MR. JUSTICE MUHAMMAD ATHER SAEED.--(1). By this reference application the following questions said to be arising out of the order of Tribunal in I.T. A. No. 1342/KB of 2002, dated 29-12-2006, have been proposed for the opinion of this Court:-
(i) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in holding that the applicant's income was not assessable to tax in accordance with the presumptive tax regime, notwithstanding that the applicant opted under clause (9A) of Part-IV of the Second Schedule to the Income Tax Ordinance, 1979.
(ii) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in holding that the applicant's income was not assessable to tax in accordance with the presumptive tax regime for the reason that section 80(C)(2)(b) does not cover payments on account of execution of the contracts for the provision of operations and maintenance service.
(iii) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in holding that the applicant's income was not assessable to tax in accordance with the presumptive tax regime for the reason that clause (10) of Part-II of the Second Schedule to the Income Tax Ordinance, 1979 having been applicable to the applicant for the assessment years 1995-96, 1996- 97 and 1998-1999 is not applicable for any assessment year thereafter.
(iv) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in holding that the applicant's expenditure on purchasing certain items namely, computer hardware and software, contract tools, equipment and vehicles required to be provided by the applicant to Hub Power Company Limited under the terms of Operations and Maintenance Agreement and were thereby required to be retained by HUBCO as its own property, and not as the property of the applicant, was applicant's capital expenditure on the applicant's fixed assets.
(v) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in holding that the expenditure incurred by the applicant on training imparted to applicant's own personal for satisfying the requirements of the Operations and Maintenance Agreement with the Hub Power Company Limited was not business expenditure deductible under section 23(l)(xviii).
(vi) Whether on the facts and circumstances of the case the Hon'ble Tribunal was not justified in disallowing 10% of guest house and accommodation expenses incurred by the applicant.
2. Brief facts of the case are that the applicant is Pakistan Branch of International Power Global Developments . Ltd. Providing operation and maintenance service to the Hub Power Company Ltd.
(HUBCO) under Operation and Maintenance Agreement, dated 15th June, 1994. For initial three assessm ents years the applicant case fell within the ambit of clause (10) of Part- II of the Second Schedule to the repealed Income Tax Ordinance, and thus they were charged to tax at the rate of five per cent of the payments received by them for Hub Power Company and this tax constituted the final discharge of their tax liability in respect of the said assessment years.
3. For the assessm ent year 1999-2000 the applicant filed a statement under section 143-B for the receipts subject to withholding tax under section 50(4) of the repealed Income Tax Ordinance. The Deputy Commissioner of Income Tax/Taxation Officer did not accept the statement filed under section 143-B and finalized the case under section 62 against which the applicant filed a revision petition before the Zonal Commissioner of Income Tax under section 138 of the repealed Ordinance. The Commissioner of Income Tax set aside the assessment with the following directions:- "In the interest of justice and fairplay in compliance to the judgment of the Superior Court on the subject set aside die assessm ent relevant to the assessment year 1999-2000 with the directions that Assessing Officer should confront the assessee with all these issues provide him ample opportunity and finalize the assessment considering documentary evidences and other explanation produced by the assessee as per facts and in accordance with law."
4. The Taxation Officer finalized the re-assessm ent order under sections 62/138 by one again rejecting the applicant's claim to be assessed under presumptive tax regime and assessed the applicant's income under normal law. Being aggrieved by this order of the Taxation Officer the applicant filed an appeal before the C.I.T. (Appeals), who upheld the order of the Taxation Officer and the applicants appeal against the order of the C.I.T. Appeals before the Tribunal, was disposed of by the Tribunal by upholding the C.I.T, order on a number of points including framing of the assessm ent under normal law. Hence, this revision application.
5. We have heard Ms. Farzeen E. Bhadha the learned counsel for the applicant and Mr. Aqeel Ahmed Abbasi learned counsel for the respondent.
6. The learned counsel for the applicant, while arguing on the first three proposed questions, through which the opinion of this Court has been sought on the point as to whether the applicant qualified to be assessed under presumptive tax regime or under the normal law, submitted that clause (9-A) of Part-IV provided that the provisions of section 80(C) shall not apply in respect of nonresident person unless he opts for the presumptive tax regime and since the applicant had filed the option under the provisions of this clause and had opted for the presumptive tax regime, therefore, their case fell within the ambit of presumptive tax regime and had to be assessed under the presumptive tax regime specified in section 80(C). Learned counsel in compliance to our directions, readout the provisions of section 80(C)2-B which read as under:- "80-C. Tax on income of certain contractors and imports.-(1) Notwithstanding anything contained in this Ordinance or any other law for the time being in force, where any tax is withheld in accordance with sub-section (6) of section 50 at the rates specified in sub-paragraph (i) of paragraph G of the First Schedule, from any person being the owner of the goods transport vehicle, the tax so collected shall be deemed to be the final discharge of the tax liability of such person under this Ordinance in respect of income derived from plying of goods transport vehicles and he shall not be required to file the return of total income under section 55.
(2) The amount referred to in sub-section (1) shall be the following, namely: ~ (a) -------- (b)
Where the person is a non-resident, the amount representing payments on account of execution of contract for construction, assembly or like project in Pakistan on which tax is deductible under sub- section (4) of section 50".
7. However, she conceded that it was not her case that the payments received by O & M Contractor fall within the ambit of section 80-C(2)(b), but her main contention is that since clause 9-A of Part- IV of Second Schedule had given an unequivocal right to non-residents, who opt to be assessed under the presumptive tax regime, to be assessed under presumptive tax regime and since the applicant had filed such option they have become entitled to be assessed under the presumptive tax regime and the Taxation Officer and the Appellate Authorities below fell into error when they taxed the applicants' income for the assessment year in question under normal law. She further argued that it is a settled principle of interpretation of statute that legislature does not use words in vain and that no interpretation of statute can be given which renders a statute or part of it redundant. She further argued that if her option is not accepted then section 9-A will be rendered redundant as it entitles all non-residents to opt for the presumptive tax regime.
8. The learned counsel for the respondent strongly opposed the contention of the learned counsel for the applicant and argued that clause (9-A) of Part-IV of the repealed Ordinance has to be read together with the provisions of section 80-C(2)(b) and when these two statutes are read together the harmonious interpretation is that only those non-residents who receive the amount specified in section 80-C(2)(b), are eligible to opt to be assessed under the presumptive tax regime and those non-residents who do not receive the amount specified in sub-section 80-C(2)(b) are not entitled to file option under clause (9-A) of the Part-IV of the Second Schedule and just by filing the option they cannot claim entitlement to be assessed under the presumptive tax regime.
9. The learned counsel for the applicant then proceeded to argue on the proposed question No. 4.
She submitted that under the terms of agreement between the applicant and the Hub Power Company Ltd. Certain tools; equipments and vehicles were to be mobilized by the applicant at the site of the Hub Power Company Ltd. And one these assets had been mobilized they became property of the owners i.e. Hub Power Company Ltd. According to her, because of this reason, the property had passed on to the owner and since it was a contractual expense which had mandatorily and exclusively been laid down for the purpose of business, it was allowable as a revenue expense and the addition has been maintained by the learned Tribunal just on the general assumption that all these items had not become the property of HUBCO without substantiating the assumption with any clause of the contract. The learned counsel for the respondent submitted that these assets were capital assets and were not allowable as an expense even if their ownership passed on to Hub Power Company Ltd.
10. Coming to question No. 5, the learned counsel stated that the applicant is involved in providing services of O & M Contractor and for this purpose they need highly skilled and trained staff and it is their contractual obligation to provide technical training to their staff and expenditure incurred on such training has been wholly and exclusively laid down for the purpose of business and is an allowable expense under section 23(2) XVIII of the Income Tax Ordinance. She did concede that clause 23(2) XV provides for allowing any expenditure expended for the training of any person being a citizen of Pakistan, in connection with a scheme approved for the purposes of this clause but she argued that even if an expense is not allowable under clause XV of section 23(2), for non- fulfilment of certain conditions, it can be allowed under clause XVIH of the above section, if it can be proved that it has been wholly or exclusively laid down for the purpose of such business. She stated that this fact has been admitted both by the Taxation Officer and by the Tribunal who have not disputed that the expense has not been laid down wholly and exclusively for the purpose of the contract from which the business income of the assessee has arisen.
11. In support of his contention she relied on the judgment of the Honourable Supreme Court reported in Commissioner of Income Tax, East Pakistan Dacca v. Engineers Limited, DACCA (1967) 16 Tax 81.
12. The arguments of the learned counsel for the respondent in rebutting the above contention of the learned counsel for the applicant are two fold. His first argument is that the expense is of capital nature as the benefit of training and recruitment of staff engaged in operation and maintenance of a plant lasts for more than one year and adds value to the human resources of the assessee which, continues for a number of years and, therefore, on the basis of this clear fact the expense is a capital expense and not a revenue expense. His second argument was that sub- section XVIH of section 22(3) of the Income Tax Ordinance is a residuary section and only those expenses fall within its ambit for allowance of which no special clause has been provided. He said that the expenses incurred on training of personnel is allowable under clause (xv) of section 23(2), subject to certain conditions and, therefore, since allowability of this expense has been specified under a specific clause if it is not allowable under that section for non-fulfilment of mandatory conditions, it cannot be allowed under clause XVIH, which is a residuary clause for allowance of business expenses which are not allowable under any other clause.
13. The argument of learned counsel for applicant on question No. 6 is only to the extent that expenses on guesthouse and residential accommodation were fully verifiable and genuine business expenses and could not be disallowed.
14. We have examined the case in the light of the arguments of the learned counsel and have perused the record of the case including the impugned order and the assessment order and the order passed in lst Appeal by Commissioner of Income Tax.
15. The arguments of the learned counsel for the applicant in respect of the lst three proposed questions are misconceived and bear no weight. Her contention that if any non-resident is not allowed to file an option under clause 9-A of Part-IV of the Second Schedule then the provisions of this clause would become redundant and redundancy cannot be attributed to any statute incorporated by the legislature, is also not well-founded because the only interpretation which can be given is that clause (9-A) is applicable only to those non-residents who fall within the ambit of section 80-C(2)(b) which has already been reproduced in this order. From a reading of this section it is manifestly clear that only those payments fall within the ambit of the presumptive tax regime which are received by non-resident on account of execution of a contract for construction, assembly or like projects in Pakistan on which tax is deductible in Pakistan under sub-section (4) of section
50. Sub-section (4) of section 50 is also reproduced below for the sake of convenience:-- "50(4) Notwithstanding anything contained in this Ordinance,--
(a) any person responsible for making any payment in full or in part (including a payment by way of an advance) to any person (being resident) (hereinafter referred to respectively as "payer" and "recipient"), on account of the supply of goods or for service rendered to, or the execution of a contract with the Government, or a local authority, or (a company), (or a registered firm), or any foreign contractor or consultant or consortium shall, deduct advance tax, at the time of making such payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by the recipient for the assessm ent by the year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 or section 81 applies, the assessm ent year, if any, in which the "said date", as referred to therein, falls, whichever is the later.
(Provided that the provisions of this clause shall apply mutatis mutandis, to any payment made on or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey contract, a contract or sub-contract for designing, supply of plant and equipment and construction of power projects, a contract for construction, assembly or like project in Pakistan or any other contract for construction or for services rendered other than that to which the provisions of sub-sections (3A) and (4A) apply.)"
16. From a perusal of the proviso to clause 'a' it is seen that under this proviso a number of payments made to a non-residents including payment for any contract or services have been subjected to withholding tax. It is not the case of the applicant that all the payments on which the tax is deductible under the above proviso fall within the ambit of section 80-C(2)(b). In fact she has conceded that the contract executed by her for rendering of the service of O & M Contractor does not fall within the ambit of section 80-C(2)(b). Although we are clear in our minds that there is no conflict between section 80-C(2)(b) and clause (9-A) of Part-IV of Second Schedule of the repealed Income Tax Ordinance, but even assuming that the argument of the learned counsel for applicant that there is a conflict between these two provisions is correct, then also it is a settled law of interpretation that if there is conflict between the main statute and a schedule the provisions of main statute will prevail. If any authority is needed on this proposition, reference can be made to the judgment of the Sindh High Court in the case of Shahnawaz Junejo v.
The State (2001 YLR 197) in which his Lordship Justice Sarmad Jalal Osmaney Judge-of this Court as he then was, has held as under:-- "It is well-settled law that if there is a conflict between the provisions of any Act or Ordinance and the Schedule thereto, the main provisions of such Act or Ordinance would prevail." We find ourselves in full agreement with the opinion of his Lordship. Even otherwise, an option under a schedule cannot be provided to a person to opt to be assessed under a particular system unless he qualifies otherwise to be assessed under that system. We are inclined to agree with the argument of the learned counsel for the respondent that only by reading the two provisions together a harmonious interpretation can be reached and that interpretation is that only those non-residents can opt under clause (9-A) to be assessed under section 80-C(2)(b) who otherwise qualify to be assessed under section 80-C(2)(b). At this juncture, we would also like to observe that if the applicant was entitled to be assessed under the presumptive tax regime under clause (9-A), then there was no necessity of incorporation of clause 10 in Part-II of Second Schedule of repealed Ordinance which reads as under:- "(10) In the case of a non-resident O&M Contractor payments received in full or in part including a payment by way of an advance for the operation and maintenance of a private sector power project and transmission line projects approved by the Federal Government shall be deemed to be the income of the said O&M Contractor and charged to tax at the rate of five per cent of such payments for a period of three years beginning with the date of commencement of company's operations which shall constitute the final discharge of tax liability by the 0 & M contractor under this Ordinance in respect of the said project."
17. For the assessment year 1995-96 to 1997-98, the applicants' income was assessed under this clause and since it was a time limited allowability for three years, therefore, after three years the applicants' entitlement ended.
18. We are, therefore, of the considered opinion that despite filing option under clause 9-A, the applicants were not entitled to be assessed under presumptive tax regime and the action of assessing their income under normal law is unexceptionable and no interference is called from this Court. We will, therefore, answer questions Nos. 1, 2 and 3 in negative in favour of the respondents and against the applicant.
19. So far as question No. 4 is concerned the learned counsel has taken us through some clauses of the agreement executed between the applicant and the Hub Power Company Ltd. To substantiate her contention that the ownership of these capital assets had passed on to Hub Power Company Ltd., and, therefore, it was a revenue expenditure. The Income Tax Appellate Tribunal has rejected the contention of the applicant on this point with the following comments: "(8) The DCIT disallowed this claim also holding it to be capital in nature and did not accept assessee's contention of these assets becoming property of HUBCO. The learned C.I.T.(A) has confirmed die addition made by the DCIT. We have found that although these items do appear in sub-paras 3.4, 3.6 and 3.8 of Schedule l2 ibid yet are not provided during the "Mobilization Phase" which terminated on commissioning/ operation of the first unit of HUBCO's power plant. As such, these items have not become property of HUBCO and the expense being capital in nature, has rightly been disallowed by the DCIT. However, the DCIT is not justified not to allow depreciation on there assets. Accordingly, it is directed to allow depreciation on there assets as admissible under the Third Schedule to the repealed Ordinance."
20. As far as this question is concerned, although the Tribunal has given a finding of fact that the equipment in question has not passed on to the owner and is, therefore, a capital expense and not allowable as a revenue expense but on examination of the contract we are doubtful whether this finding is based on proper appreciation of evidence. We will, therefore, remand the case back to the Tribunal on this point to examine the various provisions of the contract and give a clear cut finding substantiated with relevant clauses to the agreement whether the ownership of these assets has passed on to Hub Power Company and even if they arrive at the conclusion that the equipment in question passed over to the owner then they should give legal reasoning for treating it either as capital expense or revenue expense.
21. The applicant had claimed Rs. 19184000.00 as expenses incurred on staff recruitment and training. The Income Tax Officer had disallowed these expenses with the following observations:- "(v) Staff Training and recruitment The explanation of the assessee is not tenable because the benefit of the training and recruitment of staff engaged in operation and maintenance of a plant in the case under review lasts for more than one year. In fact it adds value to the human resource of the assessee which last for many years. As such this expenditure on the basis of the facts peculiar to the case is capital-in nature. Hence it is not an allowable expense.
" Whereas the learned Tribunal has disallowed them for the reasons other than their disallowance by the Income Tax Officer for the following different reasons:-- "(14) The expense claimed by the appellant under this head has been disallowed by the DCIT in toto being capital in nature since benefit of the training and recruitment of staff engaged in operation and maintenance of the plant lasts for more than one year and it adds value to the human resource of the assessee which lasts for many years. The DCIT has not accepted assessee's ground that the expenditure is wholly necessary as per Schedule 7 of the agreement between NPIL and HUBCO and it is necessary that the persons engaged for all operation and maintenance of the plant are not only well-qualified but also well-trained. The learned C.I.T.(A) has confirmed the impugned disallowance for the reason that the training scheme is not approved by the C.B.R, as provided under section 23(I)(xv). We have found that although the expense, as per agreement between the NIPL and HUBCO, was the responsibility of the NIPL yet, for the allowability of expense under section 23(I)(xv), the training scheme has to be approved by the C.B.R. We are also of the considered opinion that in the presence of a specific provision relating to a particular expense i.e. Clause (xv) relating to training, the omnibus clause (xviii) of section 23(1) does not apply.
Accordingly, no interference is called for in the learned C.I.T. (A)'s order on this issue."
22. We have seen that although both the Taxation Officer and the Income Tax Tribunal have not disputed the fact that this expenditure was laid down for the purpose of business but whereas Taxation Officer had considered it to be a capital expenses due to the fact that it provided benefit which continued for over more than one year and the Income Tax Appellate Tribunal was of the opinion that since it fell within the ambit of clause (xv) sub-section 23(2) and the conditions specified in that section were not fulfilled, therefore, it was not an allowable expenditure. We do not agree with the arguments of the learned counsel for the applicant that clause (xviii) is a residuary section and any expenditure which cannot be allowed under any other section due to any reason whatsoever can be allowed under this section provided it is expended wholly and exclusively for the purpose of business. The contention of the Taxation Officer that the expense is of capital in nature as it provides enduring benefit, does not carry any weight as the expense has been laid down wholly for the purposes of training the personnel and should be allowed for the year in which it has been incurred. We have perused the judgment of the Honourable Supreme Court of Pakistan in the case of Commissioner of Income Tax, East Pakistan Dacca (supra) relied on by the learned counsel for the applicant ' a which the Honourable Supreme Court has held as under:- "Keeping in view the distinction observed in Messrs Assam-Bengal Co. Ltd. v. Commissioner of Income-tax, East Pakistan and Golden Horse Shoe (New Co.) v. Thurgood between expenditure of capital nature and revenue expense it could not be disputed that the sum laid out by the assessee on the training abroad of two of its engineer directors was a revenue expenses such as, is covered by clause (xvi) of section 10(2). The second contention, raised by the learned counsel for the Commissioner of Income Tax, that clause (xvi) was not applicable rested on the rule that a special provision in a statute excludes the application of a general provision of similar nature. This is a well- established rale of construction of statutes, but is not attracted in the interpretation of clause (xvi). The relevant clauses read as follows:- "(xii) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business;
(xiv) any. Expenditure of a capital nature on scientific research related to the business;
(xv) any expenditure laid out or expended on the training abroad of citizens of Pakistan, in connection with a scheme approved by the Central Board of Revenue for the purposes of this clause; and (xvi) any expenditure (not being in the nature of capital expenditure or personal expenses of the assessee) laid out of expended wholly and exclusively for the purpose of such business, profession or vacation;" The scope of clause (xvi) which is of residuary nature is thus wholly different from the sum included in clauses (xii), (xiv) and (xv). There being no similarity of subject-matter between clauses (xii), (xiv), (xv) and (xvi) of section 10(2) the rule generalibus specialia derogant was clearly not attracted.
On the facts and in the circumstances of the case the reference was correctly answered by the High Court. The appeal is accordingly dismissed but we make no order as to costs as the respondent has failed to put in appearance."
23. Respectfully following the above judgment we answer the question No. 5 in affirmative in favour of the applicant and against the respondent.
24. Question No. 6 is a question of fact and this Court in its advisory jurisdiction cannot adjudicate on a question of fact. We, therefore, refuse to answer the question No. 6.
25. This ITRA is disposed of in the above manner.
26. A copy of this order under the signature of the Registrar and seal of this Court be remitted to the Income Tax Appellate Tribunal for passing of orders in conformity with this order.