SHAHID MASOOD MANZAR, JUDICIAL MEMBER.-- The above-titled appeals have been filed by both the taxpayer against combined order Nos, 1300 to 1305/2016, dated 02.06.2016 passed by the Commissioner Inland Revenue (Appeals-H), Islamabad for tax years 2010 to 2015 on the following common grounds:-- Common Grounds of Appeal of Taxpayer for Tax Years 2010 to 2015
1. The appellate order dated June 2, 2016 issued by the learned Commissioner Inland Revenue (Appeals-11) [Commissioner (Appeals)], Islamabad is bad in law and in the circumstances of the case and thereby illegal, null and void.
2. The learned Commissioner (Appeals) has erred in upholding the order issued by the learned Additional Commissioner Inland Revenue, Zone-Ill, Regional Tax Office, Islamabad (Additional Commissioner) under sub-section (5A) of Section 122 of the income Tax Ordinance, 2001 which is without jurisdiction and thereby illegal. null and void.
3. The learned Commissioner (Appeals) has erred in passing the order without considering the fact that the order issued by the learned Additional Commissioner is without delegation of authority under Section 122(6) of the Income Tax Ordinance, 2001 and thereby illegal, null and void.
4. The learned Commissioner (Appeals) has erred in passing the order without considering the fact that the order issued by the learned Additional Commissioner under sub-section (5A) of Section 122 of the Income Tax Ordinance, 2001 is on issues which fall outside the ambit of sub- section (5A) of Section 122 of the Ordinance.
5. Without prejudice to above grounds of appeal, 5.1 The learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner without considering the fact that the Legislature vide Section 45 of the Pakistan Telecommunication (Re-organization) Act, 1996 (1996 Act), established the Appellant Trust as a separate entity for Pakistan Telecommunication Employees' Pension Fund.
5.2 The learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner without considering the fact that approvals and exemptions, including approval accorded under Part II of Sixth Schedule to the income Tax Ordinance, 1979, allowed to Pakistan Telecommunication Corporation Employees' Pension Fund continue to apply to Appellant Trust.
5.3 Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner that legislated steps to protect civil servants rights, require approval/certification by the Commissioner of Inland Revenue.
5.4 Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in not considering the fact that if the Appellant Trust is considered a separate entity from Pakistan Telecommunication Corporation Employees' Pension Fund (PF), the incomes, assets and liabilities vested in the Appellant Trust are of the PF and thereby not taxable in the hands of the Appellant Trust.
5.5 The learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner in deviating from Departmental past practice since inception without any cogent reason.
6. Without prejudice to above grounds of, appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner in subjecting to tax certain income of the Appellant Trust without considering the provisions of Sections 15, 18, 20, 22, 23, 39 and 40 of the Income Tax Ordinance, 2001.
8. Without prejudice to above, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner without considering the fact that the Appellant Trust is entitled to exemption as a Welfare Trust in accordance with the Income Tax Ordinance, 2001 and cannot be penalized for alleged procedural lapse.
TAX YEAR 2010 to 2014---OTHER GROUND
7. Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner of rejecting exemption available to Appellant Trust under clause (58) or (59) of Part I of Second Schedule to the Income Tax Ordinance, 2001.
TAX YEAR 2010 to 2012---OTHER GROUND 5.6 Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner in taxing, in hand of the Appellant Trust, income without allowing for pension paid to "Telecommunication employees" and related disbursement expenditure incurred during the year.
TAX YEARS 2013, 2014---OTHER GROUND
9. The learned Commissioner (Appeals) has erred in not considering the fact that the Additional Commissioner has erred in short allowing credit for taxes paid/suffered at source.
TAX YEAR 2015---OTHER GROUND 5.6 Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner in subjecting to tax national gain from revaluation of the investment properties.
TAX YEAR 2014--- OTHER GROUND
7. Without prejudice to above grounds of appeal, the learned Commissioner (Appeals) has erred in upholding the decision of the Additional Commissioner of rejecting exemption available to Appellant Trust under Section 100C of the Income Tax Ordinance, 2001.
2. Brief facts of the case as gathered from the record is that the taxpayer is a Trust established through Pakistan Telecommunication (Reorganization) Act, 1996 (1996 Act). Sections 44 to 53 of the 1996 Act are relevant to the Appellant taxpayer trust and the pension fund established in 1994.
Through Section 52.of the 1996 Act, the Legislature has deemed the 1996 Act as the "trust deed" for the Trust, while the Author of the Trust is Federal Government and Pakistan Telecommunication Company Limited (PTCL) and beneficiaries are the "telecommunication employees" as defined in Section 2(t) of the 1996 Act (i,e, employees of Pakistan Telecommunication Corporation (Corporation) who were transferred to the employment of PTCL under the 1996 Act, other than transferred to PTA, NTC, Trust or Federal Government under Section 36(3) of 1996 Act and all persons who on the effective date were employees of the Corporation, the former T&T Department of Federal Government and were receiving or entitled to receive pensionary benefits from the Corporation. The taxpayer has been filing its tax returns since inception, including tax years 2010 to 2015 claiming exemption by contending that it is an approved pension fund under Sixth Schedule to the Income Tax Ordinance, 2001. For tax year 2011, the Appellant was selected for audit by the FBR u/s.214C, however, the proceedings were dropped vide order dated 31.5.2014 by accepting the above contention of exemption under Sixth Schedule. Later on the Additional Commissioner observed that the CIR had rejected Trusts request for issuance of exemption certificate for tax year 2016 by holding that the Trust was a separate entity from the Pension Fund which had been recognized by the CIR in 1994 and thus the deemed assessments u/s. 120 of the Income Tax Ordinance, 2001 were erroneous as well as prejudicial to the interest of revenue. The taxpayer was confronted u/s. 122(9) of the Income Tax Ordinance, 2001 and thereafter deemed assessments u/s. 120 were amended u/s. 122(5A) of the Income Tax Ordinance, 2001 subjecting to tax the incomes on account of interest, rent and receipt of pension contributions made by PTCL.
3. Being aggrieved, the taxpayer unsuccessfully contested the amended assessments before Commissioner (Appeals-II), Islamabad and thus the instant appeals have been filed. The Appellant taxpayer after availing 180 days stay from this Tribunal, approached the Honourable Islamabad High Court and the Honourable Court in Writ Petitions 4609 to 4615/2016 whilst granting stay against coercive measures in the instant tax years directed this Tribunal to decide the matter within a period of 45 days. In response to call notice, Mr. Aazar Hameed appeared on behalf of the taxpayer and Mr. Faisal Mushtaq Dar, ADCIR DR represented the Department. Both sides have been heard in detail and the matters raised are decided in the manner below.
4. The learned AR contended that the appellate order dated 02.06.2016 passed by the learned Commissioner (Appeals) is not in accordance with law and in the circumstances and facts of the case. He further contended that Additional Commissioner had no jurisdiction to amend the order deemed to be passed by the Commissioner u/s. 120 of the Income Tax Ordinance, 2001 and that the Commissioner (Appeals) should have annulled the order passed by the Additional Commissioner. The learned DR vehemently opposed the arguments of the AR and contended that the learned Commissioner (Appeals) had rightly upheld the jurisdiction of the Additional Commissioner.
5. This Tribunal in numerous cases has already upheld invocation of jurisdiction by the Additional Commissioner and rejected the AR's contention that CIR has to specify the cases of taxpayers and related tax years in the delegation order. Further, this Tribunal has also held that 'since delegation of authority under Section 122(5A) has been made by the CIR, no further delegation of Section 122(6) is required by the CIR. Accordingly, this challenge of the taxpayer on this score is devoid of merit and rejected.
6. Having rejected the jurisdictional challenge, on merits the AR has explained that Pakistan Telecommunication Corporation was created by PTC Act, 1991 and thereafter a Pension Fund was created by the Corporation vide Trust deed dated 02.04.1994 under the title Pakistan Telecommunication Corporation Employees Pension Fund (PTCEPF) for the benefit of "telecommunication employees" (i,e, its employees transferred from T&T Department and employees of Corporation). PTCEPF was accorded approval for the purposes of Part II of Sixth Schedule to the Income Tax Ordinance, 1979 by the Commissioner of Income Tax/Wealth Tax, Islamabad Zone, Islamabad vide order No CIT-16(10)/93-94/J.Br/91, dated July 11, 1994 and no proceedings for cancellation thereof have todate taken place.
7. The AR then took us through various provisions of Pakistan Telecommunication (Re-organization)
Act, 1996 (1996 Act), through which the Appellant taxpayer was created i,e, Section 44 of 1996 Act and Section 45 of said Act though which Appellant taxpayer was vested with the assets and liabilities of PTCEPF. He has also produced SRO 116(1)/96 published in the Gazette of Pakistan on 11.02.1996 through which the Federal Government had vested the assets and liabilities of the PTCEPF in Appellant taxpayer. The AR also pointed out that the functions of Appellant taxpayer have been defined in Section 46 of the 1996 Act, which are limited to assumption of liability of the PTCEPF, obtaining moneys from PTCL/Government for making pension payments. Lastly, he vehemently relied on Section 53(2) of the 1996 Act and contended that the law envisaged that PTCEPF which would be wound up only after all the beneficiaries had ceased. The said section is reproduced below, as it is pivotal to understanding of the case.
"53. Winding-up of the Trust.---(1) The Trust shall be wound up by the Federal Government on the recommendation of the Board of Trustees and the certification by the Actuary that no pension is required to be made from the Pension Fund.
(2) The balance of the Pension Fund shall, on the winding up of the Trust, be paid to the Federal Government and the Company pro-rata of the assets of the Pakistan Telecommunication Corporation Employees Fund and contribution made from time to time by the Company."
The crux of the AR's argument by referring to sections supra was to contend that PTCEPF is still in existence, contrary to the findings of the CIR and Additional Commissioner, and that the Appellant taxpayer was vested with the assets and liabilities of the PTCEPF in order the manage the affairs. He stated that vesting of assets and liabilities does not tantamount to transfer of the same but was only a managerial/ministerial role. He relied on the judgment of the Honourable Supreme Court of Pakistan reported at 1987 SCMR 1197, where the Honourable apex Court held that vesting of assets does not manifest the change of title in assets and instead vesting order was a mere taking over the management of the institution and not to confiscate the property. The relevant extracts of head notes are reproduced below:-- "Merely because the privately managed schools, alongwith their assets were to vest in the Government, under the terms of para. 5 of M.L.R. 118 it did not imply that Government had become the owner in relation to the buildings wherein the schools or colleges were being own. The intention of M.L.R. 118 manifestly was only to take over the Management of the institutions . and not to confiscate the property in which the privately managed school was being run.
In fact, this intention becomes further clear from the subsequent legislation enacted on the subject of "Privately Managed Schools and Colleges (Taking Over) Regulations. 1972". In this connection, President's Order 6 of 1983 on the subject of "Privately Managed Schools and Colleges (Taking Over) (Amendment) Order, 1983, is revealing. [p. 1205] B The provisions of paragraph 5 of Martial Law Regulation No, 118 were neither intended to nor in terms have the effect of making the Government the owner of the property in question. [p. 1206] D According to para. 12-A, a Provincial Government is authorized to re-transfer any class of privately managed colleges and schools back to the previous management thereof. Implying thereby that it was only the management and not the building in which the said school or college was housed that was taken over. [p. 1205] C"
The AR contended that the judgment was on all four, to the instant case as the vesting order was to be read with the sections listed supra of the 1996 Act and Section 53(2) expressly stated that the balance of PTCEPF would be distributed to the authors only after there was no beneficiary left to receive the pension.
8. The AR contended that Appellant taxpayer was allowed exemption on interest income of the PTCEPF since inception and this was revalidated by the CIRs each year after due verification of all the related facts uptill June 30, 2014. He produced 17 different exemption certificates ranging from that issued on 06.06.1999 to 17.04.2014 by different officers in favour of PTCEPF and citing clause 57(3)(ii) of Part I of the Second Schedule to the Income Tax Ordinance, 2001 which relates to income of approved superannuation/pension funds. He also pointed out that there was no break in the issuance of the certificates. He pointed out for period July 1, 2014 to December 31, 2014, the CIR refused the exemption certificate, however the same was contested before Chairman FBR and the proceedings have been remanded back to CIR vide letter C. No, 1(29)R&A/2015-138678-R, dated 08.10.2015 and its fate has not been decided.
9. The AR relied on the Honourable Sindh High Court judgment PLD 2014 Sindh 1 where the Honourable High Court has held that once exemption becomes applicable, no rule or principle requires it to be construed strictly and against the subject and instead a wider and liberal construction is favored. He contended that since the CIRs had granted exemption to the taxpayer on income based on the express provisions of clause (57) supra, the Additional Commissioner could not deviate from the said position since he was acting only under the delegated authority of the CIR and could not take a divergent view from the CIR for the tax periods 2010 to 2015.
10. The AR also relied on the Tribunal's judgment in the Appellant taxpayers own case reported at 2003 PTD (Trib.) 2625 relevant to when the Department attempted to levy minimum tax under Section 80D of the Income Tax Ordinance, 1979 for assessment years 1997-98 to 19992000 has held that:-- "14. The respondent has established the Pakistan Telecommunication Employees Trust which is managed by a Board of Trustees consisting of three trustees appointed by the Federal Government and three by the Pakistan Telecommunications Corporation. The purpose of the establishment of the trust is the maintenance of pension fund, the pension consists of amounts received from the PTCL employees pension fund, contributions by PTCL, donation and investments and the profits, gains and other returns accrued on such investments. Function and powers of the trust have been enumerated above. The legal status and the scheme given in the accounts for the year under consideration shows that the trust is established to provide the following benefits of the employees of PTCL:--
1. Gratuity
2. Superannuation
3. Retirement
4. Family and invalid pension
5. Commutation The purposes for which the fund has been established and the benefits that are covered by the scheme as well as the investments made as per Pakistan Telecommunication Employees Trust (Investment) Rules, 1997 shows that the company is not involved in any business activity."
11. The learned DR on the other hand has vehemently defended the action of the Additional Commissioner (Appeals) and reiterated that the arguments taken in assessment order that the Appellant taxpayer is a new and separate entity from PTCEPF with separate board of trustees, that PTCEPF had ceased to exist with the vesting of assets. He contended that exemption provisions of the Income Tax Ordinance, 2001 had to be strictly interpreted and the principles of res judicata or promissory estoppel was not applicable to tax matters. He filed a list of judgments of the various appellate fora in support to this. It is also pertinent to note that the learned DR had admitted that no proceedings for withdrawal of PTCEPF were ever initiated but contended that it was never required to be done as the PTCEPF had ceased after vesting order.
12. We have considered the arguments of both sides and before proceedings to decide the matter, reproduce below the provisions of clause (57) of Part I of Second Schedule:-- "(57) (3) Any income of the following funds and institution, namely:--
(ii) trustees on behalf of a recognized provident fund or an approved superannuation fund or an approved gratuity fund"
In terms of Section 2(4) of the Income Tax Ordinance, 2001 an approval superannuation fund means a fund or part thereof which has been approved by the CIR under Part II of Second Schedule of the said Ordinance,--whereas, in terms of Section 239(10) of the Income Tax Ordinance, 2001, the approval granted by the CIR to PTCEPF under the 1979 Ordinance is to continue unless revoked, cancelled or repealed by the Income Tax Ordinance, 2001. It is also to be noted that clause (57) supra grants exemption of income in the hands of the trustees, which in view of the vesting order, in the instant case, is the Appellant Trust for the PTCEPF. This position is fortified by the judgment of Honourable apex Court reported at 1987 SCMR 1197 supra and a binding precedent in view of Article 189 of the 1973 Constitution of Pakistan. Further, this is also reflected by the various CIRs who for over 14 years consistently granted exemption certificates and Department continues to treat the income exempt under said clause (57)(3)(ii) applicable to the approved pension fund.
13. We have also noted that he Honourable Sindh High Court judgment supra is also applicable to the instant case as the Appellant Trust have been allowed repeated exemption based on similar facts and the impugned assessm ents have been framed based on CIR's change of opinion. In view of above discussion, we allow the appeals and hold that the Appellant Trust is exempt from tax under' Clause (57)(3)(ii) of the Part I of Second Schedule to the Income Tax Ordinance, 2001 on income of assets vested therein and contributions received from PTCL for the PTCEPF.
14. As a result, the above appeals stand disposed of in the manner and to the extent as indicated above.