' KHILJI ARIF HUSSAIN, J.---The Income Tax Appellate Tribunal has referred the following common question of law in respect of assessme nt years 1980-90 and 1990-91 through I.T.R. No,35 of 1997 for our opinion.
"Whether on the facts and in the circumstances of the case, the learned ITAT was right in confirming the levy of surcharge under section 10 of the Income Tax Ordinance, 1979, without considering the provision of Part-III of the First Schedule of the Income Tax Ordinance, 1979?"
2. The I.T.A. No,778 of 2000 was admitted to consider the similar question of law. Both the cases are decided by this common judgment.
3. Heard Mr. Muhammad Farid, learned counsel for the applicant and Mr. Jawaid Farooqi, learned counsel for the respondent.
4. The learned counsel for the applicant has contended that in all the three assessment years, the Assessing Officer wrongly levied the surcharge under section 10 of the Income Tax Ordinance, 1979, without taking into consideration the provision contained in Part-III of the First Schedule to the Income Tax Ordinance.
5. The relevant facts are that in the case of Messrs Dawood Corporation (Pvt.) Ltd., the Assessing Officer computed business income for the assessment year 1989-90 at Rs,4,35,95,229 and determined the tax payable by the assessee at Rs,2,02,39,620 and levied surcharge at 10% amounting to Rs,20,23,962. In the assessment year 1990-91 the tax payable was determined at Rs,3,95,04,1000 and the surcharge was levied at 10% in the sum of Rs,38,12,118. Likewise in the assessm ent order in respect of Messrs Dawood Cotton Mills Ltd., for the assessment year 1990-91 the tax was determined at Rs,13,21,405 and surcharge at 10% was levied in the sum of Rs,1,32,140.
6. In the case of Messrs Dawood Corporation (Pvt.) Ltd., an appeal was preferred for the assessm ent year 1989-90, before the Commissioner of Income Tax (Appeals) contending that the surcharge was not in accordance with the provision of Part-III of the First Schedule to the Income Tax Ordinance, 1979. It was argued that the surcharge is leviable on the Income Tax and Super Tax if any, payable for the year and not on the Income Tax and Super Tax assessed for the year. It was urged that the tax payable is the figure which appears in the notice of demand under section 85 of the Income Tax Ordinance, 1979. The said notice in the case of Dawood Corporation (Pvt.) Ltd., for the assessm ent year 1989-90, shows the demand of the Rs,6,73,450 inclusive of surcharge, and therefore, the surcharge could be levied on this amount after reducing the surcharge itself. It was argued that the surcharge on the tax assessed as done by the Assessing Officer was not sustainable in law. In support of the contention, reliance was placed on the provisions contained in sections 53,54 and 85 of the Income Tax Ordinance, 1979. In support of the plea that 'tax assessed' is not the same as 'tax payable', reliance was placed on a judgment from Supreme Court of India, reported as 1988 ITR 192.
7. The learned CIT(A) did not accept the contention. It was observed by him that although expression 'tax payable' was used in Part-III of the First Schedule to the Income Tax Ordinance, 1979 and section 85, however, the word 'Income Tax Assessed' has nowhere been used in the Income Tax Ordinance, 1979.
8. The learned CIT(A) repelled the distinction made between 'Tax Payable' and Tax Assessed in the context of the provision contained in the Income Ordinance, 1979. It was observed that the term 'Tax Assessed' has not been used anywhere in the Income Tax Ordinance, 1979. The term 'Tax Payable' has been used but it is not distinguishable from the term 'Tax Assessed'. It was further held that if the contention was accepted, it would lead to the conclusion that surcharge would be equated with additional tax or penalty which is leviable on the balance of payment. It was finally held that the surcharge was not leviable on the balance tax which remained unpaid but was chargeable on the amount of tax payable for the year. In the assessment year 1990-91 similar objection was taken and the contention was again repelled for the reason that the surcharge is to be levied at the prescribed rate of total Income Tax and super tax after determination of the total tax liability and not on the amount of tax payable after adjustment of the taxes paid in advance.
9. The applicant being dissatisfied preferred Second Appeal before the I.T.A.T. Reiterating the plea that the surcharge under Part-III of the First Schedule to the Income Tax Ordinance, 1979, is to be levied at 10% of the income tax and super tax payable and not on income tax or super tax assessed for the relevant assessm ent year. Reliance was placed on Part-III of the First Schedule to the Income Tax Ordinance, 1979, which reads as follows:-- "Where the total income of any person for income year relevant to the assessment year commencing on or after the first day of July, 1988, exceeds two hundred thousand rupees, the surcharge shall be payable at the rate of ten per cent. Of the income tax and super tax, if any payable for the year; provided that the surcharge shall not exceed the amount equal to 50% of the amount by which the total income exceeds two hundred thousand rupees."
10. The reliance was placed on the provisions contained in section 53(1) and section 54 of the Income Tax Ordinance, 1979, as they stood in the relevant assessment years, which read as follows:-- "Section 53(1): ' Where the total income of an assessee (excluding income to which section 27 or subsection (1) and (2) or section 50 applies) for the latest assessment year in respect of which the tax payable by him has been determined under sections 59, 59A, 60, 62, 63 or 65 is, in the case of a company not less than fifty thousand rupees, and in other cases out less than one hundred and fifty thousand rupees, he shall pay, by way of advance tax, to the credit of the Federal. Government, on or before the 15th day of September, the 15th day of December the 15th day of March and-the 15th day of June in each financial year an amount equal to one-fourth of the full amount of income tax and super tax or that so determined to the payable in respect or that assessment year (without making any adjustment for any tax already paid by way of advance tax or otherwise), as reduced by the tax, already collected or deducted and paid under section 50 in the said financial years."
"Section 54: ' Every person who is required under this Ordinance to furnish a return of total income shall pay the tax payable, on the basis of each return, on or before the date on which he is so required to furnish such return: ' Provided that where such person has paid any sum under subsection (1) or subsection (2) of section 53, the Income Tax Officers shall adjust the said sum against the tax payable under this section."
Section 85(1): ' Where any tax is payable in consequence of any assessment or other order under this Ordinance, the Income Tax Officer shall serve upon the assessee or any other person liable to any such tax on behalf of the assessee, a notice of demand in the prescribed form specifying the sum payable; and thereupon the sum so specified shall be paid to the credit of the Federal Government within the time specified in the said notice."
11. The contention was not accepted by the Tribunal for the reason that Part-III of the First Schedule of the Income Tax Ordinance merely prescribed the rate of surcharge. It was observed that the surcharge is levied under section 10 of the Income Tax Ordinance, 1979, and therefore, the interpretation of this section would clinch the issue. Section 10 reads as follows: "Section 10(1): ' In addition to the Income Tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income, or any part thereof, of the income year or years, as the case may be, of every person, an additional duty of income tax (in this Ordinance referred to as super tax) and surcharge at the rate or rates specified in the First Schedule.
Section 10(2): ' Subject to the provision of this Ordinance, the total income to any person shall, for the purposes of super tax and surcharge, be the total income as assessed for the purposes of income tax, and where an assessm ent has become final and conclusive for the purposes of income tax for any year, the assessm ent shall also be final and conclusive for the purposes of super tax or surcharge, as the case may be, for the same year."
12. Interpreting the above section, it was held by the learned ITAT, that under subsection (1) it is provided that, in addition to income tax charged for any year, there shall be charged, levied and paid for that year in respect of the total income or any part thereof, of the income year or years as the case may be, of every person, an additional duty of income tax and surcharge at the rate or rates specified in the First Schedule. It was further held that in subsection (1) it is not specified as to what would be the basis for levy of surcharge but subsection (2) is fatal to the submission made on behalf of the assessee, because it specifically lays down that the total income of any person, for the purposes of super tax and surcharge shall be the total income as assessed for purposes of income tax. In subsection (2) the legislature has avoided the use of the word "Tax payable" which, of course, has been used in sections 53, 54 and 85 and surely in Part-III of the First Schedule of the Income Tax Ordinance. It was further observed that Part-III of the First Schedule of the Income Tax Ordinance, shall lead the assessee to a dead end for the simple reason that it is to be controlled and governed by section 10 of the Income Tax Ordinance, which is charging section. It was held that when Part-III of the First Schedule of the Income Tax Ordinance, is read with subsection (2) of section 10, no doubt is left in concluding that the two officers below reached the correct conclusion.
13. Interpreting section 53, it was observed that under this provision which deals with advance payment of tax, the tax payable for the latest assessment year has to be determined either under section 59 or under sections 62, 63, or 65 as the case may be. It was further observed that it is important to note that this section specifically lays down that the tax payable for the latest assessm ent year as determined under sections 59, 62, 63 or 65 shall be the full amount of income tax and super tax without making any adjustment for any tax already paid by way of advance tax or otherwise. It was further observed that it may be argued that the legislature has not included the amount of surcharge in the amount of tax payable for the latest assessment year but it would be stretching the argument too far to contend that the surcharge is to be worked out on the amount of tax payable as shown in the demand notice. It was further held that section 53 was enacted for the purpose of advance payment of tax only and its provision therefore has not to be interpreted in such a way that they come in conflict with provisions of section 10 of the Income Tax Ordinance.
14. While considering section 54, it was held that it deals with payment of tax with return and the expression "tax payable" is qualified by the expression "on the basis of such return". Thus, this section was also of no help to the assessee.
15. Considering section 85 of the Income Tax Ordinance, it was held by the Tribunal that it deals with the amount of tax payable in consequence of any assessment order which of course includes adjustments of tax paid in advance or deducted at source. Like section 54, expression "tax payable" has been qualified by the expression "in consequence of any assessment order". This provision also therefore, does not advance the argument on behalf of assessee.
16. With these findings, the contention was not accepted.
17. The appeal preferred at the instance of Dawood Cotton Mills was decided by placing reliance on the judgment in the case of Dawood Corporation as referred to above.
18. Mr. Muhammad Farid, learned counsels for the applicant has reiterated the contentions raised before the forums below.
19. Mr. Jawaid Farooqi, learned counsel for the respondent has supported the finding given by the Tribunal.
19A.We have carefully considered the contentions raised by the learned Advocates for the parties and have perused the relevant provisions of law reproduced above and the finding of the learned ITAT.
20. We fully agree with the interpretation of the learned ITAT. We would like to add that a perusal of Part-III of the First Schedule to the Income Tax Ordinance, 1979, shows that the rate of surcharge has been prescribed under this provision, which is 10% of the income tax and super tax, if any payable for the year. The Tribunal has rightly held that the charging section is section 10 of the Income Tax Ordinance, 1979, and therefore, it will control and govern the provision contained in Part-III of the First Schedule to the Income Tax Ordinance; 1979. The Tribunal considered the provision contained in section 10, in sufficient A length and has rightly held that under section 10(2) the legislature has expressly provided that the total income of any person shall, for the purposes of super tax and surcharge, be the total income as assessed for the purposes of income tax. A perusal of this provision further shows that the basis of charging surcharge is not the tax payable under section 85 but is total income as assessed for the" purposes of income tax. When the provision contained in section 10(2) i3 read with Part-III of the First Schedule to the Income Tax Ordinance, 1979, no ambiguity is left to the effect that the total income for the purpose of income tax and surcharge is assessed in the assessment order and the rate of surcharge would be the 10% of the income tax and super tax as provided in Part-III of the First Schedule to the Income Tax Ordinance, 1979. The contention raised by Mr. Muhammad Farid and argued before lower forums has missed another important point that in section 85 of the Income Tax Ordinance, 1979, it is provided that where any tax is payable in consequence of any assessment or other order under this Ordinance, the Income Tax Officer shall serve upon the assessee or any other person liable to any such tax on behalf of the assessee, a notice of demand in the prescribed form specifying the sum payable and thereupon the sum so specified shall be paid. Thus, the language used in section 85(1) of the Income Tax Ordinance, 1979, indicates that the demand notice is to be issued after adjustment of the taxes paid in advance under sections 53 and 54 in respect of any amount still payable. The demand notice under section 85 is always in respect of the balance tax remaining payable and is never in respect of the tax payable for the year. In Part-III of the First Schedule to the Income Tax Ordinance, 1979, on which reliance has been placed by the learned counsel for the applicant/ appellant the legislature has used the expression "surcharge shall be payable at the rate of 10% of the income tax and super tax, if any , payable for the year". The words "for the year" after the word 'payable' make the entire difference, distinguishing the provisions contained in section 85 and the provision contained in Part-III of the First Schedule to the Income Tax Ordinance, 1979. It is salutary principle of law that, every word used by legislature is to be interpreted and acted upon. When the provisions contained in section 10, is read with Part-III of the First Schedule to the Income Tax Ordinance, 1979, it becomes abundantly clear that the basis for levy of surcharge is the total income as assessed for the purpose of income tax. Needless to say that the total income is for the entire assessm ent year, on the basis whereof the Income Tax and Super Tax is charged regardless of the payment of any advance tax. The surcharge is to be calculated on the amount of income tax and super tax payable on the income tax for the year and not the tax payable after adjustment of the advance taxes.
21. For the foregoing reasons, it is held that the learned ITAT has rightly interpreted the provisions of law to which no exception can be taken. We fully agree with the view taken by the learned ITAT, and consequently, it is held that the question as framed is misleading which postulates that the ITAT has confirmed the levy of surcharge under section 10 of the Income Tax Ordinance, 1979, without considering the provisions of Part-III, of the First Schedule to the Income Tax Ordinance, 1979, while in fact the Tribunal has fully considered this provision as demonstrated by us in the earlier part of this judgment. The question referred to us is therefore, reframed as follows:-- "Whether on the facts and in the circumstances of the case, the learned ITAT, was right in confirming the levy of surcharge under section 10 of the Income Tax Ordinance, 1979?"
22. The above question is answered in affirmative.
23. The Reference Application and the Appeal stand disposed of accordingly.