' AQEEL AHMED ABBASI, J.---Through instant reference application, the four reference cases have been sent by the Income Tax Appellate Tribunal in References Nos.693 to 696/KB of 2002 for the assessm ent years 1996-1997 to 1999-2000, wherein, following common questions have been referred, by the Appellate Tribunal, which according to learned counsel for the applicant, are question of law, arising from the combined impugned order, dated 12.7.2002 passed by the Appellate Tribunal, Karachi, in I.T.A. No,2401/KB/2001 to I.T.A. No,2104/KB/2001 for assessment year 1996-1997 to assessm ent year 1999-2000:-- "Whether in the facts and circumstances of the case, the Tribunal was justified to uphold the refusal by the Tax Department of the exemption of return on the bonds which were allowed exemption by their respective SRO's for which there was no specific clause of exemption in the Seconds Schedule to the Income Tax Ordinance, 1979?
2. Learned counsel for the applicant at the very outset submits that the question of law as proposed through instant reference application has already been decided by a Division Bench of this Court in the case of Habib Bank Ltd. v. Commissioner of Income Tax, Karachi, reported as 2009 PTD 443, wherein, it has been held that the exemption provided in terms of section 17(2)(a) of the Income Tax Ordinance, 1979, in respect of Government securities, including WAPDA bonds, is entitled to exemption from levy of income tax irrespective of the fact that such exemption would not have been incorporated or provided in the II-Schedule to the Income Tax Ordinance, 1979.
Learned counsel for the applicant has read out the impugned order as well as the orders passed by the authorities below, and has also referred to the relevant findings of the Division Bench of this Court in the above referred case and submits that the question proposed through instant reference application may be answered in Negative in favour of the applicant and against the respondent.
3. Mr. Jawaid Farooqui, learned counsel for respondents, -after having examined the contention of the learned counsel for the applicant in view of the judgment of a Division Bench of this Court, as referred to herein above, does not controvert such position and submits that question proposed through instant reference application is covered by the above cited judgment of this Court, hence the same may be disposed of accordingly.
4. It will be advantageous to reproduce the relevant finding of Division Bench of this Court, as contained in paragraphs 26 to 35 of the Judgment, which reads as follows:-- "26. Coming to question No,2 from a perusal of the extract on the finding of the Tribunal on this question it is clear that although the Tribunal has referred to section 17(2) (a) of the Income Tax Ordinance, 1979 clauses 79-A and 79-B of Part-1 of the Second Schedule to the Income Tax Ordinance, 1979 and SRO No,745(l)/89 dated 11th June 1989 but they have failed to analyze the cumulative effect of examination of all these provisions in juxtaposition.
27. For the sake .Of convenience the relevant section 17(2) (a) Clauses (79-A) and (79-B) and the relevant extracts from SRO 745 are reproduced below:- ' Section 17(2) (a)
' Interest on securities:
(2) Notwithstanding anything contained in subsection (1)
(a) Where any security of the Federal Government or a Provincial Government is issued with the condition that the interest thereon shall not be liable to tax the interest receivable on such security shall be exempt from tax in accordance with such condition.
(79-A) Any income derived by any person, not being a bank a banking company, a financial institution, a development financing institution or a company engaged in the business of insurance, by way of return on bearer bonds issued by the Pakistan Water and Power Development Authority established under the Pakistan Water and Power Development Authority Act, 1958 (West Pakistan Act No,XXXI of 1958).
(79-B) Any income derived by any person, being an individual, by way of return on bearer or registered bonds (Second Issue, 1989) issued by the Pakistan Water and Power Development Authority, established under the Pakistan Water and Power Authority Act, 1958 (West Pakistan Act No,XXX1 of 1958).
' WAPDA BONDS (SECOND ISSUE) REGULATIONS, 1989 ' S.R.O. 745(1)/89, dated 11th July 1989. The Federal Government is pleased to make the following regulations, namely:--
(1) These Regulations shall apply to all bonds issued by the Pakistan Water and Power Development Authority as from the date specified in regulation.
(2) The Bonds shall carry a minimum return of 13.5 per cent per annum, payable half-yearly from the date of issue. In case the return on capital employed by WAPDA exceeds 13.5 per cent in any year, WAPDA shall also pay the same to the holders of the bonds. The return shall cease to accrue after the date of maturity. The return on WAPDA Bonds held by individuals and bodies corporate shall be exempt from income tax. The return on bonds purchased by Development Finance Institutions and Insurance Companies shall, however, be subject to Income tax.
28. From a perusal of the SRO it is seen that the Federal Government had issued the WAPDA bonds subject to the condition that the return on such WAPDA bonds (second issue) held by individuals and bodies corporate should be exempt from income tax on 11th June 1979. Government security has been defined under the public Debt. Act 1944 as under:-- "Government Security" means:
(a) A security, created and issued, whether before or after the commencement of this Act, by the Government for the purpose of raising a public loan, and having one of the following forms, namely:--
(i) Stock transferable by registration in the books of the Bank; or
(ii) a promissory note payable to order; or
(iii) a bearer bond payable to bearer; or
(iv) a form prescribed in this behalf; or notified by Government from time to time.
29. When we examine the nature of WAPDA bonds (second issue) issued under the above S.R.O. In the light of the definition of Government security it is clear that WAPDA bonds (second issue) are Government securities.
30. After reaching this conclusion when we examine section 17(2) (a) we see that it has specifically been provided in this section that where any, security of the Federal Government is issued with the condition that the interest thereon shall not be liable to tax, the interest receivable on such security shall be exempt from tax in accordance with such condition. So when paragraph-6 of S.R.O. 745 is read together with section I7(2)(a) of the Income Tax Ordinance, 1979 the only conclusion which can be drawn is that as far as interest on WAPDA Bonds (second issue) invested by individuals and bodies corporate is concerned it is intention of the legislature and the Federal Government that return on such investment is exempted from payment of tax.
31. Now coming to the reason given by the Tribunal in its finding on this question for non- availability of this exemption that is that if exemption was already available to these returns under section 17(2) (a) there was no need to insert clauses (79-A) and (79-B) of Part-I of the Second Schedule and they cannot be deemed to have been inserted without any purpose in case the income/bonds was already exempt under section 17(2)(a).
32. What the Tribunal has failed to note is that clauses (79-A) and (79-B) have been inserted in the second schedule on 4th October, 1987 and (79-B) on 6th June, 1989, whereas S.R.O. In question was issued on 11th July, 1989. Perhaps when the above clauses were inserted in the second schedule the decision of the Federal Government to provide any exemption in the S.R.O. May not have been finalized and therefore exemption was provided under the second schedule but when the S.R.O. Was issued the decision must have been taken to provide exemption to corporate bodies also and therefore, the exemption was provided under para. 6 of this S.R.O.
33. The learned Tribunal has also recorded the arguments of the representative of the present respondent that the S.R.O. Could not possibly have overriding effect over the specific and unambiguous wording of the Statute.
34. The Tribunal has again failed to visualize that it was not a question of S.R.O. Having overriding effect over the statute but the question was whether a statute in the main Act overrides the schedule or not and it is a settled law that if there is a conflict between the principal statute and a schedule the principal statute will prevail and in this case in our considered opinion the provisions of section 1 7(2)(a) of the Income Tax Ordinance will prevail over the provision of Sections 79-A and 79-B of the second schedule if there is any conflict between two statutes without prejudice to our opinion that there is no conflict between these statutes and S.R.O. 745 being later in time has enlarged the scope of exemption in accordance with law the provisions of section 17(2)(a).
35. We are therefore of the considered opinion that the Tribunal was not justified in denying exemption to the applicant on interest earned on the WAPDA bonds (second issue). On the basis of this opinion we will answer the proposed question No,2 in negative in favour of the applicant and against the respondent."
5. From perusal of herein above findings of the Divisional Bench of this Court, it is clear that the question proposed through instant reference application has already been decided in favour of the applicant and against the respondent. We may further observe that though the controversy in the cited judgment was agitated in respect of (2nd Issue) of WAPDA Bonds, whereas, in the instant case the exemption is claimed in respect of (3rd Issue) of WAPDA Bonds, however, the ratio of the A above decision is fully applicable to the facts of instant case. Accordingly, instant reference application is allowed and the question proposed is answered in Negative, in favour of the applicant and against the respondent department.
' Let copy of this Order be sent to the Registrar, Income Tax Appellate Tribunal, Karachi.