' RAJ MUHAMMAD KHAN, J.---This income tax appeal No,175 of 2000, subsequently converted into SAO No,33 (Income Tax) of 2000, is preferred by Mrs. Abida Ali, Commissioner of Income Tax/Wealth Tax, Companies Zone, Peshawar who had also decided appeals of the respondent in the case on 3-12-1997 in her capacity as CIT(Appeals-I) against the respondent Messrs. Sarhad Development Authority (SDA) Peshawar under section 136 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance) against the order of Income Tax Appellate Tribunal, Peshawar, dated 9-2-1999 followed by its order, dated 19-5-2000 whereby the Tribunal had deleted the addition of lease money received by the respondent assessee from Industrial Plots as well as interest received from the lease holders thereof. It was prayed that the orders of the Tribunal may be set aside and the order of the Assessing Officer for the assessment year 1994-95 may be restored.
2. There are two other similar appeals which involve the same common issue against the same respondent, pertaining to different assessment years, which need to be disposed of along with the instant appeal and so the present consolidated judgment is also applicable to these appeals which are:--
(i) FAO No, 176 of 2000 converted into SAO No,34(IT)/2000 pertaining to the assessment year 1995- 96 and
(ii) FAO No,177 of 2000 converted into SAO No,35 of 2000 pertaining to assessment year 1993-94.
3. The backdrop of these consolidated cases is that the respondent/ assessee namely, Messrs Sarhad Development Authority is a corporate body embodied in S.D.A. Act, 1972 (Act No, XI of 1973) owned by the Government of N.-W.F.P. Which is set up mainly to undertake projects for promotion and establishment of industry in Industrial Estates in different parts of the Province. It derives income from its various projects such as Khazana Sugar Mills Ltd., Brik and Tiles Plant D.I. Khan, Coiter Control Project, Industrial Estate Hattar, Chitral Mining Project, C&R Storage Swat, Industrial Estate Gadoom as well as from its own Head Office. Plots are developed in such Industrial Estates and are leased out in these Industrial Estates, to the parties who want to set up industries in the tax free zones. Such leases are spread over the period from 25 years to 99 years. However, the lease amount/rent for the entire period of lease is payable by the leaseholders in lump sum in advance at the time of allotment. These leases are terminable either by the lessor or by the lessee or surrendered by the latter and in such cases, the lease money/rent for the un-expired period is refunded to the lessee thereof.
4. During the course of income tax assessment proceedings for the 1st Assessment year, 1973-74, the assessee claimed exemption from payment of tax being a corporate body owned by the Provincial Government. The exemption claimed was referred to the Law Division which clarified that the income of the assessee was liable to tax being a corporate body within the meanings of section 2(16) of the Income Tax Ordinance, 1979. Thereafter the assessee was charged by the Income Tax Department to tax on annual basis and the assessee had been declaring income since then regularly on account' of sale of plots at Industrial Estates as the development and sale of plots was its main business.
5. Subsequently, the assessee had filed income tax returns for the assessment years 1993-94, 1994- 95 and 1995-96 through their Authorized Representative (AR). The concerned Deputy Commissioner of Income Tax/Assessing Officer had completed the assessment under section 62 of the Ordinance and had taxed also the amount of lease money as well as interest received by the assessee from leaseholders of the industrial plots. The reason put forth by the Assessing Officer for taxing proceeds as income from industrial plots was that the sale and allotment of industrial plots tantamounted to normal business activities of the assessee/company and so being business income, were taxable under section 22 of the Ordinance as such proceeds were neither capital gains nor were exempt under section 27 of the Ordinance.
6. Against the above assertion of the Assessing Officer, the plea of the assessee was that the interest income/dividend income was claimed under section 80D of the Ordinance was not justified in treating such income as business income. That 10% tax on such proceeds was to be deducted by the banks and so such interest could not be considered as business income. That interest charged by the Head Office of the assessee from its own units could not be considered as business income and such amount was exempt under section 27(2)(ii) of the Ordinance. Moreover, the lease related to the land which was Provincial subject and that the lease of plots in Industrial Estates were meant to promote Industry in under-developed area and for this purpose plots were allotted on lease by the Provincial Government of N.-W.F.P. Through the assessee and so the proceeds of lease hold rights of such land could not be considered as business income because the same proceedings were being spent on the development and construction of roads etc. In these Estates. Moreover, the Government remained owner of the plot and such lease could be cancelled at any .Time. It was prayed that the declared amounts of lease money may be treated as exempt under section 27(2)(a)(ii) of the Ordinance.
7. With regard to the taxing of interest income/dividend income at normal rate, the plea of the assessee was that there were two types of interest income. One was charged by the Head Office of the assessee from its own projects and so was not liable to tax as it was notional income while the second type of interest income was on bank deposits where it was the responsibility of the bank to deduct income tax at source at the rate of 10%.
8. Against the plea of the assessee, the contention of the Assessing Officer was that the interest/dividend income earned by the assessee was not covered by section 80B of the Ordinance as the company was excluded from the ambit of the said section of law and that the matter was already clarified by the Central Board of Revenue (C.B.R) in 1994, vide its clarification No,80(I)/DTP- 1/94-B, dated 1-9-1994. It was added that interest/dividend income earned by Companies was not covered by section 80B and so normal rate of tax under section 30 of the Ordinance was to apply to such income.
9. The assessee when he was taxed by the Assessing Officer, inter alia, on lease money received on account of industrial plots, treating lease of the plots as sale and the proceeds as business income under section 22 of the Ordinance as well as taxing the interest income at normal rates of 49% as per 1st Schedule of the 'Ordinance instead @ 39%, the assessee became aggrieved of the assessm ent order and so preferred appeal against the same to the Commissioner of Income Tax (Appeals) Peshawar. The main grounds in the appeal were that the lease money was exempt under section 27(a)(ii) of the Ordinance as these proceeds did not constitute sale proceeds.
Similarly, the interest on deposits was liable to 10% tax only deductable.By the banks and so could not be considered as business income for application of normal rate. The interest charged by the Head Office of the assessee from its own units was simply book entry and thus the same could also not be considered as business income.
10. After hearing the parties and considering the objections and the issues involved in the case, the Commissioner of Income Tax/Wealth Tax (Appeals), Peshawar vide his Order, dated 6-11-1996 in Tax Appeal No, 6289 of 1996 for the assessment year 1994-95, held that the impugned order of the Assessing Officer was not judicially sustainable and so was set aside with the direction to the Assessing Officer to pass the order afresh carefully by giving a proper opportunity to the assessee of being heard. It was directed that the order should be passed in the light of the audited books of accounts and relevant documents. It was also observed that the Assessing Officer was wrong in treating all the items of receipts as business income and applying flat rate of 49% as the assessm ent record revealed that the receipts were consisted of items such as profit on bank deposits, dividend from subsidiary Company, sale of land (exempt). Head Office interest from its own units (notional income) etc. All these items were to be considered separately.
11. After the remand of the case by the Commissioner, the Deputy Commissioner of Income Tax/Wealth Tax, Circle-35, Peshawar vide his assessment order, dated 15-3-1997, re-assessed the assessee and held that in view of the clarification by the Law Division, dated 18-5-1982 that the income of the assessee was liable to tax being a corporate body within the meaning of section 2(16) of the Ordinance and that the assessee who had been declaring income on account of sale of plots at Industrial Estates in the past which was the prime business activity of the assessee and the proceeds did not constitute capital assets but was in the nature of stock and trade, was, therefore, income taxable under section 22 of the Ordinance and was accordingly assessed at the revised rate of 39% applicable to public company.
12. Regarding the interest/dividend income which was consisted of interest on deposits and interest charged from its projects by the Head Office of the assessee, it was held by the Assessing Officer that the claim of assessee that on the amount of interest and dividend tax at the rate of 10% withheld by the paying authority was to be final taxed liability under sections 50(2A) and 50(6A) read with section 80B of the Ordinance, it was held by the Assessing Officer that section 80B of the Ordinance did not include the companies to be in the ambit of withholding tax regime in the context of interest and dividend income regarding which clarification was also issued by the C.B.R excluding the companies from the purview of section 80B and thus the interest and dividend income derived by the assessee was liable to tax at normal rate specified in the 1st Schedule and not at 10%.
13. With regard to the interest charged by the Head Office from its own units, the plea of the assessee that it could not be a business income, was not prevailed before the Assessing Officer and was rejected and the interest was charged to tax at the normal rates. The additional tax under section 88 of the Ordinance for non-payment of tax liability at the time of filing of the return by the assessee was also imposed on the assessee at the rate of 15%.
14. Aggrieved of the order, dated 15-3-1997 of the Assessing Officer, the assessee preferred appeals to the Commissioner of Income Tax (Appeals-I), Peshawar who vide his consolidated order, dated 3-12-1997 in Tax Appeals Nos. 616, 617 and 618 for the assessment years 1993-94 to 1995-96, held with regard to the Industrial Plots that the function of the assessee was not to purchase and sell plots and the allotment of the industrial plots was not to be considered as outright sale but lease and so the Assessing Officer was not justified to tax income under this head under section 22 of the Ordinance. The plea of the assessee that such income was exempt under section 27(2)(a)(ii) of the Ordinance was accepted. However, receipts under this head were to be subjected to tax under section 80D.
' With regard to the interest/dividend income, it was concluded by the learned Commissioner that since companies were not covered under the provisions of section 80B, interest on deposits and dividend were rightly subjected to tax under the normal rates. However, interest charged by the Head Office from its own units, being inter unit book entries, needed to be re-examined and thus the assessm ent on this point was set aside with the direction that at the time of re-assessment, treatment meted out in other cases in which the same issue was involved, should be considered by the Assessing Officer.
' The additional tax under section 88 was restricted to the extent of tax which was payable under section 80D for each year with the return.
15. Subsequently, the matter was agitated before the Income Tax Appellate Tribunal Peshawar Bench Peshawar in three different appeals which were consolidated and vide order, dated 9-2- 1999, the Tribunal came to the conclusion that the income derived from the business of leasing of plots shall be considered as derived from business of leasing of plots rather than sale thereof and for that reason, the income so earned did not constitute capital gains. The department was directed that the lease money in respect of each plot should be allocated to the number of years of lease and tax charged in accordance with money relatable to each assessment year. The department was also directed to take remedial action for the situation when the plots are surrendered by the allottee to the assessee if and when such an occasion arisen.
16. Feeling dissatisfied with the order of the Tribunal, dated 9-2-1999, the appellant-department made applications to the Tribunal purportedly under section 156 of the Ordinance for rectification of its mistakes in the order, dated 9-2-1999 on following grounds:-- "(i) Whether on facts and circumstances of the case the L/ITAT was justified to hold that the lease money in respect of each plot should be allocated the number of years of the lease and tax charged accordingly on the money relatable to each year when the plots are allotted for an indefinite period and land is not ordinarily reverted back to the company.
(ii) Whether on facts and circumstances the L/ITAT was justified to hold that credit of interest income taken in the head office account is off set by the debits taken by the projects and ultimately the net result would be nil income from this source when no break up of interest income was furnished and the head office account shows an investment of Rs,136,816 in FDRS, SNTD and KDCs."
17. After hearing the learned DR on behalf of the department as well as AR of the assessee, the learned Tribunal vide its order, dated 19-5-2000 observed that the applications of the department were in fact in the form of reference and that there was no mistake pointed out in the Tribunal order, dated 9-2-1999 and for that reason, these applications were misconceived and consequently rejected.
18. The Income Tax Department not satisfied with the order of the learned Tribunal, dated 9-2-1999 followed by its order, dated 19-5-2000 preferred appeals to this Court which were disposed of by a consolidated judgment of this Court, dated 9-9-2003 wherein it was held that the view of the Tribunal that the disposal of the plots by the assessee was not on-the basis of sale but was on lease basis and, therefore, the lease period which spread over several years, the income derived therefrom could not be confined to one or two assessment years and legally, ,could not be taxed in the manner as has been done by the Assessing Officer. In support of its verdict, our learned colleagues relied on the authority, laid down in the case K.S. Krishna Rao v. Commissioner of Income Tax, Andra Pardesh 1991 PTD 286 (SC) wherein Hon'ble Supreme Court of India held as under:-- "interest on enhanced compensation ordered by Court accrues from year to year on time basis from date of delivery of possession and cannot be taxed in one lump sum on the date on which Court orders enhanced compensation".
19. In view of the above, it was held that the impugned orders/judgments of the learned appellate Tribunal did not suffer from any legal infirmity or jurisdictional defect nor were in disregard of law.
Consequently the appeals of the Income Tax Department were dismissed.
20. The appellant-department assailed the judgment of this Court, dated 9-9-2003 before the Hon'ble Supreme Court of Pakistan and vide order, dated 2.2-5-2006, the apex Court held that the authority relied upon by this Court vide 1991 PTD 286 SC of India was not applicable to the instant case as the issue discussed therein was different from the issue involved in this case, namely, whether the tax is to be charged on total lease money of each plot received in advance in the year in which such lease money was received by the respondent or it is to be charged proportionately on each plot per year in respect of the plot leased out by the respondent etc. Resultantly, when confronted with the distinction drawn by the apex Court, the representatives of both the parties agreed to the remand of the case to this Court for fresh decision of the appeals in accordance with law after providing opportunity of hearing to all concerned.
21. We have heard both the parties and have gone through the record of the case.
22. The main issue, involved in this case, has been made explicit for us by the apex Court as evident in para-20 above.
23. The second issue as evident from the contents of the memos. Of the appeals is as to whether the credit of income taken into head office account is off set by the debts taken by the project and ultimately the net result would be nil income from this source when the head office account shows investment of certain sums in FDRs, SNTD and KDCs?
24. Analyzing the first issue, admittedly, the assessee respondent is a public limited company owned by the Government of N.-W.F.P. Which derives income from the ownership and management of number of projects located at various parts in the Province of North-West Frontier for the development of Industry without its profit motive in tax free Zone A Areas of the Province.
The assessee derives some income in various Industries Estates. The assessee claimed such income to be exempt under section 27(2)(a)(ii) of the Ordinance on the ground that the land being capital asset and the income being of the nature of capital gains, such income was not liable to income tax.
25. It was also asserted that it was the Provincial Government which was owner of the leased out lands and so tax could not be levied in the case of the assessee-company. Since these plots are leased out and not out-rightly transferred or sold but rather revertible and surrender able to the assessee establishment for which the assessee refunds the proportionate premium also, these leases cannot constitute sale. Nonetheless the receipts even on account of lease money are subject to tax under section 80D of the Ordinance.
26. Whether the entire premium received as lease money is to be taxed in lump sum in the year of its receipt or proportionately during years on year-wise that is to say that the receipts are to be spread over number of years of the leasing period to be taxed proportionately, we in this regard confirm the findings of the Tribunal which are based on sound reasons particularly when the disposal of the industrial plots by the respondent assessee on lease did not tantamount to outright sale but was for a limited period and the lease money was liable to refund in certain eventualities.
The transaction was therefore simple lease and thus the income is to be considered as having been derived from business of leasing of plots instead of sale thereof. For that reason, the entire premium received in lump sum may not be subjected to tax in the year of its receipt but to be spread over and allocated to the number of years of the lease and charged to tax with the money relatable to each assessm ent year.
27. The authority which our learned colleagues had previously relied upon, has rightly been distinguished by the Hon'ble Supreme Court of Pakistan from the issue involved in this case since the authority i,e,, 1991 PTD 286 pertains to the receipt of interest for the past years in which interest had accrued but was not timely paid to the persons entitled thereto and which was to be proportionately distributed over the past years for the purpose of income tax. In this case, it is the future for which the assessee is seeking distribution of the receipts on account of premium.
Nonetheless, with respectful submission, the authority can be of much relevance if it is relied upon as analogy to the present case inasmuch as lump sum receipt is made spread over the years of lease for which premium is payable.
28. The other issue with regard to the credit of interest income was not pressed at the bar by the petitioner-appellant and therefore the findings of the Tribunal on its are also maintained.
' In view of the above, these appeals/references are not sustainable and are dismissed accordingly.
29. The disposal of these consolidated cases has been delayed at this end due to unavoidable reasons one of which was that copies of the assessment order, dated 15-3-1997 and the Order-in- Appeals, dated 3-12-1997 were not found placed on files, the requisition of which took some time.
However, the delay is highly regretted.
Appeals/.