the consolidated order passed by CIT(A) Zone-II, Lahore dated 24.05.2004 in respect of assessment years 1999-2000 and 2000-2001.
2. The Revenue's common grievance for the two years under appeal pertains to deletion of addition, made u/s. 12(18) of the Repealed Income Tax Ordinance. 1979, by the first appellate authority. The divergent views expressed by the two parties in appeal, in this regard, have been considered.
On going through the facts available on record, a question has arisen as to whether withdrawal of amount by a member of the AOP or by a partner of the firm out of his capital account maintained with the firm, consequent upon which negative capital emerges at the close of the accounting year, constitutes "loan" or "advance" and whether the provisions of section 12(18) of the Repealed Income Tax Ordinance are attracted in such eventuality.
4. Facts leading for disposal of the question in hand are that the assessee is a member of the AOP namely M/s. Atif Mushtaq and Co. Who made withdrawal of amounts on different dates from his capital account, maintained with the firm, which in aggregate constituted at Rs. 2,00,000/- and Rs.
2,20,000/- respectively. This amount was withdrawn in order to meet personal expenses and payment of taxes. However, after making adjustment of the share of profit enjoyed from the said firm, capital balance stood in negative at the close of the accounting year i.e., on 30.06.1999 and 30.06.2000 which amounted to Rs. 1,92,898/- and Rs. 5,13,993/- respectively. These amounts were shown in the wealth statement under the head "partners capital account". Withdrawal of such amount from the capital account was alleged by the assessing officer to have been obtained loan by the member from the firm's account. The explanation tendered by the assessee could not convince the assessing officer. Accordingly, the total sum withdrawn by the assessee at Rs.
2,00,000/- and Rs. 2,20,000/- in each year under appeal was treated to be the loan advanced by the firm in terms of section 12(18) of the repealed Ordinance and subjected them to tax.
5. When this issue came up for adjudication before the Appeal Commissioner, he after having taken regard to the arguments canvassed by the assessee deleted the impugned additions by holding to be not maintainable being the amounts withdrawn cannot be held to be a loan/advance. This has compelled the Revenue to come up appeal before the Tribunal.
6. The learned D.R. Appearing on behalf of the Revenue vehemently objected to the learned Appeal Commissioner's action in deleting the addition. It was the learned D.R's point of view that positive capital is always considered to be the contribution of the members of AOP towards the firm's capital account. But once the withdrawals from the firm reaches to the level where the positive capital results into zero then any further withdrawals therefrom is tantamount to be the loan obtained from the firm's capital account. According to the learned D.R. The amount over and above the partner's own contribution certainly qualifies the phrase used in Section 12(18) to be the "loan" or "advances". Since, the loan has been taken out by the assessee for meeting his personal expenses without adopting banking channel, the assessing officer has rightly treated such amount as deemed income to be assessed u/s. 12(18) of the Ordinance. Conversely, the learned counsel appearing on behalf of the assessee-respondent supported the impugned appellate order for the reasons embodied therein.
7. After giving anxious thought to the divergent views expressed by the rival parties in appeal, I am of the considered opinion that the provision of section 12(18) are not attracted in an eventuality where the amount is withdrawn by a member of the AOP or by a partner of the firm for his household expenses and payment of tax from the firm's account. Reason being drawings of the members/partners of the firm do not fall within he definition of "loan" or "advance". The term "loan" has an inherent characteristics of repayment of money on specific conditions. While "advance" means literally a payment before hand; in certain cases it may be a loan, but it cannot be said that a sum of money paid by way of advance is necessarily a loan.
8. Even plain reading of section 12(18) clearly spells out that only such sum which has been claimed or shown to have been received as loan or advance or gift by an assessee during any income year, commencing on or after first day of July, 1998 from any person otherwise than by a crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax Number, the said sum shall be deemed to be the income of the assessee for the said income year.
9. By this time this is a settled principle that while interpreting any provision of statute, plain meanings of the expression and the words used in a statute shall be adhered to and no other meaning shall be deduced therefrom which is not available from a plain reading of the expression and the words used in the statute.
10. And if there are two possible constructions of the words of the statute, then the effect is to be given to the one that is in favour of the citizen and not the one that enhances or increases the burden on him. Neither any tax nor higher rate of tax can be imposed by any interpretive process.
No provision in fiscal statute can be extended on analogy. Thus, straining the language in order to hold a subject liable to tax or to a higher rate of tax cannot be held to be justified than by looking at the clear words used by the legislature.
11. I would also like to add here that deeming provisions are to be applied strictly in accordance with law as the deeming provisions are the fiction of law and all fiction of law are to be interpreted and applied strictly and the doubt, if any, is to be resolved in favour of assessee.
12. Reverting to the facts of the case, the entire super structure of the assessment has been built on presumption that withdrawal of money by the member/partner from the firm's accounts, consequent upon which capital balance stood in negative, is a loan. Factually the members of the firm have pooled their resources in order to execute business, under the name and style of M/s. Atif Mushtaq and Co., and to share profit and losses on a specified percentage. For this purpose they have contributed their capital to the firm and in this manner their accounts were credited to the extent the capital was contributed by them. In order to meet the household expenses and payment of taxes, each one of them was drawing money from his personal ledger account. Meaning thereby this is a running account of the members maintained with the firm which has inherent characteristic of being adjusted against future profit or losses. In fact the firm has never lent any amount to its member(s) rather the drawings are made by the assessee- respondent for meeting his personal expenses and taxes from his capital account resulting in negative capital which do not fall within the four comers of the words used in section 12(18) as "loan" or "advance", as are interpreted by the higher appellate Courts in their orders.
13. In fact neither the drawing made by the member(s)/ partner(s) of the firm nor the negative capital appearing in their personal ledger account, maintained by the firm, is covered by the definition of "loan" or "advance". This contention is further supported by the prescribed wealth statement filed u/s. 58 of the repealed Ordinance wherein business liabilities and loans have separately been enumerated and whenever the negative amount is to be declared that falls within the heading "partner(s) capital account and not the loan".
14. Even otherwise the law has specifically laid down that only the sum which has been claimed or shown to have been received as "loan" or "advance", otherwise than through a crossed cheque or banking channel, can be subjected to tax u/s. 12(18). Thus, in no way the sum which has neither been claimed nor shown to have been received as loan can be hit by mischief of section 12(18). I also remember that in one of the leading case decided by the apex Court of Pakistan in the case of Micro Pak (Pvt.) Ltd. v/s. CTT (cited as 2002-PTD-877 (S.C)) wherein, while taking cognizance to section 12(18), has observed that the provisions of this section are attracted only in a situation where any sum has either been shown or claimed to have been received as loan but not otherwise.
Also observed that the said two conditions are equally applicable in the case of "advances" and "gifts".
15. In the given scenario, I have reached to an escapable conclusion that by no stretch of imagination withdrawal of capital by a member/partner of the firm can be deemed to be the "loan" or "advance". Injection of additional capital or withdrawal of amount by the members of the AOP over and above their capital contribution is normal business activities to which the provisions of section 12(18) of the Repealed Ordinance are not attracted. There is no provision of law indicating that withdrawal of sum for personal expenses by the member(s)/partner(s) of the firm shall be made through crossed cheque drawn on a bank or which prohibits charge of income tax paid by the firm from the partner's personal account. In no way personal drawings of the members/partners can be treated to be the "loan" or "advance" obtained from the firm because such amounts are adjustable against their share of profit earned by the firm in the year in which the sum is drawn or against the profit in the succeeding year. The legislature has bona fidedly not catered this eventuality in section 12(18) of the Repealed Ordinance.
16. Upshot of the discussion is that the assessing officer had acted in flagrant violation of law in treating the drawings made by the member of the AOP namely, Mr. Imtiaz Ahmad to be the loan in terms of section 12(18) of the Ordinance. This would result into endorsement of the Appeal Commissioner's point of view and dismissal of the departmental appeals being bereft of any merits.