' These cross appeals have been filed by the Taxpayer as well as by the department against the order dated 27-9-2012 passed by the learned CIR(A-II), Islamabad for the Tax Year, 2009 on the following grounds:-
(1) The appellant i,e, Overseas Pakistan Foundation (OPF) is a foundation with the status of Public Limited Company by guarantee which derives income from profit on investment of welfare fund, interest income, contributions, purchase and sale of immovable properties and consultancy fees received from persons going abroad.
(2) Through this appeal the appellant agitated various legal issues as well the additions / disallowances made by the Assessing Officer i,e, Deputy Commissioner Inland Revenue (DCIR) vide amended assessm ent order dated 30-4-2012 which had been confirmed by the Commissioner Inland Revenue (Appeals) vide Order No,773/2011-1053 dated 27-9-2012 as under:--
(i) That the order passed by the learned Commissioner Inland Revenue, (Appeals-II), Islamabad under section 129 of the Income Tax Ordinance, 2001 dated 27-9-2012, is bad in law and on facts.
(iii That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating the fact that the order under section 122(4) read with section 122(5) of the Income Tax Ordinance, 2001 dated 30-4-2012 was passed without waiting the information/detail requested to be provided vide letter dated 30-4-2012 as well was not justified in not appreciating that the amended assessm ent order was passed without providing the personal hearing to the appellant which was also requested by the appellant vide letter dated 30-4-2012.
(3) That the learned. Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that order passed under section 122(4) read with section 122(5) of the Income Tax Ordinance, 2001 dated 30-4-2012 is void in law due to the fact that two simultaneous amendmend assessm ent proceedings cannot be taken up the first one under section 122(4) read with 122(5) of the Income Tax Ordinance, 2001 dated 30-6-2012 under sections 177/122(1) of the Income Tax Ordinance, 2001 initiated on 6-10-2010 and completed on 30-4-2012 and during such proceeding another amendmend assessm ent proceeding under section 122(5A) of the Income Tax Ordinance initiated on 29-1-2011 which stood completed on 16-5-2011.
(4) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not giving due consideration to the fact that the order passed under section 122(5A) of the Income Tax Ordinance, 2001 dated 16-5-2011 was subject matter of appeals with Commissioner Inland Revenue (Appeals) and Appellate Tribunal Inland Revenue who set-aside finding upon issues of disallowance of provision for gratuity and provision for earned leave and as such the order passed under section 120(1)(b) of the Income Tax Ordinance, 2001 merged into the order under section 122(5A) of the Income Tax Ordinance, 2001 and finally in the order passed by the learned Appellate Tribunal Inland Revenue in I.T.A. No, 572/IB/2011 dated 17-2-2012 and was not in field to be' amended under sections 122(4)/122(5) of the Income Tax Ordinance, 2001.
(5) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the order under section 122(4) read with section 122 (5) of the Income Tax Ordinance, 2001 has been passed without issuing any specific notice under section 122(5) of the Income Tax Ordinance, 2001 with reference to the. Following:
(i) any income chargeable to tax has escaped assessment; or
(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or
(iii) any amount under a head of income has been mis-classified.
(6) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the order under section 122(4) read with the section 122(5) of the Income Tax Ordinance, 2001 has been passed without appreciating the requirement of law as envisaged in section 122(5) and section 122(8) of the Income Tax Ordinance, 2001.
(7) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the Deputy Commissioner Inland Revenue (DCIR) was note possession of "definite information" within the meaning of section 122(8) of the Income Tax Ordinance, 2001 read with case of Messrs Central Insurance Co. And others v. The Central Board of Revenue, Islamabad and others (1993 PTD 766) [Supreme Court of Pakistan], Income Tax Officer and others v. Chappal Builders (1993) 86 Tax 1 (S. C. Pak) and Messrs Pakistan Educational Society v. The Government of Pakistan through Chairman and Secretary Revenue Division, Islamabad and 2 others 1993 PTD 804 (Karachi High Court).
(8) That the, Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not appreciating that the Officer Inland Revenue has -not followed the criteria set out for Audit as mentioned by"
Commissioner Inland Revenue Audit II LTU Islamabad vide Intimation of Selection of case dated 26- 7-2008.
(9) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not 'appreciating that DCIR was not justified in the amending the assessment by deviating from the criteria set by the Commissioner Inland Revenue Audit vide Intimation of Selection of case for Audit dated 6-10-2010 and as such set out his own criteria which was not delegated to him.
(10) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in not given due consideration to the decisions:-
(i) 2009 PTD 1392 (S. C. Pak)
(ii) 2010 PTD 1506 (H. C.)
(iii) 2010 PTD (Trib.) 1700
(iv) 2010 PTD (Trib.) 1709
(v) 2010 PTD (Trib.) 2162
(vi) 2011 PTD (Trib.) 321
(vii) I.T.A. No,1922/KB of 2007.
(11) That the learned Commissioner Inland Revenue, (Appeals-II), Islamabad, has erred in confirming the action of the Deputy Commissioner Inland Revenue in respect of following additions and/or disallowances:- Receipts from OPF Girls College, Islamabad141,133,988 Amortization of Premium 18,966,439 Service Charges UNCC 608,416,078 Application Money from Islamabad Zone- V plots340,220,858 Progress Billing Housing Schemes 1,136,732 Supervision and development of schemes already recognized79,367,235 Financial Aid 29,796,323 Bila sood qarz written off 870,903 Welfare activity like eye camp 1,514,267 Vehicle running and maintenance 10,700,125 Advertisement 1,530,964 Misc. Expense 5,134,236
(12) Without prejudice to the above grounds the learned Commissioner Inland Revenue (Appeals) has erred in not appreciating the fact that while disallowing the expenses the Officer Inland Revenue has ignored the fact that expenses as narrated in the statement of accounts includes the expenses of the operation of the appellant (OPF) in Azad Jamnu Kashmir (AJK) who is separate Income Tax assessee / Tax Payer in AJK"
3. Hearing of the Case came on 28-2-2013 Mr. Muhammad Jawaid Khurram, Advocate appeared on behalf of the appellant and Mr. Tahir Khan, learned D.R for the tax department. Brief facts of the case as discussed by the AR are that for the Tax Year 2009 the appellant filed its tax return declaring net loss of Rs,(87,755,553) which constituted a deemed assessment order within the meaning of section 120(1)(b) of the Income Tax Ordinance, 2001 (Income Tax Ordinance, 2001), subsequently the OPF revised its return of income declaring loss- of Rs,923,618,999 resultantly the revised return became the amended order with reference to section 122(3)(b) of the Income Tax Ordinance, 2001. The case of the appellant was Selected for Audit within the meaning of section 177 of the Income Tax Ordinance, 2001 by the Commissioner Inland Revenue, Audit, Islamabad vide intimation letter dated 6-10-2010; the reasons for selection of case to Audit were given as under:--
(a) The company has claimed exempt income of Rs,447,124,001 without mentioning the head of income or quoting any clause of exemption as per Second schedule of the Income Tax Ordinance, 2001. The issue of exempt income is required to be looked into from the books of accounts and other relevant details/documents.
(b) A sum of Rs,476,207,627 has been received under Welfare Fund Receipts. The same has not been accounted for taxation purposes and claimed exemption from levy of tax which required' probe.
(c) Operating expenses for the year under consideration have been claimed at Rs,567,139,967 as against Rs,459,251,911 in Tax Year 2008. Substantial increase in expenses viz-a-viz last year requires verification.
(d) Provision for Earned Leave of Rs,18,649,730 and Gratuity Fund of Rs,39,337,201 warrants verification/examination from books of accounts.
(e) Advances from allottees of plots of various Housing Schemes launched by Company also warrant examination on the point of taxation of the same under section 36 of the Income Tax Ordinance, 2001.
Appellant's Legal Objections:
4. The learned counsel of the appellant submitted that during the Audit proceeding with reference to section 177 of the Income Tax Ordinance, 2001 Additional Commissioner, Audit-I, LTU, Islamabad initiated another proceeding within the meaning of the section 122(5A) of the Income Tax Ordinance, 2001 vide notice dated 29-1-2011 whereby the reasons for invoking provisions of section 122(5A) are narrated here under:-- Subject:;SHAW-CAUSE NOTICE UNDER SECTION 122(4) READ WITH SECTION 122 (5A) OF THE INCOME TAX ORDINANE, 2001 1N THE CASE OF Messrs OVERSEAS PAKISTAN FONDATION (OPF) ISLAMABAD - FOR THE TAX YEAR 2009.
Kindly refer to the above noted subject.
(2) The assessm ent of company for the tax year 2009 stands completed, by fiction of law, under section 120 of the Income Tax Ordinance, 2001. However, inspection of the assessment record revealed that the completed assessment is "Erroneous" as well as prejudicial to the interest of revenue, calling for action under section 122(5A) of the Income Tax Ordinance, 2001 for the following reasons:
(3) In return for the tax year 2009, your company has declared the exempt income of Rs,447,124,001 without mentioning against it the relevant legal provision under which this income has been claimed as "Exempt" from levy of income tax. This action on the part of company is contrary to the legal provisions on the subject, in so far as the claim of exemption under reference is concerned.
The Income Tax Ordinance, 2001 does not provide for any exemption coverage to any type the income of your company. Viewed in this context, your company was required to offer the income of Rs,447,124,001 (claimed as exempt) for the purpose of taxation under normal law of taxation which however has not been done by it. As a result, the governments exchequer sustained a substantial amount of loss of revenue of Rs . 156, 493 , 400 (Rs, 447, 124, 001 x 35 %).
(4) In addition to that the return for the tax year 2009, your company claimed deductions of Rs,18,649,730 and Rs,39,337,201 on accounts of the provisions for Earned Leaves and the provisions for the Gratuity Fund respectively. These deductions from the income are inadmissible to your company simply for the reason that the Income Tax Ordinance, 2001 does not specifically provide for the allowability of such provisions as deduction from the income. However, both the deductions, as aforesaid erroneously stand allowed to your company in its assessment finalized under section 120 consequent to which the government's exchequer sustained a substantial amount of loss of revenue of Rs,20,295,426 (Rs,18,649,730 + 39,337201 Rs,57,986,931 x 35%).
(5) In the return for the tax year 2009, company has claimed the credit of tax deducted at source amounting to Rs,22,572,074. In the light of provisions as contained in subsection (2) of section 164 (reproduced hereunder) company was required to attack along with the return a certificate (in support of deduction of tax at source) which however has not been done by it.
Section 164. Certificate of collection or deduction of tax.
Xx xxx xxx
(2) A person required to furnish a return of taxable income for a tax year shall attach to the return any certificate provided to the person under this section in respect of tax collected or deducted in that year (and such certificate shall be treated as sufficient evidence of the collection or deduction for the purposes of section 168)".
' In such a scenario while passing the amended order, if warranted after the receipt of the reply of company and examination thereof, it will be hardly possible for this office to give the full tax credit of Rs,22,572,074 to company as claimed by it in its return.
(6) In view of the foregoing facts, it is evident that the assessment of company for the Tax Year 2009 which already stands completed under section 120 is erroneous as well as prejudicial to the interest of revenue calling for action under section 122(5A) of the Income Tax Ordinance, 2001.
(7) Viewed in the above context, the undersigned intends to amend the assessment of company for the tax year 2009 which already stands deemed assessment under section 120 of the Income Tax Ordinance, 2001 on the points as aforesaid. If you have any objection on this intended action, let the undersigned know on or before 12-2-2011. Prescribed notice under section 122 is enclosed.
5. The learned Authorized Representative submits that the appellant also cooperated with reference to proceeding under section 122(5A) with the Additional Commissioner (AC) and in the result the Additional Commissioner passed order under section 122(5A) on 16-5-2011 whereby he made the following addition:-- Welfare fund receipts 397,285,235 Provisions for Earned Leave 18,649,730 Provisions for Gratuity Fund 39,337,201
6. The order passed under section 122(5A) was subject matter of appeals with. CIR(A) and thereafter with Appellate Tribunal Inland Revenue (ATIR) and finally the Learned ATIR decided appeal vide order dated 17-2-2012 in I.T.A No,572/IB/2011, according to the said order the assessm ent made under section 122(5A) was set-aside.
7. The learned A.R submits that the after order passed by Tribunal the orders passed under sections 120(1)(b), 122(3)(b) and 122(5A) have been merged into the order passed by a superior authority i,e, the learned ATIR and as such the order passed under's sections 120(1)(b), I22(3)(b) and 122(5A) of the Income Tax Ordinance, 2001 do not exist anymore and not available for further amendment under sections 122(4)/ 122(5) of the Income Tax Ordinance, 2001 and on this subject he placed reliance on 2011 PTD (Trib.) 1807. In fiscal matter it is established law that assessment on one issue once amended and even decided at higher forum cannot be amended again under theory of merger but it can be amended on other issue. Under Income Tax Ordinance original assessment order can be amended as many times as it warrants but on different issues on new facts.
8. After hearing the arguments we are of considered view that after promulgation of Income Tax Ordinance, 2001 original assessm ent can be amended as many times as it is requisite but only on new issues and not on those issues which already became source of amendment or subject matter of appeal.
9. The learned counsel emphasized that another question arises whether that two simultaneous amendment assessm ent proceedings initiated under section 177 of the Income Tax Ordinance, 2001 vide notice dated 6-10-2010 and under section 122(5A) of the Income Tax Ordinance, 2001 initiated vide notice dated 29-1-2011 cannot be taken up together and cited two decisions of the learned appellate Tribunal (2010) 101 Tax 404 (Trib.) wherein the issue of the simultaneous assessm ent proceedings thoroughly discussed. Learned AR referred case, law ((2010) 101 Tax 404 (Trib.)).
10. After hearing the respective contentions of the parties we are of the view that above said case- law has no relevancy because section 121(i)(d) can only be applied if return is not filed or return is invalidated. In the presence of deemed assessment and without its invalidation 2nd amendment will amount to two assessm ents simultaneously in the field. Simultaneous application had been discussed in the scenario of sections 121(i)(d) and 122(5). This case-law does not fit in the facts of present case.
11. Besides above in respect of application of section 122(5) of the Income Tax Ordinance, 2001 the learned A.R of the appellant has submitted that section 177 of Income Tax Ordinance, 2001 deals with the audit of any person's tax affairs and after completion of the audit the Commissioner if considered necessary may amend the assessment under section 122(1) and/or 122(4) of the Income Tax Ordinance, 2001. It is further submitted by him that for the amendment of the assessm ent under section 122(1) and/or 122(4) of the Income Tax Ordinance, 2001 after completion of audit under section 177 of the Income Tax Ordinance, 2001 the Commissioner shall first assume jurisdiction within meaning of section 122(5) and/or 122(5A) of the Income Tax Ordinance, 2001 on fulfillinent of requirements narrated therein.
12. Now question is that how he has to assume jurisdiction? What is requirement of assuming jurisdiction? Definitely answer is through issuing a notice under section 122(9) of Income Tax Ordinance, 2001. Domain of Assessing authority and jurisdiction if not or in excess can also be challenged through reply of notice under section 122(9).
RECEIPT FROM OPF GIRLS COLLEGE:
13. The learned counsel of the appellant submitted that the Assessing Officer taxed the entire receipts of OPF Girls College of Rs,141,133,988 appearing in the bank statement obtained directly from banks within the meaning of section 176 of the Income Tax Ordinance, 2001 considering being the integral part of the OPF activates on the strength of Note No,14 appearing in the Audited statement of Accounts of OPF, the said note is being reproduced for the sake of convenience:-- "Expenditure incurred by the Foundation on OPF Girls College Islamabad has been accounted for as long term investments and stated at cost the financial statements of college since inception has not been included in the financial statements of the Foundation Audit of the. College for the year ended 30 June 2008 is in progress. Appropriate adjustment will be incorporated in the financial statements of PF upon completion of audit."
14. It is further submitted by the counsel for the appellant that although the OPF had made investment of Rs,87,647,127 in the OPF Girls College but due to some controversies the Federal Government had appointed a separate Board for running the affairs of the college and OPF management had nothing to do and had no authority to run the affairs of the College, and as such the management / Board of director has incorporated Note 14 of the Audited Statement of accounts.
15. Learned A.R has emphasized that if the tax department is of the view that the OPF Degree College is an integral part of OPF then the Assessing Officer should have taken into consideration that the Overseas Pakistanis Foundation (OPF) was established in 1979 with the specific objective of undertaking, activities of a purely welfare nature for the benefit of overseas Pakistanis and their families in Pakistan. These activities include the establishment of schools, the grant of scholarships, the donation of funds and medical equipment / ambulances to hospitals and health 'centers, the arrangements of transportation of migrant workers' dead bodies from abroad, the grant of financial aid to widows, and the arrangement of various facilities for returning migrant workers. In view of its essentially welfare character, the OPF is registered under section 26 of the Companies Act, 1913 as a non-profit making Public Limited Company with charitable objects:-- "It is the admitted position that the Overseas Pakistani Foundation is a company limited by guarantee and a non-profit making organization.
' The whole of the working capital of company came from Federal Government in the shape of welfare fund.
' The Managing Director as well as the majority of Directors of the Company are nominees of the Federal Government.
' Under the memorandum of association of the company, the income and property of the Company is required to be applied solely towards the promotion of the objects of the Company, and no portion thereof can be paid or transferred directly or indirectly by way of dividend, or bonus or otherwise by way of profits to the members of the Company.
' And upon winding up or dissolution of the Company and property which remains after satisfaction of debts and liabilities is transferable to the Federal Government or its nominee only, or is to be applied in such manner as the Federal Government may direct."
16. The learned A.R. Submitted that in view of above the income of the OPF Girls College is exempt from Tax within the meaning of clause (92) of the Second Schedule to the Income Tax Ordinance, 2001. On examination of the above your honour will appreciate that in order to claim exemption no approval under the provision of section 2(36) / or section clause 58 of the Second Schedule is mandatory.
17. It is submitted that the Assessing Officer while charging the income of the OPF Girls College for the purpose of taxation has taken entire credit entries appearing as income of the college without allowing the related expenditure.
18. On conscious examination of the issue we are of the considered view that the income related to OPF Girls College belongs to the appellant and the appellant has not claimed exemption on income related to education Division with reference to Note(s) 26 and 32 of the audited account and such not entitled for exemption under clause 92 of the second Schedule. However we tend to agree that all the related expenses of OPF Girls Collage should have been allowed, the matter is being remanded back to the Assessing Officer to allow such expanses as per law after providing opportunity of being heard to the appellant.
AMORTIZATION OF PREMIUM:
19. The learned counsel for the appellant stated that thee assessing officer while disallowing the claim of amortization of premium the expenses on account of amortization of premium is an expense of capital nature and therefore, cannot be allowed as revenue expense as per section 21(n) of the Ordinance. Furthermore, section 20 of the Income Tax Ordinance, 2001 only allows expenditure incurred by the assessing, while making the above statement has misconceived the factual and as well legal position of such claim, the appellant had made investment in Pakistan Investment Bonds (PIB) at premium as per following detail: Date of PurchaseDate of MaturityFace Value of PIBPremium Paid Total Investment 2-1-2004 6-10-2013 175,000,000 19,926,725 19,926,725 7-8-2004 21-12-2011 100,000,000 20,401,800 20,401,800 6-8-2004 30-10-2011 100,000,000 26,368,181 26,368,181 15-01-2005 30-10-2011 250,000,000 69,964,750 69,964,750 Total 136,661,456
20. Total amount of premium is amortized over the period of maturity of bonds. So, there is no disposal of investment before maturity. State Bank of Pakistan has deducted Income Tax from interest paid on PIB to OPF. Therefore, the amortized amount is a deductible expense.
21. The learned counsel submitted before us that the learned Tribunal in the reported decisions (2004) 90 Tax 116 (Trib.) and (2012) 106 Tax 317 (Trib.) has thoroughly discussed the issue of allowability amortization of premium paid for purchasing PIB's and held that the said amortization is a prepaid expenditure and allowable. We therefore following the said the decision in letter and spirit delete the disallowance/ addition of Rs,18,966,439 made on this account.
SERVICE CHARGES & INTEREST PAYABLE TO UNCC:
22. While disallowing the claim of Rs,608,416,078 being the service charges and interest payable to UNCC the Assessing Officer was of the opinion because the interest income earned on UNCC funds service is not taxable with reference to this Tribunal order MA(R)Nos.54,55,56/IB/2008 dated 24-12- 2009 therefore the expenses incurred in respect of such income not allowable.
23. In this respect the learned A.R submitted that the United Nation in the year 1993 had created UNCC Fund to compensate Kuwait - Iraq war effectees and OPF had been appointed custodian / and manager of the said fund. The said fund lying the interest bearing accounts in various bank and there are two portions of the interest of UNCC fund, the first being the direct interest on such fund which had been withdrawn by the OPF and invested in various securities and bonds, the learned tribunal had exempted the interest which has been directly credited in the said UNCC account. The second portion of interest earned by the OPF on the fund which was withdrawn and invested in securities and bonds, this part of interest on which tax has been deducted thereon by and was duly declared and offered for Tax purpose by the OPF in previous years. The service charges collected by the OPF on providing services in respect of evaluation of the claims and disbursements of the fund to the Kuwait-Iraq war effectees which income was also offered for tax by the OPF. The Honorable Supreme Court directed that the interest earned with reference to the UNCC is the integral part of the UNCC fund and the service charges over and above the actual expenditure incurred be refunded to the UNCC fund and be distributed among the Kuwait-Iraq war effectees in addition to what has been distributed previously. The working of which is as follows:-- Years Principal Amount Withdrawn from UNCC FundsInterest Amount Earned on Principal Amount which was also InvestedInterest on interestService Charges RelinquishedTotal 1997 (17,427,936) 907,576 129,783 1998 33,907,907 (9,220,267) (1,409,832)
1999 20,850,000 (4,216,005) (1,697,638)
2000 19,816,742 (14,873,966)(3,987,087)
2001 (21,243,454) 20,351,895 (865,834) - 2002 139,983,440 21,263,707 1,205,257 - 2003 18,916,781 1,944,715 - 2004 13,018,788 2,104,372 - 2005 171,324,843 29,503,548 40561,819 - 2006 44,294,791 10,819,206 2007 42,723,260 14,412,571 - 2008 43,807,445 18,686,218 2009 44,295,072 24,363,335 - Service Charges(262,439,466) 202,604,492 Total 84,772,076 250,772,625 70,266,885 202,604,492 608,416,078 ' The learned counsel has referred orders of the Apex Court and copies of Board resolution to establish its claims.
24. The learned counsel of the appellant has emphasized that the reasons assigned by the Assessing Officer that due to exemption on interest on UNCC Fund, no expenses related to such income can be allowed is misconceived due to the reason that the said deduction has been claimed due to the reversal of interest income on investment of the amounts withdrawn without authorization from United Nation by OPF from such UNCC fund and income on account of service charges, which were offered for Tax by the OPF in previous years the appellant and has nothing to do with interest earn on UNCC fund, because the said fund never belongs to OPF which is a separate entity, as discussed in the Tribunal above refereed decision the OPF is only custodian and manager for the distribute of such fund in respect claims of Kuwait-Iraq was effectees.
25. On thorough examination of the submissions made by the learned AR and examination of the documents including this Tribunal's decision dated 24-12-2009 we are of the considered view that the appellant has rightly claimed such deduction due to the reason that the appellant is only the custodian/manager of the fund. The appellant in the previous years declared such income for tax propose and now its reversal to the UNCC fund on the direction of Hon'ble Supreme Court entitled the appellant for reversal. The addition on this account is deleted.
APPLICATION MONEY FOR ISLAMABAD ZONE-V PLOTS:
26. During the Tax Year 2009 OPF has announced OPF Housing Scheme Zone-V Islamabad to the Overseas Pakistanis resultantly the overseas Pakistanis deposit Rs,340,220,858 being the down payment of the plots as per the size of plots. So, it is a part of Progress Billing. The said scheme is comprised of about 5000 kanals and total development cost is about Rs,5 billion as per feasibility.
OPF has already incurred Rs,535,533,146.(Note 19.2) on purchase of land, planning and designing of the scheme. We have already delivered Judicial verdict vide order dated 8-10-2011 in I.T.As. Nos.
187,188,189/113/2011 explaining the method and formula for calculation of the taxable income, the same is reproduced as follows:-- "We would like to say that the assessments of all the years have been made on wrong premises.
Percentage method only speaks of cost incurred divided by total feasibility cost X 100. As far as receipts are concerned, officer can take the receipts either as reported in feasibility or the actual receipts declared by taxpayer after verification of same. If the receipts are taken from the feasibility report; then definitely income will come in positive figure every year, but at the same time loss to department is that actual receipts will slip away from the verification. So law is silent about the receipts to be taken either on percentage basis from feasibility submitted or the actual receipts during the year. Among the two methodologies, department can adopt any of these which may suit. The learned DR is of the view that these are the projects as long long ago, no feasibility report or Brochure is on the record of tax department Taxpayer can now introduce an afterthought feasibility report at any stage. Thus methodology by taking actual receipt be only ordered and not that of mentioned figurers in feasibility report. Taxpayer with connivance of lower staff can get replaced the record. Undoubtedly it is responsibility of the department to plug holes in the administrative working and transparent maintenance of record. We are fully conscious of the fact that Company observe accounting method on accrual basis. So it is for the department to adhere to one yardstick adopted once for onward years. However, discretion vests with the department to make choice between any one of method. However, if actual receipts declared by assessee are taken, that can be accepted or rejected after verification. Thus department will exercise constant check over the reported figures receipt in assessment. It is argued by the learned AR that the department has taken the accumulated figure of receipts. Needless mention, taxation officer cannot do so, each and every assessment year is an independent year. He has to take receipt for that year only and not the accumulated figure. Methodology of distributing the accumulated figure over years is not warranted by law because assessment of every year is independent one. The department may take either the figures mentioned in feasibility report on proportionate basis or actual receipts declared by taxpayer during the year. Once any of methodology is adopted; it has to be stick with onward. However it is to be left upon choice of the department to select any Of methodology between two. As far as the profit is concerned, actual expenses have to be examined vis-a-vis receipts during the year. So orders passed by the officers below for taxpayer are set aside and cases are remanded to the Inland Revenue Officer with the direction to take only receipts of the respective year and not accumulated receipts of the entire project."
27. Learned AR states that Assessing Officer while finalizing the assessment although discussed the above quoted decision of the learned ATIR but has failed to appreciate the methodology narrated in the said judgment to assess such income, whereas in respect of progress billing Housing Scheme, Assessing Officer adopted the receipt actually declared and applied net profit of 15% which is also being contested due to reason that while making such assessment actual expenses have to be examined as directed by the Tribunal which has not been done and working of profit has been made on estimate basis, i,e; the expenses of 85% of receipt has been allowed and net profit at the rate of 15% has been charged to tax, which is against the proper norms of assessment of business income as well as not in accordance with the decision of learned Tribunal as narrated above. The learned A.R of the appellant has drawn our attention to the fact that in subsequent year after confirmation of allotment an amount of Rs,307,528,031 has been transferred to progress billing and has pointed out that the assessing officer while working income on account progress billing Housing Scheme although not followed the directions of the learned ATIR's order supra in its true sprit but has applied profit rate at 15%.
28. On the other hand leaned DR states that after the promulgation of income Tax Ordinance, 2001 if some scheme is announced, then section 36 can be easily applied after furnishing the details of feasibility report but in cases where schemes have been launched prior to promulgation of Income Tax. Ordinance, 2001 and are being assessed in consonance of methodology of Taxing receipts at the rate of 15% on provisional basis, then again to switch over on section 36 will result into Hotch Potch. We are of the considered opinion that even in such cases assessment is being made on provisional basis there is no harm in giving continuity to such practice till the completion of such schemes. In cases of Greeks Marina (Karachi) provisional assessments at the profit rate of 15% has already been confirmed. However, Officer Inland Revenue will verify the expense incurred and confirm or reject the same because each Tax year is independent one.
SUPERVISION AND DEVELOPMENT OF SCHEME ALREADY RECONGNIZED:
29. In respect of disallowance of entire claim of such expenses of Rs,79,367,265 due the reason that the appellant failed to provide the details and evidences, it is vehemently submitted by the learned A.R that while passing the amended assessment order the Assessing Officer has categorically admitted that during the audit proceedings the appellant duly provided the book of accounts, relevant details and evidence and while finalizing the amended assessment order disallowed the said claim alleging non filling of relevant documentary evidences on so called provision of adequate opportunity, it is noteworthy that only three working days ware provided for submission of voluminous details with reference to notice under sections 122(4)/122(5) read with section 122(9) of the Income Tax Ordinance, 2001 dated 23-4-2012.
30. It is further submitted that on the date of compliance i,e, 30-4-2012 the Deputy Director Finance OPF Mr. Muhammad Arif Hussain besides filing the reply of the notice dated 23-4-2012 had also attended the office of assessing officer along with complete books of accounts, relevant details, document and evidences as narrated the appellant's A.R letter dated 30-4-2012.
31. Taxpayer has submitted the copy of ledger accounts and evidence of payment/deduction of tax on such payment/expenses, and as such said addition is set aside, the Assessing Officer shall call the record and is directed to verify such claim as per law.
DISALLOWANCES OF:- 29,796,323 Bila sood qarz Written Off 870,903 Welfare activates eye camp 1,514,267 Vehicle running and maintenance 10,700,125 Advertisement 1,530,964 Miscellaneous Expenses 5,134,236
32. In respect of above it is submitted that on date of compliance i,e, 30-4-2012, as evident from the reply of notice dated 23-4-2012 complete details and related evidence was allegedly provided to the Assessing Officer, however the assessing officer without considering the said documents passed order on the basis of alleged non-provision of evidences.
'
33. The learned counsel of the appellant submits that said disallowances have been made on alleged non submission of evidence/ proof on ad hoc basis that too is 100% of the claim, learned A.R also has drawn our attention to order passed by us dated 8-10-2011 related in to same Taxpayer. Relevant part is reproduced below:- "In respect of disallowance of expenses the learned counsel of OPF submits that the disallowance has been made on ad hoc basis and percentage method, on the allegation that the OPF failed to provide the requisite details, documents and other necessary' evidence particularly with reference -to withholding tax. The learned Counsel has vehemently submitted that during the assessment proceedings twice the concerned TO/ inspector visited the office of OPF and examined the record, the learned counsel also submitted that OPF is .Fulfilling all the requirements of withholding tax as provided in Division-Ill of Part-V of Chapter-X and also regularly filling statement provided in Section 165 of the Income Tax Ordinance, 2001 and as such there is no default on the part of OPF.
The learned counsel submits that 15% of such disallowances ranging between 100% disallowance are nothing but to create illegitimate tax demand.
' The issue has been examined with reference to the order passed wherein such disallowance has been examined with reference to the order passed wherein such disallowance have been made on ad hoc basis. OPF is not individual. It is a Public institution and record is maintained. Moreso there is no room for ad hoc and estimated addition in the Income Tax Ordinance, 2001. However in the interest of justice and fair play we are of the considered opinion to set aside the orders passed by the authorities below and remand back the issue of disallowance/add backs and direct the assessing officer to provide proper opportunity to the appellant and then finalize the amended assessment."
34. In the light of above the disallowances/additions are set-aside and the Assessing Officer has been directed to call the relevant information from the appellant and then finalize the issue in accordance with law and if consider any of the expense not allowable then specifically pinpoint instances and give cogent reason for such disallowance. The concerned Officer Inland Revenue is also directed to take into account the bifurcation of income and expenses through verification with reference to Pakistan Operation and Azad Jammu and Kashmir Operation of OPF. The credit of tax deducted, after due verification as per law should have been allowed.
DEPARTMENTAL APPEAL (ITA NO. Through this appeal the department agitated the deletion of levy of Workers Welfare Fund by the CIR (Appeals) vide order dated 27-9-2012. The DR Mr. Tahir Khan stated that the defendant duly falls under the definition of Industrial establishment as per WWF Ordinance, 1971 and as such the levy of WWF by DCIR be restored.
' The learned A.R Mr. Muhammad Jawaid Khurram at the outset supported the order passed by the Commissioner Inland Revenue (Appeals) which was based on the decision of the Hon'ble Lahore High Court reported as 2011 PTD 2643. Whereby the Hon'able High Court declared the amendmend made in WWF Ordinance, 1971 through Finance Act, 2006 and 2008 as unconstitutional.
35. In response to this argument of learned AR we mention that three member bench of the Honorable Sindh High Court has now announced its judgment in Shahbaz Garments' case C.P. No, D-2753 of 2009 and others, wherein the Court has dismissed all the C.Ps. Filed before it challenging the amendments made in the WWF Ordinance, 1971 via the Finance Acts of 2006 and 2008. WWF is consequential and the appellant would discharge its liability towards WWF, if it arises.
36. For us it is imperative to embody meanings of Industrial Establishment:--
(f) "Industrial establishment" means---
(i) any concern owning or managing a factory, workshop or other establishment in which articles are produced, adapted or manufactured with the aid of electrical, mechanical, thermal, nuclear or any other form of energy transmitted mechanically and not generated by human or animal agency;
(ii) any concern working a mine or quarry or natural gas or oilfield;
(iii) any concern running a public transport service];
(iv) any concern engaged in the carriage of men and goods by inland mechanically propelled vessels;
(iv) (a) any establishment, to which the West Pakistan Shops and Establishment Ordinance, 1969 (W.P. Ordinance No, VIII of 1969), for the time being applies;
(v) any concern engaged in the growing of tea, coffee, rubber or cinchona; and
(vi) any other concern or establishment which the 7(Federal Government) may, by notification in the Official Gazette, declare to be an industrial establishment for the purposes of this Ordinance, but does not include any concern or establishment which is owned by Government, or by Corporation established by Government or by a Corporation the majority of the shares of which is owned by Government;
(i) In the light of above the learned A.R Mr. Muhammad Jawaid Khurram, Advocate submitted that on plain reading of above noted provision of Worker Welfare Ordinance, 1971 the appellant in all respect is a Government owned entity which is specifically excluded from the definition of Industrial establishment and as such the levy of WWF not in accordance with law.
37. We have examined the opposing contentions on this issue and' inclined to agree with submission of the learned counsel of the Taxpayer/ respondent that the appellant being a Government owned entity is specifically excluded from the definition of Industrial establishment and/ or establishment as narrated in WWF Ordinance, 1971 and The West Pakistan Shops and Establishments Ordinance, 1969. There is no dispute that the OPF is a Government owned entity. Be that as it may WWF is not chargeable in respect thereof, hence the learned CIR(A's) order with regard to deletion of WWF is sustained.
38. Resultantly, departmental appeal stands dismissed. Assessee's appeal is disposed of in the manner as indicated above.