' EJAZ AFZAL KHAN, J.---The following questions of law are sought to be resolved through Tax Reference Nos. 117, 118 and 119 of 2003:--
(a) Whether on the facts and circumstances of the case, the Honourable Tribunal was justified in concluding that income received from investment of the surplus money of the Applicant by constantly withdrawing/realizing investments from one financial institution and re-investing the realized amounts in more profitable investments, did not amount to income from 'business' but to income from other sources'?
(b) Whether, on the facts and circumstances of the case, since no business other than 'the activity of investment of the surplus money by constantly withdrawing/realizing investments from one financial institution and re-investing the realized amounts in more profitable investments' was carried on by the Applicant during the assessment years, 1994-95, 1995-96 and 1996-97, the Hon'ble Tribunal correctly held in law that 'the main business of the respondent is to earn income from manufacture and sale of cement'?
(c) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal correctly concluded that return of 'Portfolio Management', 'Fund Management' or 'Cash Management' can be equated with 'income from interest'?
(d) Whether, on the facts and circumstances of the case, there was any material before the learned Appellate Tribunal to set aside the order of the learned Commissioner of Income Tax (Appeals) and restore the order of the Assessing Officer?
(e) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was correct in holding that the net receipts from the portfolio and fund management ventures undertaken by the 'Applicant amounted to interest income under section 30 (income from other sources') and not business income?
(f) Whether, on the facts and circumstances of the case, the Hon'ble Tribunal was correct in holding that the activities and ventures under review were not the 'normal' or 'main' business of the Applicant (being the manufacture and sale of cement) and could not therefore be the Applicant's business within the meaning of the Income Tax Ordinance?
2. As common questions are involved in all the references, we dispose them of through this single judgment.
3. The learned counsel appearing on behalf of the applicant argued that though the applicant being a Public Ltd. Company is now engaged in the business of manufacture and sale of cement, yet the investment of its surplus money made and the income earned therefrom shall be income from business to all intents and purposes and cannot be termed as interest by any stretch of imagination and that the learned appellate Tribunal by setting aside the order of Commissioner of Income Tax, Wealth Tax Appeals (Zone) VI Karachi camp at Peshawar acted against the statutory and declared law of the land. The learned counsel to support his contention placed reliance on the case of Commissioner Income Tax U.P. v. Basnat Rai Takhat Singh '(1933 ITR PC 197), S.K. Sahana and Sons Ltd. And others v. Commissioner of Income Tax (1997 ITR SC 236); Commissioner of Income Tax Lucknow v. Vikram Cotton Mills Ltd. (1987 ITR SC 597); Commissioner of Income Tax Andhra Pradesh v. Cocanada Radhaswa mi Bank Ltd. (1965 ITR SC 306), Andhra Pradesh State Financial Corporation Limited v. Commissioner of Income Tax A.P. Hyderabad (1984 ITR SC 532), Snam Progettls. P.A. v.
Additional Commissioner of Income Tax New Delhi-II and others (1981 ITR SC 70) and The Commissioner of Income Tax, West Zone, Karachi and another v. Messrs Khairpur Textile Mills Ltd and others (1989 SCM R 61). The learned counsel by referring to clause VI of the Memorandum of Association of the Company argued that where the Company was authorized by a resolution to invest or otherwise deal with its money in such a manner as may from time to time be determined, any investment thus made and profit earned thereon cannot be pushed within the mischief of section 30 of the Income Tax Ordinance, 1979. While distinguishing the judgment rendered in the case of Commissioner of Income Tax, East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd., Ahmadabad (PLD 1962 Supreme Court 128), which was heavily relied upon by the Tribunal in its judgment, the learned counsel submitted that passive investment in Banks for earning interest cannot be brought at par with active business consisting in constantly investing its money for earning returns, withdrawing it from one Financial Institution and re-investing it in another for more profitable returns. The learned counsel by referring to the letter, dated May, 7, 1994 and various other available on the file submitted that where relationship between the Company and the Bank was that of a Principal and an agent and the latter was not responsible for any loss caused on account of failure of repayment of any investment unless the same is due to the negligence of the Bank, the returns so earned shall be profit out and out and as such will go outside the scope of interest. The learned counsel while referring to the case of Messrs Mehran Associates Limited v. The Commissioner of Income Tax Karachi (1993 PTD 69) submitted that the fiscal provisions of a statute imposing any pecuniary burden are to be construed liberally and that the charges upon the subject are to be imposed when its language is clear and unambiguous.
4. As against that, the learned counsel appearing on behalf of the Department argued that when the business of the applicant was manufacture and sale of cement, any investment made by it in any Bank or Financial Institution and interest earned thereon shall be essentially interest, therefore, it was rightly charged as such. The learned counsel to support his contention placed reliance on the case of Commissioner of Income Tax, East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd., Ahmadabad (PLD 1962 Supreme Court 128).
5. We have gone through the record carefully and considered the submissions of the learned counsel for the parties.
6. Before we deal with the controversy canvassed at the bar before us, it is worthwhile to see what does the expression 'business' and `interest' mean. The former according to section 2(11) of the Ordinance includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture, while the latter, according to section 2(29) of the Ordinance means interest payable in any manner in respect of any money borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charges in respect of money borrowed or debt incurred in respect of any credit facility which has not been utilized. Heads of income as classified in section 15 of the Ordinance are:--
(a) Salary;
(b) Interest on securities;
(c) Income from house property;
(d) Income from business or profession;
(e) Capital gains; and
(f) Income from other sources.
7. Income from business or profession according to section 22 of the Ordinance chargeable under the heads of income from business or profession is detailed as under:--
(a) profits and gains of any business or profession carried on, or deemed to be carried on, by the assessee at any time during the income year;
(b) income derived by any trade, profession and similar association from specific services performed for its members; and
(c) value of any benefit or perquisite, whether convertible into money or not, arising from business or exercise of a profession.
8. Other sources have been dealt with by section 30 of the Ordinance which read as under:--
30. Income from other sources.---(1) Income from every kind which may be included in the total income of an assessee under this Ordinance shall be chargeable under the head 'Income from other sources', if it is not included in his total income under any other head.
(2) In particular, and without prejudice to the generality of the provisions of subsection (1), the following income shall, save as otherwise provided in this Ordinance, be chargeable under head 'Income from other sources' namely:--
(a) dividend;
(b) interest, royalties and fees for technical services;
(c) ground rent;
(d) income from the hire of machinery, plant or furniture belonging to the assessee and also of buildings belonging to him if the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture; and
(e) any income to which subsection (12) of section 12 or section 13 applies."
9. After going through the relevant provisions quoted above, we are now to see whether the income received by the applicant from investment of the surplus money is income from business or interest or something other than that. Though- the controversy has been reflected in 5 questions but the formulations projected by them are identical in their essence and substance.
10. It is evident from the record that the Company has been incorporated for setting up a cement plant at Pezu for manufacture and sale of cement. It, as such, raised a great deal of funds before it embarked on the aforesaid enterprise. Since the funds were surplus, it, instead of keeping them idle and unutilized, consistently invested them in various financial institutions, earned returns thereon withdrew them and then reinvested them in the others for bend returns. Now the question crops up whether these returns can be termed as income from business? Our answer to the question is a simple no. The reason is not too far to seek as the sole concern and business of the Company is to set up a Cement Plant for the manufacture and sale of cement and not to earn returns by investing its funds in one financial institution or the others for better returns. It shall thus be income from other sources to all intents and purposes. The more so when, it does not fit in with the definition of business as highlighted above. Reference to Clause VI of the Memorandum of Association cannot change its nature, as it cannot be stretched to include a business other than the one the Company was incorporated for. In the case of Commissioner of Income Tax, East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd., Ahmadabad (Supra), the Hon'ble Supreme Court while dealing with a similar controversy held as under:- "We have considered the various Articles by which this Company was governed. We have no hesitation in agreeing with the view of the High Court that the normal business of the Company was the construction and the running of the Railway and not investment of its moneys on interest.
Other powers were also given to the Company by the Articles of Association, but it is not contended that all those powers pertained to the earning of normal business income. If the Company, instead of retaining its surplus moneys in idle condition, invested them under the powers given to them by their Articles of Association, it would not follow that the income so derived would be part of the Company's normal business income. Each case must be decided on its own facts and, in the instant case, the circumstances brought out in the evidence do not indicate that receiving of interest on invested moneys was really included in the business income of the Company."
11. The argument that the relationship between the investor and the Bank was that of a principal and an agent with no responsibility of the latter in the wake of loss even if accepted to be correct may change the nature of interest into one of dividend, yet it will not take its case outside the ambit of section 30 of the Ordinance, which also includes dividend as income from other sources.
12. When considered in the light of the foregoing discussion, we are not inclined to take a different view from that of the Tribunal, The case of Commissioner of Income Tax, West Zone, Karachi and another v. Messrs Khairpur Textile Mills Ltd. And others (Supra) because of its distinguishable facts and circumstances is not applicable to the case in hand. The other cases cited at the bar by the learned counsel for the applicant besides being distinguishable have no relevance to the case in hand, quite apart from the fact, that they being of persuasive nature would not have any binding force particularly when the case of Commissioner of Income Tax East Pakistan Dacca v. The Liquidator, Khulna Bagerhat Railway Company Ltd. Ahmadabad (Supra) covers the case in hand on all fours.
13. For what has been discussed above, all these tax references are answered accordingly.