JUDGMENT MUHAMMAD SAIR ALI, J.- For the relevant assessment year, the assessee Mr. Shahzada A.
Manoo claimed exemption of Rs. 58,51,585/- from the Wealth Tax for being the Zakat paid amount.
Respondent No. 3 did not accept the claim of the appellant regarding exemption from Wealth Tax.
2. The appellant assessee filed appeal before respondent No. 2 which was accepted and respondent No. 3 was directed to accept the claim of the exemption of Zakat paid assets.
3. Respondent No. 3 filed appeal before the learned Income Tax Appellate Tribunal i.e. Respondent No.
1. This appeal was accepted vide order dated 5.4.2000. Relevant portion of the order is reproduced below:-- ".......... On the issue of exemption of KDCs already encashed, we do not agree with the finding of the learned CWT (Appeals). The Circular relied upon by the learned CWT (Appeals) is not relevant to the facts of this case. Such Circular was issued in respect of certificates on which Zakat had not been deducted as the Zakat was deductible only at the time of encashment of KDCs. We would not like to comment on the merits of the Circular itself at this stage. We fail to appreciate! How exemption could be allowed in respect of an asset which did not exist on the valuation date. An exemption can only be claimed or allowed in respect of specific asset. Hence, the order of the Assessing Officer on this issue is restored."
Hence the present further appeal.
4.In para. 6 thereof, the assessee prays for an opinion of this Court on the following questions:--
(i) "Whether on the facts and in the circumstances of the case, respondent No. 1 was justified to accept the appeal of the Department where exemption to the extent of Zakat Paid Assets was not allowed?
(ii) Whether on the facts and in the circumstances of the case, respondent No. 1 was justified to hold that exemption was claimed in respect of KDCs which did not exist on the valuation date?
(iii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the payment of Zakat after the encashment of KDCs is not adjustable against the demand of Wealth Tax after conversion of KDCs into cash?"
5. The main question which needs consideration in this appeal is whether the assets created out of encashment proceeds of KDCs which suffered compulsory levy of Zakat under the Zakat & Ushr Ordinance, 1980 were* entitled to exemption under clause (XVIH) of Section 5(1) of the Wealth Tax Act, 1963.
6. The Zakat & Ushr Ordinance, 1980 (XVIH of 1980) on its promulgation extended 'certain tax concession' in Section 25 to the income tax as well as wealth tax assessee. The tax concession relating to the assets chargeable to wealth tax, prescribed as under:- "25. Certain tax concessions. -- (1) Notwithstanding anything contained in any other law for the time being in force: (a)In determining the tax liability of an assessee for an assessment year:
(i) (ii) under he Wealth Tax Act, 1963 (XV of 1963), his assets in respect of which Zakat or contribution in lieu thereof, has been deducted at source during the year relevant to that assessm ent year shall be excluded from the taxable wealth."
7. Section 25 (ibid) excluded such assets from the taxable wealth of an assessee, in respect of which Zakat Had been deducted at source during the year relevant to the assessment in question.
This tax concession was thus dependent upon fulfillment of the following two conditions:-
(i) deduction of Zakat at source; and
(ii) the deduction of Zakat to be made during the year relevant to the assessment year in question.
If the above two conditions co-existed, the asset in respect of which Zakat had been deducted at source enjoyed exemption from the levy of wealth tax.
8. The legislative intent in providing such tax concessions was obviously to avoid double taxation.
Both Zakat and the wealth tax were the 'taxes on the wealth' of an assessee. The assets which were liable to compulsory deduction of Zakat at source under the law, were exempted from the levy of 'wealth tax' under the Wealth Tax Act, 1963. This exemption was allowed to protect the assessee from the imposition of the double levy.
9. The tax concession allowed by Section 25(1 )(a)(ii) of the Zakat & Ushr Ordinance, 1980 was given protection by the Wealth Tax Act, 1963 through insertion of clause (xvii) by the Finance Ordinance, 1979 in sub-section (1) of Section 5 of the Wealth Tax Act, 1963 in the following words:- "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: (xviii) assets in respect of which Zakat or contribution in lieu thereof has been deducted at source under the Zakat & Ushr Ordinance, 1980 (XVIII of 1980), in that year or during the Zakat year commencing immediately before the valuation date.
Explanation. ~ "Zakat year" means year according to the Hijra Calendar for which Zakat is chargeable, commencing on the first day of Ramadhan-ul-Mubarak and ending with the last day of the following Sha'ban-ul- Moazzam."
10. Section 25(1 )(a)(ii) of the Zakat & Ushr Ordinance, 1980 as well as Section 5(1 )(xvii) of the Wealth Tax Act, 1963 allowed exemption from the wealth tax only to such assets which were subjected to the deduction of Zakat at source during the year relevant to the assessment year-in - question. These provisions of the two enactments extended exemption to the Zakat paid assets only. The exemption was not extendable to the assets created with the cash obtained on encashment of Zakat paid assets.
11. The law is well-settled that the exemption provisions are to be given strict construction, in the case} titled "M/s. Army Welfare Sugar Mills Ltd. And others Vs. Federation of Pakistan" (1992 SCM R 1652), the Hon'ble Supreme Court of Pakistan pronounced the principles on the} interpretation of the exemptions in the fiscal statutes as under:- "There are two basic principles of construing a provision of statute involving exemption from payment of tax, namely, the first rule is that the burden of proof is on the person who claims exemption. The second rule is that a provision relating to grant of tax exemption is to be construed strictly against the person asserting and in favour of taxing officer."
12. There is no doubt in our minds that on the question of taxability of any income, doubt or ambiguity has to be resolved in favour of the assessee. in the case of exemptions however the Courts have to be cautious. The exemption provisions of the taking statutes have to be strictly interpreted and applied. If the conditions for availing of an exemption are not fulfilled in entirety the claim for the exemption must be rejected.
13. The appellant assessee in the present case suffered compulsory deduction of Zakat at source on the face value of the KDCs (Khas Deposit Certificates), which throughout remained exempt from the wealth tax in view of the deductibility of Zakat at the time of their encashment. As long as they were held by the appellant assessee as KDCs i. e. The assets liable to the deduction of Zakat at source, they enjoyed exemption from the wealth tax. in other words Zakat was the cost of exemption enjoyed by the KDCs u/S. 5(1 )(xviii) of the Wealth Tax Act, 1963. The provisions of the said Section 5(1 )(xviii) ibid however provide that the exemption from wealth tax was available only to those assets in respect of which Zakat was deducted at source, in the instant case the assets liable to deduction of Zakat at source were the KDCs, and not the cash obtained on their encashment. Such cash was wholly a new asset not liable to the deduction of Zakat at source, which was a sine qua non for availing exemption u/S. 5(1 )(xviii) of the Wealth Tax Act, 1963.
Extending the exemption to the encashment proceeds or any further assets created out of the said cash, would amount to stretching the exemption beyond the limits prescribed and permitted by the law.
14. The questions raised by the appellant are thus answered in the affirmative. The findings of the learned Income Tax Appellate Tribunal on the issue of chargeability of the assets created out of the encashment proceeds of the KDCs are upheld. The assessee's appeal is dismissed.