' FAZL-UR-REHMAN KHAN, J.---Tax References No, 1 2005 to 4 of 2005 are disposed of by this common judgment, as common questions of law and facts are involved therein.
2. In these Income Tax Reference, the petitioner Messrs Kabir Medical College, Peshawar has raised the following questions for determination of this Court:--
(i) Whether on the facts and in the circumstances of the case the learned Income Tax Appellate Tribunal, Peshawar Bench was legally justified in drawing the conclusion that Messrs Kabir Medical College Peshawar and Messrs Sardar Begum Dental College, Peshawar were not set up on or before 30-6-1995 and were, therefore, not entitled to the exemption contemplated under Clause 86(A) of the Second Schedule to the Income Tax Ordinance, 1979?
(ii) Whether on the facts and in circumstances of the case, the learned Income Tax Appellate Tribunal Peshawar Bench, Peshawar was justified in drawing the conclusion that an investment of Rs,9,86,000 was not sufficient to bring into existence the above mentioned institutions?
(iii) Whether the learned Income Tax Appellate Tribunal Peshawar Bench, Peshawar was justified in holding that since correspondence between the assessee and the PMDC for recognition of the institutions continued beyond 30-6-1995, the institutions had not been set up upto 30-6-1995 although recognition by the PMDC was not a condition precedent for the setting up of the institutions and consequent exemption from Income Tax under Clause (86-A) of the Second Schedule to the Income Tax Ordinance, 1979?
3. The brief facts giving rise to these References are that the petitioner/assessee is an Association of Persons (AOP), deriving income from running Medical and Dental Colleges under the name and style of Kabir Medical College and Sardar Begum Dental College, Peshawar. Returns for the assessm ent years 1996-97 to 1999-2000 were filed declaring net income at Rs,1,05,54,236, Rs,7,90,788 Rs,1,44,940 and Rs,91,355 respectively for the four assessment years, claiming exemption under clause (86-A) of the IInd Schedule to the Income Tax Ordinance, 1979. However, the exemption was not allowed and as the petitioner failed to produce books of accounts, the declared version was rejected and after making some add-backs in the P&L expenses, net income was assessed at Rs,1,10,67,210, Rs,76,98,689, Rs,1,15,74,002 and Rs,1,12,16,213 respectively.
4. The petitioner was aggrieved of the rejection of the exemption claimed under clause (86-A), therefore, they filed appeals before the Commissioner of Income Tax/Wealth Tax, Appeals Zone-II, Peshawar, but the same were rejected. The petitioner then filed second appeals before the learned Income Tax Appellate Tribunal, Peshawar Bench, Peshawar but the same were also rejected. The petitioner then filed References before the learned Income Tax Appellate Tribunal for referring the foregoing questions for decision of this Court. However, these were also rejected by a common order, dated 9-10-2004, hence these References directly filed in this Court.
6(sic). Out of the foregoing questions framed in the References, the fundamental question requiring determination is as to when the Institutions were set-up. According to clause 86-A of the 'Ind Schedule to the Income Tax Ordinance, 1979, Profits and gain, derived by an assessee from the running of any educational institution set up between the first day of July, 1991, and the thirtieth day of June, 1995, both days inclusive, will be exempt from tax for a period of five years beginning with the month in which institution is set up.
7. The case of the petitioner is that the Institutions were set-up before the target date of 30th June, 1995, as such; they were entitled to claim exemption. However, the Income Tax authorities rejected this plea and assessed their income, as stated earlier, mainly on the following grounds : --
(1) that the institutions were not set-up upto 30-6-1995, which was the cut off date for the exemption under Clause 86-A of the IInd Schedule of the Income Tax Ordinance, 1979;
(2) the P. M . D. C. Letter No .PF-12-1995(PS)/4091, dated 19-7-1995 indicated that all.. The requirements have been fulfilled after 19-7-1995. It is crystal clear that institution was set up after 30-6-1995.
(3) all the purchases were made after 30-6-1995 which wre basic requirement for set up.
(4) that the Assessing Officer has rightly disallowed the exemption as per facts mentioned in the order.
8. After confirmation of the foregoing findings of the learned two forums below, the learned Income Tax Appellate Tribunal (ITAT) was of the view that the building was acquired on rent by the petitioner before 30-6-1995 but the same does not prove with conclusive evidence that the institutions were set up by the said date; that the assets purchased at Rs:9,86,000 do not indicate that even a kindergarten school could be set up with the same and that the salary and wages claimed at Rs,26,500 is even not sufficient for one month salary of the staff.
9. In support of the Reference, the learned counsel for the petitioner contended that the incurring of expenditure at Rs,9,86,000 on the assets of the institutions and the fact that the building for the institutions was acquired on rent before 30-6-1995 were sufficient to show that the institutions were set-up before the target date of 30-6-1995. In support of his argument, the learned counsel for the petitioner placed reliance on (1) Dictionary meaning of the expression `set up' as given in Words and Phrases Legally defined by John B. Saunders, London Butterworths 1970 (2) 1979 PTD 612 (Lahore), (3) 1999 PTD 1004 (Rajastan H.C., India), and (4) 1999 PTD 1126 (Peshawar).
10. According to the above Dictionary, the expression "to set up and B commence a trade" is a familiar English expression, meaning to start or begin a new trade. .11. In the case of Muree Beverages Company Ltd. Rawalpindi and others v. Pakistan (1979 PTD 612), his Lordship of a Single Bench of the Lahore High Court while relying, on a number of authorities held that, "the departmental view and that of the other Courts, referred to above, appears to be the same. It is that the "set up and commencement of the undertaking" means that state of the particular project of an assessee, which brings it to the state of production of the goods, for which, it had been completed. The 5 years period, therefore, starts from the date when erection of the building and installation of the plant and machinery is completed, so as to permit commencing of the production of the required goods".
12. In the case of Commissioner of Income Tax v. Lucky Mineral (Pvt.) Ltd. (1999 PTD 1004) their Lordships of the Division Bench of the Rajasthan High Court (India) has observed that, "the activities of the assessee-company consisted of excavating limestone and marble boulders and after cutting the boulders into slabs, selling them. Cutting the boulders into slabs might have been with the aid of machinery, but the original commodity retained in continuing substantial identity through the processing stage, carried out by the assessee-company. The assessee was not entitled to the deduction under section 80-HH of the Act". In this case the interpretation of the words 'manufacture; as used in section 80-HH of the Indian Income Tax Act, 1961 was involved.
13. However, in the case of Frontier Ceramics v. Government of Pakistan and others (1999 PTD 4126), their Lordships of a Division Bench of this Court while interpreting the expression 'set up' as used in S.R.O. No,529(I)/88, dated 26-6-1988 as amended by the S.R.O. No,857(I)/88, dated 26-9-1988 issued under sub-clauses (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951), held that it would ordinarily mean when the business was established and the unit or industry was ready for production.
14. The foregoing authorities, cited at the bar, go against the petitioner because from the same it is quite clear that the expression 'set would mean a state of affair of an undertaking or establishment, when it is ready for production of the goods for which it is contemplated. Though, this expression has been ordinarily used in the cases of industrial undertaking but there is no reason as to why the same would not be applicable to an educational institution and when applied it would mean that when the educational institution is ready to start for dispensation of education. In the case in hand, though a rent deed has been executed but it is neither dated nor it has been registered because it was for a period of 2 years and required compulsory registration under section 17(d) of the Registration Act, 1908 and the learned ITAT has rightly held that from the same it cannot be conclusively held that the institutions were set up by the target date. Moreover, details of the expenditures claimed by the petitioner would show that for the relevant period under the head 'salary' only a sum of Rs,26500 had been shown but this amount is not sufficient, as rightly observed by the learned ITAT, for salary of only one month of the staff. Besides, the receipts produced in support of other expenditure are not dated at all, from which, it could be presumed that the assets were purchased before the target date. The learned ITAT, therefore, has rightly held that both the institutions were not set up on or before 30-6-1995; that the investment of Rs,9,86,000 was not sufficient to bring into existence the two institutions and that the recognition of the two institutions by the PMDC, though correspondence started with it before the target date, was not a condition precedent.
15. Resultantly, all the foregoing three questions are decided in the affirmative with the result that these References fail and are hereby rejected with no order as to costs.