' YAHYA AFRIDI, J.---Through this single judgment, this Court 'proposes to dispose of two writ petitions, as both have common questions of law involved therein. The particulars of the said writ Petitions are as follows:--
1. Writ 'Petition No,3564-P/2015.
' (M/s. Cherat Packaging (Pvt.) Ltd. v. The Government of Pakistan through Secretary Finance and Economic Affairs, Revenue Division Islamabad and 9 others).
2. Writ Petition No,3565-P/2015.
(M/s Cherat Cement Company Ltd, Staff Provident Fund and Gratuity 1st Floor, Betani Arcade Jamrud Road, Peshawar v. The Government of Pakistan through Secretary Finance and Economic Affairs, Revenue Division Islamabad and 9 others).
2. In both the petitions, the petitioners seek the common prayer to the effect that; "In view of the facts and circumstances narrated above, this honorable Court may graciously be pleased to declare that; a. The interpretation/directions issued by respondent No,2 be declared to be illegal without lawful authority and beyond jurisdiction. b. The respondents and other withholding agents/authorized banks be directed to not to withhold tax on the basis of the illegal interpretation issued by respondent No,2. c. The provisions of Clause 47B of Part-IV of the Second Schedule to the Ordinance read with Section 53 of the Ordinance be declared to have an overriding effect. d. The respondent No,2 be declared to have no authority to interpret any provision of the Ordinance. e. Any other relief, which this Honorable Court deems fit may also, be granted to the Petitioner. "'
3. In essence, the common stance of the petitioners is based on facts that, Cherat Papersack Ltd.
Employees Gratuity Fund and Cherat Papersack Ltd. Provident Fund ("Collectively referred to as "Trusts") are duly recognized/approved funds under VI Schedule to the Income Tax Ordinance, 2001 ("Ordinance"), having invested in profit earning accounts. The claim of the petitioners is that the income of the Trusts from the said investments is not only exempted under sub-clauses (3) (ii) of clause 57 of Part-I of the Second Schedule to the Ordinance, but in fact, is also beyond the purview of the deduction of any withholding income tax under section 151 of the Ordinance, in view of its exemption provided under clause 47B of Part-IV of the Second Schedule to the Ordinance.
And thus, the directions rendered in the impugned Circular dated 12.05.2015 ("Circular") is contrary to the clear mandate of the law. The circular reads that; "The Chief Commissioner, Large Taxpayers Unit, Islamabad/Lahore/Karachi.
The Chief Commissioner, Regional Tax Office, Karachi -I/Karachi -II/Karachi-III/Lahore- I/LahoreII/Hyderabad/Sukkur/Quetta/Multan/Bahawalpur/Sialkot iRawalpindi/Sargodha/Faisalabad/Guj ranwala/Islamabad/ Abbottabad/Peshawar.
Subject: REQUIREMENT OF VALID TAX EXEMPTION CERTIFICATE FOR CLAIM OF EXEMPTION UNDER SECTION 150, 151 AND 233 OF THE INCOME TAX . ORDINANCE, 2001 IN THE CASES WHERE STATUTORY EXEMPTION UNDER CLAUSE 47B OF PART-IV OF SECOND SCHEDULE IS AVAILABLE.
' Please refer to the subject.
' It has been learnt by this office that some of the field offices are not issuing specific exemptions in the cases falling within the ambit of subject mentioned provisions on the pretext that statutory exemption under clause (47 B) of Part-IV of the Second Schedule is already available to them.
Legal position in this case is that any person required to withhold Income Tax may only allow exemption if a valid exemption certificate under section 159(1) of the Income Tax Ordinance, 2001 issued by the concerned Commissioner of Inland Revenue is produced before him by the withholdee.
3. The matter has already been clarified by the Board also vide C.No,1(29) WHT/2006 dated 30.6.2010 upon the request of Central Directorate of National Savings (CDNS) (copy enclosed).
4. In view thereof, it is re-iterated that exemption certificate in such cases may be issued in the light of Board's above clarification.
' (SHAUKAT MAHMOOD)
Director General (WHT)"
4. The respondents were put to notice. They have in their response raised preliminary objection, regarding the very maintainability of the .Present petition, as the petitioners have an alternative remedy provided under section 122-B of the Ordinance; and that the Circular is intra vires being issued under clear provisions contained in Section 206 of the Ordinance ; and that the contention of the petitioners has been clearly rejected by the august Sindh High Court in its recent decision rendered in Atlas Income Fund's case decided on 02.12.2015, wherein the impugned Circular and the authority of the Commissioner to issue exemption certificate to similarly placed recognized funds was upheld to be lawful.
5. Valuable arguments of the worthy counsel for the parties were heard and record carefully perused.
6. As far as the preliminary objection of the worthy counsel for the Revenue, regarding alternative remedy to the petitioners is concerned, it is noted that the directions rendered in the impugned Circulars have been issued by the Federal Board of Revenue ("Board") under the enabling provisions of Section 206 of the Ordinance, and thus in such a situation, it would be a futile exercise for this Court to refer the petitioners to the alternative remedy referred to by the worthy counsel for the Revenue.
7. Admittedly, the Board is competent under section 206 of the Ordinance, to issue Circulars to provide guidance to its officers or setting out its interpretation of the provisions of the Ordinance. In the .Present case, it is noted that the impugned Circular is the Board's interpretation of section 159 and clause 47B of Part IV of the Second Schedule to the Ordinance. Hence, the issuance of the Circular is intro vires, being a. Guidance and clarificatory statement rendered by the Board to the Commissioners of Income Tax in regard to granting exemption certificate sought under section 159 of the Ordinance. However, the legality of the directions stated therein, being a different matter, will be discussed in the latter part of this judgment.
8. Before proceeding with the merits of the case, it may, however, be noted that the worthy counsel for the Revenue did not object to the locus standi of the petitioners' company to invoke the constitutional jurisdiction of this Court on behalf of the Trusts. As the petitioners were not confronted with the said objection, it would not be appropriate for this Court to pass any findings thereon, lest it may prejudice the petitioners and thereby violating the cardinal principles of natural justice.
9.. Before this Court considers in detail, the merits of the claim of the petitioners on behalf of the Trusts, it would be appropriate for this Court to highlight the general fiscal regime envisaged in the Ordinance.
' Income tax is a direct tax. And there are charging sections for imposing the income tax, expressed in Chapter-II of the Ordinance, while the particulars thereof including, the amount of tax or the rate to be charged is enumerated in the First Schedule to the Ordinance. Now, on the one hand, the exemptions and tax concessionary regime envisaged in the Ordinance, which emanates from section- 53 of the Ordinance, and provides:-- "53. Exemptions and tax concessions in the Second Schedule.
(I) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be;
(a) Exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;
(b) Subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;
(c) Allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or
(d) Exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein. "
(2) The Federal Government may, from time to time pursuant to the approval of the Economic Coordination Committee of Cabinet, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas and implementation of bilateral and multilateral agreements by notification in the official Gazette, make such amendment in the Second Schedule by;
(a) Adding any clause or condition therein;
(b) Omitting any clause or condition therein; or (c) Making any change in any clause or condition therein, as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.
(3) The Federal Government Mall plate before the National Assembly all amendments made by it to the Second Schedule in a financial year.
(4) Any notification issued under subsection (2) after the commencement of the Finance Act, 2015, shall, if not earlier rescinded, stand rescinded on the expiry of the financial year in which it was issued.
(emphasis provided)
' The bare reading of subsection (1) of Section 53 of the Ordinance provides four different categories of cases, where exemptions from tax or tax concessions are provided to a tax payer under the Ordinance. The scheme, so envisaged, for the convenience and clarity, is as under:- I. Tax exemption under clause (a) of subsection (1) of section 53 providing exemption from tax under the Ordinance subject to the condition and to its extent explained in Part-I of Second Schedule to the Ordinance.
II. Tax concession under clause (b) of subsection (1) of section 53 of paying less than the rate specifying in the First Schedule are explained in Part-II to the Second Schedule.
III. Tax concession under clause (c) of subsection (1) of section 53 of providing reduction in tax liability in Part-III to the Second Schedule.
IV. Exemption under clause (d) of subsection (1) of Section 53 providing exemption from the operation of the provisions are specified in Part-IV to the Second Schedule.
10. So what we have, as explained hereinabove, are the charging sections provided in the main body of the Ordinance, while the amount and the rate Of the tax or the liability of tax payers, enumerated in the First Schedule to the Ordinance. The authority to impose or vary the amount or the rate of tax is vested in the Parliament, as provided under Article 77 of the Constitution of Islamic Republic of Pakistan, 1973. While on the other hand, the legislature in its wisdom has provided tax exemption and tax concessions enumerated in the four different parts of the Second Schedule to the Ordinance. The authority to vary the same has been vested under section 53 of the Ordinance in the Federal Government, which however, has to be placed before the Parliament at a subsequent stage.
11. The tax payers are to self assess their tax liability by filing their annual tax returns on or before the specified dates, declaring therein the income tax payable for the said tax year. The tax payer are also to pay the self assessed income tax before the last date specified for the same. However, the Ordinance also provides for payment of advance income tax or deduction of income tax payable at source, which is carried out at the time of making payments to the tax payer by persons, who are then also acting as withholding agents of the Revenue.
12. The present ease deals with the deductions at source made at the time of payment of profits on investments of approved funds, such as the present Trusts, under section 151 of the Ordinance, which reads as under:- "151. Profit on debt.- (1) Where--
(a) Where a person pays yield on an account, deposit or a certificate under the National Savings Scheme or Post Office Savings Account;
(b) A. Banking company or financial institution pays any profit on a debt, being an account or deposit maintained with the company or institution;
(c) The Federal Government, a Provincial Government or a Local Government pays to any person profit on any security other than 'that referred to in clause (a) issued by such Government or authority; or
(d) A banking company, a financial institution, a company referred to in sub-clauses (i) and (ii) of clause (b) of subsection (2) of section 80, or finance societies pays any profit on any bond, certificate, debenture, security or instrument of any kind (other than a loan agreement between a borrower and a banking company or a development finance institution) to any person other than financial institution, the payer of the profit shall deduct tax at the rate specified in Division IA of Part III of the First Schedule from the gross amount of the yield or profit paid as reduced by the amount of Zakat, if any, paid by the recipient under the Zakat and Ushr Ordinance, 1980 (XVII of 1980), at the time the profit is paid to the recipient."
(emphasis provided)
' The aforesaid provision clearly commands the 'payer' of the profit on any one of the investment stated therein, to deduct tax thereon at the time of making the payment to the tax payers.
13. The core emphasis of the petitioners was that, the Trusts being duly approved under Schedule- VI of the Ordinance and expressed in clause 47B of Part-IV of the Second Schedule to the Ordinance and, thus, were entitled to the benefits accruing therefrom. It was in this perspective that the petitioners claim that they did not require to obtain or produce the exemption certificate provided under sections 159 of the Ordinance and in turn, the payer of their profits on investments was not to deduct the income tax at source, under sections 151 and 159(2) of the Ordinance. -
14. Before this Court considers the contention of the worthy counsel for the petitioners, it would be pertinent to visit the referred two .Provisions of the Ordinance, the same are:- "zi7B. The provisions of sections 150, 151 233 and Part I, Division VII of the First Schedule shall not apply to any person making payment to National Investment Unit Trust or a collective investment scheme or a modaraba or Approved Pension Fund or an Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognized provident fund or an approved superannuation fund or an approved gratuity fund. "
(emphasis provided)
' Similarly, the provision of section 159 of the Ordinance provides that; "159. Exemption or lower rate certificate.
(1) Where the Commissioner is satisfied that an amount to which Division -II or III of this Part or Chapter XII, applies is;
(a) Exempt from tax under this Ordinance, or
(b) Subject to tax at a rate lower than that specified in the First Schedule, or
(c) Is subject to hundred percent tax credit under section 100,
(d) The Commissioner shall, upon application in writing by the person, issue the person with an exemption or lower rate certificate.
(1A)
(2) A person required to collect advance tax under Division II of this Part or deduct tax from a payment under Division III of this Part or deduct or collect tax under Chapter XII, shall collect or deduct the full amount of tax specified in Division II or III or Chapter XII, as the case may be, unless there is in force a certificate issued under subsection (1) relating to the collection or deduction of such tax, in which case the person shalt comply with the certificate.
(emphasis provided)
15. The petitioners base their claim on the legal premise that the requirement of obtaining an exemption certificate is restricted to those cases, where the amount is 'exempt' from payment of taxes and not to those, where the operation of the provision of this Ordinance, and in particular section 151 ibid, has been expressly exempted.
16. It was further explained by the worthy counsel for the petitioners that, clause (a) of subsection
(1) of section .159 is very clear in its letter and intent, where it commands the Commissioner to provide an exemption certificate in case that the amount is exempt from income tax, referring to those cases, which fall in clause (a) of subsection (1) of section 53 and provided in Part-I of the Second Schedule to the Ordinance. Similarly, it was added that the words "person required to collect advance tax", expressly provided in subsection (2) of Section 159 also suggested that, the requirement to produce to the 'payer', an exemption certificate is only required in case, where section 151 of the Ordinance is applicable and not otherwise.
17. The above legal contentions of the petitioners are legally very attractive and appealing, had the case of the petitioners only enumerated in clause-47B ibid. However, the facts of the present cases suggest otherwise. Admittedly, the income of the Trusts are also exempt from payment of income tax, as it falls within the provisions provided under sub-clause (3)(ii) of Clause 57, Part-I of the Second Schedule to the Ordinance. The said provision provides:- "Second Schedule Clause 57.
(1)
(2)
(3)Any income of the following funds and institutions, nantely;-
(i) A provident fund to which the Provident Funds Act, 1925 (XIX of 1925), applies;
(ii) Trustees on behalf of a recognized provident fund or an approved superannuation fund or an approved gratuity fund;
(iii) A benevolent fund or group insurance scheme approved by the Board for the purposes of this clause;
(iv) Service Fund;
(v) Employees Old Age Benefits Institution established under the Employees Old Age Benefit Act, 1976 (XIV of 1976);
(vi) any Unit, Station or Regimental Institute; and
(vii) any recognized Regimental Thrift and Savings Fund, the assets of which consist solely of deposits made by members and profits earned by investment thereof; (emphasis provided)
18. So, what we have are the Trusts, whose income are not only exempt from payment of income tax but the provisions of deduction of taxes at source are not applicable to their cases. Thus, in effect there is no apparent financial or fiscal implication to both parties; Trusts or the Revenue. The matter in hand only relates to the procedure for availing the benefits provided to the Trusts under the Ordinance. The petitioners insisting that there be no requirement of obtaining and then producing certificates to the payers to avail the non-deduction of income tax at the time of payment of profits on their investments. While the Revenue, is persistent in its stance that the said requirement is necessary to keep a check and balance upon the payer and the taxpayer availing the said benefit under the Ordinance.
19. To sum up, it is noted that section.151 read with sub-clause (2) of section 159 of the Ordinance, commands the 'payer', who while acting as withholding agent on behalf of the Revenue, to deduct taxes at source at the time of making payment to persons. In case, the contention of the petitioners is accepted by this Court, then in effect a complete immunity :would be given to all funds, who claim to be validly approved under the Ordinance. In this regard, it is noted that once the Commissioner grants such an approval/recognition certificate to a fund under the enabling provisions of-Schedule-VI of the Ordinance, then it can only be interfered with, as and when the same is revoked. This being .The position, allowing persons to seek immunity from the operation of section 151 ibid, on the basis of such a certificate, without its period of validity stated therein, would leave much room for its abuse. In this regard, the Sindh High Court has very correctly highlighted the rational for seeking the exemption certificate in Atlas Income Fund case (supra) wherein it was held that:-- "there appears to be a sound logic behind this procedural requirement as the person who want to seek benefit under clause 47B may be such person who is not entitled to benefit or in the past may have been so entitled but for some reason had lost his entitlement. "
20. It appears that, the legislature in its wisdom, in order to ensure that the exemption so granted to tax payer is not abused, has provided for the requirement to obtain and produce the exemption certificate to the payer by the person, who seeks to claim the benefits of the exemption from payment of income tax at source under section 151 read with subsection (2) of section 159 of the Ordinance.
21. It is for this reason that, while reviewing cases relating to fiscal matters, the provisions concerning the procedure or the tax recovery Mechanism provided in the Ordinance are to be strictly construed in favour of the Revenue and not the subject 'Tax Payers'. This principle has been eloquently described by the apex Court in Messrs Eli Lilly's case (2009 SCM R 1279), that:- "As put by the Privy Council in the case of Mahaliram Ramjidas (supra), and also reiterated by this Court in the cases of Khan Bahadur Amiruddin v. West Punjab Province (PLD 1956 FC 220) and Muhammad Amir Khan Y. Controller of Estate Duty (PLD 1961 SC 119), there is a distinction between provisions which impose taxes and those which provide for the machinery by which tax is assessed and realized. The provisions relates to imposition of tax are to be strictly construed, in favour of the subject so that if there by any substantial doubt, it has to be resolved in his favour But the machinery sections are to be liberally construed. If the incidence of tax be clear, the machinery sections should be so construed as to make the realization of the proper tax possible. They should not be so construed as to defect the intention of the legislature and to prevent the realization of the tax that is in fact due. "
22. In conclusion, this Court finds that the Trusts, though approved and falling within the purview of 47B of Part-IV of the Second Schedule to the Ordinance, also falls within the mischief of requiring to produce the exemption certificate to the withholding agent under section 151, to avail the exemption from payment of income tax on their profits under clause-57 (3) of Part-I of the Second Schedule of the Ordinance.
' Accordingly, for the reasons stated hereinabove, these petitions as prayed for cannot be allowed, and are thus, dismissed.